Case Study Analysis Ryanair The Low Fares Airline Management Essay
The key objective of this report is to critically evaluate the strategy of Ryanair against the backdrop of the European air line industry and the bludgeoning Budget sector, in response to the challenges facing the Industry as a whole and Ryan air in particular & also has evaluated the Ryan air’s bid for fellow Irish carrier, Aer Lingus. This evaluation is done by using a strategic analysis of environment and the industry as well as the company, present strategic choices & recommended new strategic initiatives and areas for improving strategy implementation using Macro-environment analysis, Industry analysis and Internal analysis.
The analysis has been done by using significant theories such as PESTEL analysis, Porters five forces, Strategic group model, key success factors and value chain etc. knowledge on Ryanair. Through the Ryanair environmental analysis unproductive strategic decisions have been identified and finally suggest the recommendations to develop Ryanair’s competitive gain in the future.
(2.0) Introduction
This document is based on the case provided; “Ryanair – the low-fairs Airline” which was written by Eleanor O’Higgins, University College Dublin, Republic of Ireland in 2007. Ryanair is Europe’s first and largest law fares airline which started 1985 by Ryan family. (Ryanair website) It’s an Irish airline with head office in Dublin and its biggest operational base at London Stansted Airport in the UK (“Ryanair Europe’s greenest airline” n.d).Ryanair’s has grown steadily to now in the most environmentally friendly way by investing in the latest aircraft and engine technologies which have reduced fuel burn and CO2 emissions and the implementation of certain operational and commercial decisions.
According to the case the report has critically evaluated the strategy of Ryanair against the backdrop of the European air line industry and the bludgeoning Budget sector, in response to the challenges facing the Industry as a whole and Ryan air in particular & also has evaluated the Ryan air’s bid for fellow Irish carrier, Aer Lingus.
For this evaluation as a member of the management consulting firm I have provided a strategic analysis of environment and the industry as well as the company, present strategic choices & recommended new strategic initiatives and areas for improving strategy implementation using Macro-environment analysis, Industry analysis and Internal analysis from this document to the senior management team of Ryanair.
The analysis of this report was done with the support of the provided case information, Ryanair website, industry related information from academic books, journals, websites, and other publicly available secondary data sources.
(3.0) Overview of Ryanair
Ryanair is a global airline which provides scheduled passenger airline services between Ireland and the United Kingdom. Starting in 1985 Ryanair followed the example of Southwest Airlines. It was set up with a share capital of just £1 and a new staff base of 25. Since 1985 to now it has grown massively into one of the Europe’s largest low fare carrier. In 1990 the company suffered a £20 million loss and was forced to completely restructure and a new management team was brought in headed by Michael O’Leary who made major changes to the airline. Ryanair restructured itself and became a low-fares, no -frills carrier. After the next few years Ryan air significantly slashed its fares further and managed to open up many new routes. Today, Ryan Air has destinations in 26 countries with 950 routes. Also the headquartered in Dublin, employs about 4,200 people, operates with a fleet size of 120 Boeing 737-800, carries approximately 35 Mio passengers a year and had a turnover of 1,692.5 Mio in 2006 with a net profitability of about 10% (Mayor, 2007). Furthermore revenue has risen from €231 million in 1998 to €2,714 million in 2008 and net profits have increased from €48 million to €480 million, over the same period despite the worldwide recession and the high oil prices.
(3.1) Vision
Ryanair’s CEO, Michael O’Leary, has a vision of a world where the fare could drop to nothing as local communities would subsidize the airline to bring a steady traffic of business people and tourists to their region. (Ryanair Report, 1997)
Mission Statement
“Ryanair will become Europe′s most profitable lowest cost airline by rolling out our proven `low-fare-no-frills′ service in all markets in which we operate, to the benefit of our passengers, people, and shareholders.” (Mayor, 2007)
Ryanair aims to offer low fares that generate increased passenger traffic with a continuous focus on cost-containment and operating efficiencies. Moreover Ryanair has main objective and other objectives to stay as the favorable and low cost airline in Europe. (Please Refer Appendix 01). Also refer Appendix 02 for financial analysis.
