Ryanair is an Irish flight, founded by the Ryan family and headquartered in Dublin. Since its establishment in 1985 the airline is continuing to grow from modest starting as a small airline flying short hop from Waterford to London, into one of Europe's largest and leading service providers.
The company restyled itself from 1990 as a low-cost planned passenger flight that serves short haul, point to point routes between Ireland, the United Kingdom and Continental Europe, a business modelled after the US Southwest Airline
By 1995 Ryanair was transporting 2. 25m individuals and undoubtedly became the greatest carrier on its routes. With the deregulation of the flight industry in Europe in 1997 Ryanair extended its functions into continental Europe.
By the end of 2009 the air travel has over 32 bases and over 830 routes across over 20 countries attaching 148 destinations with the largest operational bottom part at London Stansted Airport terminal in the united kingdom.
Ryanair's strategy is to position itself as Europe's major low-cost brief haul flight.
This case study is intended to analyse the business strategy of Ryanair and determine other possible strategic choices available with a view to suggesting possible options for the company
The macro-enviroment consists of wide environmental factors that impact to a agreater or reduced extent on virtually all organisations. It requires political, monetary, socio-cultural, technological, environmental and legal issues which affect the company's strategy. The examination is to determine which of the factors are most important at the moment and in the foreseeable future.
2. 1. 1 POLITICAL ISSUES
Political integration in the European union: has made migration within the EU possible therefore making Ryanair to increase its routes to other countries within the EU.
Increase in trade union pressure.
Ryanair will not recognise the trade union. With increase in agitation from the employees Ryanair may have to succumb to this pressure with the effect that employees may press for better working conditions. The formation of union by the air-crew will place the company in danger of strikes and lock-outs, limitations of plane tickets per employee and perhaps raise the price of pay and benefits.
Increase along the way charges
Governments may increase option charges and this may affect the success of the airline
The enlargement of EU membership will help Ryanair to develop its routes and earn more revenue.
Abolishing duty-free sales on board
On table sales revenue is an ancillary income in case duties are enforced on such sales the effect could be price increase, which might lead to income loss, as travellers may not choose the goods thus sold.
Increase in security methods (terrorism)
With the threat of terrorist attacks governments are requiring increased safety measures to beat such attacks. The usage of scanners to scrutinise traveler may cause delays in flights therefore increasing Ryanair's turnaround period to more than 15 minutes. Besides people who think it is risky visiting by air may vacation resort to other safe means in doing so jeopardising the company's revenue potentials.
Governments support for his or her national carriers - it restricts the company's potential to contend with the national carriers on level participating in grounds.
2. 1. 2 ECONOMIC
Increase in gas prices
With global fuel prices being so erratic any astronomical increase will lead to go up in fares and could rot the company's low priced businesses. Ryanair hedges about 90% of its fuel cost.
Regional subsidies
National government authorities may grant subsidies to their national service providers to make their fares competitive. This might result in price wars and additional erode Ryanair's success.
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High acceleration trains and gas efficient cars
The intro of high acceleration trains cause some travellers shifting to trains somewhat than air travel. Besides the intro of gasoline efficient cars will make a lot of people travel road if indeed they find it more convenient and cheaper to go by road. This may result in lack of passengers.
Global recession
The global recession has resulted in the decrease in leisure visiting because vacationers' because people do not have the financial means to travel ever again.
The benefit of the tough economy for Ryanair is the fact travellers have become price- conscious thereby moving customers from high price airlines to the low fare counterparts such as Ryanair.
Weak Pound: Ryanair's financial information are denominated in the Euro and with the weakening pound contrary to the Euro travellers will have to pay more pounds
2. 1. 3 Cultural ISSUES
Grey market increase: Certain cultural groups that champion the course of environmental degradation such as global warming are placing pressure on government authorities to be serious about implementing restrictions that will cut the amount of air pollution.
Increasing travelling life-style: People travel for leisure to other holiday centres in the EU. You can find increasing travel among the youth and others who generally could not afford to visit anticipated to low income but can now afford to travel because of this of low priced airfares. Ryanair's gains more income as the lowest cost budget flight.
Increase business going: There is certainly increase in business travelling because of this of the low cost model.
Aging populace within the EU: With ageing populace within the European union the aged may prefer staying home somewhat than spending their meagre income on going as downturn heats them hard. This reduces Ryanair's revenue from such associates of its customer base.
Migration within the EU: This has led to the movement of men and women from less developed countries within the EU to the developed ones thereby increasing traffic with the result of increase in revenue for Ryanair.
