Comparison of Operations Management of Ryanair and British Airways

Comparison of Operations Management of Ryanair and British Airways This essay will seek to examine, compare and contrast the operations of Ryanair and British Airways, two major but strategically differing airlines. In order to fully explore the nature of both organisations and to critically analyse factors such as the impact of operations on performance imperatives and the ability to communicate ideas persuasively regarding key operations issues. The essay will begin by providing a brief background to both organisations and their operations management transformation processes. The essay will, for each organisation, discuss the market in terms of performance objectives and will focus on key transformation processes used in their operations. Underpinning and interwoven in the analysis will be concepts and theories of operations management which will provide a rigorous conceptual framework from which closer analysis of both of these organisations will be possible. This will serve to enable a clear and distinguishing conclusion that clearly notes the k ey differences between each airlines organisational management approach. I have chosen to focus this essay upon the airline industry, a large, growing and highly competitive industry in which profit margins are often tight with external factors, such as the price of oil often having a large influence. The airline industry is an important modern component of globalisation, facilitating significant increases in economic growth, global trade, and international tourism. Deregulation of the airline industry in the US in 1978 and in Europe in 1997 resulted in a more competitive market and the inception of low cost budget airlines such as Ryanair to compete with the more proliferate domestic flag carriers such as British Airways. Analysis In order to analyse and discuss the organisational management and transformative processes employed by the different airlines, it is first necessary to provide a brief background to each in order to contextualise their respective positions within the airline industry. The decision to analyse Ryanair and British Airways was taken in order to discuss two very different airlines. There are similarities and differences between the two airlines. Both are privately owned and operated airlines, one Irish, one British, both are committed to safe and reliable air travel, and both have also had to deal with their share of controversy and adverse media attention: Ryanair over its reliance upon ancillary revenue, its approach to customer service, and its provocative advertising; British Airways over the intense rivalry with Virgin Atlantic and subsequent high profile lawsuit, and more recently the long running industrial relations dispute with its cabin crew. However, both organisations take a very different organisational approach to their operations and management, as we shall explore. A brief background to Ryanair and British Airways Ryanair is an Irish low cost airline, with its head office based in Dublin Airport and with a UK base at London Stansted Airport. In 1985 Ryanair was created by the Ryan family and began inauspiciously with one plane flying once a day carrying passengers between Waterford in the south east of Ireland to Gatwick airport in London (Ryanair, 2010). However Ryanair has rapidly expanded since the European deregulation of the airline industry in 1997 and the last decade has been characterised by rapid expansion to meet the massive increase in passenger numbers the airline carries, to the extent that now Ryanair is one of the largest and most successful airlines in the world, and is the leading low cost airline in Europe carrying over sixty six million passengers in 2009 (Ryanair, 2010). This analysis will explore how Ryanair has managed such a dramatic and successful transformation of its operations. British Airways has if perhaps a less spectacular recent history, a more illustrious (the concord for example) and proven record of longevity, with forerunner company Aircraft Transport and Travel Limited reaching back to 25 August 1919 and the worlds first international daily air travel between London and Paris (British Airways, 2010). In 1974, forerunner companies such as Cambrian Airways, Caledonian Airways, and North West Airlines were merged to become British Airways, however owing to rising fuel prices and economic recession British Airways was operating at a loss in the 1980s and under the Conservative government of the time was eventually privatised in 1987 becoming a plc in a bid to return it to profitability (British Airways, 2010). British Airways has since the mid 1990s operated fairly successfully attracting a high of just over forty million passengers in 2002, and the company making substantial yearly profits until 2008 and has suffered significant losses in 2008 and 20 09, owing to several factors such as the Icelandic volcanic ash cloud and the industrial dispute which resulted in strikes and impacted upon operational capacity (BBC, 2010. This essay will seek to examine how British Airways has been seeking to turn around its recent fortunes and return to the profitability of the past in the face of stiff competition from low cost rivals such as Ryanair. Operations Management In the ultra-competitive airline industry, it is imperative that organisations understand their market, their operational world and their strategy. Operations management and business strategy are key to business success, and incorporate a holistic approach to management strategy and decisions which drives an organisation towards a goal. Ryanair for example has an operations strategy to provide air travel at the cheapest cost, whilst maximising its revenue and profit margin, whilst British Airways aims to provide an upgraded