(3.3) Critical Issues
Though Ryanair has gone quite well all the way to now I have identified below critical problems through out the case.
Major critical issues are;
Negative public image due to aggressive CEO and unfriendly staff.
Immature handling of sensitive issues such as criticizing politicians, disabled passengers
Misleading advertisements and messy website.
Unreasonable ancillary charges for example wheelchair charges, check in baggage charges, refund handling charges etc.
Leadership issues
(4.0) Environmental Analysis
Environment has a great impact on functioning of any business. Environmental analysis is “the process of monitoring the organizational environment to identify both present and future threats and opportunities that may influence the firm’s ability to reach its goals.” (Certo & Peter 1991). It’s important to a business to adapt to the environment to be successful hence it needs to be analysis both internal and external environment.
(4.1) External Environment Analysis
Purpose of an external environment analysis is to identify or develop a finite list of opportunities that could benefit a firm and threats that could be avoided. Firms should be able to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or that minimize the impact of potential threats. The external analysis can be divided into macro environment and industry analyses.
(4.1.1) Macro Environment Analysis
There are several influences of macro-environment on Ryanair within their operating countries. Political, Economical, Social, Technological, Environmental and Legal factors had created a considerable impact in macro environment on the performance in a company. This is known as PESTEL Analysis. Please Refer Appendix 03
(4.1.2) Industry Analysis
Industry can be defined as “a group of organization or business unit producing close substitutes” (Fletcher 2003). The aim of this analysis is to assess the industry environment and answer the following questions.
What’re the forces within the industry which are determining the profitability of the industry?
How’re the forces changing and expected to change overtime?
How will those changes affect future profitability?
For the analysis of Ryanair industry environment have used porter’s five forces model and Strategic group. Please refer the Appendix 04 & 05
(4.2) Internal Environment Analysis
An internal analysis should be conducted in-order to identify the strengths and weaknesses of an organization. It also assist the firm to find-out its resources and capabilities in-order to utilize those resources to the best potential. The main objective of internal analysis for this case is to measure the Ryanair’s resources in terms of other major competitors such as Easy jet and South West air lines. For the internal analysis have used value chain model and key successes factors. Please Refer Appendix 06.
(4.2.1) Key successful Factors
Key successful factors are some of the important factors which are necessary in business. It brings a comparative advantage to the business.
It is highlighted that low-cost companies concentrate on offering the lowest prices as the first critical success factor. Although Ryanair had encountered different problems especially in line with its cost structures, the company had been able to survive and grow in the marketplace. They have implemented different marketing strategy to make the company survive in the competition and to gain a competitive position in the airline market. Ryanair has recognised recently as the most punctual airline between Dublin and London and also recognised as the second largest airline in United Kingdom and Europe’s largest low-fares airline because of the strategy of it.
Technology related
Expertise in given industry technology
Scientific technology expertise in airline industry
Making Internet the primary base of distribution and marketing
Distribution related
Accurate filling of customers orders
A strong network of communication via internet
Low distribution cost
Marketing related
Fast, accurate technical assistance
Courteous customer service
Clever advertising
Manufacturing related
Access to adequate supplies of skilled labor
A strong brand identity among the buyers
Low cost marketing and distribution methods
Skills related
Superior work power talent
Ability to develop new products and product improvements.
Expertise in technology
Organizational capability
Superior information system
Experiential top management
SWOT Analysis
The SWOT analysis given below is to help Ryanair to achieve their mission and objectives by capitalizing on opportunities using their strengths and reducing their weaknesses and threats.
Strengths –
Ryanair is the 1st to launch low cost flights in Europe and has continuously maintained the low fare policy.
They have a strong brand image and strong bargaining power in airport deals.
Aggressive and Innovative leadership (CEO- Mr. Michael O’Leary).
Larger market share
New fleets results in maximum aircraft utilization.
Weaknesses –
Earn publicity through negative press reporting which affect brand image.
Very poor customer relations which is damaging to the success.
Low level of understanding for employees
Misleading advertisements about ticket fares and destinations.
In-flight mobile phones and gambling can deter some customers
Opportunities –
Withdrawal of traditional companies from most of the less traffic intense point to point routes using regional airports.
