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Southwest Airlines (SWA) introduced the low-cost airline business model for the first time

2022-01-19 来源: 51Due教员组 类别: Essay范文



1. Introduction

The low-cost airline business model was firstly introduced by the Southwest Airlines (SWA) in 1970s, which takes up now approximately 30% of the market in the US (Malighetti et al, 2008). Ryanair, which was founded in 1985 and shares overall more than 40% of the cureent European market in 2013 together with other the low fares airlines (LFAs), such as easyJet and Wizz Air, has become the largest airline in Europe due to its scheduled air capacity within and from Western Europe. Since the human resource management of a company is defined as activities and strategies used for reaching the organizational goals on the development of employees and it could influence the development effectiveness of the company in different ways, it is important to adjust one’s way of managing people regarding to the company’s needs. Therefore, it can be seen that, unlike SWA, Ryanair’s turns to being as a vehemently anti-union company which employs most of its staffs via agencies. This has led to concerns, such as job and income insecurity (Harvey & Turnbull, 2016). However, it is able to and remain cost competitive in the market and meet part of customers’ needs. Therefore, the success of Ryanair might be partly contributed by its HR strategy and employment relations. In other words, it is able to reach higher profit by its high labour productivity lower wages and intensive working schedule. (Barrett, 2004). In order to analysis the distinctive part of Ryanair’s success and the importance of people management in this situation, this paper will firstly examine Ryanair’s overall business strategy, focusing on its people management strategy. Next, the advantages and disadvantages of the way how Ryanair manages people will be discussed and evaluated. Finally, a conclusion will be given in the last part.

2. Ryanair’s approach on managing people

The overall strategy of Ryanair is related to cost leadership, which means the firm focuses on reducing and controlling primary expenses involved in running a major scheduled airline. Among its approaches to realize the minimization of cost, the most significant one would be its management approach based on labour productivity. The company's compensation for employees emphasizes productivity-based pay incentives (Vianam 2016).

In details, according to Harvey & Turnbull (2016), only management and a minority of aircrew are hired directly by Ryanair. More than 70% of pilots and 60% of cabin crew there are holding temporary contracts completed usually by 2 main agencies for cabin crew, Crewlink and Workforce International, and 2 main agencies for flight crew, Brookfield Aviation International and Storm McGinley. The normal procedures are shown in Figure 1. Also, all the stuffs for ground operations, such as check-in, baggage handling and aircraft fueling, are sub-contracted to third parties (Harvey & Turnbull, 2016). Thus, there would be limited stabilities for the employees of Ryanair due to the high turnover caused by the short-term contracts.

Figure 1: Pilots employment of Ryanair (Ryanair Pilots’ Group, 2014)

Besides, considering the wages, the flight and cabin crew are only paid for flying hours. For instance, Brookfield offers pilots ‘zero hours’ contract, in which it claims no obligation for offering work to pilots as their work would be only as required (Harvey & Turnbull, 2016). The wage expectation for cabin crew employed via agencies would be about 1100 Euro per month, including commission from in-flight sales of food and drinks but they have to face three months unpaid leave from November to March during every 12-month period due to the winter trough (Harvey & Turnbull, 2016). This leads to a total earning of less than 20,000 Euro for cabin crews. Plus, there will be around 3500 Euro payment by themselves for initial training at the beginning stage, which can be paid by part of their first six months’ salaries. This has not reached the National Minimum Wage for a 18-20 years old worker in UK (Harvey & Turnbull, 2016). For pilots, most of them would need to pay more than 80,000 Euro in order to become licensed commercial pilots, as well as more than 30,000 Euro in advance for the trainings in Ryanair. Also, both cabin and flight crew might be assigned to work at any one among 70 bases of Ryanair, however, travelling and accommodation fee need to be paid by employees (Harvey & Turnbull, 2016).

Moreover, compared to most of airlines which requires up to 1500 flying hours for the pilots, Ryanair’s requirement is only 200 flying hours, which is less than the minimum requirement issued by the Federal Aviation Authority in the USA (Harvey & Turnbull, 2016). Interviews organized for Ryanair by agencies seems not sufficient, either. Average duration of an interview would be between 10 and 15 minutes, focusing on the potential employees’ availabilities rather than professional skills and safety awareness (Harvey & Turnbull, 2016).

3. Advantages and disadvantages

On one hand, Ryanair’s approach to people management shows several advantages in terms of its profitability. The first one would be low fare flights. Being cost competitive could obviously help attract more and more target customers and therefore increase company’s profit and its share of the European market. In 1985, Ryanair had firstly tried to apply the strategy about being low cost with low margins and providing premium services at the same time. This initial strategy has led Ryanair to get stuck in the middle of its competitors at that time and eventually failed within only 5 years (Thomas, 2015). From this experience, it can be seen that it is impossible to offer both low fare tickets and good service at the same time. A company’s strategy should be dependent on and serve its main aim. After adjusting its strategy, Ryanair might not be loved by all the customers but it has realized its promise of offering the cheapest flights in Europe and has expanded its business over years.

Ryanair’s current approach shows a better understanding of what the customer would like to buy and has successfully reached its target customers’ needs. According to the 2014 Ryanair Annual Report, the average fare is just 46 euro, which is cheaper than a 2-hour train ride in most European countries (Thomas, 2015). There are six key factors used by Ryanair in terms of cost reducing: the charge of services, the aircrafts, sub-contracting of cost consuming operations, the flight policies and charges from airports, the employee cost, the advertising cost. Starting from 1999, Ryanair has started a 17 billion Euros expansion program for fleet replacement, which resulted in the replacement of all of the its older Boeing 737- 200 aircrafts by 272 new Boeing 737-800 Next Generation aircrafts so far. These newest and most fuel efficient aircrafts in Europe show that the Ryanair is not anymore driven only by profit now, but also by its quality of the services and considerations over environment impacts. Based on its constant improvement regarding to both performance and environmental efficiency, the company is currently becoming the industry leader (Diaconu, 2012).

