Low Cost Airline Model
Innovative Idea and Unique Model 3
SWOT Analysis 6
During last decade world’s production, trade, finance and movement of people expanded quickly. The world’s economy has reorganized transport and infrastructure, which have become extremely important for the region’s prosperity (Pierzakowski, 2010). In economics, an efficient and globally-oriented, low-cost movement of goods, people and information is necessary to build competitiveness. Recently, air travel has undergone tremendous changes over short period of time. Traditional airlines are cutting commissions of the travel agencies, cancelling routes where possible, downsizing employees while low-cost airlines are buying hundreds of new planes, opening new routes every month, reaching 95% of its bookings through internet and making high profit (Kernchen, 2004). Therefore, low cost airlines have offered a completely new approach to air travelling.
Innovative Idea and Unique Model
Gross and Bjelicic (2007) claim that low cost airlines offered a new model that differed significantly from traditional airlines. Traditional carriers offered standard flights and their services were treated as “basic product”, but low cost airline changed the perception of this “basic” product by turning into a cheaper and more affordable, so called “no frills”. The characteristics of the “basic” product might be enhanced to superior, deluxe etc. Ryanair is the company that follows this approach with consistency (Gross, Bjelicic, 2007). The company offers cheap flights and a number of services to improve comfort of flight for additional fees. Ryanair is able to provide cheap service to the passengers due to low cost airline’s unique model of management of the economic elements.
Low-cost airlines such as Ryanair constantly seek ways to cut costs and generate additional revenues and to do this they need to manage their capital. Vasign et al. (2012) state that one of the main instruments of capital management in the industry is leasing. It a cost-effective tool for airlines to finance their fleet. Airlines are able to invest in and modernize the aircraft to meet the future demand without the cash flow burden of don payments, large equity outlays to fund the non-debt portion of an aircraft purchase. Though leasing companies and aircraft manufactures have developed many innovative methods to satisfy the needs of the industry like leases, equipment trust certificates and government export credit etc. each company should seek for the equilibrium of the leased versus owned assets to ensure the capital is working and generating profit (Vasign et al., 2012). According to Ryanair Form 20-F (2016) the company operates 346 planes, 46 of which are leased and 194 were financed through credit facilities. Most of the credit facilities have 12-year maturity period and fixed interest rates, which basically means the company is able to forecast it future cash flows and costs and ensure the costs are well managed. The average period of leasing is 7 years, which allows the company to renew the fleet before major maintenance costs rise.
The low cost …