ryanair business model case study

MBA Knowledge Base

Business • Management • Technology

Home » Management Case Studies » Case Study: Ryanair Business Strategy Analysis

Case Study: Ryanair Business Strategy Analysis

Ryanair is an Irish low cost airline headquartered in Dublin founded in 1985. It operates 181 aircrafts over 729 routes across Europe and North Africa from 31 bases. Ryanair has seen large success over the recent years due to its low-cost business model and has become the world’s largest airline in terms of international passenger numbers. Taking Porter’s generic business strategies into consideration, Ryanair operates a cost-leadership strategy to drive itself into achieving its mission of being the leading European low-cost carrier (LCC). Throughout this essay the business strategy of Ryanair will be analysed and the sustainability of their model evaluated.

Ryanair’s objective is to firmly establish itself as Europe’s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fares service. Considering their objectives and mission, Ryanair’s decision on their cost-leadership strategy was based on a few main factors which are discussed below.

A major influence was the deregulation of the airline industry in 1978 which removed government intervention within the European continent. Under the new rules, routes and fare decisions were made by individual airlines which meant that they could compete on other factors besides food, cabin crew and frequency. As a result of deregulation, a large number of new airline start-ups emerged within the EU and competition among airlines increased dramatically resulting in downward price pressures. Ryanair was established to take full advantage of these market conditions. By offering low prices, Ryanair entered a huge and virtually unlimited market.

Having seen the major success of the low cost carrier Southwest in the United States, Ryanair decided to follow in their footsteps by establishing a LCC for the European continent that targeted fare conscious leisure travelers and regular low cost business travelers. By doing this Ryanair became the first low-fare airline in Europe. However, they took the Southwest model further by offering no drinks and snacks at all and abolishing the frequent flyer program which Southwest up to this day offers its customers.

The evaluation of Porters five forces influenced Ryanair’s choice of a cost-leadership strategy, as the threat presented by new entrants and the threat of substitutes could hinder their success. The threat of new entrants is high within the aviation industry which meant that low fares would help drive away any further competition. The threat of substitutes to Ryanair had to also be carefully examined. Their primary market, Europe, had the availability of high speed trains and car holidays. For Ryanair to be successful, prices had to be low to attract the public, and resist strong competition from substitutes like Eurostar.

As Europe’s largest low fare airline, Ryanair’s competitive advantage remains in their ability to continue as cost leaders; providing the cheapest fares to its customers. This dictates that the company must minimize its own costs to ensure that they are able to offer customers the service at a price below their direct competitors. This leads us to consider some key functional strategies which directly help Ryanair towards their ultimate goal to be Europe’s leading low fares airline.

The marketing strategy is perhaps the most obvious and significant functional strategy of Ryanair. Low fares are designed to stimulate demand, attracting fare-conscious travelers, those who may have used alternative forms of transportation or even those who may have not traveled at all. Penetration pricing as it is called helps gain market share and simply, more customers equals more revenue. Tickets are almost solely sold on their website ‘www.ryanair.com’ which very importantly keeps sales costs to a minimum since very few phone operators are employed and computers are able to cheaply handle all functions of sales. With ever increasing accessibility of the internet globally anybody with internet access can buy airline tickets from Ryanair, so distribution practically takes care of itself through this medium. Ryan Air relies on low cost promotions and in recent times has concentrated on their ‘One million seats at one pound’ which is usually advertised through their internet site, national press and bulletin boards. It is the simplicity of this promotion which helps keep costs low since expensive advertising agencies can be entirely avoided and advertising can be dealt with in house.

Ryanair’s operations strategy determines how the airline will deploy its resources and the policies it will operate by. To keep costs low they operate a ‘no frills’ service onboard aircraft. This means the fare only includes the flight. There are however a number of other measures directly related to a no frills service. These include ticket-less boarding, unallocated seats, one class of travel, costs for check-in baggage, no refund policy, basic seats (to increase aircraft capacity) and charging for any additional service. All this significantly reduces costs to Ryanair. The Achilles heel of Ryanair is their greater aircraft utilization through super quick turnaround times. Essentially this means the aircraft spends very little time on the ground, they achieve this through their human resource policies and by having none or very little cargo in the baggage hold to speed up loading and unloading of the aircraft.

Logistics strategy deals with the flow of products into and out of Ryanair. Again there is heavy emphasis on cost saving and reducing measures. Ryanair fly to secondary airports which are potentially much further from the City centre but accessible enough by other forms of ground transportation. At these airports Ryanair are able to negotiate extremely aggressively and demand the lowest landing and handling fees. Additionally Ryanair is usually able to gain financial assistance with marketing and promotional campaigns at these airports.

As cost leader Ryanair strives to undercut all its rivals but this means very low income per fare and requires maximum utilization of its resources. Fortunately their financial policy ensures they are able to still profit handsomely from rock bottom fares. The aim is to break-even on fares but to make their profits out of ancillary charges and commissions from their partners. Ryanair has a number of affiliates such as Hertz car rental, Acumus insurance and booking.com all of whom are advertised readily on the Ryanair website. Since the website has high website traffic its partners are able to reach out to Ryanair’s huge client base and are prepared to pay good commissions to the firm for this privilege. Ryanair also generate income from advertising on board the aircraft. Ancillary revenue is generated from many of the services that traditional airlines wouldn’t charge for, such as large baggage into the cargo hold, allocated seating, snacks and drinks.

Ryanair’s strategy when purchasing aircraft is to buy new, uniform aircraft. This is beneficial for a number of reasons all of which directly help cost saving measures. Firstly, by being able to order same aircraft in bulk they are able to negotiate a better price per aircraft. Secondly, uniform aircraft mean that there are potential savings in staff training; air stewards being more familiar with all aircraft and maintenance will be simpler. Finally by buying new, the company has safer, more fuel efficient planes with lower maintenance costs. Safer aircraft also means greater consumer confidence, equating to more fare sales.

Furthermore Ryanair aggressively hedge and fix as many of their costs as possible, such as oil and aircraft prices so they are not subject to future price fluctuations which could adversely affect profitability.

The human resource policy is again directly related to reducing costs. Employees are expected to pay for their own uniform and equipment. Training given is the required minimum and staff utilization is among the highest in the airline industry. Many staff are employed on performance contracts and those who do not meet their expectations are readily replaced. Staff are also expected to take on a number of roles, cabin staff will also clean the aircraft prior to the next service, check in staff assist in boarding the aircraft etc.