service to everyone who chooses to fly with us (British Airways, 2010), whilst improving efficiency in its operations. In order to achieve these ambitions, successful operations management is crucial, as it: Can reduce the costs of producing products and services and being efficient; Can increase revenue by increasing customer satisfaction through good quality and service; Can reduce the amount of investment that is necessary to produce the required type and quantity of products and services by increasing the effective capacity of the operation and by being innovative in how it uses its physical resources; Can provide the basis for future innovation by building a solid base of operations skills and knowledge within the business. (Slack et al, 2007:22). Operations management then will have a significant impact upon a companys short and long term profitability. Key to successful operations management and to this essay is operations strategy as it informs and instructs the fortunes of an organisation by charting the direction that they will follow. Operations Strategy and the Target Market For years up until the deregulation of the European airline industry in 1997, the European airline industry was dominated by national flag carriers, often subsidized by national governments, that offered full service flights but generally with high fares, of which British Airways is a good example. British Airways operational and management past is more complicated than Ryanairs due to several factors but largely because of its history and status as a flag bearing airliner. British Airways has had to overcome obstacles to success in its history privatisation was successfully navigated through programmes such as Putting People First and A Day in the Life which emphasised staff development, employee engagement and a collaborative approach to industrial relations (Upchurch, 2010:3). British Airways in the early 1990s was a profit making organisation based upon customer related innovations, however other airlines quickly copied the operational strategy, resulting in declining revenue a nd resulting in major job losses (British Airways, 2010) owing to greater competition. British Airways thus had to evolve its strategy and ambitions, and ensure that the strategic objective was aligned with the operations management of the company: British Airways strategic objectives focused on engaging in mergers with other airlines, hiring and training a good crew and maintaining its financial and social status. The strategic objective of British Airways are in line with the operations management system of the company. The operations objectives make sure that British Airways would continuously provide the best service to clients. The operations objectives make sure that the organizational objectives are met. The operations objectives guide the firm so that the organizational objectives will be met by British Airways. (Operations Management, 2010). Deregulation of the industry increased competition not only from within pre deregulation competitors but also with newly created airlines, and paved the way for what was essentially a revolution in air travel that has seen the creation of a multitude of low cost airlines offering cheap fares but with reduced services. Ryanair is the principal and most successful of these airlines and it achieved this success through innovating and redirecting its attentions in the market. Rather than try and compete with existing airlines in attracting the usual business travellers, Ryanair a different target market by seeking to attract large numbers of leisure travellers instead (Chesbrough, 2007). However, Ryanair was not initially a profitable organisation, unable to compete with the more established airlines. Realising this, Ryanair crucially and fundamentally over hauled its operational strategy in 1991: We patterned Ryanair after Southwest Airlines, the most consistently profitable airline in the US [says Michael OLeary, Ryanairs Chief Executive]. Southwest founder Herb Kelleher created a formula for success that works by flying only one type of airplane the 737 using smaller airports, providing no frills service on board, selling tickets directly to customers and offering passengers the lowest fares in the market. We have adapted this model for our market place and are now setting the low fare standard for Europe. (OLeary in Slack et al, 2007:62). Essentially then, this change in strategy by Ryanair highlights how important operational strategy is to an organisation. Perhaps the biggest challenge for British Airways has been the ongoing struggle against the low cost airlines which points to a strategic choice for British Airways between continuing to operate a full service and customer service focused high quality liner, or to adopt the low cost model. British Airways has refused to go down the low cost route, preferring instead to differentiate its customer base, focusing on premium, high-yielding passengers (in First and Business Class) (Upchurch, 2010:3), whilst rationalising some routes, cutting loss making routes and attempting to increase efficiency and savings through job cuts. Through changing their strategy significantly to copy a successful model, Ryanair fundamentally altered its operations but importantly enabled it to grow to become the leading European low cost airline. It was the strategic decisions that were taken that have been key and these include stream lining the operations wherever possible and aggressively optimizing production costs. By using only one aircraft type the 737, Ryanair were able to save a significant amount of money through standardization of parts, maintenance and servicing (Slack et al, 2007:62), whilst saving pilot training costs as the average training time for flight crews on the Boeing 737 is two weeks compared to an