Industry growth in European air travel industry
Being an fine choice of most of the market due to recession
Threats –
Upper middle class economy travelers may seek greater value proposition than just low fares.
Increasing Prices of Oil Markets and fluctuating currency issues
Terrorism
Impending legislations for environment protection.
Recommendation.
The whole analysis has summarized both pluses and minuses in the company. Through examining the Treats and weaknesses the following recommendation could be illustrates. Following strategies can be used to decrease the weaknesses and avoid threats of the company and improve its competitive upgrading.
Total Quality Management – The low cost strategy has hided the quality of the service. To attract and retain the customers Ryanair has to follow an effective total quality management process. Efficient total quality management values could make a great difference in the service quality. It will not only enhance the quality but also it will increase the productivity. Thus effective quality management will make the brand identity stronger and make a more brand loyalty with in customer base.
Competitors – Competitors like easyJet, Air Berlin, Basic Air are catering to the value market division and have established slots at some main airports and providing basic cost effective services. Later acquiring the Aer Lingus would increase Ryanair’s showings in stock market and faster growth in to the value oriented market segments. Therefore Ryanair need to be more concern about the low price strategy.
Customer Relationship Management – In the service sector what is important is the satisfaction of the customers. Due to poor facilities and ancillary services Ryanair has lost their customer relationship. Therefore, a strong CRM strategy should be implemented to minimize the weaknesses of the company. Apart from the CRM strategies Ryanair could move on to CSR projects to draw the corporate position to the organization.
(7.0) Conclusion
Ryanair is the most favorable low fare airline in the Europe and with this they have been successful all the way so far. But now I can conclude from the above analysis that Ryanair have to develop a successful strategy not for only winning the low fare strategy but gaining a stable position in the value segment and in new non-European markets.
References
Barrett, S., (2000), Journal of air transportation of Transport Management Vol.6, pp. 13-27 (Butterworth-Heinemann; Oxford)
David, F. R. (2005). Strategic Management (10th Ed.). NJ:Prentice hall
Fletcher, J. (2003). Strategic Management Ш study guide and plan. Edith Cowan University.
Lynch, R. (2003), Corporate Strategy, 3rd ed., Prentice Hall Financial Times
Mayer, S. (2007). Ryanair and its low cost flights in Europe. University of the Sunshine Coast Queensland (Business Faculty). Retrieved April 23, 2010, from http://www.grin.com/e-book/87815/ryanair-and-its-low-cost-flights-in-europe
Paul, V. (2007). French Accent – Ryanair Slow on Emotion, Retrieved from April 27, 2010, from http://www.brandchannel.com/brand_speak.asp?bs_id=72
Ryanair case study analysis (2009), Retrieved from April 27, 2010, from http://ivythesis.typepad.com/term_paper_topics/2009/04/case-study-analysis-ryanair.html
Ryanair and its low cost flights in Europe (2007), Retrieved from April 28, 2010, from
http://www.grin.com/e-book/87815/ryanair-and-its-low-cost-flights-in-europe
Ryanair Europe’s greenest airline. (2006). Retrieved from April 28, 2010, from http://www.ryanair.com/en/about/ryanair-and-the-environment
(9.0) APPENDIX
Appendix 01
Ryanair main objective is to:
Offer the lowest fares at all time on all routes:
Ryanair main objective is to establish itself as Europe’s leading low-fares scheduled passenger airline through continued improvements and expanding offerings of its low-fares service.
Ryanair other objectives are to;
Continue to find ways of reducing costs
Though Ryanair has the lowest cost base of any of its competitors Ryanair can continue to lower its cost base as it grows even if at a slower pace.
Ryanair 100% online
Ryanair expect continuing to use the internet as its primary point of sale and over the next 5 years the aim is to have 100% of bookings via the internet so as to reduce the costly call centers.
Increase the Frequency of Existing Routes
On the moment Ryanair have an average of 3.88 flights per day per route. This figure, compared to Easyjet and traditional carriers, is very low. It means that Ryanair is losing out on business passengers who need more flexible timetables. If Ryanair can enhance the frequency on some of their routes they possibly will effectively steal some of the passengers from the traditional carrier’s thus increasing market share.
