Evaluating the Corporate Strategy of Ryanair

Michael Porter defines Strategy as a “combination of the goals for which the firm is striving and the means and policies by which it is seeking to get there”. According to him the Strategy is about competitive position, about differentiating yourself from the point of view of the customer, about adding value through a mix of activities different from those used by competitors.

Kenneth Andrews defines Corporate strategy as ”the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities..”

Background

Currently, the commercial world and its borders are changing more rapidly with regard of terms of size and speed. Travelling all around the world is no longer a luxury but a requirement for many of the population. In the past only rich people could afford to travel, in nowadays with the increasing movement of the technology, students as well as people with average profits can benefit. Due to this fact, in the past decades the number of airlines worldwide has been increasing significantly and respectively in early’70s a new type emerged for the first time in the U.S.: the low cost airlines. The first low cost airline was Southwest Airlines which began operations in 1971 and was profitable only in 1973 (Oliveira and Huse, 2008). After twenty years after the Americans (Beigbeder, 2007) due to the fact of the deregulation of European skies in early 1990s, the phenomenon appeared in Europe.

One of the first low-cost airlines which emerged was Ryanair (Ireland) and Easy Jet (UK) and they keep being still among the most active on the market.

Company’s history, development, and growth

Ryanair is one of the World’s favorite airlines and operates more than 1,400 flights per day from 44 bases and 1100+ low fare routes across 27 countries, connecting 160 destinations. Ryanair operates a fleet of 250 new Boeing 737-800 aircraft with firm orders for a further 64 new aircraft which will be delivered over the next 2 years (www.ryanair.com).

Ryanair is a innovator among LCA (Low Cost Airline) companies in Europe. They were among the first and they are still today the most active LCA on the continent. This business is increasing fast and from the beginning has passed through very significant phases.

Ryanair was founded in 1985 by the Ryan family in Ireland. In 1988 and during only one year due to financial losses, the company launches a business class service and a frequent flyer club for customers, neither of which prove particularly successful. This change has meant that Ryanair has changed its generic strategy. Indeed, the company since the early 90’s pursuing a cost strategy. Ryanair now offers the lowest fares in every market, high frequency flights, moving to a single aircraft fleet type, scrapping free drinks and expensive meals on board. These decisions have significantly reduced ticket prices for customers. In order to reduce again costs, Ryanair decided also to narrow down traveling lines from 19 to 6 routes between 1990 and 1992. With this new policy the Irish firm carry over 1 million passengers in one year for the first time in 1993. On 29th May 1997 Ryanair becomes a public company for the first time with a successful flotation on the Dublin and NASDAQ (New York) Stock Exchanges. In March 1999, Ryanair accepts the delivery of five new Boeing 737-800 series aircraft. Those new aircrafts began operations from the main base at London Stansted, and their impact allowed Ryanair to operate with significantly lower seat costs and to offer much lower airfares, but with better reliability and a fantastic new customer product (www.ryanair.com).

Communication between customers and the company is always a priority. In 2000, Ryanair’s website (www.ryanair.com) became the largest booking website in Europe with more than 50.000 bookings each week. This source of information allows also customers to avail of the lowest car hire, hotel accommodation, travel insurance and rail services. At that time, Ryanair was the only LCA which developed interactive useful internet services for customers. Ryanair was in 2003 in the category “most popular brand” the fifth most searched website in the world (http://www.google.com/intl/en/press/zeitgeist2003.html). The Irish airline became also the first LCA to sponsor a program on television in order to gained more customers. The company decided to sponsor Skynews Weather reports. Following this effort in communication, 1 million people traveled for the first time in during a month with Ryanair in august 2001. According to R. O’Brian (mail communication, 15 April 2009) in order to be closer to customers, they build also the first continental base at Brussels Charleroi Airport in Belgium between 2001 and the end of 2002. In 2002, the company selected Frankfurt Hahn as the second Continental European base and launched in April with 10 routes. German customers flock in their millions to avail of the lowest air fares to and from Frankfurt according to J. Meier (personal communication, 15 April 2009). To accommodate this growth, Ryanair announced the largest ever aircraft order by an Irish airline by increasing their aircraft order with Boeing from 45 to 125 firm aircraft, with a further 125 options. The value of this order exceeds € 6 billion and signals Ryanair’s ambition to continue to be the largest LCA in Europe. Ryanair became also the number one in Europe of customer services beating all other European airlines for punctuality, fewer cancellations and least lost bags (www.ryanair.com). Meanwhile according to the company respondent “communications to customers have not stopped”. In 2004, Ryanair is named the most popular airline on the web by Google, as the website continues to be the most searched travel one in Europe. These performances continued and now more than 98% of all Ryanair bookings are made through the website and Internet customer services.