In return, there are more than 80 million people interesting in the service Ryanair offers every year as the possibilities of low fare trips provided by Ryanair has become much more attractive than the inconveniences caused during the flights (Thomas, 2015). Unlike most companies which prefers to achieve public admiration as a positive impact on sales, Ryanair is clear about its priority all the time and has been able to stick on to it. The most competitive factor to reach out to its customers would be the cost control. In this way, the long-term future of the company will be secured.

On the other hand, this management approach of Ryanair has some drawbacks as well. Firstly, its contract strategy would cause insecurities within the majority of its employees. For example, a survey according to Harvey and Turnbull (2016) illustrated that among 1100 pilots in Ryanair, more than 78% showed no confidence about the Ryanair safety reporting channels and about 90% were worried if the Ryanair safety system provides appropriate feedback on previous incidents. The open and transparent safety culture is absolutely importance and essential to every airline in this industry. However, this survey has revealed potential issues for Ryanair. Another example can be the 'Ryanair Caught Napping', which is exposed in a Channel 4 Dispatches documentary and showed shortcomings of the company’s stuff training procedure (Thomas, 2015).  In order to minimize the primary cost on employee training and interviews, Ryanair has to minimize the requirements and standards of the overall operation. Although it still can meet the official standards, it would definitely conduct negative influences to the future of the company with such safety concerns.

Besides, there is also income insecurity related to the low income of both the flight and cabin crew who are only paid for flying hours. In the last section, it is mentioned that the starting salary of a cabin crew can be lower than the minimum wage of 18-20 years old works in UK. On September 15th, 2017, it was announced by Ryanair that more than 2,000 flights had to be cancelled , which was about 2% of its capacity at that time (The Economist, 2017). Because of this, Ryanair has experienced a 5% fall of share price. This was caused by a pilot shortage of Ryanair starting in early September, 2017 and led to serious consequences for up to 400000 people in Europe unable to catch up with their travel plan on time. The leader of Ryanair, Mr O'Leary, said that the main reason would be a change in the way the airline calculates pilots' leave. The holiday year was supposed to be from April to March in the next year, Suffering the pressure from the Irish Aviation Authority, Ryanair has been adopting the calendar year under the requirements of the new EU rules. Thus, some pilots of Ryanair take their annual leave between April and December, which resulted in insufficient employees to maintain the original schedule of the company. Also, it is reported that the situation was caused due to pilots leaving for better pay and conditions (The Economist, 2017).

At this point, Labour law can become a very sensitive price determinant for the calculation of low-cost airlines.  More serious was a less-noticed European Court of Justice (ECJ) ruling on September 14th which decreed that low-cost airlines' employment disputes with crew must go to local labour courts in all the countries where airlines have bases (Irish labour law is broadly more flexible). Analysts say the firm's costs may rise by around 5% as a result (The Economist, 2017). On September 14th, 2017, the ECJ sided with one employee from Ryanair, as well as its five employees of the Ireland-based recruiter, Crewlink,  ruling that their claims of about EUR 20,000 each were not required to be only filed at Irish courts, but could also be brought before Belgian courts.These employees were deployed at the Belgian airport of Charleroi and therefore they had initially filed the claims at the Employment Tribunal of Charleroi. After its jurisdiction was denied its jurisdiction, they then made the move to appeal to Appeal Labour Court of Mons. Finally, this case was referred to the ECJ. The stock market price of Ryanair has dropped immediately for significant percentage right after the ECJ judgment was out (Temming, 2018). Unsatisfied wage and contract policy would influence the company’s reputation in the stock market and eventually the confidence of its shareholders on the company.

4. Conclusion

The airline business environment has been reshaped because of the appearance of the low cost carriers within liberalized markets in Europe. The LFAs have also conduct significant impacts in the domestic passenger markets over the world. Comparing to when the aviation business was mainly controlled by the full service network carriers, such as British airways, it has become more competitive and brought simplicity, efficiency, productivity and high utilization of assets in order to be able to provide low cost services (O’Connell & Williams, 2015). As low cost airlines, its main character will always remain as cost effective with its own essence of cost reducing. The Irish low-cost carrier, Ryanair, has driven this principle to the perfection. The company maintains its primary aims to offer low fares flights by the aggressive pricing of its tickets. To realize it, one approach would be related to its way of managing people, i. e. employee relations. Costs on personnel are required to be crucial and therefore Ryanair started with short-term contracts via agencies with both cabin and flight crews, as well as minimize the primary cost on wages, traditional free of charge services and any possible ways to reduce the cost. The advantages of such way of managing people would be that Ryanair is able to maintain the flexibility on employment, also, driven by the worldwide changes nowadays, it will move forwards to the direction of being environmental friendly. .This could not only help Ryanair lower the overall cost, but also secure its target customers, which means to ensure its solid development in the future. The drawbacks of being flexibility and minimizing wages would be the potential risk Ryanair may face about the stability of the business running. Unsatisfied wages and short-term contracts are not able to build up the confidence of the employees for Ryanair. Besides, there is rising safety concerns as Ryanair might pay more attention on the profit side rather than the professional skill needed on employees.



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