Concern for general population opinion
2. 1. 4 TECHNOLOGICAL
Internet sales: Aside from scheduled income Ryanair's next lines is ancillary revenue through partners such as EXPEDIA advertising via Ryanair's website for travel deals.
Low fuel intake automobiles - With petrol price increases becoming a common phenomenon, vehicle manufacturers have found ways to create gasoline efficiency or electric cars that won't eat into the pockets of tourists. If this will make the cost of travelling cheaper, in case the shifting cost is low, vacationers may vacation resort to venturing by road.
High-speed trains: The introduction of high-speed train services such EuroStar, may change some tourists from air travel to trains if the fares are equivalent.
Internet competition: The Internet has allowed tourists to book via the websites of the airlines. This removes the travel companies thereby improving the earnings of the airlines. Ryanair customers are to check on in via the business's website and print their boarding goes by thereby reducing enough time spent on examining in and eradicating the price of printing boarding moves. Customers who neglect to produce their printed passes are billed for issuing new ones to them at the international airport.
Video and Teleconferencing: With this technology you'll be able to hold conferences with partners and colleagues without having to travel for the conference. This reduces business traveling and hence income for Ryanair.
Fuel efficient motors and airframes: Technology has enabled the manufacture of aircrafts that not melt away much fuel in so doing making them much gas efficient. This can cut down on the quantity of fuel consumed in so doing enhancing earnings.
2. 1. 5 ENVIRONMENTAL ISSUES
Pollution: The industry is reported to be responsible for about ????? of carbon emission which is also said that the taxes on carbon emission will increase by about 2-3%. This will reduce Ryanair's cost foundation and hence income.
Green issues:
Global warming
Noise level control
Land for growing airports
2. 1. 6 Legal
Pending litigations: French Pilots and Cabin crew's circumstance; Dublin Air Specialist circumstance against Ryanair's refusal to pay extra getting charges
Allegations of deceptive advertising campaign: Ryanair has been accused of advertising prices and areas which are not near the certainty.
Health and protection: With increase terrorist activities there is certainly need for strenuous bank checks such as body scanning. This may cause delays in remove minimizing the turnaround time.
EU Open up sky insurance policy: deregulation of the environment industry has opened up opportunities to obtain more routes into continental European countries.
2. 2. 0 THE INDUSTRY ENVIRONMENT
These are inner factors which may have a direct impact on the industry. A small business has to understand the dynamics of its industry and market segments in order to compete effectively on the market place.
Porter classifies these causes into five categories known as Porter's Five Forces.
2. 2. 1: Inner rivalry within the industry (competition).
Internal rivalry within the industry stands in the centre of Porter's Five Makes corresponding to Porter. Because the air travel is saturated this is the most crucial force today in my own view. Nevertheless, Ryanair has a first-mover advantage in the low-cost air travel industry. Numerous others followed but failed. Because the deregulation of the Western european air travel industry, of the 80 low cost operators that possessed begun functions, 60 had opted bankrupt, (Lee 2000). The market is highly competitive as there are more service providers than needed in both local as well as international markets.
Ryanair's most competitive competitor is EasyJet, however the competitive rivalry between the two of them is merely very modest because each of these airlines runs on different routes to avoid face to face competition. There is suprisingly low differentiation on the market as the difference is only the price billed.
If any business decides to remain competitive on a single basis as Ryanair, you will see heavy pressure on prices, margins and therefore profitability.
2. 2. 2: Risk of Entry in to the market
The threat of access analyses the menace that new entrants into the industry may present using diminishing the results of set up companies.
The barriers to entry into the low-cost carrier sector include:
High capital investment
Restricted slot machine availability
Need for low cost base -market of scale
Flight authorisation by the individual EU countries
In the truth of Ryanair a solid brand identity developed over the time since deregulation has supposed that any potential new entrants would need to spend quite some money in conditions of sunk costs in advertising to compete on level using field. Besides, direct bookings on the Ryanair website has intended that there have been enormous cost savings in marketing and distribution costs.
The price slicing strategy of Ryanair will send any new entrant that will try to contend with the company crushing out of the market anticipated to erosion of margins.
Restricted slot availability makes it very hard for a fresh entrant to find ideal airports to operate.
Some people assert that plane purchase cost can be a big barrier for a new entrant but it can also be argued that this might not be the case because planes can be leased instead being purchased.
In addition any new airline must invest in environmental and security issues which can deter such entrants from coming into.
