Will Ryanair Continue to Struggle or Makeover its Strategy?

2013 has not been one of the easiest years for Ryanair due to financial warnings, fines for breaking French labour laws, customer pressure for a new and improved service and an urgent need for an improved brand image.

How quickly Ryanair changes its strategies in light of new business conditions (ie increased competition and fuel costs, currency fluctuations and a challenging European market) will determine how successful it will be in remaining the leading low-cost airline in Europe.

Revamping customer service, tapping into social media, upgrading its corporate website and diversifying its distribution all represent a very smart, albeit rather delayed, move by the airline in what is a very competitive and challenging business environment. If implemented swiftly, these changes could start to pay dividends and attract a more varied customer base, including business travellers.

What Went Wrong?

A series of profit warnings have been released by Ryanair in 2013. It all began in September when the Irish company warned investors that the target for the end of its financial year in March 2014 would probably not be met. This was soon followed by another revision of the forecast in November. Concerns stemmed from the fact that the airline is downgrading its full-year profit expectations for the financial year from €570 million to somewhere between €500- 520 million, driven by intensified price competition from both budget rivals as well as schedule operators, in addition to a weaker British pound and lower demand, leading to a fall in passenger bookings and a 2% decline in fares.

The announcements caused tremors in the industry, with speculation about what is really behind these disappointing financial expectations. The financial slowdown of an operator such as Ryanair is raising questions as to whether the airline is indeed losing its attractiveness among passengers and if overcapacity has been too rushed, thus weakening its competitive advantage.

Another hindrance for the Irish player was a ruling from the French authorities in October 2013 which led to the airline being fined €9 million for breaching labour laws in the country by employing French staff using Irish labour contracts on one of its bases. The announcement further increases financial costs for the carrier and undermines its reputation as a brand and employer.

Ryanair’s main distribution tool, its own website, along with its dubious customer service, has also been a focus of attention, being regarded by many as the company’s Achilles heel, having faced continuous heavy criticism over a number of years.

The U-Turn Nobody Expected

Change is, however, imminent at Ryanair. Following customer complaints the company has taken the decision to improve its website through a major overhaul, thus making it much easier to navigate and ultimately make a booking.

Changes are also afoot with regard to its distribution strategy. The airline is specifically contemplating working with online travel agents, which it hopes will allow it to better tap into the business category.

The no-frills airline is also bringing back allocated seating, a move which it is hoped will diversify its customer base and attract more passengers, but at the same time mimicking what its rival easyJet has already been doing for almost a year.

As shocking as it may sound, Ryanair appears to be ready to experiment and perhaps curb its business model. This is an approach which does not necessarily go hand in hand with the obnoxious business style of its CEO, Michael O’Leary, who favours constant involvement of the airline in negative publicity. And yet, threatened by a rather slow next 12 months, the airline is altering its approach in an effort to still reach its target of 110 million passengers a year by 2018.

The Tale of Two Ends…

Nonetheless, the strength of Ryanair is not to be undervalued. The carrier still remains the leading budget airline in Europe and has one of the lowest costs per passenger in the region compared to players such as easyJet. It is also one of the best in the market at absorbing cost increases but at the same time being able to implement aggressive price wars.

The flexibility with which it is able to ground fleet and achieve deseasonalisation further helps to save costs when not achieving high yields and at the same time offer a better pricing structure.

Importantly, however, a market leader must continuously innovate, improve service and court passengers in an effort to retain its leadership. Failure to do so threatens its brand and ultimately its financial stability. Inability to recognise this could become a very costly and irreversible mistake.