Lean Six Sigma Expertise

Drawing Competition "Celebrating the Animal Kingdom"!

Eric - Romania, age 10

“I chose the dog because it represents me.”

RYANAIR: Not a wise Lean – What must be corrected to be a world leader.
Everybody knows Ryanair, at least in Europe. They have revolutionised the airlines market and their figures are impressive, some of them based on Lean initiatives… but after a deep analysis, we think Ryanair must correct some policies if they want to be a world leader… and this is the result of a “NOT A WISE LEAN POLICY”!!

1. Main Figures.

It is very common, specially during debates and media news, to make some comments or analysis based more on perceptions than y real data.

In this case we want to include in this some of them:

1.1 Fares and Passengers.

2012 FARE (€) 2012 PASSENGERS
RYANAIR 45 € RYANAIR 76 Millions
EASYJET 71 € LUFTHANSA 49 Millions
AER LINGUS 91 € EASYJET 42 Millions
IBERIA 169 € AIR FRANCE 32 Millions
LUFTHANSA 244 € EMIRATES 32 Millions
AIR FRANCE – KLM 254 € BRITISH AIRWAYS 29 Millions

Source: Ryanair 2011 End Year Presentation.
Source: IATA published statistics.


The comparison is impressive, they have the less fare average and more passengers than any other company in Europe.

1.2 Operative figures.

LOAD FACTOR 82%
PUNCTUALITY 91%

Source: Ryanair 2011 End of Year report.

This big load factor is one the company success, and it is very linked with the commercial strategy, which tries to sell very cheap fares many months before the flight, and when the flight covers the operative costs, they increase the fares to increase the profitability.

1.3 Profit and Loss.

REVENUES (M€) 4.325
REV PER PASSENGER 57 €
PROFIT AFTER TAX (M€) 503
%
PROFIT AFTER TAX 12%

Source: Ryanair 2011 End of Year report.

With a 12% of profits after taxes, is the most profitable airline in Europe. It is also interesting to remark that the average fare is 45 €, and the average revenues per passenger is 57€, so Ryanair is able to get in average 12 € (26%) more per passenger apart of the flight ticket!!

1.4 Operating Cost Structure.


OPERATING COSTS M€ %
Staff 415 11%
Depreciation 309 8%
Fuel 1.594 43%
Maintenance 104 3%
Aircraft Rental 91 2%
Route charges 460 12%
Airports and Handling 554 15%
Marketing and other 180 5%
TOTAL 3.707 100%

Source: Ryanair 2011 End of Year report.

Fuel is 43% of the operative costs of Ryanair. This is the main problem of the company, because the do not include the variation of the fuel price in the fares as other companies do. We will talk about that later to explain some of the company practices.

1.5 Complaints Per Passengers

COMPLAINTS (per 100.000 passengers)
RYANAIR 70,00
DELTA AIRLINES 1,27
AMERICAN AIRLINES 1,50
US AIRWAYS 1,73
UNITED AIRLINES 2,01

Source: US DOT
Source: Ryanair 2011 End Year Report


It is not very common in Europe to publish this kind of data, but we can use United States airlines as reference.

2. Ryanair Performance Objectives.

The Ryanair policy is based in the following 4 axes.

2.1 Quality.

To maintain in the future the volume of passengers, the quality of the service must be over the expected by the customers. Ryanair is a low cost that offers “seat only” flights under the international safety regulations. This quality is perceived by the customer not only during the flight (punctuality), but also during the booking, the luggage handling and the interaction with the company staff.

2.2 Operative efficiency.

Ryanair is like Ferrari or RedBull in a Formula 1 race… during the time the plane is not flying they are loosing money, so they must optimize the operation to maintain the plane flying as much as possible (load and unload of people and luggage, handling, maintenance,…).

2.3 Flexibility.

Customers have the possibility to choice the level of service, once Ryanair only includes in the fare a seat to flight. For Ryanair is an opportunity to increase the business far from the traditional airlines one.

2.4 Costs.

It is a critical point for a “low cost” company. As we have related, Fuel Price is the most relevant part of the operation cost. There is a high variation of price in the market, and Ryanair use many strategies to reduce the consumption of it.