2. 2. 3: Bargaining vitality of suppliers
This analyses how much electricity suppliers wield on the industry and the organization. A higher electric power of suppliers may result in unfavourable conditions to the firm with the consequences of erosion of profitability.
Apart from ancillary services the basic suppliers in the flight industry are made of suppliers of aircrafts and fuel.
The main suppliers of aircrafts are Boeing and Airbus. This might make the bargaining ability of these plane suppliers to be high. Transitioning cost between suppliers is high because all mechanics and pilots will have to be retrained as a result.
Ryanair's main company is, however, Boeing with which it offers a healthy marriage. In addition to the supply of aircrafts to the company, Boeing supplies other ancillary goods and services to Ryanair. These include technical support and training, extra parts, training of the airfare crews, software and field services anatomist. Nevertheless, Ryanair announced on 15 December 2009 that their negotiation with Boeing for the purchase 200 Boeing 737- 800 of aircrafts has been withdrawn. Besides, the company indicated that it will not job application negotiation for the purchase of new aircrafts and this it will focus on the prevailing business. (Centre for Aviation news, 2009).
In conditions of fuel, the price of aviation energy is immediately related to the price tag on crude oil. There exists little that Ryanair can do because world trade and the action of OPEC govern the purchase price. THE CENTER Eastern countries dominate the market; conflicts in this region and other factors help to result in any price boosts. The bargaining vitality of suppliers is very high. Ryanair hedges against any price raises.
Other suppliers are international airport specialists that allow slots, and regulators. The power of these suppliers is very high as they can withdraw the permit to use.
2. 2. 4 Bargaining electric power of buyers
Buyer electric power in the Western airline industry is very good because transitioning costs are very low. Customers will get the fares being priced by rival airlines by checking on their websites. The fact that most low cost companies sell their seats via the Internet means that any price discrepancies are available very easily. In addition there is absolutely no loyalty from the clients to the airline; all they need is low price. This implies Ryanair have to keep their prices competitive in relation to the industry level.
2. 2. 5: Risk of Substitutes
The threat of substitutes to the flight industry will come in three main varieties. These are highway, rail (e. g. Eurostar), and to a lesser amount boat service. Of these, rail seems to offer the ideal menace because, certainly around European countries, it offers excellent continental services round the major places that Ryanair fly to. Rail travel has several advantages over air in terms to the fact that they can be more localised plus more accessible but one must withstand a longer journey also,
Because of very low turning cost for the client no customer devotion, any dissatisfaction from Ryanair's customers will cause land in traffic of some customers. The risk of substitutes may be considered as medium to low.
The introduction of video recording conferencing facility that is made possible by the development of technology may result in business meetings with associates in another country being made unnecessary. Even though this trend is not really a means of transport, yet it can be viewed as possibly a threat to business traveling.
2. 2. 6: Value network and business partners
Ryanair gets into into alliances with other businesses for the way to obtain certain products and services.
Ryanair's associates include:
Boeing: supply of plane, maintenance and training of pilots
DALMAC: recruitment and training of cabin crew
EXEPEDIA: for hotels (now abrogated); replaced with Priceline
MBNA - credit cards
BCP for airport terminal car parking
HERTZ: for car rentals
Acumus Insurance Solutions (AXA): for travel insurance
Hispano Igualadina: for bus services in Spain
3. 0 RESOURCES AND CAPABIITIES
Resources are tangible and intangible property a firm uses to choose and put into practice its strategies. Resources can be divided into many categories.
3. 1 Valuable Resources and Strategic Assets
a. Physical Resources
The fleet of aircrafts: - ????
Airports for landing: Ryanair uses supplementary and regional airports for its procedures. Even though the business will not own these international airports, they are property to it because they provide the company cheaper operating cost base.
Headquarters in Dublin
A well known brand name
b. Human being Resources
Well-trained pilots: Ryanair's pilots are among the best been trained in the industry
Motivated employees: The company has 3000 employees as at ??????
c. Financial Resources
Financial resources are given by the Ryan family, shareholders and lenders.
d. Intellectual Capital
This is knowledge and skills and expertise of the pilots, engineers and cabin staff and directors and managers that help permit the company to build value and compete.
