How does Ryanair use its supply chain to keep cost down and how does this emphasis on cost control affect its relationship with the end customer?

Topics: Low-cost carrier, Marketing, Ryanair Pages: 8 (2453 words) Published: March 29, 2014

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Module Name: Operations Management
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Deadline: 6 February 2012
How does Ryanair use its supply chain to keep cost down and how does this emphasis on cost control affect its relationship with the end customer?

Introduction

In the 1980’s the first low cost carriers started expanding their operations into mainland Europe. Previously the concept of flying from London to Barcelona on a regular basis would have been very costly and timely on the incumbent scheduled carriers. The emergence of new low cost carriers transformed these and other routes. The airline industry and the legacy carriers soon realised that competition for custom had been taken to a new level.

Ryanair started flying in 1985 with a single fifteen seater aircraft flying from Ireland to London, by March 2010 the company had recorded revenues of $4223.4 million and operating profits of $568.3 million (Datamonitor 2010). Ryanair had proved that low cost carriers can post creditable financial data.

The sustainability of the Ryanair product can be accredited to many factors which include; labour productivity, use of secondary airports, a policy of outsourcing, robust route networks and a strong emphasis on cost control.

This paper will look at the Ryanair supply chain and how it is utilized to drive down cost and therefore price for its end consumers. Debate continues about the strategies Ryanair uses to keep expenditures down whilst servicing its 73 million customers (Ryanair.com 2012) this paper will also look at these apparent tensions.

How is the ‘marketing promise’ operationalised into the working of Ryanair’s service delivery system? A considerable amount of literature has been published on the way Ryanair has chosen to market its business. They have chosen a marketing standpoint which is rarely copied in the airline industry. Whilst this cannot be linked to directly to its handling of the supply chain it operates in, it does help to provide a context and an indication of how they like to operate. The CEO of Ryanair was quoted as saying “the core of our marketing strategy is to spend as little money as possible on advertising” (Datar R 2003). Michael O’Leary the CEO of Ryanair is very visible and often voices his opinion on matters which he believes impact the profitability of the company. His opinions can be controversial and he often uses a tactic of issuing law suits if he feels strongly about an issue. These suits have been taken against other airlines, airports and even government institutions. This helps Michael O’Leary to frame Ryanair as the upstart still fighting against the indigenous institutions. The marketing collateral released to the press reinforces this ideal. See below for three recent examples:

(Brandchannel.com 2001)

(Copyranter.com 2010)

(Thedrum.co.uk 2010)
Ryanair uses advertising to aggressively challenge other carriers and to reinforce their own low cost promise. The marketing literature appears to be focused upon transaction marketing for new customers rather than any relationship marketing. This is reinforced by the lack of any loyalty or frequent flyer program.

The culture of keeping costs to a minimum pervades through Ryanair and the marketing of the brand reinforces this. The service delivery system which includes the facilities, processes and skills needed to provide the service (Stevenson p146) also follows this ideal. Many product features of conventional airlines have been unbundled out of the Ryanair product. Products such as seat allocation, food and drink service have been removed. The use of point to point routes is also less expensive to provide than interline hubs (Barrett p95).

According to Slack (2007) “A major airline can be viewed as one large planning problem which is usually approached as many independent, smaller (but still difficult) planning problems”. Ryanair have taken all of the processes which...

References: www.heraldscotland.com (2009) Ryanair pulls out of Manchester in row over charges http://www.heraldscotland.com/ryanair-pulls-out-of-manchester-in-row-over-charges-1.916844. (Accessed December 15 2011)
Hoffer Gittell, J & Bamber, G.J
McCormack, T (2010) Understanding costs using the value chain – A Ryanair Example. Accountancy Ireland Vol 42 No 5 p28-30
Meredith, J.R
Ryanair Holding PLC (2011) Company Profile information published by Datamonitor London
Slack, N., Chambers, S
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