Ryanair has successfully experienced years of growth both in the number of its aircrafts and passengers since its launch. However, with the global financial system recently suffering its greatest crisis in more than 70 years, existing business models of many aviation firms are coming under great strain. As this economic downturn bankrupts LCCs like XL and Zoom with more expected to follow, the question is whether Ryanair’s cost-leadership strategy is sustainable or not as it continues to offer lower fares in the face of high costs. Although Ryanair has posted losses along with other aviation firms for the latest quarter, it is expected to emerge from this downturn with fewer competitors because its â €š ¬1.8 billon balance sheet is one of the strongest in the industry. Additionally, as the credit crunch takes its toll, traditional airlines are not in a position to cut fares and the threat of new LCCs is virtually eliminated due to the lack of financing. Although Ryanair faces competition from substitutes like Eurostar, it is at an advantage because of Eurostar’s limited destinations.

Ryanair is sticking to its mantra, when the going gets tough, sell more seats for almost nothing. By offering low fares, Ryanair expects passengers to trade down to the low cost airlines rather than stop flying completely. This trend appears accurate so far based on passenger numbers as recession forces millions of passengers to focus on price. Additionally, the latest statistics from The European Low Fares Airline Association members show a 15.7% year-on-year growth in the number of passengers for 2008, indicating that the LCC model is robust, even in times of crisis. Consequently, there is no doubt that Ryanair looks poised for substantial profits and passenger growth in the coming years. However, in order to compete with other LCCs and maintain its continued market share growth in the future, Ryanair needs to improve its poor customer relations.

The sustainability of Ryanair’s cost leadership strategy also depends largely on the price of oil and how effective the firm is in cutting costs in order to continue offering low fares. According to the firm’s latest financial report, Ryanair will enjoy significantly lower oil costs thanks to their recent hedging programme, when most of their competitors are already hedged at much higher prices. These lower prices will drive Ryanair’s traffic growth, maintain high load factors and capture market share from higher cost fuel surcharging competitors. In order to cut costs, Ryanair close all its airport check-in desks and have passengers check-in online instead. Other cost saving methods not yet implemented include charging customers for using toilets on airplanes. These cost cutting ideas are not very popular among consumers and it means that Ryanair needs to improve its already tarnished brand image in the future which it had attained through negative press reporting and misleading advertisements .

The current strategy at Ryanair is expected to work so well that despite the recession Ryanair’s CEO has underlined the firm’s commitment to expansion. The firm is expected to grow at 20 percent a year because of a 180 aircraft’s on order from Boeing. These expansion plans for the future will require the company to increase its landing slots at airports and recruit more employees. Currently Ryanair has limited access to landing slots in major airports and the secondary airports are long distances away from city centers which could make it less attractive in the future. However, a remarkable cut in flights by other European airline carriers due to recession is creating enormous opportunities for Ryanair, as many major airports compete to reduce charges in order to attract Ryanair’s growth. Availability of skilled personnel shouldn’t be a problem for Ryanair due to recent high unemployment levels. However, Ryanair needs to improve its current low level of empathy for employees if it is to retain them in the future.

Even though Ryanair’s cost leadership strategy is robust and it looks set to serve them well in the future, there are some key areas within the business that can be improved on to enhance the firm’s profitability and brand image.

Ryanair has always been criticized for many aspects of its poor customer relations. According to The Economist, Ryanair’s “cavalier treatment of passengers” had given Ryanair “a deserved reputation for nastiness” and that the airline “has become a byword for appalling customer service … and jeering rudeness towards anyone or anything that gets in its way”. If Ryanair is to maintain its large customer base, it needs to ensure that it acknowledges its customers’ concerns and maintains a service focused attitude at all costs. Ryanair needs to invest in servicing customers better by providing a non-premium contact number, improving its non user friendly website, and simplifying the terms and conditions of the flight service. Ryanair should also create a frequent flyer program to establish a fixed customer base and encourage customer loyalty.

Ryanair is notorious for its high staff turnover which negatively affects its reputation as an employer. Over utilization of employees, poor remuneration package , and minimal training are a few other critical items to be considered by Ryanair if it is to retain employees in the future. Ryanair needs to understand that although it is currently possible to replace outgoing employees, but with time Ryanair’s overall image will be tarnished. Resultantly, attracting new employees could become impossible and this will hinder their expansion plans. Ryanair should incorporate a flexible benefits package solely designed to improve employee morale such as flexible working hours and extra holidays. To improve its image amongst employees, training at all employee levels must include exposure to similar techniques and methods that help promote the development of a uniform company identity.

Following huge success in Europe, Ryanair should consider introducing low cost transatlantic flights to support its expansion plans and attain a larger customer base. With a high demand for certain routes like London-New York and room for negotiation in airplane prices and airport slots mainly due to the current financial climate, it is an ideal time to further reap the rewards of the cost leadership strategy that has served Ryanair so well over the years.

Ryanair’s model looks set to survive the current industrial downturn through its lower costs and substantial cash balances. No airline is better placed in Europe than Ryanair to trade through this downturn. It will therefore continue to grow, by lowering fares, taking market share from competitors, and expanding in markets where competitors either withdraw capacity or go bust. By taking the recommended improvements into consideration, it looks like Ryanair’s cost leadership strategy seems ideal for the future.

Related posts:

• Case Study: Strategy of Ryanair
• Case Study: Business Strategy Analysis of Wal-Mart
• Business Strategy Case Study: Relaunch of Fiat 500
• Case Study: Kellogg’s Business Strategy
• Case Study: Sony’s Business Strategy and It’s Failure
• Case Study: Business Strategy of Sony Corporation
• Case Study: Pfizer’s Strategy Analysis
• Case Study: The Business Strategy of Apple
• Case Study: Dell Social Business Strategy
• Case Study of Papa John’s: Quality as a Core Business Strategy

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

How Ryanair's Relentless Cost-Cutting Redefined the Airline Industry

Ryanair, Europe's leading budget airline, has seen an extraordinary trajectory of growth, outperforming its competitors by a wide margin in the airline sector. Its relentless approach to low-cost and operational excellence, combined with strategic route expansion, has undoubtedly played large parts in assuming a dominant role within the European airline industry. Let's delve into the factors that enabled Ryanair to become one of the few companies to generate substantial returns for its shareholders in an industry that's usually not lucrative.

Key Insights

Inspired by Southwest Airlines: Ryanair's transformation into one of the world's leading low-cost carriers was significantly influenced by CEO Michael O'Leary's insights gained from Southwest Airlines.

Relentless cost-cutting: Ryanair's exceptional growth and competitive edge are rooted in its status as the lower-cost provider, achieved through strategic initiatives such as negotiating lower airport landing fees and adopting a shrewd fleet acquisition strategy.

Spillover effects: The cost reduction strategies not only generate significant savings but also attract publicity, enabling essentially free marketing and word-of-mouth promotion.

Financial performance: Ryanair's relentless focus on low-cost operations has enabled it to expand rapidly, doubling its size and significantly increasing its market share since 2016.

