Critical Issues Faces By Low Cost Airlines Management Essay

Ryanair started its operation in 1985. In the first year more than 5,000 passengers traveled between South Eastern Ireland and London. The company expanded continuously and by 1989 the company had 14 aircrafts over 600,000 passengers traveled per year. Over the four years the costs increased considerably and ends up with lpss of £20 million

In 1990 the current CEO Mr.Michael O’Leary took over the management and conducted major changes in the company. Ryanair followed the the low cost-low frills concept and reduces the routes from 19 to 5 by 1991. The company increased the fleet to 21 over the next 6 years and remarkable increase in passenger traveled in Ryanair due to its low pricing policy. Ryanair unable to increase unto the market due to strict regulation imposed on European airlines.

Ryanair took full advantage in 1997 open new routes in Continental Europe due to deregulation of European Union air transportation regulation. Over 160 routes have been established by 2001 and hubs have been set up all around the continent in London, Glasgow, Brussels, Frankfort, Milan, Now Ryanair is the key players within the European budget airline industry and perhaps the most profitable airline

Identifying critical issues and core problem faces by low cost airline

Regulation by domestic and EU

European airline industry is always subject to regulation from both domestic and European Union. Before 1980 heavy restriction imposed by the individual countries to protect their national careers. Towards deregulating industry Ireland and UK signed bilateral agreement. In 1997 EU also deregulate the industry and any European airline can operate anywhere within the Europe. Ryanair benefited by this move. Subsequently EU introduces competition law which it prevent taking state aid and commission. Also any airline having dominant position in the market should not abuse the dominant position. Ryanair affected by this rule

Charter carriers and Franchises of major airlines

Charter flight operators have taken significant market share in Europe. Major charter operators are owned by the major travel agents or major commercial airlines operators. Small carriers such as Virgin Express have become franchise of major flag carriers. The flag carriers use these independent airlines as franchises to compete with low cost budget carriers such as Ryaniar and easyjet. Budget carriers cost base doesn’t allow them to compete effectively on short-haul routes.

Customer service satisfaction

Ryanair has eliminated traditional in-flight services such as seat allocation, complementary meals and drink and news papers. Instead Ryanair earn profit from such secondary services by charging customers for in-flight services and other travel expenses such as travel insurance, car hire, Internet. Ryanair is extremely sensitive in changing the fare value. Recently it was widely on the media that Ryanair considering to charging fee for them for using the lavatory. Meanwhile Ryanair recently announced that it’s raising its checked luggage fee from €15 to € 20 per bag. (Appendix 10). Although the Ryanair has remarkable track record for punctuality, flight completion the perception of the softer side of its customer service has not always been good with much bad media.

Ryanair’s objectives and long term vision

Ryanair objective to operate the largest amount of routes with lowest fare compare to any European Airline without compromising low cost carrier business model including quality of service. (Appendix 1 )

Purpose of this assignment

Purpose of this assignment is to analyze Ryanair’s long term vision of the business model and submit a report to the management in order for them for the future planning for the success of the company and to avoid any future threats. This report demonstrate

Detailed study of Ryanair’s current strategy and the management approach which impact on business operations and functions towards carrier’s customer relation. and the steps management has to focus in order to stay in strong position in the low cost market.

It evaluate Ryanair’s current strategy and the action plan to be carried out by the management in the future to avoid any future threats by the company.

It also gives brief evaluation of Ryanair’s financial analysis and how the environmental factors affect the European airline low cost industry.

Method and theory used

The strategies and theory put forward in this analysis are industry analysis, environmental analysis, and financial analysis

Strategic factors and capabilities

6.1.0 External environment

The PESTEL analysis & Michael Porter’s five forces analysis clearly talk about external factors on Ryanair function and the strategies which are adapted by the organisation. Hence, a good perceptive of Ryanair external environment will identify the opportunities and avoid threats (Refer appendix diagram)

An airline industry includes well established key players and to compete with each and other but rynair has high potential of attracting the market. Thus, the PESTEL variables in macro environment have major force on the performance of Ryanair

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Internal environment.

This environment analyses about the strengths and weaknesses of Ryanair. This aspect talks about Ryanair internal factors like skills, competitors and capabilities. Its measures the Rynair’s efficiency and effectiveness to acquire competitive advantage (Refer appendix diagram)

According to the value chain analysis it is mainly rely on Ryanair’s primary and supporting activities. Value chain analysis creates a value for Ryanair. However, through this analysis it is clearly focus on quality of Ryanair.

