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[BUS35]

UNIVERSITY OF BOLTON

BOLTON BUSINESS SCHOOL

BA (HONS) ACCOUNTANCY PATHWAY BYDISTANCE LEARNING

MOSCOW INTAKE 1 & 2

SEMESTER 1 EXAMINATIONS 2007/2008

CORPORATE STRATEGY

MODULE NO: ACC3005DL

Date: 11/02/2008 Time: 3Hours

INSTRUCTIONS TO CANDIDATES: There are FOUR questions on thispaper.

Answer ALL questions.

Note:1. This is an open bookexamination. During the

examination you are allowed touse your own notes (not textbooksor module handbook).2. A fresh copy of the Case Studyis attached to the examinationpaper.

Candidates are advised that the examiners attach importance to legibility ofwriting and clarity of expression.



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Bolton Business SchoolBA (Hons) Accountancy Pathway by Distance LearningSemester 1Examination 2007/2008Corporate StrategyModule No. ACC3005DL

Being the oldest low-cost carrier in Europe, Ryanair had some advantages over itscompetitors. For one thing, it had the advantage of experience, and secondly, itsbrand enjoyed good recognition. However, after the deregulation of air travel inEurope in the early 1990s, a number of start up airlines emerged in the low-costmarket. There initial success was also boosted by encouraging economic conditionsin the European Union at that time. And of course in those days there was littleconcern about the environmental damage being caused by emissions from thegrowing number of flights across the continent.

Notable among the competitors was EasyJet, the discount airline set up in 1995 by

Greek shipping magnate, Stelios Haji-Iaonnou. EasyJet was based in London’sLuton airport and competed on some of the same routes as Ryanair. AlthoughRyanair and EasyJet both operated in the low-cost segment and had similaroperational models, there were some inherent differences between the two airlines.Firstly, Ryanair made a major portion of its profits by flying to secondary airportswhich were a long distance away from the main cities.

By the late 1990s, Ryanair was the biggest low-cost airline in Europe. However, in2002 rival EasyJet bought Go, the low-cost subsidiary of British Airways (BA), to gaina larger market and a bigger combined fleet. This pushed Ryanair into second place.However, Ryanair has again regained the top position with 33.4 million passengersin 2005 making them Europe’s 5th largest airline and 14th in the world. Their primary

income, their fares, are priced as single segment one way trips. If you wish tochange planes in a hub then you must book the two segments separately, and thereis no transfer of baggage. You can book a return at the same time as the outboundbut you get no discount for doing so. Ryanair charges a credit card fee of 2,50 Europer person and segment, and if you miss a second flight due to a delay in the earlierRyanair flight, you will not get a refund for the missed flight and will be forced to buya new ticket.

Ryanair’s operations were originally based on the operational model of the mostsuccessful US airlines discounter the Dallas-based Southwest airlines. The Irishcompany adopted most of the operational policies which made Southwest Airlines sosuccessful. Along with an operational model to support its strategy of cost focus, theairline also made use of extensive – sometimes brash publicity, to make its brandmore popular.

By early 2003, the low-cost airlines segment in Europe showed signs ofconsolidation. Ryanair and EasyJet had emerged as the major players in the market.Now the two airlines were positioned against each other.

PLEASE TURN THE PAGE…



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Bolton Business SchoolBA (Hons) Accountancy Pathway by Distance LearningSemester 1Examination 2007/2008Corporate StrategyModule No. ACC3005DL Most discount airlines in Europe sell their tickets exclusively over their website or thephone, and tickets are not available via travel agents. Most are ticketless; you simplyturn up at the check-in desk with your passport and confirmation number. A credit ordebit card is mandatory for booking tickets.

The pricing structure is complex, with fares fluctuating strongly according to demand,often on an hourly basis, and there are no hard rules for obtaining the cheapestfares. In fact, fares can vary from as little as £1 or £2 on special promotions, right upto £500 – such as a London-Geneva return flight, during the Feb half-term weekend.