Founding Story

Founded in 1984 in Ireland by the Ryan family, with Tony Ryan at the helm, Ryanair began its operations with a single small turbo-prop plane. The airline's initial aim was to disrupt the duopoly held by British Airways and Aer Lingus (both are now wholly owned by International Consolidated Airlines Group ) on London-Ireland flights by offering a lower-cost service.

Ryanair's early days were marked by significant challenges. The airline struggled to find its footing in a market dominated by established carriers. Its initial strategy focused on offering simple, low-price flights, but without a clear business model to sustain its operations, the early days were marked by financial difficulties.

The turning point came in the early 1990s when current CEO Michael O'Leary, who was initially hired as CFO in 1988 by the founder Tony Ryan, took a trip to the United States. There, he met with Herb Kelleher, co-founder of Southwest Airlines , and was inspired by Southwest's successful low-cost model. O'Leary returned to Ireland convinced that Ryanair could revolutionize air travel in Europe by adopting a similar approach.

The Southwest Airlines Inspiration

The meeting between Herb Kelleher and Michael O'Leary is a pivotal moment in airline history. The meeting was intended for O'Leary to learn from Kelleher's experiences and insights into the low-cost airline business model.

Southwest Airlines' model was straightforward yet revolutionary: use a single model of aircraft to reduce maintenance and training costs, focus on quick turnaround times to maximize aircraft utilization, offer point-to-point flights to avoid costly hub operations, and eliminate unnecessary extras that contributed to higher ticket prices.

Inspired by this model, O'Leary transformed Ryanair from a small, struggling airline into one of the world's largest. The "stealing of the idea," as it is sometimes dramatically phrased, was more about adapting a proven business model to a different market. Isn't it fascinating how a single event, leading to one crucial insight, can entirely rewrite the future for companies and even industries? Let's explore this low-cost model in depth.

Ryanair: Low-Cost Squared

Ryanair began its operations in 1988, flying between London Gatwick Airport and Waterford, Ireland's fifth-largest city, with a single turbo-prop plane. Initially focusing on the London-Ireland flight market, which was historically dominated by British Airways and Aer Lingus, the company spent the next 30 years expanding into markets across Europe, route by route. As of 2023, Ryanair operates over 3,600 daily flights across 94 hubs, carrying almost 200 million passengers annually – a doubling of numbers since 2016.

The bedrock of Ryanair's spectacular growth is its status as the lower-cost provider – by a wide margin – in an industry notorious for inefficiency and uneconomical operations. Ryanair exemplifies the benefits of a substantial cost advantage: aside from fuel, Ryanair’s unit costs are around half those of its closest competitor, easyJet , and significantly lower than those of other rivals such as Norwegian and Air Berlin. This cost leadership compels competitors to price their fares at double Ryanair's rates, which explains why Ryanair continues to take market share across Europe.

Ryanair's low-cost strategy is founded on extreme operating efficiency, with its greatest cost advantage being airport landing fees. Unlike the common industry practice, Ryanair traditionally operates from smaller airports where it can exert influence over airport owners rather than adopting a position of subservience. As a result, even when primary airports raise fees, Ryanair often secures concessions.

Its second biggest cost advantage comes from shrewd fleet acquisition strategies. While other airlines, influenced by pilot-focused cultures, prioritize diverse fleets of advanced aircraft, Ryanair has built a uniform fleet opportunistically. For instance, in 2003 amid an industry slump, it made a massive purchase of high-quality Boeing 737-800s at reduced prices. This bulk purchasing strategy not only yields volume discounts from manufacturers but also facilitates staffing an in-house maintenance crew, which proves to be vastly more economical than external alternatives.

These two cost advantages are mutually reinforcing, creating a deep and increasingly strong competitive edge. The acquisition of inexpensive planes enables Ryanair to operate profitably at low fares to smaller airports, allowing Ryanair to dominate traffic at these airports, which in turn leads to significantly lower landing fees. A recent order to double its fleet over the next eight years will not only ensure the continuity of these dynamics but may also accelerate them, as no other airline is expanding as rapidly as Ryanair.

Quartr Pro is revolutionizing professional public market research

Request a personal demo to learn why Quartr Pro is quickly being adopted by leading asset managers, hedge funds, investor relations departments, and sell-side analysts worldwide.

• Request personal demo

In essence, Ryanair is renowned for rethinking traditional aspects of the airline industry and relentlessly pursuing cost reductions. Its strategies are often controversial, yet rivals invariably follow suit to capitalize on similar savings. Examples from its extensive list include charging for food and beverages, imposing fees for luggage and airport check-in, abstain from frequent-flier programs, and avoiding the use of air bridges. Such bold initiatives not only allow Ryanair to sell seats at lower prices but also generate substantial publicity – much of it critical – which serves as an economical means of capturing the attention of potential customers. As CEO Michael O'Leary explained:

"As long as you run around generating noise, it drives people on to our website. And we don't spend hundreds of millions of dollars on marketing to do it. Charging for toilets continues to be the number one story that resurfaces in the press and it's the gift that keeps on giving. We've never done it, but it keeps coming up on social networks every three or four months, the media picks up on it and then someone writes a story on it." – CEO, Michael O'leary

Epitomizing the strategy of combining low prices with additional benefits, Ryanair continually leverages its competitive advantages. Several times, it has capitalized on the profitability and efficiency stemming from its cost-conscious operations to secure aircraft acquisitions at prices significantly lower than those available to rivals, burdened by higher structural costs. Moreover, Ryanair has started to make inroads into primary airports and the business travel sector, gradually supplanting Europe's retracting legacy carriers. This cultural commitment to low-cost operations has resulted in margins and returns on invested capital that are unparalleled in the airline industry, with operating income more than doubling between 2015 and 2023.

Ryanair's revenue growth from 1997 visualized:

In conclusion, Ryanair's remarkable journey from a modest operation with a single aircraft to becoming a dominant force in the airline industry is a testament to the power of innovation, strategic foresight, and a relentless commitment to cost efficiency. By challenging traditional business models and continuously seeking ways to reduce expenses, Ryanair has not only transformed itself but also the landscape of the European airline industry, ultimately benefiting both its shareholders and customers significantly.

Its aggressive expansion and low-cost strategies have made it a case study in business and aviation circles alike. As the airline looks to the future, with plans to further expand its fleet and reach, Ryanair stands as a shining example of how disruptive business models can lead to unprecedented success, even in industries facing naturally tough economic conditions.

Why are finance professionals around the world choosing Quartr Pro ?

With a broad global customer base spanning from equity analysts, portfolio managers, to IR departments, the reasons naturally vary, but here are four that we often hear:

Eliminate hours of searching for specific data points buried deep inside company material.

