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Example research essay topic: Low Cost Low Fares - 1,428 words

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Business Report on Ryanair Ryanair is Europe's largest low fares airline with 23 bases and 563 routes across 26 countries. It is an Irish airline with headquarters in Dublin and its biggest operational base at London Stansted Airport in the United Kingdom. Ryanair was founded in 1985, it began its functioning with a 14 seat aircraft flying between Waterford and London Gatwick. In 1986 the company added another route flying Dublin-London. With two routes and two planes, the newly-born airline carried 82, 000 passengers in one year. Passenger numbers continued to increase, but despite this the airline ran at a loss, and by 1991 needed to be restructured.

Ryanair hired Michael Leary and gave him the task to make the airline profitable. O'Leary decided that the key to low fares was to implement quick turn-around times for aircraft, "no frills", eliminate business class and operate a single model of aircraft. He competed with the major airlines by offering a low-cost service. Flights were scheduled into regional airports, which offered lower landing and handling charges than larger established international airports. Thus, Ryanair as a typical low-cost carrier based its activities on the following principles: - a single passenger class; - a single type of aeroplane, reducing training and servicing costs; - a minimum set of supplementary equipment on the aeroplane, further reducing costs of purchasing and maintenance; - an easy fare scheme, such as charging one-way tickets half that of round-trips (usually fares increase as the plane fills up, so it rewards early reservations); - unreserved seating (that encourages passengers to board early and quickly); - flying to cheaper, less overcrowded secondary airports and flying early in the morning or late in the evening to avoid air traffic delays and take advantage of lower landing fees; - quick turn-around times (allowing maximum utilization of aircraft); - simplified routes, putting on the first place point-to-point routs instead of transfers at hubs (again, intensifying aircraft utilization and eliminating disruption due to delayed passengers or luggage missing connecting flights); - generation of ancillary revenue from a variety of activities; - emphasis on direct sales of tickets, especially over the Internet (avoiding fees and commissions paid to travel agents and computer booking systems); - employees working in multiple roles, for instance flight attendants also cleaning the aircraft or working as gate agents (limiting staff costs); - unwillingness to take special service passengers, for instance by placing a higher age limit on unaccompanied minors than full service carriers; - Aggressive fuel hedging programs.

Naturally, Ryanair obtains its main profit from ticket sales. However, trying to restrain by all means the cost of the flights and consequently, the prices of the tickets, Ryanair has developed a range of ancillary revenue activities that became an integral part of the company. All them has been decided into three broad categories: 1. A la carte features: These consist of the additional services customers can add to their air travel experience.

The list continues to grow, but the typical activities are: onboard sales of food and beverages, checking of baggage and excess baggage, assigned seats or better seats such as aisle rows, call center support for booking, fees charged for purchases made with credit cards, early boarding benefits, activity packaging, activity lounges, airport transfers and parking. 2. Commission-based products: Ryanair's ancillary revenue activities also include the commissions earned on the sale of tours, hotel accommodations, car rentals and travel insurance. Additionally, Ryanair sales bus and railway tickets, as well as the tickets for theater, concerts and sports. Thus, the commission-based category involves first of all the Ryanair's web site, but it can include the sale of duty-free and consumer products on board aircraft. 3. Frequent Flier Programs: it is a service pointed to rewarding customer loyalty.

Typically, airline customers are enrolled in the program of accumulating points corresponding to the distance flown. Accumulated points can be redeemed for free air travel, other goods or services; or for increased benefits, such as airport lounge access or priority bookings. Moreover, after having studied the ancillary revenue activities described at the home page of Ryanair's Web site (web) the following items can be added to the list of secondary activities of the airline: foreign currency exchange, home insurance, life assurance, overseas property, vacation home sales, Ryanair MasterCard, travel insurance. Another important source of income for Ryanair is in selling advertising spaces on its website or on its aircrafts. Ryanair has established partner relationships with a great number of companies providing a broad spectrum of goods and services. According to the standard ancillary revenue model of web sales, partners pay commission on every completed sale.