During 2005 and 2006, Ryanair used communication tools in order to try to be different from other airlines for customers. First, they made a big communication called “no fuel surcharge guarantee”. Following the statements by the respondents , this was a new communication for customers because many “full service” airlines such as British airways, Air France or Lufthansa continue even today to supplement already high fares fuel with surcharges in case of extra costs. Second, Ryanair became “The World’s Favorite Airline” because they carried more customers than British Airways and all other airline and LCA firms. Third, Ryanair was and is still the most punctual company in Europe with more than 90% of flights who arrived on time and respect schedules. Many radio advertising were made with this information. Finally, in order to attract new customers, they offered 100.000 seats for 1€ for the 20th birthday of the Irish brand. From 2006 until now, a new customer service was launched. According to the respondent “This is a web check-in service giving passengers the opportunity to check-in online across Ryanair’s entire route network”.

The company is also the first airline worldwide to carried more than 5 million travelers in a month and created plan for a new customer service: onboard mobile. For the moment, Ryanair has 830 low fare routes all around Europe and across 26 different European countries. They produced customer services from their 31 European bases. Ryanair currently has a team of more than 8,000 people and expects to carry approximately 73.5 million passengers in the current fiscal year (www.ryanair.com).

Strategy

Ryanair strategy remains the same from the beginning of the 90’s and since then it continues to act as the European LCA leader and continues the expansion in order to attract more customers. Ryanair aims to offer low fares that generates increased passengers traffic while maintaining a continuous focus on cost-containment and operating efficiencies (Ryanair’s annual report from 2008).

Business Model

Full Service :

Low Cost:

Using Hub& Spoke network, Congestion during peak hours

Delay of only a few inbound flights Will spill over across large portions of the network

Low average daily utilization of aircraft, higher costs per seat mile

Enormous transaction costs

Complex fare structure

Non-stop point-to-point services

High seating density and load factors, Uniform aircraft types (usually the 737-300)

Direct booking (internet/call centre – no sales commissions)

No frills such as “free” food/drinks, lounges or ‘air miles’ Simple systems of yield management (pricing)

Use of secondary airports to cut charges and turnaround times

The main components of their strategy are low fares, customer services, frequent point-to-point flights on short-haul routes, low operating costs, high maintaining productivity, high personnel productivity, low customers costs, airport access fees, taking again a better advantage of Internet in order to serve the customer, commitment to safety and quality maintenance, enhancement of operating results and ancillary services and focused criteria or objectives for growth (Ryanair’s annual report from 2008).

Passengers may trade-off price savings against service reductions but anyway Ryanair’s market success shows that the product/price trade-off is broadly in line with customer’s requirements so far.

One of the key to the success of Ryanair was that they adopted the decision to build a powerful brand and as an example in 2003 the company was declared the fifth most searched website in the world. This confirms Gilbert´s (1996) assumptions that branding is becoming increasingly important when it comes to product differentiation. In the case of LCA`s building brand recognition can be seen as another effective tool to be prepared for the competitive environment.

