A COMPARISON OF TWO AIRLINES OPERATING WITH TWO COMPLETELY DIFFERENT BUSINESS MODELS
Established in 1985 in Dubai, United Arab Emirates Part of the Emirates Group (consists of more than 50 different divisions) Emirates Airline alone employs more than 38,000 people of 137 different nationalities The airline is not part of an airline alliance (e.g. Star Alliance) for strategic reasons (e.g. flexibility) HH Sheikh Ahmed bin Saeed Al Maktoum is Chairman and Chief Executive of the Emirates Airline and Group (he is the Vice President and Prime Minister of the UAE and Ruler of Dubai) In 2012/2013 the fleet consisted of 197 aircrafts with an average fleet age of 72 months (6 years) Revenue and other operating income 2012/2013: Operating profit 2012/2013:
AED 73 bn (€ 14.7 bn) AED 2,8 bn (€ 560 mil)
o Established in 1985 in Dublin, Ireland o Ryanair is organized as a corporation with CEO Michael O’Leary o In 2012 the airline employed around 8,500 people o The fleet of Ryanair consists of 294 aircrafts (all Boeing737 - 800) o In 2012 Ryanair carried 75.8 Mill passengers o Operating revenue in 2012: Adjusted net profit after tax:
€ 4.3 bn € 500 mil
o The airline was the most profitable Low-Cost Carrier in 2012
THE BUSINESS MODELS
The business model of Emirates Airline consists of three major components: a) Hub and spoke operation (Dubai International Airport as a mega hub) b) Competitive cost structure c) Emirates as a brand a) Two third of the world’s population live in an eight hour flight radius of Dubai, which results in a major geographical advantage for Emirates Airline (more than 11,000 possible connections). through its five different types of aircrafts the airline can combine short and long haul offers perfectly.
b) The close link to the fuel producing industry helps to keep fuel costs on a competitive level. Labor costs are kept very low through the legal framework in the UAE. At Dubai airport, all ground handling activities are performed by dnata (also part of the Emirates Group), which additionally saves costs.
c) Emirates Airline has a unique branding strategy, meaning that great efforts are taken to strengthen the Emirates brand the recognition of Emirates as a brand has risen significantly within the last ten years.
o The business model of Ryanair can be simplified: “KEEP THE COSTS AS LOW AS POSSIBLE WHILE EARNING PROFITS AT THE SAME TIME!” o Ryanair is operating with a point-to-point operation model, meaning there is no central hub like Dubai for Emirates. Its fleet focuses solely on Europe, with around 180 destinations (mainly secondary airports) that can be reached via more than 1,500 routes. o The airline offers a “No-Frills concept”. The price for the ticket includes the flight only. For any other service and on-board amenities, such as extra luggage, priority seating or a customer hotline, the airline charges extra costs. o Another huge cost safer is the fleet consisting of identical planes (Boeing 737 – 800), which enables a minimization of maintenance costs and very low turn-around times, and keeps the fleet very young - which saves maintenance costs as well. o Airport costs are minimized through the usage of mainly secondary airports with much lower fares.
THE BIGGEST DIFFERENCES AND SIMILARITIES
Hub and spoke operations
o Point-to-point operations
Dubai as a hub connects major airports
o Only operating in Europe, mainly connecting
Five different types of aircrafts
o Only Boeing 737 – 800 aircrafts
Emphasis on customer service
o “No-frills concept”
Increase brand recognition and customer loyalty
o Cheap but effective communication creating
through sponsoring and large campaigns
provocative statements Emirates Airline is a main driver for the tourism destination Dubai
o Shareholder driven corporation
Passenger load factor: 80% (Emirates) and 83% (Ryanair) Both business model turn out to be very successful Emirates and Ryanair are amongst the leading companies in their segments Even though they operate under different circumstances, both companies have a high brand recognition Both airlines work in gray areas with respect to the legal framework The airlines are both successful in keeping costs on a lower level than their direct competitors Ryanair and Emirates are not interested in joining a strategic alliance with competing companies
References Oâ€™Connell, J.F. (2011): The rise of the Arabian Gulf carriers: An insight into the business model of Emirates Airline. Journal of Air Transport Management, 17(6), S. 339-346. Emirates Annual Report 2012/2013, retrieved from: http://www.dnata.com/TridionUploads/AnnualReport_2012-2013.pdf, 29.11.2013 Ryanair Annual Report 2012, retrieved from: http://www.ryanair.com/doc/investor/2012/final_annual_report_2012_310712.pdf, 03.12.2013
Pictures Emirates Group, retrieved from: http://www.theemiratesgroup.com/english/our-brands/Business-Type.aspx, 03.12.2013 Emirates Plane, retrieved from: http://www.plane-pictures.com/upload/files/actual/emirates-airbus-a380.jpg, 03.12.2013 Flash, retrieved from: http://www.downloadclipart.net/large/523-lightning-icon-design.png, 03.12.2013 Money pile, retrieved from: http://www.bubblews.com/assets/images/news/1519337_1361514579.jpg, 03.12.2013 Ryanair Plane, retrieved from: http://trekeffect.com/blog/wp-content/uploads/2013/11/ryanair-plane.jpg, 28.11.2013 Scale, retrieved from: http://upload.wikimedia.org/wikipedia/commons/4/48/Scale_of_justice_2_new.jpeg, 03.12.2013