3. Lean Examples.

There are many good Lean examples in the Ryanair model, which are oriented to the Lean Principles, and consequently to reduce waste.

3.1 SMED techniques to embark and disembark.

Ryanair looks for having the planes always flying, so the try to reduce embark and disembark time as much as possible. A FLOW increase is the logical result.

They applied SMED techniques, as a pit stop of Formula 1, and the resulted are the following measures:

- They use forward and rear plane door to board and disembark, so the reduction of time comparing to the “traditional airlines” is almost 50%.

- They do not use “airport fingers”, because they are prepared to board and disembark for the forward door, and the result is a cost reduction in the airport fees.

- There is not seat reservation policy, so the one who arrives to the plane do not have to wait other passengers to be seated. It is true that as a passenger you can pay to enter in the plane first, but this measure is not against flow.

All this measures together allows Ryanair to do more flights per day with the same crew and aircraft.

3.2 Multiskilled staff and process standardisation.

One the most impressive differences between Ryainair and other companies is the number of passenger per staff, so they reduce the operative cost. They have the following policy.

- There are not as many “professional levels” than other companies, so the airport staff which are checking the boarding tickets are later to flight attendant. This is the result of a multiskilled staff and of a process standardisation, in which waiting time of the staff (waste) is reduced as much as possible.

3.3 Baggage management.

Ryanair is very proud of the low rate of loosing baggage that they have, but they are also contributing with their policy to reduce the fuel consumption (main operative cost), the time on ground of the plane, the necessary staff and the complaint management.

As you may know if you flight in Ryanair, you can only introduce one bag in the cabin with specific dimensions, and if you want to flight with more luggage you must pay an extra-fee… some times more expensive than the flight fare!!

In conclusion, low number of baggages (less fuel consumption), point to point flights (less probability to lose a baggage during a transfer or delay), less time to embark board and disembark baggages, …

4. Bad Lean Initiatives.

But not all the Lean initiatives they have taken are good for their business. They have probably forgotten one of the most important rules… “Lean is not a cost reduction program”, and they have may be forgotten that they must give to the CUSTOMER the quality of the service agreed, at the right moment, and trying to reduce waste.

I remark the CUSTOMER, because at the end they are the ones who pays the wages of Ryanair´s staff, and some of the measures they are taking are thinking in cost reduction and not to give to the customer what it is agreed (the terrific number of complaints is a proof of it).

4.1 Fuel and Safety.

We have seen that the fuel represents the 43% of the operative costs of the company, and it is normal to try to fight to reduce the consumption. They have tried to buy new aircraft with less consumption, and to reduce the number of kg per passenger, but there are many dangerous measures that have been taken or proposed.

- Reduce the number of fuel litters, bordering the legal standards. It is a dangerous measure because of the “process variation” (look for Zero Variation Lean Principle). Normally you cover your processes with inventory to assure stability… the more variations the process have the more inventory you need (and inventory is a waste). In this case fuel is the inventory, and unfortunately Ryanair has many variations on the “flight” process that are not under their control, as meteorological problems, airports delays, terrorist attacks, … so if you flight with less fuel than the necessary to cover some external variations than can happen, you are putting on risk the safety of the flight and the passenger!! There is no savings enough in Ryain which can cover a plane accident, so they must try to change this policy just for SAFETY reasons.

- Ryanair and captain base objectives. Related with the previous point, each captain of each Ryanair base has an important variable incentive for fuel consumption reduction. If a pilot wants to include more fuel than the established in the company policy, they have to argue signing an internal form. This objective can be dangerous if it goes beyond the limit.

4.2 Customer care (people are not cows).

The staff cost reduction and the training of them are sometimes below the limit. It is true than Ryanair is a low cost, but the fact to pay a cheap fare does not give Ryanair to lose more than it is desirable the basic education rules… people are not cows, and if you do not take cares of them, they will use another company in the future (probably another low cost that can copy Ryanair model).

4.3. New proposals

We have seen many new proposals of Ryanair, mainly to reduce cost or to be more efficient… but unfortunately they are not thinking on the customers, and in many cases they are discriminative, so they are damaging Ryanair´s image.

Some examples:

- Vertical seats: what about big or tall persons?

- Pay per people mass: they propose to pay more if your weight is beyond a limit ...