Assets
Physical
Fleets -
Destinations-
Countries -
Human resource
Total employees-
CEO - Michael O'Leary
Other officers-
Financial
Cash reserve-
Total assets-
Equity-
Debts-
Intellectual capital
The knowledge and experience of staff
Threshold and key resources and competences
Threshold resources
Threshold competences
Headquarters
Well experienced management and employees
Financial resources
Aircrafts and equipment
1. On-line scheduling and check-in
Point-to-point routing
On-time service delivery
Quick turnaround time
Low maintenance cost
High load capacity
Low marketing cost
Core resources
Core competences
Competent management team headed by Michael O'Leary
Pilots, crew and other staff
No frills
Route policy
Ability to continuously drive cost of operations down
3. 2 Functions for competitive advantage
Capabilities are the skills and knowledge possessed with a company, which allows it to convert the resources to build value. Ryanair's features include:
Large brand recognition: Ryanair is a notoriously well-known brand that bands in the mind of vacationers as a low cost airline.
Low airfares: THE BUSINESS with its low-cost strategy charges the cheapest airfares in the industry compared to its competitors. The capability to manage its costs ends up with the low fares incurred.
Quick turnaround time: Ryanair's turnaround time is approximately a quarter-hour and delays are not tolerated. The reduced turnaround time suits those customers who are time mindful. Besides, it minimises longing time at the airports.
Efficient processes: Ryanair's no-frills strategy has upgraded their efficiency and production. The traditional journey services such as chair allocation, complementary refreshments and dishes, and free papers have been taken out. The flight instead charges the in-flight services and other travel expenditures such as travel cover and for the use of the bathroom.
Focus on particular market portion: The flight targets Continental Europe's human population of price hypersensitive vacationers including business tourists (with a flight to Morocco in Africa).
Innovative strategies on cost trimming: It designs an improved service system that could keep costs low. The business arises with ground breaking strategies every once in awhile. For example, the utilization of the internet for airfare bookings and to check in, the utilization of standard type of aeroplanes - Boeing 767-800
An astute Chief Executive: Michael O'Leary, the Chief Executive who arises with cost cutting strategies that he pushes through and whose questionable figure creates great promotion for Ryanair.
Outsourcing ancillary services
Unique Resources
Core competences
In-flight sales
Frequent flight
Powerful, fearless and educated leader and management team
Popular website
The best low-cost airline
Cost reducing strategy
Best on-time in the industry
Low rate baggage lost
Fast turnaround time
First mover advantage
SWOT ANALYSIS
Strengths
Weaknesses
High insert factor
Low cost leader
Innovative cost decrease strategy
First mover advantage
Fast turnaround time
Established routes/network
Ancillary services
High safety record
On-time delivery (punctuality)
High seating density
Common fleet
Modernised fleet
High plane utilisation
Small headquarters
The business is basically based on Europe
The poor conception of the CEO to be arrogant, this draws in bad press coverage
Distance of airport terminal from city centres: customers may overtime think it is inconvenient
Poor customer service
Sensitivity to fares
Opportunities
Threats
Further EU enhancement will bring about possible new routes
Benefits from geopolitical risk as business is situated mainly in Europe
Economic downturn: makes customers more price sensitive
Advertising space on website to generate more revenue
Power of the CEO. If his successor is not as ruthless as he is in cost-cutting strategy
Rise in energy cost - increase cost
Increase of low fare competition
Limited expansion in the market
Regional airports may gain bargaining electric power and increase charges
Limit of growth posed by Ryanair and EasyJet
Increase in air traffic control charges as more planes fly
Introduction of obligation for fuel or environmental charges
Unionised employees may require better conditions of servicewithout that they may resort to lockouts and other means to press their needs.
3. 3. 0 Framework, culture and value added
3. 3. 1 Structure
Power, authority, responsibility structure
Standard Panel of Directors consisting of 8 non-executive directors and one Executive Director (Michael O'Leary)
A chief executive who wields gigantic power to do whatever he believes fit for the airline.
Mostly un-unionized workforce: Ryanair will not allow the workforce to form unions.
3. 3. 2 Commercial culture
The culture of Ryanair is built around efficient functions and low-cost strategy.
Value added
Ryanair goes by its cost trimming to the customers by means of low fares but also makes them purchase in journey services such as food, drinking water etc. Regardless of the often sited poor customer support customers continue to patronise the airline for their perceived obtained through the
4. 0 STRATEGIC SITUATION AND POSITIONING
Ryanair is undoubtedly Europe's first and greatest no-frills, low-cost flight (www. ryanair. com)
The company's strategic intent is dependant on maintaining or increasing its competitive advantage over opponents by offering low airfare to catch the attention of customers. It, therefore, aggressively utilizes cost-cutting strategy to be able to charge the cheapest fare to the clients to create amount.