Everything you need for qualitative public market research in one single platform.

Understand the qualitative aspects of entire industries or specific companies.

Incorporate AI functionality into your daily workflow.

• Discover Quartr Pro

Brought to you by:

Ryanair: Flying Too Close to the Sun?

By: Ciaran Heavey, Dorota Piaskowska

Unlike any other European airline, Ryanair DAC had long experienced impressive growth and performance thanks to its well-designed and ruthlessly executed low-cost carrier business model. However, the…

• Length: 23 page(s)
• Publication Date: Jun 12, 2019
• Discipline: Strategy
• Product #: W19258-PDF-ENG

What's included:

• Teaching Note
• Educator Copy

$4.95 per student

degree granting course

$8.95 per student

non-degree granting course

Get access to this material, plus much more with a free Educator Account:

• Access to world-famous HBS cases
• Up to 60% off materials for your students
• Resources for teaching online
• Tips and reviews from other Educators

Already registered? Sign in

• Student Registration
• Non-Academic Registration
• Included Materials

Unlike any other European airline, Ryanair DAC had long experienced impressive growth and performance thanks to its well-designed and ruthlessly executed low-cost carrier business model. However, the limits of growth did begin to appear, at which time the company adjusted its business model with an increased emphasis on customer orientation. As a result, cracks in the business model appeared and labour issues came to the fore. While the media and industry analysts were focused on these challenges, Ryanair was undergoing a quiet digital revolution, shifting the airline's business model toward a technology-based travel platform. With the problems in the business model and a shifting business strategy, could Ryanair achieve the ambitious growth targets it set for 2024?

Ciaran Heavey is affiliated with University College Dublin. Dorota Piaskowska is affiliated with University College Dublin.

Browse Econ Literature

• Working papers
• Software components
• Book chapters
• JEL classification

More features

• Subscribe to new research

RePEc Biblio

Author registration.

• Economics Virtual Seminar Calendar NEW!

Challenges in the Business Model of Low-Cost Airlines: Ryanair Case Study

• Author & abstract
• Related works & more

Corrections

(ESIC Business and Marketing School, Spain)

(Universitat Politècnica de València, Spain)

Suggested Citation

Download full text from publisher.

Follow serials, authors, keywords & more

Public profiles for Economics researchers

Various research rankings in Economics

RePEc Genealogy

Who was a student of whom, using RePEc

Curated articles & papers on economics topics

Upload your paper to be listed on RePEc and IDEAS

New papers by email

Subscribe to new additions to RePEc

EconAcademics

Blog aggregator for economics research

Cases of plagiarism in Economics

About RePEc

Initiative for open bibliographies in Economics

News about RePEc

Questions about IDEAS and RePEc

RePEc volunteers

Participating archives

Publishers indexing in RePEc

Privacy statement

Found an error or omission?

Opportunities to help RePEc

Get papers listed

Have your research listed on RePEc

Open a RePEc archive

Have your institution's/publisher's output listed on RePEc

Get RePEc data

Use data assembled by RePEc

Ryanair PESTEL Analysis

Before we dive deep into the PESTEL analysis, let us get the business overview of Ryanair. Ryanair is an Irish low-cost airline founded in 1984 by Christopher Ryan, Liam Lonergan, and Tony Ryan.

The company is headquartered in Swords, Dublin, Ireland, and its primary operational bases are located at Dublin and London Stansted airports. Ryanair has grown to become Europe’s largest low-cost carrier and one of the largest airlines in the world by passenger numbers.

Business Model : Ryanair’s business model revolves around offering low fares to stimulate demand while keeping costs down. This is achieved by operating a single aircraft type (Boeing 737), efficient fuel management, high aircraft utilization, and short turnaround times. The company also generates additional revenue from ancillary services such as baggage fees, seat selection, priority boarding, and in-flight sales.

Market Position:  Ryanair dominates the European low-cost airline market, competing with other major low-cost carriers such as EasyJet, Wizz Air, and Vueling. It operates over 1,800 daily flights across 40+ countries, focusing on point-to-point flights between secondary airports, which typically have lower fees than major hubs.

Financial Performance:  Ryanair has maintained a solid financial performance over the years, with consistent profitability and strong cash flow generation.  Ryanair Holdings reported a strong half-year after-tax profit of €1.37bn, at a revenue of $6.6 billion.

Here is the PESTEL analysis of Ryanair

A PESTEL analysis is a strategic management framework used to examine the external macro-environmental factors that can impact an organization or industry. The acronym PESTEL stands for:

• Political factors: Relate to government policies, regulations, political stability, and other political forces that may impact the business environment. 
• Economic factors: Deal with economic conditions and trends affecting an organization’s operations, profitability, and growth. 
• Sociocultural factors: Relate to social and cultural aspects that may influence consumer preferences, lifestyles, demographics, and market trends.
• Technological factors: Deal with developing and applying new technologies, innovations, and trends that can impact an industry or organization. 
• Environmental factors: Relate to ecological and environmental concerns that may affect an organization’s operations and decision-making.
• Legal factors: Refer to the laws and regulations that govern businesses and industries. 

In this article, we will do a PESTEL Analysis of Ryanair.

PESTEL Analysis Framework: Explained with Examples

• Government Stability : Ryanair, a Europe-based carrier, operates in various countries. The stability of governments in these nations can influence their operations, regulatory environment, and passenger confidence. Political instability can lead to disruptions in operations or reduced passenger demand.
• Bilateral Air Service Agreements : International operations rely on agreements between countries, allowing carriers from one nation to operate in another. Changes, cancellations, or renegotiations of these agreements can affect Ryanair’s routes and expansion strategies.
• Regulation and Aviation Policy : Governments have a significant say in aviation regulations, including safety standards, operational requirements, and customer service mandates. For instance, the EU’s regulations on compensation for delayed and canceled flights have a direct cost implication for Ryanair.
• Airport Access and Charges : Political decisions regarding the development and expansion of airports, as well as landing fees and other charges, can affect Ryanair’s cost structure and its choice of hubs.
• Taxation Policies : Governments’ decisions regarding aviation fuel taxes, sales taxes on tickets, or other relevant levies can impact ticket pricing and overall operational costs for Ryanair.
• Brexit : Given that Ryanair has significant operations connecting the UK with other European destinations, the political dynamics and decisions around Brexit had implications for the airline. This includes potential regulation changes, open skies agreements, and workforce considerations.
• Geopolitical Tensions : Ryanair operates in a largely peaceful continent, but geopolitical tensions, such as disputes between EU nations and non-EU nations, can influence flight routes, demand, and regulatory challenges.
• Government Support to National Carriers : Some countries might support their flag carriers or national airlines, which can create an uneven playing field. Subsidies, preferential treatment, or protectionist measures can put Ryanair at a disadvantage in specific markets.

