Market strategy of British Airways and Ryanair

British Airways is the largest airline in the U K based on fleet size, international flights and international destinations. Its main hubs are London Heathrow and London Gatwick.

BA was formed from two large London-based airlines BOAC and BEA and two much smaller regional airlines Cambrian Airways Cardiff and Northeast Airlines Newcastle. All four companies were dissolved on 31 March 1974 to form British Airways (BA).

Ryanair is an Irish low cost airline, with headquarters at Dublin Airport and London Stansted Airport. Ryanair operates 186 aircraft on 729 routes across Europe and North Africa from its 32 bases. The airline is the third largest airline in Europe in terms of passenger numbers and the world’s largest in terms of international passenger numbers.

Both BA and Ryanair tried to gain competitive advantage by implementing different strategies. These strategies can be examined more closely using Porters generic strategies model. The three approaches porter outlined are:

cost leadership (no frills)

differentiation (creating uniquely desirable products and services)

focus (offering a specialized service in a niche market)

Porters Generic Strategies

Competitive Advantage

Low Cost Higher Cost

Scope

Narrow Broad

Cost Leadership

Differentiation

Cost Focus

Differentiation Focus

Cost Focus

Companies employ this strategy by focusing on the areas in a market where there is the least amount of competition. Organisations can make use of the focus strategy by focusing on a specific niche in the market and offering specialised products for that niche. Achieving focus means a firm sets out to be the best in a segment or group of segments.

Cost Leadership

This involves increasing profits by reducing costs while still maintaining average prices and increasing market share through charging lower prices, while still making a reasonable profit on each sale because of reduced costs.

To gain competitive advantage Ryanair’s overall strategy was cost Leadership, focusing its activities on becoming a cheap “no-frills” airline. To do this they:

In 2000 opened its online booking system quickly achieving 75% of bookings online, a considerable cost saving over traditional methods.

Targeted clients who wanted a functional service, not luxury.

Used secondary airports with cheap landing fees, typically $1.50 per passenger.

Pioneered fast turnarounds at airports meaning planes made nine trips a day.

New planes without pockets in back of seats meaning faster cleaning leading to more turnaround.

Few employees per plane because of no hot food

Snacks were sold to passengers, turning cost into revenue.

Deals with hotels and car hire firms earned revenue.

No numbered seats speeding up check in times.

Planes identical, easier training for staff and maintenance.

Although Ryanair’s overall strategy has all the elements of a Cost leadership strategy, the case study refers to Michael O’Leary, personally taking responsibility and driving the cost focus strategy forward. In doing this he ordered planes without rear pockets in the seats, leading to faster cleaning times, more turnaround and by taking a personal interest, left fewer layers of management and wide spans of control.

Looking at this more closely we can see these actions were not part of a cost focused strategy but based on cost leadership because they were focused on increasing profits and reducing costs due to faster cleaning times resulting in the planes being in the air longer. Also having less management layers would be seen as cost cutting exercises which result in greater savings leading to bigger profits.

Even earlier the case study mentions Ryanair’s cost focus worked because it targeted a class of flyer who wanted a functional service, not luxury. They used secondary airports often outside major cities, but travellers did not mind as long as the flight was cheap.

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This statement could be seen to be true. Ryanair were providing low cost flights, concentrating on a niche market (leisure travellers), unlike their rivals Easyjet, who targeted business travellers as well as leisure travellers. Ryanair’s travellers did not mind that the airports were outside major cities as long as the flight was cheap.

Looking again at this, the aim of Ryanair could have solely been on using secondary airports as a cost saving approach, to increase profits.

Differentation

Unlike Ryanair, BA adopted a differentiation strategy. Differentiation involves making your products or services different from your competitors. They focused their activities on:

Being the world’s favourite airline with huge passenger numbers with a large list of destinations.

Offers a wider range of travel classes, economy, first class, business class and club class.

Flies to all major airports, typically $20 per passenger.

Only 6 trips per day.

Ethos on flying everywhere rather than profit.

Bigger planes.

Hot food and buffet services.

The main differences between the two were clear to see.

Ryanair focused on budget travel, while BA offered a wider more luxurious class of travel.

The cost between airports was typically $1.50 per passenger for Ryanair compared to BA’s $20 per passenger, meaning higher costs.

Fast flight turnaround leading to more customers.

Ryanair has fewer employees per plane.

BA offers hot food as part of flight package meaning greater costs.

Ryanair sold snacks which earned revenue.

BA has a more complex check in service.

BA has a bigger more varied fleet of planes which means more training, parts and staff.

Ryanair has become more competitive than BA. Their success is the result of the strategies they implemented and the way they carried out their business. The main points to highlight in showing the success of Ryanair are:

Managers know the strategy and the objectives of the company, whilst the staff had straight forward jobs because cost cutting had reduced tasks to a bare minimum.

The use of secondary airports

It concentrated its operations on cost cutting and being a no frills budget airline.

Ryanair moved more customers because of faster turnaround.

Fewer employees, less overheads.

Created revenue by selling food on flights, car hire and hotels.

Did not compete with major carriers to main airports.

The result was Ryanair has a bigger net profit (27%) compared to British airways (3%).

General Electric strategy grid

Also known as the GE/McKinsey Matrix is a developed version of the BCG Matrix.

This tool compares the internal and external business / industry factors alongside market size and share. The ‘matrix’ comprises 9 squares in a grid format with the ‘Y’ axis measuring industry attractiveness against the ‘X’ axis which measures business strengths.

