LOW COST Airlines - Ready for Takeoff in India

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Authors: Sanjib Dutta
Senior Faculty Member
ICMR (IBS Center for Management Research).

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Ryanair

Ryanair followed a strategy of cost focus. The airline served a class of flyers who looked for functional and efficient service rather than luxury. It did not aim to satisfy all segments of the market. The airline's operational policies supported its strategy of cost focus. The operational model of the airline included the following components:

Ryanair flew a fleet comprising entirely of Boeing 737s. This focus on standardization was a key feature in keeping the costs of the airline low, thus allowing it to offer low fares. Flying a standard fleet had the advantage of simplifying the maintenance function of the planes. The airline did not have to stock spares for different types of planes. As spares and other aircraft parts could be purchased in bulk, it resulted in economies of scale. It also reduced training requirements for the pilots and the cabin crew, as they had to only learn to operate a single type of plane. This ensured interchangeability of crews, spares and furnishings between planes which made operations easier. Ryanair used secondary airports. This was one of the important elements in keeping costs low.

Using airports located outside city centers (many of them were former military airfields) saved time and money for the airline, as secondary airports had relatively lower landing charges. Besides, due to lower traffic, there were no delays, allowing the planes to turnaround (turnaround is the time required for a plane after landing, to be ready for its next flight) in a very short time. In exchange for bringing in passengers to airports which normally witnessed little or no traffic, Ryanair negotiated 15-20-year deals on landing fees and other agreements to the advantage of the airline. In these airports, Ryanair negotiated airport fees of as little as $1.50 per passenger (much lower than the average rate of $15 to $22 per passenger charged by Europe's major hubs).

The turnaround time for Ryanair planes was approximately 25 minutes (the major carriers took about an hour). Most low-cost airlines based on the Southwest model emphasized faster turnaround times to allow a plane to fly more times a day rather than spending time on the ground. This increased the efficiency of the asset. By taking about half the time of the larger airlines like British Airways (BA) or Lufthansa, Ryanair's planes made an average of nine trips per day as against the average six of larger airlines. This made Ryanair's planes more productive than the planes of the major carriers.

Ryanair used fewer employees per plane than other airlines. This increased the productivity per employee for the airline and also helped keep the wage bill low. Consequently, Ryanair's revenue per employee was approximately 40 percent higher than that of other airlines. The simple service model also allowed Ryanair to have only two flight attendants per flight, compared to the five attendants that major carriers required.

Ryanair sweated its assets. The airline flew its planes for an average 11 hours per day as against the 7 hours of BA. The pilots at Ryanair also clocked in 900 hours a year, which was 50 percent more than the pilots at BA. The airline did not keep many planes on standby to meet unforeseen contingencies. All the assets were put to work, unlike BA which usually kept about ten planes at any given time on standby.

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