These assumptions will be tightened through the argumentation by O´Connelly and Williams (2005) that for LCA´s who are offering a strong alternative to full service airlines it is from special relevance to build a strong brand around the company, but with the addition of customer loyalty and satisfaction. During the years the airline has stated clearly the product and stayed rigidly to that model with over 180 routes and 17 bases. In order to maintain the low fares the company has decided to eliminate the amount of travel agents and marketing costs and to sell tickets per internet.

This strategic decision had a positive impact and as a result the number of the customers has increased because the clients prefer to avoid the agency and to check, compare and buy the tickets themselves. Since the implementation of internet booking in 2000, passenger numbers has grown rapidly. The growth rate increased from 15,7% (in 1999) to 30,7% (in 2000) and to over 40 % in the following years. Ryanair stimulated the passenger growing by focusing on price and not on service. Thinking on long terms this can arouse problems when another new airline enters the market and this may adversely affect Ryanair`s market share and profitability. This assumption is mainly based on statement by Lawton (1999) where it is said that just having the focus on one strategy, for instance price leadership, will be unsustainable in the future. Mainly driven by the Ryanair will to expand it is certain to sustain its competitive advantage by setting the focus secondary.

While the rate of price reduction in air fares charged by low cost airlines is likely to moderate the passenger demand for the Ryanair product is likely to remain high. Ryanair clearly satisfies the markets demand which indicates that the strong price reducing strategy attracts a high number of customers. We can suppose that this fact will remain the same as far as the clients don’t change their preferences and their necessities, as long as they want just to move from one point to another and nothing more. The clients tend to keep and select the low cost airline especially for the low cost services provided by them.

However the Ryanair is not really focused in the relations with the customers and are counting every penny in order to maintain them on the market. To give you anecdotal case experience I had with Ryanair: one of my Ryanair flight was cancelled so I ended with no communications at all, no change of the ticket, no accommodation provided. Writing numerous letters to Ryanair didn’t get me not even a reply and only after writing to the European Commissions for Air Passengers Rights after 3 years I’ve got my money back. The conclusion is that what is really important for the company is to keep the low cost as low as possible, no matter what is takes. Otherwise Ryanair could even however face the problem of cost cutting itself out of the market.

What counts to the customers is to obtain fair services in direct rapport with the fair prices. The focus that Ryanair need to be focus is the importance of relationship building with its customers, otherwise it may risk losing its position. In case that the airline is capable to unite the low price with a special network of customer fidelity, only then the competitive advantage can be obtained. Strategies could be influenced directly by the numbers of travellers. According to the history of the Ryanair, in its initial stages the company wasn’t very effective and after introducing the hard discount pricing strategy the firm became really successful and attractive for the clients.

Company’s internal strengths and weaknesses

SWOT Analysis

Strengths

Weaknesses

Low Cost Pioneer

First in cost reductions

1st mover advantage

Strong Brand

Established market share

Variety of supplementary services

Week relations with customers

Unpredictable customer relations

Poor relations between employees

Refused to recognize unions

Reliance on Michael O’Leary

Unfriendly connection with competitors

Opportunities

Threats

Continuing development

Advanced fee decreasing

EU growth

Traveller Destinations

Rapidly developing competition

New low cost entrants

Alliance/Mergers between rivals

Industry criticism

Alternative transportation(cars, trains)

External environnement

Analyzing the external environment we can define 4 categories of external factors that influence the strategy of Ryanair.

Political and legal:

Were we have an increased Trade-Union pressure, EU abolishment of Duty-free Sales, EU expansion

Advertising and Marketing Campaigns

Economic:

Continuously price growth of fuel

Depreciation of US dollars

EU Commissions Decisions regarding: communication with passengers, cancelled passenger compensation, overbooking, getting illegal subsidies from airports.