Open New Routes in Europe
There are many possible routes still un-served by low-cost carriers. Ryanair can also open routes where the competition is a more expensive for traditional carrier while attracting customers with the cheaper, no-frills option.
Develop Its Smaller Continental Operating Bases
Ryanair must look to other operating bases to expand their network. Although there is not the same demand outside there is still sufficient demand to make a considerable profit.
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Appendix – 02
Financial Analysis
Appendix 03
PESTEL ANALYSIS
Political
In political factor focused on Government stability, Taxation policy, foreign trade regulations and Social welfare policies but in the Ryanair case according to the provided information affected to;
Increase of route charge by the government – In 2006, airport and handling charges increased by 21%, slower than the growth in passenger numbers, reflecting a net reduction in costs from deals at new airports and bases despite increased costs at certain existing airports such as Stansted.
Increase in trade union pressure – Some of the countries in Europe have formed a trade-union among each other’s and due to this it gives the pressure for Ryanair to do business in these countries. Furthermore the Europe Union (EU) has expanded in the past few years and it is a big factor that affects the direction and strategy planning for Ryanair.
Government passed ‘The law for carbon emission’ to aviation industry to compensate further taxes – Ryanair replaced its fleet of old aircraft with new more environmental friendly aircraft. The newer aircraft produced 50% less emissions, 45%less fuel burn and 45% lower noise emissions per seat.
UK government put on compulsory security measures and restrictions due to terrorism attacks on airlines – in August 2006, UK authorities imposed severe security measures at all airports in the face of an alleged imminent terrorist plot to attack up to 10 aircraft on transatlantic routes.
Economical
According to the Fletcher, 2003; “The health of a nation’s economy affects the performance of individual firms and industries. The economic environment refers to the nature and direction of the economy in which a firm competes or may compete” (Fletcher, 2003, M.3, P. 4)
Economical Analysis consists of GDP, Price fluctuations, unemployment trends, depreciation of U.S dollars, interest rates and economies of scale etc.
In Ryanair case they have affected by;
High price ceiling of petroleum products and fuels – From 2005 fuel prices are increased and Ryanair’s fuel costs represented 35% of operating costs in 2006 compared with 27% the year before. Energy and fuel costs are cause of uncertainty – Also jet fuel cost fluctuations are unpredictable and not controllable.
Social
“The socio-cultural environment represents the set of values, ideals and other characteristics that distinguish members of one group from those of another” according to the Fletcher, 2003, M. 3, P. 3). Organizations need to be aware of these factors because they can straightly affect the way the organizations manage the operations, more importantly human resources and marketing.
Change in the mode of travelling due to the terrorist attacks – Because of the terrorists attacks there was a treat that passengers would choose other forms of transport such as trains rather than facing to the inconvenience and expense of checking in luggage and extra time spent in airport security queues.
Increase in travelling life style and flying patterns.
Technology
Many new advances in technologies can affect the way businesses are competing. Technological developments represent a real opportunity for the skillful people who can understand and apply them appropriately. It also helpful to reduce its costs effectively and furthermore can maintain good relationship with customers. Technological analysis consists of new communication technologies, product innovations, new product development and application of knowledge etc.
Related to the Ryanair occurred;
Technological expansion – Ryanair has introduced new technological environmental friendly airlines in order to make profits
High fuel efficiency, less noise pollution and lessening of carbon pollution – using Boeing 737 planes Ryanair tries to reduce pollution.
Web sales/services – Ryanair tries completely to do online check-in in the future.
Environment
This consists of changes in environment that can impact on industries such as tourism and farming etc. nowadays more and more people are concerned about global warming and green house gas effects.
According to the case Ryanair affect environment by;
Contributing Global warming – though Ryanair contribute to the global warming up to some certain they have introduced new aircrafts that reduce fuel burn in 45%.
Noise level controls – Also they have lower the noise emission in 45% in their new aircrafts.
Legal
Legal analysis consists of competition law, health and safety, employment law and product safety.