• Economic Growth : The overall economic health of the countries Ryanair operates in can affect consumer spending power. A growing economy usually translates to increased business and leisure travel, benefiting airlines.
• Exchange Rates : Ryanair operates across multiple countries, which means it deals with various currencies. Fluctuations in exchange rates can influence ticket pricing, costs, and revenue when converted back to Ryanair’s reporting currency.
• Fuel Prices : One of the significant costs for airlines is aviation fuel. Economic factors affecting oil prices, such as supply and demand dynamics or geopolitical events, directly impact Ryanair’s operational costs.
• Inflation Rates : Inflation can increase operational costs, from wages to aircraft maintenance. High inflation can also affect consumer purchasing power, potentially reducing demand for air travel.
• Interest Rates : Like many airlines, Ryanair might rely on borrowed capital for operations or expansion. Interest rate fluctuations can impact financing costs. Additionally, high-interest rates can reduce discretionary spending by consumers, affecting demand.
• Unemployment Rates : High unemployment can lead to reduced disposable income, reducing demand for leisure and business travel. Conversely, a booming job market might increase business and leisure trips.
• Competition and Price Wars : The broader economic climate can influence the airline industry’s competition level. In more challenging economic times, airlines might engage in price wars to attract passengers, eroding profitability.
• Tourism Trends : Economic factors that influence tourism, like changing income levels or shifts in the value proposition of certain destinations, can impact Ryanair’s route profitability.

Sociocultural 

• Travel Preferences : Different cultures and societies have varied vacation and travel preferences. Understanding these can help Ryanair tailor its services and routes to better suit its clientele.
• Demographics : Changes in population structures, such as age or family size, can influence travel patterns. For example, an aging population might prioritize different destinations or services compared to younger generations.
• Lifestyle Changes : As work-life balance becomes more important in European societies, short weekend getaways might become more prevalent. As a low-cost airline, Ryanair stands to benefit from such trends.
• Attitudes Towards Budget Travel : The acceptance and prevalence of budget travel in European societies have increased over the years. Ryanair, as a low-cost carrier, taps into this trend. However, societal values shifting towards premium services could pose challenges.
• Environmental Awareness : As people become more environmentally conscious, there’s increased scrutiny of industries that contribute to environmental degradation, like aviation. Ryanair might need to address these concerns through sustainable practices or face potential backlash.
• Cultural Perceptions of Service : The cultural expectations regarding customer service can differ across countries. For Ryanair, understanding these nuances is essential to ensure customer satisfaction.
• Health and Well-being Concerns : Events like the COVID-19 pandemic have drastically influenced societal attitudes toward travel, with health and safety becoming paramount. Like other airlines, Ryanair has had to adapt to these shifts in societal attitudes.

Technological

• Online Booking Systems : With the rise of internet usage, online booking platforms have become the norm. Ryanair has heavily leveraged this, offering exclusive discounts and promotions on its website, thereby bypassing traditional travel agents.
• In-flight Wi-Fi and Entertainment : As technology has advanced, passengers have started expecting in-flight connectivity and entertainment options. Adapting to such technologies can enhance passenger experience and open up ancillary revenue opportunities.
• Fuel-efficient Aircraft : Technological advancements in aircraft design and engines can lead to more fuel-efficient flights. Investing in such technology can significantly reduce Ryanair’s operational costs.
• Data Analytics : Modern businesses are driven by data. Ryanair can utilize sophisticated data analytics to optimize routes, set dynamic pricing, personalize marketing campaigns, and enhance customer service.
• Electronic Payments : The rise of digital payment methods, including credit cards, digital wallets, and other online payment systems, has made transactions easier and more efficient, beneficial for online-centric businesses like Ryanair.
• Automated Customer Service : With the advent of AI-driven chatbots and customer service platforms, airlines like Ryanair can provide instant, round-the-clock customer service without significantly increasing costs.
• Operational and Training Simulators : Technological advancements in pilot training, such as more realistic flight simulators, can help Ryanair ensure a high standard of pilot training while reducing the costs associated with traditional flight-based training.
• Safety and Maintenance Technology : Modern technologies can provide real-time diagnostics of aircraft health, predictive maintenance, and enhance overall safety standards. Adopting these can lead to longer aircraft life, reduced downtimes, and better safety records.

Environmental

• Carbon Emissions : Aviation is responsible for a notable share of global carbon emissions. Ryanair, one of Europe’s largest airlines, faces pressure to reduce its carbon footprint through measures like investing in more fuel-efficient aircraft or supporting research into sustainable aviation fuels.
• Noise Pollution : Airports, especially those in or near urban areas, often face restrictions related to noise pollution. This could affect Ryanair’s choice of hubs, flight schedules, and even the type of aircraft they might opt to purchase.
• Waste Management : Airlines generate significant waste, from in-flight meals to disposable items for passengers. Managing this waste sustainably is becoming more critical due to environmental concerns.
• Fuel Consumption : Investing in new technologies or practices that reduce fuel consumption lessens the environmental impact and reduces operational costs for Ryanair.
• Regulations & Emissions Trading : Various jurisdictions have introduced or are contemplating regulations related to carbon emissions, including emissions trading schemes. Participation in such schemes or adapting to these regulations could have cost implications for Ryanair.
• Environmental Activism : Rising environmental activism and awareness mean airlines face increased public and non-governmental organizations’ scrutiny. This can influence Ryanair’s brand image and necessitate investments in sustainability initiatives.
• Biodiversity Concerns : Constructing new airports or expanding existing ones can lead to habitat destruction. Ryanair, while not directly responsible for airport construction, could still be affected by the associated public sentiments and potential protests.
• Sustainable Aviation Fuels : The research into and adoption of sustainable aviation fuels (SAFs) is a growing trend. While currently more expensive, investing in or supporting SAFs could benefit Ryanair from both environmental and regulatory perspectives in the long run.
• Public Perception and Brand Image : In an age where consumers are becoming more environmentally conscious, Ryanair’s approach to environmental concerns can significantly influence its brand image and, consequently, customer loyalty.