According Porter a company can employ some of four models because of its strategy.
Low cost strategy
Differentiation
Focused strategy
Hybrid strategy
The low cost strategy is followed where an company seeks to achieve the lowest cost within its industry and focuses on its products or services at a broad market.
Ryanair's objective is usually to be Europe's leading low-cost planned short-haul point-to-point carrier through continuous improvements and extended offering of its low-fare services. The flight tries to achieve this objective by implementing five main strategies.
Fleet commonality: THE BUSINESS uses only one kind of airplane (Boeing) which reduces the price tag on staff training, aircraft maintenance and the facility of obtaining extra parts.
Management of airport charges and option guidelines: Ryanair decides only secondary and regional airports where traffic is less congested and airport charges are extremely low. The business selects routes that are appropriate for its low cost businesses and withdraws from any that becomes less profitable.
Point-to-point service: The company runs only point-to-point service to eliminate the expense of connecting individuals.
Management of staff costs and productivity: the airline charges staff for outfits and personnel are suspended from charging their mobile phones on the business premises. Routine servicing of aircrafts are done by staff. As regards personnel productivity, Ryanair will pay its staff moderate salary but has a performance related pay composition which urges employees to increase the number of areas flown daily. In this manner the firm handles productivity and retains staff cost down.
Management of marketing costs: Marketing costs are reduced by customers scheduling directly on the firm's website thereby eliminating travel agents, advertising mainly on the site.
Outsourcing services: Services such as aeroplanes handling, ticketing and aircraft maintenance are contracted out to third functions to ensure efficiency. The business negotiates favourable conditions with these companies. Ryanair staffs perform usual maintenance.
4. 1 Positioning
Ryanair positions itself as the greatest low-cost, no-frills, point-to-point short haul airline in the industry. The company provides as number 1 1 in many areas:
Passenger traffic
Passenger growth
European routes
Customer service delivery - punctuality, fewest baggage loss, flight completion
5. 0 STRATEGIC OPTIONS
The strategic choices available for Ryanair to develop may be as follows:
Increase the prevailing business and use quantities to operate a vehicle down cost further
Introduce new complimentary products to air travel to augment revenue
Enter long-haul business in addition to the short-haul
Enter marketplaces outside Europe
The talents, weakness, opportunities and threat to each strategy are offered in the table below.
SWOT ANALYSIS OF STRATEGIC OPTIONS
Expand the prevailing business and use amounts to drive down cost further
Strengths
Market leader
First mover advantage
Financial power and low cost base to support further cut in fares to generate volume
Weaknesses
Poor image in relation to customer service
Retaliation from other market players
EU rules on unfair competition
Opportunities
Economic down convert makes customers more price very sensitive. Travellers will switch from other competitors and substitutes if indeed they find Ryanair's prices way lower
Threats
Competition from other low-cost and long-haul providers. Price conflict may erupt.
EU may apply unfair trading regulations
Regional governments may take action to safeguard their national airlines
Introduce complementary products to create revenue
Strengths
Large level of customers who can be targeted with new products such as holiday packages, rent an automobile, tourist destinations
Increased profitability to subsidise the core product
The company's popular website to be used to market the new products effectively
Low cost experience to be leveraged
Weaknesses
New products are associated with risks of failure
Opportunities
Increased use website
Threats
None that I could see
Long haul business
Strengths
Leverage on short-haul experience
Strong financial position
Leverage on low-cost experience
Weaknesses
Lack of experience in the long-haul business
Lower customer satisfaction if no-frills strategy is employed.
Other countries may well not have available air policies
Opportunities
Exploit marketplaces in Africa and other countries
Strong competition from other continental airlines
Threats
Fuel price increase may jeopardise the business
Competition is very fierce in this market
Replicate low-cost model beyond your EU and in other countries
Strengths
Leverage Western european experience
Existing brand image and reputation in the EU
Has financial strength to aid expansion
Weaknesses
Conditions in other countries might not exactly be favourable
Different economical and politics systems
Ryanair may well not be able use the same 'arrogant' and competitive behavior for favourable terms
Non-availability of secondary airports
Opportunities
There are progress opportunities in other Western european, Asian and in African countries to be exploited
Threats
Governments may complete laws to protect their home service providers.
It is obvious that the low-cost strategy will one day hit the wall space and the benefit will be lost in the present market segment. I am going to, therefore, suggest the next options.
Replicate the reduced cost strategy in Africa (West Africa to be correct)
Operate long-haul to Africa
Options evaluation
