Recession Strategy - For Airlines it is all about Unit Costs

Proof (if proof were needed) for business students wanting to understand the key to a profitable strategy for airlines during an economic downturn. Competitive advantage comes from keeping unit costs as low as they can go. Lots of press coverage on the news that Ryanair is proposing to make its first dividend payment - but the real story in the Ryanair coverage is how an airline can be so profitable despite almost impossibly tough trading conditions in the airline industry.

The answer lies in Ryanair’s obsession with effiency & productivity. It squeezes every pound of revenue it can from flexible pricing structures and pricing add-ons. But is also drives hard bargains with suppliers and minimises unit costs through industry-leading capacity utilisation (“load factors”). Love’em or hate’em, you have to admire Ryanair’s ability to make profits when the external environment is so hostile to all airlines.

This article in the Independent provides some useful context on Ryanair’s most recent, impressive results. Some good materials in there for BUSS4 students looking to add some research evidence to their essays. I liked this sentence which sums things up quite neatly:

“Cut-price airlines have withstood the recession better than their premium rivals, and Ryanair’s passenger numbers shot up by 14 per cent to 66.5 million in the year to 31 March. The group’s handling costs also fell by 9 per cent as airports fought hard to retain business in the face of cutbacks by non-budget carriers.”