• Aviation Regulations : Aviation industries are heavily regulated in most countries. Ryanair must comply with the regulations set by bodies such as the European Union Aviation Safety Agency (EASA) and other national civil aviation authorities.
• Consumer Rights : In the EU, airline passengers have specific rights concerning flight delays, cancellations, and denied boarding. Regulations like EC261 ensure passengers get compensated under certain circumstances, which has financial implications for airlines like Ryanair.
• Labor and Employment Laws : Ryanair operates in various countries, each with its own labor and employment laws. These laws govern working hours, union rights, and employee benefits.
• Safety Standards : Airlines have to adhere to stringent safety standards. Any failure to meet these standards can lead to legal repercussions and significant damage to the brand’s reputation.
• Taxation Laws : Different countries have varied taxation rules that can influence airline profitability. This includes taxes on aviation fuel, aircraft purchases, and other operational aspects.
• Environmental Legislation : With growing concerns about climate change, there are increasing legal frameworks focusing on emissions, noise pollution, and other environmental impacts of airlines.
• Antitrust and Competition Laws : Airlines must be cautious about pricing strategies, mergers, and alliances to ensure they do not violate antitrust or competition regulations in their jurisdictions.
• Intellectual Property Laws : Like other businesses, Ryanair would be concerned about its trademarks, service marks, and other intellectual property aspects. They need to ensure they’re protected and not infringing on others’ rights.
• Data Protection and Privacy : Given the vast amount of customer data airlines handle, laws like the General Data Protection Regulation (GDPR) in the EU have significant implications. Ryanair must ensure it manages and protects customer data according to these stringent regulations.
• Licensing and Certification : For airlines, various licenses, and certifications are mandatory, from aircraft operation certifications to licensing for pilots and crew. Regular renewals and checks are required to ensure compliance.

Check out the PESTEL Analysis of Global Businesses

Related posts.

PESTEL Analysis of the construction industry in the UK

PESTEL Analysis of the healthcare industry in the US

PESTEL Analysis of the retail industry in the US

Siemens PESTEL Analysis

Lush Cosmetics PESTEL Analysis

AstraZeneca PESTEL Analysis

Carrefour PESTEL Analysis

Jaguar Land Rover PESTEL Analysis

Type above and press Enter to search. Press Esc to cancel.

Award winner: Ryanair: Flying too Close to the Sun?

Author perspective

Instructor viewpoint, who – the protagonist.

Michael O’Leary , CEO of Ryanair .

Ryanair is Europe’s largest, cheapest and most profitable airline. It was founded in 1985 in Dublin and initially provided flights between Ireland and the UK.

Between 2013 and 2018 Ryanair successfully planned and delivered a strategic turnaround, cementing its position as Europe’s number one airline. Its “Always Getting Better” programme introduced a host of changes to improve customer experience from online booking, to smoother travel and related services. This helped Ryanair digitally transform towards a travel platform.

Initially, passengers and profits grew as the airline expanded into new routes and services but, by 2017, it faced new challenges. Mishandling of pilot holiday rostering, frequent inabilities to conclude labour agreements, and the UK's withdrawal from the EU was starting to affect customer perception and its profits.

Ryanair’s headquarters are in Dublin, Ireland but it operates bases in over 40 countries across Europe and North Africa.

This case explores Ryanair’s growth and challenges in the period 2013 to 2018 following the launch of its “Always Getting Better” programme.

Early in 2019, Ryanair announced a decrease in profits, putting its reputation as Europe’s most profitable airline in jeopardy. Challenges faced over the last two years had damaged customer satisfaction and their brand image, leaving O’Leary and the management team wondering, will they ever achieve their target of flying 200 million passengers by 2024?

AUTHOR PERSPECTIVE 

This is the first award for authors Ciaran and Dorota, and the fourth for UCD Michael Smurfit Graduate Business School.

The authors said: “We are very pleased that so many of our fellow case instructors found the case study suitable for their needs. This recognition certainly motivates us to develop more cases in the future.”

Developing the case

They continued: “We developed this case to address a specific learning need among our students, and in light of a gap in the market for a case study showcasing the evolution of a business model and the digital transformation of a firm in a mature industry. The fact that there are few other such cases is probably one of the reasons for its popularity. We also designed the case to be modular so that instructors could use it in ways that best suit their needs. This adds to the versatility of the case.”

Rich story to tell

The authors added: “We thoroughly enjoyed writing this case. There was much publicly available information to work with and a rich story to tell.

“Perhaps the biggest challenge was condensing this richness to a workable total length and choosing which insights and data not to include.”

Student engagement

The authors explained: “Students find this case study relatable as many of them have first-hand experience flying with low-cost airlines.

“We benefited tremendously from the feedback of our undergraduate, graduate, and executive students when developing this case and would like to thank them for being such enthusiastic learners.”

They concluded: “Identify a true need in the market, pilot the case on various audiences before writing its final version, and write a teaching note as comprehensive as you would like to get yourself with a case.”

INSTRUCTOR VIEWPOINT 

Discover how this case works in the classroom.

"This case study is contemporary in timing, providing many challenges for students in terms of the company achieving its business goals, whilst recognising the fast-changing nature of the business environment.

"In addition, there is an intriguing challenge for students with the proposed change from the original strategic intent of the low-cost business model to a strategic intent to deepen the relationship with customers to support growth. Students will be challenged to consider the structural, social and reputational implications of this proposed change.

"The case study offers a wide range of challenges for students to consider, and will help them understand such complex issues should they meet them in their own managerial careers."

"When using a case in my Global Corporate Strategy course at Maastricht School of Management, there are a few key elements that are important: is it current; does it illustrate at least one key tool (5-forces); can it be used as the jumping-off point for other strategy discussion; is it about a brand that most students will recognise; and is it interesting for the students. It can be difficult to find a case that hits all these points, as the Ryanair case does. When I find a case like this, I will keep it in my curriculum as long as possible.

"Ryanair: Flying Too Close to the Sun? will continue to be an important element of my course for a few years."

The authors

In conversation with Ciaran and Dorota

Due to the Coronavirus pandemic we were sadly unable to visit Ciaran and Dorota to present their awards in person.

However, they joined our Director, Richard McCracken, from Ireland to discuss their winning case.

Watch the full conversation here:

You can also watch shorter sections of the discussion:

• what the case covers
• which classes the case is used in
• the case writing process .

The protagonist

Educators can login to view a free educator preview copy of this case and its teaching note.

View all the 2021 winners

Stay in touch with all the latest case news and views in our free newsletter,  Connect .

Read it online or sign up to have it delivered direct to your inbox!

Discover more

Find Study Materials for

• Explanations
• Business Studies
• Combined Science
• Computer Science
• Engineering
• English literature
• Environmental Science
• Human Geography
• Macroeconomics
• Microeconomics
• Social Studies
• Browse all subjects
• Textbook Solutions
• Read our Magazine

Create Study Materials

• Flashcards Create and find the best flashcards.
• Notes Create notes faster than ever before.
• Study Sets Everything you need for your studies in one place.
• Study Plans Stop procrastinating with our smart planner features.
• Ryanair Strategic Position

Create learning materials about Ryanair Strategic Position with our free learning app!

