Ryanair was always known as the lowest of the low-cost airlines. Now it is beginning to evolve its approach to customers
Of the total revenue of € 6.5 billion –ancillary revenue being € 1.5 billion –that the Irish low-cost airline Ryanair Ltd earned in financial year ending March 2016, its operating profit was € 1.4 billion. What’s more, it continued to offer lowest fares while driving down unit costs even as its competitors such as easyJet saw their unit costs go up. It had a fleet of 383 aircraft and flew about 119 million people annually to over 200 airports in 33 countries from 85 bases. What’s more, the company’s market capitalization had doubled to reach the €18-billion mark.
It’s not like things were bad in the past. In 2013, Ryanair’s revenues were € 4.9 billion, and the profits were € 0.57 billion. Valued at € 9.4 billion, the airline carried 81.5 million passengers on 1,600 routes through 57 bases. Having pioneered Europe’s low cost carrier (LCC) market, Ryanair had become Europe’s largest airline as well.
So why was Chief Executive Michael O’ Leary a troubled man? As Prof Sean Meehan of IMD Business School, Lausanne, Switzerland, who documented the company’s changing business stance and customer service for his MBA program students as a basis for class discussion, puts it, “Despite being an industry leader, Ryanair was far from loved. Its operational model, which enabled such low-cost flying, had a side effect as a service that was seen as far below industry norms.” For Meehan, customer centricity has been a passion and he has been studying it for the past 25 years.
“I became interested in Ryanair’s value proposition and how they implemented it,” he says, adding how he had been tracking the company for 15 years. When it changed its value proposition, Meehan decided to document the journey for his students. For the first time, Ryanair was set to go beyond the strategy that had worked for it since its inception in 1985: Get in there first, pile it high, sell it cheap.” Would it work?
Calling Ryanair a very strong brand, Meehan qualifies it as one where there is awareness, relevance, and trust. “The brand awareness of Ryanair is almost universal. I don’t think the brand was weak,” he says, adding, “There was a lot of negative projection, however. The reputation of the airline among customers was not positive. The company also courted controversy and criticism for what was perceived as a customer unfriendly, some would say hostile attitude to customers. ” Michael O’Leary’s now infamous lines such as: “We care for the customers in the most fundamental way possible: we don’t screw them every time they fly”; “People say the customer is always right, but you know what – they’re not. Sometimes they’re wrong and need to be told so”; and “We don’t fall over ourselves if they say, ‘My granny fell ill.’ What part of no refund do you not understand? You’re not getting a refund so @#$% off”, were mentioned cheekily in the business world and disliked by the customers.
When Meehan approached the company people regarding the case study, they readily cooperated with him in terms of interviews and company data. The March 2017 case study was broken down into two parts, A and B. According to Meehan, “Case A asked whether such an adaption makes sense. The B case documents the evolution and implementation of Ryanair’s response, a change program called “ALWAYS GETTING BETTER” (AGB).
Case A also pointed out the challenges the company faced when it came to customer satisfaction. Despite having the best punctuality record and fewest complaints and lost baggage incidents, the airline’s reputation took a beating from customers who were vocal about being treated badly. Complaints included a difficult-to-use website, too much fine print, boarding procedures that could be far simpler, carry-on baggage restrictions, and unsympathetic ground and flight crews. There was also an impression that Ryanair served only secondary airports; it may have been the case in the beginning but by 2012-end, 7.5 per cent of its flights served four largest European airports – Barcelona, London Gatwick, Madrid, and Rome Fiumicino. The perception that the top management wasn’t ready to listen and there was a certain “machismo” within the company, made matters worse. Businesswise, an internal business study showed O’Leary that customers did not mind paying a little extra for higher quality flying experience.
He had to address both business and customer centricity issues simultaneously. Just before the company’s 2013 annual general meeting (AGM), a customer having to pay €188 more to change his flight to return to the scene of crime where his family had been murdered, got a lot of bad press. At the AGM, O’Leary was called a bully and the airline was criticized for its culture. Contrary to his previous stance, this time O’Leary took personal responsibility for, what he termed, a “macho and overly abrupt nature”. Just a month later, he posted on the company website with a request: “…we want to keep improving our services, which is where you can help me. Please send me your suggestions as to how Ryanair can further improve our industry leading customer experience.”
The company proactively addressed issues that could be sorted right away. For instance, doing away with the “Recaptcha” security feature, permitting its customers to carry a second carry-on bag, launching “quiet flights” that took off before 8 am and after 9 pm, letting the customer correct minor booking errors within 24 hours for free, as well as bringing down considerably the fee for standard hold luggage and reissuance of boarding cards.
That couldn’t have been enough, however. O’Leary scouted around for a new chief marketing officer and found one in Kenny Jacobs, who had worked with companies such as Moneysupermarket.com and had been the brand director of Tesco UK. More changes were carried out. The company website was made easy to navigate, a member service “My Ryanair” helped customers fill in their booking data only once, new searches such as “Share fare”, and “Find fare” were appreciated by customers, a new mobile app was also introduced, as were different language websites for major EU markets such as Italy and Spain. The company even introduced its first television ad campaign in 2014, and formed a new division called Ryanair Labs, which comprised of 200 programmers, digital marketing experts, mobile developers and web analytics experts to capitalize on the digital platform and bring more visibility where it mattered.
What gave the customers a pleasant surprise was the introduction of selecting a seat for a fee. It is worth mentioning here that unallocated seating had been a big contributor to Ryanair’s quick turnaround time and market leaders had thought it would never be changed. But it was, and things worked out for the better. Meehan notes, “Jacob’s AGB encompasses a digitalization program that he believes can enable Ryanair to become the ‘Amazon of Travel in Europe’.” The B case study, he says, asks whether this is a realistic ambition, and allows for an exposition of several related strategic concepts: Business system alignment, strategic positioning, market evolution (and response), customer centricity and innovation. Four specific learning objectives are particularly well addressed: (1) Understanding customer centricity. (2) Understanding strategic alignment. (3) Understanding whether and how successful incumbents can embrace change. (4) Understanding how incumbents can best embrace digitalization. The use of the case is described in a teaching note published this month.
According to the Martin Hilti Professor of Marketing and Change Management at IMD, Ryanair has been able to achieve what it set out to do. Why, in 2016, Ryanair became the most visited airline website in the world. Of its 15 million app users, 65 per cent were making three or more annual trips, and business customers, a sector that had not warmed up to the airline until now, make for 24 per cent of all its customers. Thanks to the digital push, the company’s cost of customer acquisition is now as low as € 0.16, as against its competitor’s € 0.91. The case is an attractive one to teach because the situation is so dynamic. Since the date of the case the company continues to post stellar results but also continues to experience the pains of hyper growth and is continuing to adapt in the face of that.
Ryanair Strategic Positioning Reference no. IMD-7-1872
Profile: Professor Sean Meehan: http://casium.net/professor-sean-meehan-imd/