Since the Irish potato famine in the 1840’s, Irish men and women had emigrated to England in great numbers and formed the backbone of the construction and service industries there. Yet in 1986, the return Dublin-London air fare was £200 (about $850 in 2007 Canadian funds). The alternative was to travel by car and ferry, which was much cheaper but could take as much as a full day of traveling.
Tony Ryan wanted to offer Irish emigrants and their families the convenience of flying at a price that would be competitive with overland travel. He launched Ryanair, Europe’s first and most successful discount airline, offering much lower fares based on a low-cost operating model. Today, Ryanair flies throughout Europe and is renowned for its rock-bottom fares – as low as £5 on many of its routes in early 2009.
The essence of Integrative Thinking in business is to develop new perspectives about an industry, a market or a managerial dilemma. To develop new perspectives, however, we need to understand, appreciate and place existing perspectives in appropriate context. Because Ryan had worked in the airline industry for many years, first with the Irish airline Aer Lingus and later as an aircraft “broker” matching buyers with sellers, he understood the industry intimately. But he also could see an alternative way of structuring an airline to achieve much lower costs.
By using secondary airports close to major European cities, Ryanair could negotiate much lower landing fees than existing airlines. By flying only point-to-point – no passenger connections – aircraft could be turned around more quickly with fewer costly delays. By using only one type of aircraft, the Boeing 737, training and maintenance costs were reduced. By selling tickets directly to passengers, agents’ commissions were eliminated. And by shaving every aspect of its internal operations, operating costs were pared to the minimum.
As a result of the success of airlines like Ryanair, there are now two dominant models in the airline industry: the “full service” model offered by legacy carriers like British Airways and Air Canada; and the “discount” model of Ryanair and others. While the boundary between the two models is not always sharply defined, legacy carriers tend to operate via major “hub” airports and offer passenger comforts and connections to other flights, and discount carriers approximate the Ryanair approach.
A mental model is a representation of a situation that both encapsulates our view of it and frames our thinking. As an example, the phrase “business is war” represents a mental model: it implies that we see business as riddled with conflict, and indicates how we are likely to regard moves against us by competitors. An alternative model might be “business is art” and we would expect quite a different set of attitudes to be associated with this.
Business models are not to be confused with mental models. A business model is the way a business operates to take advantage of patterns in its environment: Dell’s business model, for example, of manufacturing to order is very different from Apple’s standardized model. However, business models arise from the mental models of management, and from their willingness to challenge existing mental models.
Thus Tony Ryan refused to accept, as others had for decades, that there was a necessary tradeoff between high fares and long travel time between Dublin and London. And the next integrative thinker in the airline industry will refuse to accept the prevailing mental model that legacy carriers cannot match the low costs of discount airlines, or that discount airlines cannot offer outstanding service to passengers.