Industry analysis

Before arrival of low-cost airline, major company such as British Airways dominated the Europium airline industry. Until 1997 one member nation could not fly passengers within another nation’s domestic market. The Ryanair enter in the low-cost market with grate obstacle to overcome. Nevertheless Ryanair able to bust the market with operating low cost while maintain the profit. As a result Ryanair has become the largest low cost carrier in Europe.

In 1990 Ryanair operates with 74 aircraft including 41 Boeing 737-800, 21 Boeing737-200, 06 Boeing 737-300 and 6 BAE 146. The company offers approximately 475 short-haul flights per day serving 84 locations in the UK, Ireland and Europe. 2004 was the best year for Ryanair overtaking low-cost airline Easyjet became largest airline in terms of passenger in Europe carrying more than 23 million passengers brought in revenues of US $ 1.32 billion, an increase of 43% from the previous year. It crates strong Ryanair brand name and became Britain favorite low cost airline.

Ryainair having all Boeing aircraft, hence it has grater bargaining power from the supplier. In 2002 Ryaniar placed half of its order towards increase its aircraft by 112 in the next 10 years. (Appendix 1). Also it planed to purchases technology more advance and environmental friendly Boeing 737-800 and retiring old Boeing 737-200. Boeing737-800 reduces fuel burn and CO2 emission per passenger kilometer by 45%

All of the Boeing 737-800 that Ryanair has bought or committed to buy is certified for category IIIA landings (automatic landing with minimum horizontal visibility of 300 metros and no vertical visibility). Also Ryanair has installed Operational Flight Data Monitoring (OFDM) system on each of the Boeing 737-800 aircraft. The purpose of the system is to monitor operational trends and inform the management. By analyzing this report management able to identify potential area of risk to rectify any deviation from the normal operating procedure, thereby ensuring Ryanair’s flight safety standard. During its past 24 year operation history Ryanair has not had any single incident involving injury to passengers or member of its flight crew.

Positioning

Ryanair is the very competitive low cost airline in the Europe. Towards lower its cost Ryanair uses secondary airports whereas the closest competitor Easyjet does not. (Appendix 4) Ryanair became no 1’s in many areas.

passenger traffic -over 23m for 2004 – over take Easyjet

passenger growth

European routes (149) and bases (11)

Customer service delivery – punctuality, flight completion, and fewest lost baggage.

Process of strategic management followed by Ryanair

The Low cost carrier business model is highly competitive and the model enhances the development of strategy formulation skill by guiding business model systematic and comprehensive study of each business situation (Appendix 2)

External factors sharpening competitive positioning the Ryanair

There are not one but many factors which determine the strength of competition, the level of profitability of low cost carrier market. New entrance brings competition to the industry and risk of fall of market share and profitability.

Environmental analysis

European Union Regulations: The European airline always subject to regulation from European Union. The introduction of the competition law by European Union it prevents getting state aid, beneficial relationship with airport operators. EU expects by introducing this regulation there will be healthy competition among flight operators. The well discussed fact that Ryanair had more favorable relationship with airport operators has benefited the carrier in a tine industry growth and aggressive pricing. EU commission in February 2004 which ruled that Ryanair had been receiving illegal state subsidy for its base airport at publically owned by Charleroi Airport Appendix 8

Competition: After introduction of the competition law, competition in the airline industry increases dramatically. This creates an environment for new entrants in to the market. Due to the price competitions many of them could not lasted long. The main competition among the players in the industry dived into four main categories. The four categories are flag carriers, Independent airline, franchises of major airlines and charter operators. The independent carriers include low fare carriers such as Ryanair, easyjet. These low cost carriers slightly lower fare than flag carriers. Flag carrier’s uses independent carriers such as Virgin Express as franchises to compete effectively the low cost airlines in the short-haul routes.

External forces. Airline industry has always subject to changes in the world. Especially outbreak of foot and mouth in the UK, the SARS epidemic in Asia, Terrorist attack on 9/11, Gulf war, Economic downturn and recent volcano eruption in Island.

Financial analysis

After Ryanair introduces low fare business model every year the number of passengers travelling increased. From 2002 the company starts to purchases Boeing 737-800