Sociocultural:

The developing of new style of living by travelling, increasing demand of business with require travelling

Increasing of new high-speed trains, better cars and other ways of travelling

Technological:

With Internet, and all the IT technology, everything is much simple you can book, cancel, buy easily a ticket wherever you like

Competitors

Ryanair now has a number of low-cost competitors. In 2004, approximately 60 new low-cost airlines were formed. Although traditionally a full-service airline, Aer Lingus moved to a low-fares strategy from 2002, leading to a much more intense competition with Ryanair on Irish routes. AirBerlin wich uses a Business model -instead of point to point connections, it offered guaranteed connections via its hubs, low fare alliances. Another new competitor is BNIBaby a subsidiary of BMI British Midband and leading low cost carriers in the Midlands and Nothern England.

Alos is FlyBE which has an incorporated aspect of budget airline model. Airlines which attempt to compete directly with Ryanair are treated competitively, with Ryanair being accused by some of reducing fares to significantly undercut their competitors. In response to MyTravelLite, who started to compete with Ryanair on the Birmingham to Dublin route in 2003, Ryanair set up competing flights on some of MyTravelLite’s routes until they pulled out. Go was another airline which attempted to offer services from Ryanair’s base at Dublin to Glasgow and Edinburgh in Scotland. A fierce battle ensued, which ended with Go withdrawing its service from Dublin. [Quinn, Eamonn. “No competitors for Ryanair in Dublin, says Cassani”, 30 November 2003, at Tcm.ie. Retrieved 18 December 2006.]

Ryanair’s biggest competitor is EasyJet, announced routes to the Republic of Ireland for the first time, beginning with the Cork to London Gatwick route. Until then, EasyJet had never competed directly with Ryanair on its home ground. [Mulligan, John. “Ryanair wins judicial review of decision over Knock route”, 10 September 2008 at Independent.ie]

External Analysis

Porter’s Five Forces

Threat of new Entrants

Medium

Is somehow affected by new comers in the market

Suppliers’ Bargaining Power

Low

Industry Competitors

Competition Among existing Firms

High

There are several strong competitors fighting for the same clients.

Buyers’ Bargaining Power

Low

Threat Of Substitute Products

Medium

There is a living style that makes EU people to travel during the weekend with, buses, cars, caravans, trails

Ryanair Competitive Advantage

In nowadays the company tries to position itself by providing a strong brand on the market and obtaining a good reputation. Driven by this, company has to adapt each time to the condition of the market following strategies that can improve their competitiveness. These include cost leadership, differentiation, focused cost leadership and integrated cost leadership/differentiation. Ryanair restructured the model and they moved from conventional airline to the first European low fare. At the beginning it provided services only between Ireland and the UK. At the end of 1990 in spite of the increasing in clients, Ryanair faced losses of 20 mln IR pounds. At this period of time and directed by Michael O’Leary the company decides to adopt the model of successful American Southwest Airlines. The problems encountered at this stage were that, Ryanair tried to concentrate and on costs and also on focus. At this stage, the competitors can invade the market, and without a proper strategy the company cannot position themselves on a segment and survive. So they choose to go for Cost Leadership which proved to be a right choice.

So how they do that:

Fleet Standardization

The company uses the most sold and used planes from the world Boeing 737. Maintenance costs are low, spares parts are chip and because of this, the Ryanair is capable to keep the low prices,

New Aircrafts, Owns Own Fleet, Operations Denominated in Euro, Hedge Fuel Risk

Airport Charges

The company chose to avoid main airports and to use secondary or regional airport but closed to big cities, and respectively these airport charge lower taxes

Limited Airport Transportation

Employees and Productivity

The company provides lower employment costs, but the staff can earn more money based on their performance

Model

Online Bookings, One Class Travel, Ticketless Boarding, Unallocated Seats, Point-to-Point Flying, No Frills, Reduced Turnaround Times, No Refund Policy

Outsourcing of Services

The company uses the third part services such as aircraft handling, ticketing.

