Monday, June 6, 2016

Ryanair - Southwest Airlines of Europe

The article, "Southwest Airlines: In a Different World," reminded me of another strategy article about airlines I read recently titled, "How to Design A Winning Business Model" by Ramon Casadesus-Masanell and Joan E. Ricart.  They identified three characteristics of a good business model.  They stated that if the business model is aligned with company goals, is self-reinforcing and robust, then most likely the business model will be effective.

The article suggests that one component of a business model must be the choices that executives make about how the organization should operate.  These choices come in three flavors, policy choices, asset choices and governance choices.  To solidify understanding of these concepts, the authors use Ryanair as an example.  The Irish airline like Southwest Airlines made choices likeutilizing a standardized fleet and eliminated frills like meals.  Ryanair also flew out of only secondary airports, catered to only one class of passenger, made only short-haul flights, and charged for all additional services.  These choices allowed the company to increase volume while having low variable and fixed costs.

The authors further describe how business models generate virtuous cycles.  Successful business models generate virtuous cycles or feedback loops that are self reinforcing.  For example, Ryanair became known as an airline that offers a decent level of service at a low cost.  Therefore it only made sense that their choices would take into account a business model that maximizes profits through low costs and prices.  Their choices such as lean staff, first rate customer service, few ticket restrictions all created cycles that highlighted low cost and large volume.

In another situation Irizar, a Spanish manufacturer of bodies for luxury motor coaches changed leadership and morale hit an all-time low.  Koldo Saratxaga, head of the company's steering company decided to transform the organization's business model to target employees' sense of ownership, feelings of accomplishment and trust.  To address these key ideals, Koldo made choices to eliminate hierarchy, decentralize decision making, focus on teams to get work done and have workers own the assets.  Since quality is the cornerstone of Irizar's culture, these choices served to create virtuous cycles for Irizar.

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