But Ryanair invented another partner strategy. As Michael Cawley, the Chief Operating Officer for RyanAir said at the September, 2007 Low Cost Carriers Congress in London: We choose the best vendors. Why are they the best? They are ones that are willing to guarantee their revenue production, or advance it to us as cash. Why should we take the risk when they know their business?

In the world of competition the ancillary revenue activities become more and more important for Ryanair as it is a good way to reduce the influence of environmental factors. For instance, 2007 has been especially difficult for airlines economy as the price oil reached almost $ 100 per barrel during late 2007. Despite this, Ryanair announced record half-year profits. Announcing these results, Michael O'Leary, said: These record profits reflect a 20 % growth in passenger volumes, a 1 % decline in yields, and strong ancillary growth.

Ancillary revenues grew by 54 % to 252 million, due to improved penetration of car hire, hotels, travel insurance, as well as strong onboard sales and excess baggage revenues. Ancillaries now account for just over 16 % of total revenues as we make steady progress towards our 20 % target. Another example of external environments influence on airline companies is an increase of airport charges. Thus, the Stansted airport doubled its airport charge to? 12 per customer in April, 2007. However, following the principle of aggressiveness, appropriate to low-cost airlines, Ryanair decided to not raise the fares.

Concerning this matter, Mr O'Leary said: There can be only one competitive response to any consumer uncertainty, and that is for Ryanair to slash fares and yields, stimulate traffic, encourage price-sensitive consumers and promote new routes. The airline business is highly cyclical and we have seen these downturns before. They pose unique long-term opportunities for the lowest-cost producer - Ryanair - to grow rapidly. Ryanair has proved itself to be a company of radical and alternative decisions. In order to correspond to its status of low fare airline, independently of any environmental changes, Ryanair is always in search of new solutions.

In April and May, 2008 Ryanair is planning to begin testing a system that will allow passengers to use their mobile phones inflight. The carrier is waiting for regulatory approval before testing the system on 25 aircraft. In the circumstance of environmental uncertainty Ryanair seeks for new opportunities and extracts profits from every source. Ancillary revenue activities have become a necessary ingredient in the profit composition of successful airlines.

Moreover, due to the popularity of low fares (generally, the passenger makes the decision on the price basis) instead of traditional airline services, Ryanair has good chances to resist to environmental changes and competition on the market, which is also proved by the actions of its managers. Bibliography /reference list Ancillary revenue, Wikipedia, the Free Encyclopedia, retrieved April, 9 2008 web "Europe's Top 4 Low Cost Carriers Generated 470 Million Euros (US$ 593 Million) From Non-Ticket Sources in 2005, Report dated October 10, 2006, IdeaWorksCompany. com, retrieved from Wikipedia Hawkes, Steve July, 31 2007 Ryanair cuts flights as it attacks BAA on costs, Times Online, retrieved April, 10 2008 web Hawkes, Steve November, 5 2007 Car hire and hotel deals lift buoyant Ryanair, Times Online, received April, 8 2008 web Low-cost Carrier, November 2007, Wikipedia, the Free Encyclopedia, retrieved April, 9 2008 web Robertson, David February, 5 2008, Ryanair hit by soaring fuel costs and warns of nosedive in profits, The Times, retrieved April, 10 2008 web Robertson, David, June, 6 2007, Fewer passengers, falling profits, sliding shares time for a price war, says Ryanair, The Times, retrieved April, 10 2008 web Ryanair's Half Year Profits Rise 24 % to Record 408 M, Press release dated November 5, 2007, Ryanair. com. Ryanair Holdings PLC, Nov, 5 2007 Half Year Results Announced, retrieved April, 9 2008, Investigate web Ryanair The Godfather of Ancillary Revenue, Feb, 19 2008, Idea Works web -


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