• Instand access to millions of learning materials
• Flashcards, notes, mock-exams and more
• Everything you need to ace your exams
• Business Case Studies
• Amazon Global Business Strategy
• Apple Change Management
• Apple Ethical Issues
• Apple Global Strategy
• Apple Marketing Strategy
• Ben and Jerrys CSR
• Bill And Melinda Gates Foundation
• Bill Gates Leadership Style
• Coca-Cola Business Strategy
• Disney Pixar Merger Case Study
• Enron Scandal
• Franchise Model McDonalds
• Google Organisational Culture
• Ikea Foundation
• Ikea Transnational Strategy
• Jeff Bezos Leadership Style
• Kraft Cadbury Takeover
• Mary Barra Leadership Style
• McDonalds Organisational Structure
• Netflix Innovation Strategy
• Nike Marketing Strategy
• Nike Sweatshop Scandal
• Nivea Market Segmentation
• Nokia Change Management
• Organisation Design Case Study
• Oyo Franchise Model
• Porters Five Forces Apple
• Porters Five Forces Starbucks
• Porters Five Forces Walmart
• Pricing Strategy of Nestle Company
• SWOT analysis of Cadbury
• Starbucks Ethical Issues
• Starbucks International Strategy
• Starbucks Marketing Strategy
• Susan Wojcicki Leadership Style
• Swot Analysis of Apple
• Tesco Organisational Structure
• Tesco SWOT Analysis
• Unilever Outsourcing
• Virgin Media O2 Merger
• Walt Disney CSR Programs
• Warren Buffett Leadership Style
• Zara Franchise Model
• Business Development
• Business Operations
• Change Management
• Corporate Finance
• Financial Performance
• Human Resources
• Influences On Business
• Intermediate Accounting
• Introduction to Business
• Managerial Economics
• Nature of Business
• Operational Management
• Organizational Behavior
• Organizational Communication
• Strategic Analysis
• Strategic Direction

Every company has a specific strategy it follows to thrive in the market. The strategy involves positioning the brand in a certain place within the marketplace. Strategic positioning refers to how a company sets itself apart from the competition and delivers a product to the customers. In this case study, we will examine the strategic position of Ryanair, a leading European airline.

To learn more read our explanation about strategic positioning .

Introduction to Ryanair

Ryanair Holdings plc is an Irish airline group and a parent company of Ryanair, Ryanair UK, Buzz, Lauda and Malta Air. It was founded in 1984 by Christopher Ryan, Liam Lonergan, owner of Irish travel agent Club Travel, and Irish businessman Tony Ryan , founder of aircraft leasing company Guinness Peat Aviation.

Ryanair started its operations in 1985 and began flying between Waterford and Gatwick Airport to compete with British Airways and Aer Lingus.

In 1986 the firm added the Dublin - Luton route.

In 1990 what it relaunched as 'Europe's first low fares airline' by implementing frequent flights, moving to a single aircraft fleet type and removing free drinks and expensive meals on board. Currently, Ryanair is Europe's largest airline group. It connects over 240 destinations in over 40 countries. Offering the lowest fares in Europe,

Ryanair brand positioning

Ryanair positions its brand as a low fare airline. The company does not try to place itself among airlines such as British Airways, Lufthansa or Air France which offer a relatively high-quality service at a higher price. Instead, Ryanair aims to satisfy people who are looking for the cheapest service possible, no matter the quality. Because Ryanair promotes its brand as:

The Low Fares Airline" (ryanair.com)

Many customers have built trust in the company and believe that its prices are the lowest. In doing so, they might not bother checking offers from other providers as they know that Ryanair will still be cheaper. This way Ryanair has created many loyal customers. However, such a brand position puts off more demanding customers who do not mind spending more money to get better service. Such customers are less likely to opt for Ryanair and instead, they go for other, full-service airlines.

Ryanair's business strategy

Every company has a specific strategy that places it in a certain position in the market.

According to Porter's generic strategy matrix, all markets operate in the same way. They can be segmented in two ways based on four factors: narrow or broad scope and cost or differentiation source of competitive advantage.

Based on these factors, companies can choose a suitable strategy to follow. As a result, are three main types of strategic positioning strategies: cost leadership , differentiation and focus strategy.

To revise this concept, take a look at our explanation on strategic positioning.

Ryanair. Fly cheaper. "(Ryanair.com)

Ryanair Holdings plc uses the focus strategy , particularly the cost focus strategy.

Companies using a cost focus strategy aim to provide the cheapest product or service within the industry.

As a result, Ryanair offers the cheapest flights in Europe. It addresses the market for people who look for a cheap, basic and efficient service. Ryanair's competitors include EasyJet, Aer Lingus Group, Vueling Airlines and Wizz Air.

Since Ryanair is cost-focused, it does not attempt to compete in all market segments. This means that it does not offer flights for customers with higher requirements, looking for high quality and luxury service. Instead, the airline targets those who have lower requirements and do not mind the lower quality of service for a cheaper price.

There is no business or first class on Ryanair, as the company does not attempt to satisfy customers who look for the best quality, luxury flights.

What is more, contrary to many other airlines, there are no free drinks on board. Food that customers can enjoy during the flight is very simple, such as heated sandwiches and ready meals. Ryanair flies point to point to mid-sized cities using secondary airports. Therefore, demanding customers are very unlikely to use Ryanair's service. Instead, they will go for airlines such as British Airways, Lufthansa or Air France, which are higher cost airlines that Ryanair does not compete with.

How does Ryanair make it so cheap?

Ryanair offers the cheapest fares across Europe. The company sells flights for as little as £ 7, sometimes even cheaper. Flights are not cheap to operate. Each flight is associated with expenses such as airport, aircraft and staff. Additionally, in the United Kingdom, airlines are charged a fee called Air Passenger Duty which is a tax applied to each passenger on each flight. For Ryanair, this comes in at £ 13 per passenger. In such a case, how does Ryanair make any profit?

The company charges additional costs for all additional services at a high price.

The price for an extra legroom seat costs at least £ 15. What is more, priority boarding is at least £6. Both of these services together cost at least £ 21 for the passenger, meanwhile, the airline does not incur additional costs.

This means a pure profit for Ryanair.

If you wanted to order some drinks or water to consume on board, you would face high prices.

The price for preordering Ryanair's small hot breakfast box is £ 10. The breakfast includes bacon, white pudding, sausage, hash browns, tomato, bread, orange juice, and a coffee which altogether do not cost £ 10.

Secondly, there are many additional fees.

If you do not check-in online, the airline will charge you £ 45 at the airport to do that for you. If you want to change your flight, you will have to pay a flight change fee of £ 35 per person. Also, if you want to book a flight which is in a day or two, the price will be several times higher than if you booked it in advance.