Many discount airlines such as Ryanair try to lower airport fees, so they often use

smaller airports, sometimes quite far away from the city they state they fly to. Forexample Paris Beauvais Airport is some 90 km from Paris, the bus costs about €13one-way and it takes about 1h15 to get to Paris (TAXI would be €130-150 one-way).Following competition from discount airlines, main carriers such as BA have also cuttheir fares on competing routes, and are often only about 20% more expensive thandiscount airlines, a price worth paying if the journey to the airport is cheaper andfaster. Sometimes they can even be cheaper than discount airlines, especially duringpublic holidays.

Many discount airliners are “point-to-point” airlines, and do not sell connecting ticketsif you need to take two planes to reach your destination. This means you might needto collect your luggage and check it in again for the next leg of the journey.

Ryanair has recently been criticised for its introduction of charges for baggage of4.50 Euro per bag, up to 15kg before excess charges apply. This in contrast to mostEuropean airlines which allow 1 free checked bag up to 20kg. It has endured badpress due to treatment of staff and customers and also for charges levied on the useof wheelchairs by disabled passengers. Such publicity would seem to halt theairline’s progress but in spite of this the company seems to move from strength tostrength. This is perhaps that every aspect of negative publicity is counteracted bymore positive promotion. For example, taking a look back at marketing performancein 2002 gives an insight into their prowess in the marketing arena. At that time

Ryanair was among the brands whose commitment to marketing was recognisedwhen it was awarded a prize in that year’s Chartered Institute of Marketing/MarketingWeek Marketing Effectiveness Awards. The company’s online booking portalRyanair.com took the top slot in the Leisure and Travel category (92% of all flightbookings are made online via Ryanair.com. It is now the largest travel website inEurope, selling over 800,000 seats over the web each month).




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Bolton Business SchoolBA (Hons) Accountancy Pathway by Distance LearningSemester 1Examination 2007/2008Corporate StrategyModule No. ACC3005DL

2002 also saw Ryanair receive another significant award when Chief ExecutiveMichael O’Leary was named Entrepreneur of the Year. It is generally acknowledgedthat much of the credit for the company’s success must go to him. When founderTony Ryan asked him into the company, O’Leary requested 20% of the profits inreturn. In the four years before he arrived, Ryanair had lost I£120 m. In the first yearthat O’Leary took charge, it turned in a profit of I£200,000.Having joined thecompany at a time when it was struggling to survive he now owns a significant shareof the organisation.

O’Leary understands marketing and he is quick to spot opportunities. He says that

threats of a war with Iraq did not faze him. In the aftermath of the September 11attacks, he said that people stopped travelling for a few days because they werewatching the news. ‘’We offered 1 million seats at £9.99 – we had people movingwithin a week.’’

O’Leary has also been responsible for much of the airline’s advertising – which hasoften come in for some harsh criticism from industry watchdogs. Campaigns havebeen banned for attacking rivals, using sexual suggestiveness, calling Newquay thedrugs and sex capital of Cornwall and offending the Pope.

Ryanair operate a huge network in Europe, and are generally (but not always) thecheapest airline on the routes where they compete with another airline. They have

hubs in Shannon, Dublin, Glasgow (Prestwick), Liverpool, London (Stansted &Luton), Brussels (Charleroi), Frankfurt (Hahn), Stockholm (Skavsta), Milan,Bergamo, Rome, Barcelona and add more practically monthly. They serve 82 otherEuropean destinations as well as Morocco, with over 209 routes.

They keep low prices by providing the most basic offering (typically an airport toairport travel without on flight meal and hand luggage only), and placing additionalfares for every addition you need. So you’ll be able to catch a €20fare for a London – Milan flight, but you’ll be heavily charged for on flight meal, excessive luggage weightand so on. If you need a basic and cheap transport service, Ryanair is definitely agood choice.

In order to allow passengers with only hand luggage a faster check-in, Ryanair haverecently introduced the possibility for them to check-in in advance via their websiteand a fixed fare €7.00 return per checked suitcase, if booked in advance (elsedoubled at the airport). Luggage weight limits are 10kg for hand luggage andchecked luggage is sold in 20 kg increments.