average of seven on other aircraft (Roseingrave, 2000). Ryanair maximised the aircraft seating capacity, whilst implementing a policy of charging for the seat only and increasing revenue through ancillary services such as charging for luggage, for online check in, for priority boarding and for on board fo od and drink (Box, 2007). Ryanair have also diversified the range of services that they offer, a cursory glance at their website highlights the range of services currently promoted in addition to their low cost flight seats, such as car hire, travel insurance, discounted hotels, airport transfer, credit cards, gift vouchers, hostels and bed breakfasts, cruise holidays, cheap mobile roaming, villas and apartments and campsite holidays (Ryanair, 2010). However, this is not unusual for an airline company, British Airways offers similar but more aims for a more up-market target. Perhaps one of the most important strategic decision that has been taken by Ryanair management is the decision to use low cost secondary airports: Flying in and out of low-cost uncongested secondary airports has become the trademark of Ryanair. Selected airports are generally close to large population centres. Secondary airports work well for Ryanair because they are less expensive, generally because they are the only airline flying there. In some cases these airports actually pay Ryanair to provide services. As Ryanair has a strong negotiating hand, if airports raise costs Ryanair can move capacity to lower-cost airports. Since secondary airports are uncongested, Ryanair is able to do 25-minute turnarounds, which enhance aircraft utilization and on-time performance. (Roseingrave, 2000:49 50). This combination of strategies aimed at keeping operating costs as low as possible have proved to be successful. However their success is can only be measured if customers are satisfied with the service provided. Ryanair is not famous for its customer service; indeed OLeary, the Ryanair CEO, clearly states the companys policy on customer service: We guarantee to give you the lowest air fare. You get a safe flight. You get a normally on time flight. Thats the package. We dont and wont give you anything more. Are we going to say sorry for our lack of customer service? Absolutely not. If a plane is cancelled, will we put you up in a hotel overnight? Absolutely not. If a plane is delayed, will we give you a voucher for a restaurant? Absolutely not. (OLeary in Slack et al, 2007: 62). Essentially, this is exactly what defines Ryanairs service concept, a tripartite concept outlined by Johnston and Clark (2008: 42). Firstly, the organising idea, or the essence of the service bought or used by the customer (Johnston and Clark, 2008: 42) is the guarantee to be given the lowest air fare, a safe flight and usually an on time flight. For British Airways, customers are the focus, which means that their employees will strive to ensure customer satisfaction and they will provide a more costly and full service. Secondly, the service experience, or the customers direct experience of the service process which concerns the way the service provider deals with the customer (Johnston and Clark, 2008: 42) is displayed in the simplicity of the deal they are up front and honest about the fact that the customer, even a customer in a service industry, should not have high expectations of customer service or customer care in the event of things going wrong. British Airways has long p ortrayed itself as the Worlds Favourite Airline owing to its commitment to a high quality service and standard of care, including compensation where appropriate. Again this is a far more costly model than Ryanairs but is aimed at a different if smaller market. Thirdly, the service outcome or the result for the customer of the service (in particular, the benefits provided, the resulting emotions and assessment of value for money) (Johnston and Clark, 2008: 42) is proven in the price guarantee, and the fact that Ryanair has increased its share of the passenger market dramatically within the last decade going from carrying around seven million passengers in 2000, to an estimated seventy million in 2010 (Ryanair, 2010). Conclusion So was it just the success of Ryanair that allowed OLeary to predict that Ryanair would overtake British Airways by carrying 3.5 million passengers a month in 2005. He went on to say, The very fact that a Mickey Mouse Irish airline can start in a field in Waterford 20 years ago, and in 20 years, overtake the worlds self styled, self proclaimed favourite airline is testament to the demand for low-airfare travel around Europe (Box, 2007: 65). Or was British Airways in operational decline. It would appear that the low-cost model of airline has been more successful in recent times and it is fair to say that with the recent and ongoing worldwide economic uncertainties that it is likely to continue to be the dominant force in air travel. Whilst British Airways has had a track record of being able to successfully adapt its operational strategy, it has in recent years been in decline and has so far failed to convincingly react to the growing threat to it from low-cost airlines. It has had to deal with additional problems such as the industrial dispute, whereas Ryanair being a airline that operates without an employees union, has avoided having to deal with complicated wrangles. The recent merger with the Spanish Airline Iberia has provided stability. But is British Airways merely delaying the inevitable? Is it attempting to become an airline that is too big to fail? As we saw in the economic crash, banks that purported to be too big to fail can and did, needing state intervention to prevent economic disaster. Time will tell, but currently the future of air travel would appear to have found hegemony in the low-cost, no frills airlines.