As in the case Ryanair affected by;
Allegations of misleading advertisement – Ryanair accused it of misleading passengers on its website by exaggerating the prices of its competitors in making comparisons.
Safety measures; pilots and passengers – In July 2006 the Irish high court found out that Ryanair had bullied pilots and forced them to agree to a new contract, pilots had to pay € 15000 for retraining on a new aircraft if they left the airline. In 2006 pilots of Ryanair lodged a pay claim stating that there is significant difference in take home pay between Ryanair and Aer Lingus pilots it also claimed that training pilots were working for nothing. Also the case says Ryanair has charged more money for the insurance than its actual amount.
Appendix 04
Porter’s Five Forces Model.
This five forces model is developed by Michael Porter and it described five forces which are Bargaining power of Suppliers, Bargaining power of customers, New entrants, Threat of Substitutes and Competitive Rivalry. These forces have analyzed below according to the Ryanair.
Source: http://notesdesk.com/wp-content/uploads/2009/04/porters-five-forces-model.jpg
Bargaining Power of Suppliers –
Aircraft Suppliers – Boeing is Ryanair’s main supplier. There are only 2 possible suppliers of planes. They are Boeing and Airbus.
Fuel Suppliers – Price of aviation fuel is straightly related to the cost of oil (Ryanair controls these through hedging
Regional and Bigger Airports – Regional Airports have little bargaining power as they are heavily dependent on one Airline. Bigger airports, where Ryanair’s competitors operate, have greater bargaining power. Ryanair’s policy is to try and avoid these airports.
Bargaining Power of Customers
Low price – Customers are price sensitive and they know about the low cost of supplying the service from Ryanair.
Distribution – power of travel agents was decreasing as prospects used to book tickets from internet or through direct booking. So it was a threat to travel agents, so they employed to offer complete travel solutions to customers. Direct bookings on the Ryanair website has meant that there have been savings in the region of 42.6% in marketing and distribution costs.
New Entrants
Some barriers to entry – there are some regulations when entering to the European countries.
High capital investment – at the beginning of the new airlines need big financials otherwise there is a threat of losing money.
Restricted slot availability makes it more difficult to find suitable airports – European countries have many landing slots that were reserved or used by national carriers. Also for new entrants have a need for low cost bases.
Threat of Substitutes
Other modes of transport – the treat of substitutes to the airline industry comes in three main forms. These are road, rail and boat service. Of these, rail would seem to suggest the maximum threat because, certainly around Europe, it offers a brilliant continental service around the main cities that Ryanair fly to.
No switching costs for the customer – there is no switching cost when changing the traveling mode and there is no close relationship between customers.
Competitive Rivalry
Most cost advantages can be copied immediately – However if any company does choose to race on the same basis as Ryanair there will be heavy pressure on prices, margins and hence on profitability
Low frills and low price – Ryanair has a benefit over other airlines because their policy of bundling low frills and low prices together means that they are competing for the more price responsive customer.
Appendix 05
Strategic Group Model
Strategic group is a “group of firms in an industry following the same or a similar strategy along the same strategic dimensions”. (Fletcher 2003) It consists of competitors competes with similar strategic dimensions such as product, quality, target market, geographical area. Firms are competing directly with the aligned strategic groups as they hold same strategic scope. (Porter 1980) The below graph represent the strategic group analysis for the airline industry. The grouping has been done accordance to the dimensions of quality and price.
1st strategic group – This is the basic strategic dimensions of this strategic group and Ryanair provides low cost fares with no frills. Ryanair’s major competitor in this strategic group is Easy jet as they contain a similar resource promise in the industry.
2nd strategic group – These companies targets the middle class hence they offer fares for a moderate cost and the service contain reasonable quality. The major players in this strategic group are Ethihad, Thai, Qatar and Kuwait air ways.
3rd strategic group: Emirates, British airways and Singapore airways generally targets the high end people. They provide a luxuries service with a high pricing system.
According to the Strategic group Model Identifying Strategic group layers would enhance the understanding about the direct competitors, Different bases of competitive rivalry within the strategic group and also the threats and opportunities could be examined very clearly as it narrow downs the major players in the same category.
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