Case study: ICT-deployment at the low-cost carrier Ryanair, Ireland
Abstract
The innovative use of information technology for the online booking, e-ticketing and internal communications coupled with relentless improvements in cost containment, operating efficiencies, route system expansion and scheduling facilitates Ryanair to attain increased passenger traffic and report the best customer service performance in its peer group class. The stated objective of doubling revenue targets and traffic volumes to 70 million, by 2012 depends on continued growth in ancillary revenues and technology adoption in line with other business strategies to be adopted over the period.
Background
Ryanair is Europe’s first and largest low fares airline. It operates scheduled passenger services on 346 short-hauls, point-to-point air-routes across 22 European countries. Formerly established in 1985 by Dr Tony Ryan, founder of Guinness Peat Aviation, an aircraft leasing company, Ryanair first introduced its low-fares operations under a new management team in 1995 by copying the Southwest Airlines (www.southwest.com) model of favouring secondary airports, direct booking, no frills, low fares, and a single aircraft type for the entire fleet.
Ryanair has attained annual raises in passenger traffic each year since 1995. Projections are for 35 million passengers in 2006, rising to an estimated 42 million in 2007. Ryanair’s objective is to double passenger volumes and revenue by 2012. It currently (July 2006) operates a fleet of 107 Boeing 737-800’s and will buy 142 more of these aircraft over the upcoming six years. The 2012 scheduled fleet complement of 269 aircraft is geared to provide the seat capacity to reach the 70 million passengers target.
Given the large number of low cost airlines now operating in Europe, Ryanair’s goals are very aggressive and effectively assume that Europe is still in the early stages of low fare development. Ryanair recognises the potential for cost containment and operating efficiencies to be derived from appropriate investments in technology-enabled smart e-business activities. This study outlines the currently evolving e-business capabilities in place to address these growth areas and achieve the sought for doubling targets.
E-Business activities
Online booking through the internet commenced in earnest after the launch of the www.Ryanair.com website in 2000. Over 98% of the 27.5 million passenger seats in 2005 were sold via the internet. This percentage figure is consistent year on year, and is anticipated to continue at this high level. The remaining 2% is also significant as it comprises “walk-up” passengers who basically pay higher fares than average.
Ryanair discounted fares are “capacity controlled” in that a particular number of seats are allocated on each flight to each fare category leading up to flight time. Therefore Ryanair doesn’t overbook flights and generally tends to reserve a certain capacity of flights for such walk-up passengers.
The online booking system gives Ryanair the capability to introduce innovative practices to ensure that the individual customer has greater control over their fare costs. A recent such instance relates to baggage charges. Passengers with checked in luggage should pay €3.50 (£2.50) per bag, per one way flight if pre-booked on website at the time of reservation or via a Ryanair call centre up to 4 hours prior to scheduled flight departure. They pay €7.00 (£5.00) per one way flight per bag presented un-booked at airport. As a result of these changes, it is asserted that the 25% of Ryanair's passengers who presently travel with just hand luggage effectively no longer cross subsidise passengers travelling with checked-in luggage.
Officially launched on Dublin-Cork commuter run prior to the 2006 St Patrick’s Day (17th March) holiday weekend, and since extended to all routes from Shannon and Cork Airports and on all European routes from Dublin, Ryanair’s e-Ticketing Check’N’Go service facilitates passengers to check-in online within three days prior to the proposed flight and up to four hours before take-off. The procedure has been approved by the air-travel security authorities. Using a pre-printed e-boarding card from their home or office computers, passengers can avoid the airport check-in desk and go directly to the security gates with a maximum of one piece of hand baggage.
There, security staffs scan a bar code printed on the ticket - to eliminate possibility of duplication and multiple uses of the ticket - before passengers can proceed to the numerous departure gates where they can also avail of priority boarding.
Encouraging passengers to travel with less checked-in luggage also means faster queues for those who check-in at the airport desk. Ryanair estimates that between 40 to 50% of its passengers will ultimately use online check-in. This will enable them to diminish the number of check-in desks and other airport handling facilities. The savings in handling cost are being employed to offset other additional costs. The current process is not yet completely streamlined from the passenger perspective. easyJet for example permits passengers to print off their boarding passes at the time of booking. Ryanair passengers have to log-in again a short time before travel.
As Ryanair expanded across Europe, documentation and internal communications overheads increased. In particular, managing operational information became more complex. Thus, in addition to their well known customer facing web pages, Ryanair has executed a web-based internal communications system employed by flight crews, maintenance and ground staff. This supports critical back office systems and internal quality management. For example, a record is kept of the various components in each aircraft and a tickler schedule for their maintenance and/or replacement. Likewise training records, scheduled courses and assurance of the awareness of changes (record of individual access to the files) in critical operational information is logged. These mandatory recording features can also be used to generate exception reports for attention of the staff and managers concerned. The intranet system has as well saved on tangible costs, comprising paper and printing costs.
Ryanair drives more sales and raised revenue via the dynamic packaging of flights with discounted hotel rooms and bottom of the range car rentals. Additionally after selecting their flights, all travellers are strongly encouraged via the online payment process to take out travel insurance. Another option provided via Ryanair’s homepage at present is to click through to another supplier’s web site such as activitybreaks.com to purchase their products.
The Ryanair approach can be characterised by spartan simplicity and a micro-focus on the cost base. The adoption of e-ticketing and internal e-business systems has facilitated this low cost carrier to keep operational running costs well in-check, and will remain an indispensable constituent of their operations and strategies.
Achieving the revenue, and hence profit targets, will depend on additional income from increasing the number of passengers (airfares, onboard purchases) and, more significantly, through parallel service bundling with related insurance brokerages and tourism principals at destinations such as car rental companies and hotels. This is already an important contributor to risk management and revenue respectively. Such revenues continue to grow at a faster rate than passenger volumes. For the financial year ended March 31, 2005 their share accounted for 16% of total revenues, compared to15% for the previous year. Other ancillary sales include onboard catering. This, however, currently averages little more than €1.30 per passenger. At present, scratch cards are sold so it is possible that, at some future stage, online gambling would be introduced. It is likely that any increased revenue from gambling would be achieved by players being drawn to facilities which would be made available through the well known Ryanair website.
The customer service quality facts are clear: the US Department of Transportation ranks airlines on three criteria, on-time arrivals, baggage handling, and customer complaints. Ryanair is consistently the European leader on all three measures. In addition because of the minimal in-house administration costs afforded by the public online booking systems, Ryanair’s low-cost-flights business marketing model includes frequent “give-away” flights as well: 23% of its tickets were given away in 2005, and half of all flights are slated to be “free” (i.e. not comprising taxes and landing charges) in the next four years. As spokesman Peter Sherrard stated, “When demand is low, we give away empty seats and find that passengers are buying our on-board food and drinks products, rent cars through us and purchase hotel accommodation. It’s much better for us to have people feeding in the revenue that way, even though they are travelling for free”.
Question1. What kind of e-Business model is being employed by Ryanair?
Question2. What are the competitive benefits Ryanair gained through its e-Business strategies?
Question3. Illustrate how e-CRM may aid to attract more customers for this company?