Thirdly, Ryanair flies to and from cheap secondary airports.

It flies to London Stansted which is almost 32 miles from the London city center. The airline also does not pay to use the airport's jet bridges that airports charge extra for.

Lastly, there is only one aircraft type at Ryanair which is B737. In doing so, the company needs to keep parts in stock for one type of aircraft only. Furthermore , the crew only need to be trained on one aircraft.

To conclude, Ryanair positions itself as a low-cost and non-full-service brand. This makes the brand stand out from other full-service airlines to customers who are looking for the cheapest, most basic flight options. W hile offering low fares, Ryanair makes a profit on all additional services such as seat allocation, priority boarding, and food and drinks on board. It also charges extra for check-in at the airport and any flight changes. Moreover, Ryanair sees all the possible options to cut costs. It flies from secondary airports, does not pay to use jetbridges and uses one type of aircraft only. This way the airline implements the cost focus strategy.

Ryanair Strategic Position - Key takeaways

• Ryanair Holdings plc is Europe's largest airline group connecting over 240 destinations in over 40 countries.
• It uses the focus strategy, particularly the cost focus strategy, meaning that it aims to provide the cheapest product or service within the industry.
• Ryanair competitors include EasyJet, Aer Lingus Group, Vueling Airlines and Wizz Air.
• The airline makes profits by charging customers for everything at a high price. It also charges many additional fees, flies to cheap secondary airports and operates one type of aircraft only.

https://corporate.ryanair.com/

https://www.managementtoday.co.uk/brief-history-ryanair/food-for-thought/article/1449458

https://www.ryanair.com/gb/en

https://www.comparably.com/companies/ryanair/competitors

http://www.rapid-business-intelligence-success.com/ryanair-business-strategy.html

https://simpleflying.com/why-is-ryanair-so-cheap/

Flashcards inRyanair Strategic Position 30

What are the parent companies of Ryanair?

Ryanair, Ryanair UK, Buzz, Lauda and Malta Air

Where does Ryanair come from?

What type of airline is Ryanair?

low fare airline

What is strategic positioning?

Strategic positioning refers to how a company sets itself apart from the competition and delivers a product to the customers.

What type of strategic positioning strategy does Ryanair follow?

What is the aim of companies using the cost focus strategy?

to provide the cheapest product or service within the industry

Learn with 30 Ryanair Strategic Position flashcards in the free Vaia app

We have 14,000 flashcards about Dynamic Landscapes.

Already have an account? Log in

Frequently Asked Questions about Ryanair Strategic Position

What competitive strategy does Ryanair use?

Ryanair is using a cost focus strategy which aims to provide the cheapest airline service within the industry.

What was Ryanair's positioning strategy?

Ryanair's positioning strategy is to promote itself as a low-fares airline. This puts the brand in favour of price-conscious customers. However, those who do not mind spending more for better service will be less likely to opt for Ryanair. 

Is Ryanair's strategy sustainable?

The low-cost model of Ryanair reduces the amount of carbon dioxide released during flights, resulting in sustainability. 

What is Ryanair's business model?

Ryanair's business model is a low-cost and non-full-service model. The airline offers the cheapest price with minimal services for customers looking for basic flight options. 

What are the major contributors to Ryanair's profitability?

Despite the low fares, Ryanair makes a profit by charging additional fares for extra services such as extra legroom or priority boarding. Those who wish to order food or beverages onboard also face relatively high prices. 

Test your knowledge with multiple choice flashcards

Join the Vaia App and learn efficiently with millions of flashcards and more!

Keep learning, you are doing great.

Vaia is a globally recognized educational technology company, offering a holistic learning platform designed for students of all ages and educational levels. Our platform provides learning support for a wide range of subjects, including STEM, Social Sciences, and Languages and also helps students to successfully master various tests and exams worldwide, such as GCSE, A Level, SAT, ACT, Abitur, and more. We offer an extensive library of learning materials, including interactive flashcards, comprehensive textbook solutions, and detailed explanations. The cutting-edge technology and tools we provide help students create their own learning materials. StudySmarter’s content is not only expert-verified but also regularly updated to ensure accuracy and relevance.

Vaia Editorial Team

Team Ryanair Strategic Position Teachers

• 7 minutes reading time
• Checked by Vaia Editorial Team

Study anywhere. Anytime.Across all devices.

Create a free account to save this explanation..

Save explanations to your personalised space and access them anytime, anywhere!

By signing up, you agree to the Terms and Conditions and the Privacy Policy of Vaia.

Sign up to highlight and take notes. It’s 100% free.

Join over 22 million students in learning with our Vaia App

The first learning app that truly has everything you need to ace your exams in one place

• Flashcards & Quizzes
• AI Study Assistant
• Study Planner
• Smart Note-Taking

Privacy Overview

• SUGGESTED TOPICS
• The Magazine
• Newsletters
• Managing Yourself
• Managing Teams
• Work-life Balance
• The Big Idea
• Data & Visuals
• Reading Lists
• Case Selections
• HBR Learning
• Topic Feeds
• Account Settings
• Email Preferences

AI Is Making Economists Rethink the Story of Automation

• Walter Frick

Economists have traditionally believed that new technology lifts all boats. But in the case of AI, some are asking: Will some employees get left behind?

Will artificial intelligence take our jobs? As AI raises new fears about a jobless future, it’s helpful to consider how economists’ understanding of technology and labor has evolved. For decades, economists were relatively optimistic, and pointed out that previous waves of technology had not led to mass unemployment. But as income inequality rose in much of the world, they began to revise their theories. Newer models of technology’s affects on the labor market account for the fact that it absolutely can displace workers and lower wages. In the long run, technology does tend to raise living standards. But how soon and how broadly? That depends on two factors: Whether technologies create new jobs for people to do and whether workers have a voice in technology’s deployment.

Is artificial intelligence about to put vast numbers of people out of a job? Most economists would argue the answer is no: If technology permanently puts people out of work then why, after centuries of new technologies, are there still so many jobs left ? New technologies, they claim, make the economy more productive and allow people to enter new fields — like the shift from agriculture to manufacturing. For that reason, economists have historically shared a general view that whatever upheaval might be caused by technological change, it is “somewhere between benign and benevolent.”

• Walter Frick is a contributing editor at Harvard Business Review , where he was formerly a senior editor and deputy editor of HBR.org. He is the founder of Nonrival , a newsletter where readers make crowdsourced predictions about economics and business. He has been an executive editor at Quartz as well as a Knight Visiting Fellow at Harvard’s Nieman Foundation for Journalism and an Assembly Fellow at Harvard’s Berkman Klein Center for Internet & Society. He has also written for The Atlantic , MIT Technology Review , The Boston Globe , and the BBC, among other publications.

Partner Center