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Bolton Business SchoolBA (Hons) Accountancy Pathway by Distance LearningSemester 1Examination 2007/2008Corporate StrategyModule No. ACC3005DL Compared to most other budget airlines, Ryanair provides very limited compensationin the event of flight cancellations, despite the EU regulations. Typically, Ryanair willonly provide a replacement seat on a later Ryanair flight (which can depart up to 3days later than the original flight), or a full refund of the single journey price.Alternative travel arrangements and accommodation is not normally provided byRyanair. Passengers wishing to return on the same day are normally forcedpurchase a new non-advance ticket with a different airline, which can easily exceedthe price of the original ticket by a factor of ten. Therefore, it is not advisable to travelwith Ryanair if you’re not insured against flight cancellation or if you have importantwork commitments the day after the return flight.

It should also be noted that Ryanair is very strict about checking in, the limit being nolater than 40 min prior to the scheduled departure time. Passengers arriving at thecheck-in desk even one minute late have been known to be refused boarding, even ifthey only carried hand-luggage and despite the flight being delayed.

Ryanair’s major competitor, EasyJet, have also been heavily influenced by thebusiness model of US based Southwest. The rivalry between them and Ryanair isintense (especially on Ryanair’s side from its high profile chief executive MichaelO’Leary). As previously mentioned the two companies have slightly differentstrategies. EasyJet flies mainly to leading airports while Ryanair uses far moresecondary airports to reduce costs. However, EasyJet also places more focus onattracting business travellers as well as leisure travellers, although all its aircrafthave single-class cabins.

Ryanair claim that EasyJet’s average fares are higher and its average punctuality isconsistently lower. As of 2006, Ryanair flies more passengers, but EasyJet has ahigher turnover, leading both of them to claim to be “Europe’s number one low costairline”. The Irish airline claims to be 50% cheaper than EasyJet, despite their feesand taxes often being much higher than those of their rival. It should also be notedthat Ryanair’s apparent practice of building additional “leeway” into the scheduledduration of flights suggests that EasyJet’s punctuality is lower than Ryanair’s.

On the other hand, EasyJet has recently come under criticism in Germany for notobserving EU-law 261/2004. In the case of annulment, passengers are granted theright of being reimbursed within one week. EasyJet does not return the money paidfor a ticket unless massive pressure is exerted; e.g. by the media. So passengersregularly have to wait for months for reimbursement of their expenses.


http://en.wikipedia.org/wiki/Southwest_Airlines

http://en.wikipedia.org/wiki/Michael_O%27Leary_%28Ryanair%29


http://en.wikipedia.org/wiki/Ryanair






http://en.wikipedia.org/wiki/Southwest_Airlines



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Bolton Business SchoolBA (Hons) Accountancy Pathway by Distance LearningSemester 1Examination 2007/2008Corporate StrategyModule No. ACC3005DL It is interesting to compare the routes of Ryanair and EasyJet which can be studiedon their respective websites. Their reach is impressive and although it could beargued that they serve a different market to traditional airlines such as BritishAirways, Air France and Lufthansa there is no doubt that they have affected thethinking and pricing policy of these more traditional relatives. In the UK and Europe,despite earlier consolidation of the market, new players such as BMI Baby continueto emerge. And beyond Europe in India and China low cost players have started tobreak into the market and shake up the prior monopolies of traditional airlines.

The question marks for the future may revolve around environmental issues givenlobby group and governmental concerns relating to fuel emission damage, and to the

balance of service versus low cost in the industry.

Question One

Identify Ryan Air’s strengths and weaknesses and critically discuss how theyhave impacted on the company’s growth during the last ten years. (35 marks)

Question Two

Critically discuss the corporate, business and operational strategies ofRyanair with reference to the company’s continuously improving performance.

(40 marks)

Question Three

Critically evaluate the performance of Michael O’Leary as leader of Ryan Airand assess the management issues he may face as Ryan air moves into itsnext growth phase. (15 marks)

Question Four

Critically discuss any-the socio-cultural, technical and environmental andethical issues (i.e. a partial macro environment analysis) which are likely toimpact on the future growth of the company. (10 marks)

TOTAL: 100 MARKS

END OF QUESTIONS

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