BUSINESS UNIT STRENGTH

HIGH

MEDIUM

LOW

INDUSTRY ATTRACTIVENESS

HIGH

MEDIUM

British

Airways

LOW

Industry Attractiveness

This is determined by the factors such as

Market growth rate

Market size

Demand variability

Industry profitability

Industry rivalry

Global opportunities Macro environmental factors (PEST)

Business unit strength

This is determined by the following factors

Market share

Growth in market share

Brand equity

Distribution channel access

Production capacity

Profit margins relative to competitor

Grid layout

Top left segment: Here the business is very strong and the market very attractive. If the business falls in this area, the company should focus its resources here.

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Middle three squares: Here the business and the market attractiveness are neither too strong nor too weak. Discussion is needed to decide whether renewed investment should be injected to boost business, moving the business into a better area of the grid, or resources should be withdrawn and reinvested in other more profitable areas.

Bottom right segment: Here business and market attractiveness are both weak. In this situation, the company should try to reposition its business quickly or withdraw resources to reinvest elsewhere.

British Airways

In considering a future strategy for British Airways, we look at the GE Matrix and analyse their business strength and market attractiveness. British airways will be placed in middle attractiveness and middle strength. They have the potential to be the market leader as they fly to more airports than its rivals, giving it the advantage of a potential bigger customer base. Plans need to be discussed as to where cash injections are needed to boost business. This will be done by analyzing its rivals and deciding how to take advantage of their strengths and weaknesses.

Future Strategy

In developing a future strategy for BA, we first need to take a look at their current market position and factors affecting the company. To do this a SWOT analysis could be used to examine the opportunities BA could take advantage of and the threats to look out for. Also they need to examine then develop their strengths and look at and improve the weak areas of the business.

Once the SWOT analysis has been carried out, a strategy can be developed for the company using a model called the Ansoff matrix. The Ansoff Growth matrix is a tool that helps a business decide their product and market growth strategy.

Ansoff’s matrix suggests that a business’s growth depends on whether it markets new or existing products in new or existing markets.

The output from the Ansoff matrix is suggested growth strategies that set the direction for the business strategy. They are:

Market penetration

Maintain or increase the market share of current products – this can be achieved by competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling

Secure dominance of growth markets

Restructure mature markets by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors

Increase usage by existing customers – for example by introducing loyalty schemes.

The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.

Market development

Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets.

There are many possible ways of approaching this strategy, including:

New geographical markets; exporting the product to a new country

New product dimensions or packaging:

New distribution channels

Different pricing policies to attract different customers or create new market segments

Product development

Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.

Diversification

Diversification is the name given to the growth strategy where a business markets new products in new markets.

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This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.

For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.

A suggested strategy to be developed would be market penetration. This strategy would concentrate on new pricing policies, more advertising and bigger promotional campaigns. This strategy can be used because BA already has a large customer base, which is distributed over many countries, flying to all the major airports. They are a well known brand with a good reputation for delivering a high quality service. They also work in a market in which they are well established and have good knowledge of the competition. This strategy would not require much investment as they already have lots of knowledge on its potential customers and its competitors. This means money can be spent on improving other areas of the company.

On improving other areas of the company, they need to look at ways to reduce costs and introduce new revenue streams. An example of this is the ways in which Ryanair clean their planes more quickly, using less staff, generating more flying time.

If BA adopted such approaches, this could mean reducing costs so they can concentrate on delivering higher standards of flying at a lower price. This could lead to attracting customers away from its competitors, who would be willing to pay a little more for a flight for a much improved class of flying.

To generate extra revenue, customers could be targeted with a wider range of in flight products, not only on board planes, but in departure and arrival lounges. Products could include discounts on further flights; hotel and car hire discounts and deals on full package holidays.

Resourses

Resources required for the new strategy would be:

Re-design planes internally – concentrating on space, comfort and ease of access and cleaning.

Designate and integrate a wider range of jobs for staff.

Revamp image of company, targeting the competitions customers.

Negotiate cheaper landing fees with airports.

Reduce the number of classes of seats to two. This could be flying class and business class.

Constraints

Staff participation – in reducing costs, the staff need to participate in the new way in which the company will work. Would they be willing to do this?

Could deals be struck for lower landing fees with the major airports?

Would re-designing planes be too costly?

Would BA’s hierarchical structure cope with the changes?

Evaluation

The above proposed strategy will have many implications at a lower management level. They will be required to have a positive input into the new strategy, so to benefit staff and employees who deal directly with the customers. Morale will be of great importance amongst employees as low morale will reflect in customer care, so affecting sales.

Formative evaluations will be carried out periodically, so progress can be considered. An estimated evaluation period will be every 3 months over an 18 month period. This will allow for the re-design of planes, changes in workforce structure, promotions and advertising to take affect and budget constraints to be implemented.

Finally a Summative evaluation will be carried out near the end of the project to provide evidence of achievements and success.

http://www.coursework4you.co.uk/generic.htm

http://www.quickmba.com/strategy/generic.shtml

http://www.marketingteacher.com/Lessons/lesson_generic_strategies.htm

http://www.12manage.com/methods_porter_competitive_advantage.html

http://www.lmcuk.com/management-tool/general-electric-multi-factoral-analysis-matrix

http://tutor2u.net/business/strategy/ansoff_matrix.htm


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