Highly Successful Ancillary Service Offering, Outsourcing of Services at International Airports,

Marketing and Advertising

The company’s promoting is basically in newspaper, radio, television and their web site

Advertising on Airplanes, In-house Marketing

Basic Service on board

Offers minimum standards of service and very low prices for point-to point short have flights, no extra such as in flight meals, advance seat assignment, free drinks and other services.

Eliminating seatback pockets, No blankets or pillows, Airsickness bags distributed on request, Charges larger penalties for overweight luggage

. This was the very strategy of : he decided to ruthlessly pursue cost leadership. This strategy was a success and by 1997, Ryanair was floated on the Dublin Stock Exchange and on NASDAQ.

Expansion strategy is another factor that enables Ryanair to position itself in the marketplace. The company has been known to be an airline which launches new routes since its operation begins. In addition, under the expansion strategy, company acquires Buzz in February 26, 2003. Such acquisition enables Ryanair to gain immediate access to11 new French regional airports and makes the company the largest airline operating at London Stansted Airport. In addition, the company continues to expand by opening two new Continental European bases with low-fare flights from Milan Bergamo and Stockholm. In the year, 2003, the company has been able to launch 73 new routes and carry over 2 million passengers in one month (July). In addition, the company website has been able to make the company position itself in the global market.

Corporate Strategy

High

Global Strategy

Transnational Strategy

Low

International Strategy

Multidomestic strategy

Low

High

Future of Ryainair Cutting costs: “Race to bottom”

Ryanair, the World’s favorite airline, today (9th July) launched an online poll to ask if  passengers would ‘stand’ on short flights if it meant they could travel for FREE, or pay 50% less than seated passengers. Ryanair is gauging passenger demand for its ‘vertical seating’ which will allow passengers to travel – for free – in a secure upright position on short flights of approximately one hour.

Source:http://www.ryanair.com/site/EN/news.php?yr=09&month=jul&story=gen-en-090709

Ryanair’s Future Plans, Cutting the costs, No Window Blinds , No Reclining Seats, Leather Seats , Velcro Headrests , Carry-on Luggage

Profit enhancement Satellite Television , Internet On-board , Rented In-flight entertainment

Future plans “Free tickets. In a decade or so, airlines will pay travellers to distribute people around Europe.

“The airline industry is Tesco, is Ikea, is network TV in the way viewers watch for free and advertisers Pay for access to them, is the internet in the same way that websites earn money for delivering click-through traffic or other sites.” Michael O’Leary ,Chief Executive Officer of the Irish airline Ryanair

Issues at Ryanair

Risks and Challenges

Extra capacity building would create certaintly about the success of new routes and locations

Fuel Prices

Vulnerable to rising fuel prices

Represents 35 % of the operating costs

Compensation to passengers

Regulation by the European Union

Terrorism and security

Added risks and Costs to the industry

Expand into Central and Eastern Europe

Continue aggressive acquisition

Overhaul the customer service

Internet ticketing

Develop the smaller operating base

Increase the ancillary revenues-focus on after salesFuture

Conclusion

Despite the fact that Ryanair is tied to low cost policy and doesn’t care about the loyalty of the clients, the relations with the Clients, the service and with bad experience with them, the customers and myself will keep to buy their services, yes we will get the basic service but is cheap, is easy and after the exams I will fly with them in Portugalia.

Ryanair rapid growth is due to:

Low cost Airline Business Model that restructured European Aviation Industry

Pioneer innovative cost reduction methods

Creative alternative revenue generation &free flights goal in next phase evolution

Value segments consist of travellers interested to optimize comfort, time and price. This would mean a requirement for city-centric airports, and comfortable departure times. Competitors are catering to value market segment and have established slots at some primary airports, furthermore provide cost effective basic services. Acquisition of a similar airline would enhance expansion into value-orientated market segments without comprising its top position in the low-price segment. The key challenge for Ryanair in the next few years therefore is developing a successful strategy for not only winning the war in Low Price segment but acquiring solid position in the Value Segment and in new non-European markets. 5. ReferencesBelfast Telegraph. “Finance crisis good for “