Pestle Analysis Of Shrm At Ryanair Management Essay
Ryan air strategy was to offer low fares with no frills that attract high passengers and also focusing on effective services at the same time. Constituents of Ryan air strategy were low cost, customer services, frequent flights and short haul routes. It’s been define by its agile maturation. It directly passes it cost to customers. In its early years Ryan air was in direct competition with British airways and Aer Lingues.
Pestle analysis involves identifying the political, economical, social, technological, legal and environmental influences on the organization.(Johnson 1999).
POLITICAL FACTORS: As specified in the case, EU regulations were introduced to reduce the inconvenience caused to air passengers by delays, cancelations of flights and denied boarding and also EU government abolished the sales of duty free goods. Another issue was security measure due to terror attacks these restrictions were applied to all the passengers and they were not allowed to carry with them liquids and gels in their luggage. One of such issues was carbon emissions in the EU, having great impact on the climate. The company was criticized for refusing to recognize trade union pressure allegedly providing poor working conditions. Ryan air appeal to the Irish Supreme Court over a previous ruling allowing collective bargain by its pilots through the Irish airline pilots associations.
ECONOMIC FACTORS: Ryan air was especially affected by the rise in fuel price from 2005. Its low fares policy limited its ability to pass on increased fuel costs to passengers through increased fuel costs to passengers through increased fare. Depreciation of exchange rates was also one of the factors effecting Ryan air, when value of US dollars went down. It was also asked to re pay the subsidies to Belgium regional government.
SOCIO-CULTURAL FACTORS: Changes in social trends can impact on the demand for a firm’s products and the availability and willingness of individuals to work. Change in mode of travelling due to terror attacks people might chose other mode of transport like cars and trains and inconvenience caused. At time of recession people go for low budget traveling and therefore business travel increase. The majority percentage of People used to travel in Ryan air were mostly aged between 25-34 and 35-44 having 30.54% and 23.4% respectively. Purpose of traveling was one of the major factors for effecting Ryan air’s profitability like for business purposes, leisure and personnel reasons, it was mostly high for the personnel reason rather than used by business class.
TECHNOLOGICAL FACTORS: Ryan air introduced internet sales as cost cutting measures for passengers check-in and luggage handling and also by launching its website it made it tickets available only online. Ryan air also introduced a new fleet to its flights and the new technology helped in reducing the carbon emission.
LEGAL FACTORS: EU government was always against the merger between Aer Lingues and Ryan air. It was charged by Belgium government for unethically giving the resignation letters to the employees. Another sever issues was that Pilots were forced to sign the contract, were they had to pay euro 15000 for retraining and also have to pay for their uniforms. Ryan air was also charged for misleading advertisements.
ENVIRONMENTAL ISSUES: Green house from carbon emissions especially having great impact on the aviation having 2.6% carbon emissions on EU. And another environmental issue was noise pollution.
PORTER FIVE FORCES
It elaborates about the threat from new entrants, customer (buyer), supplier, substitutes and also the competitive rivalry. The buyers have high power here over the suppliers and can also choose the better option. Due to high investments, new entrants have several entry barriers for themselves. Substitutes like train and road transport can have great impact due to the budgeted airline system. Competitive rivalries have direct competition amongst them as there are so many rival companies in this field.
Ryan air faced competition due to deregulation on routes creating ability amongst the airlines, which played a great role for customers in selecting the airlines and also because of recession Ryan air attracted more customer because of its low cost, people shifted from other traditional high cost airlines switched to Ryan air. Various mergers and acquisition like Air France and KLM gave Ryan air a good competition. Ryan air use to attract its customers by giving specials offers and discounts. Another competitor was a north Atlantic airline which was forced to concentrate on rivalry with European market due to decline in the economy.
THREAT OF ENTRY:
In European countries a regulation was passed which made easy for other airways to enter into European market. Another threat was economic barrier as they need good financial backing, because may be new entrance may can face loss of money in the beginning of the carrier. Ryan air didn’t face much threat as it was the oldest and most experienced airlines of all.
BARRAGING POWER OF SUPPLIERS:
The barraging power of suppliers was very low in context to Ryan air as it use to buy from Boeing and as of the number of aircraft suppliers were increased so there was a aggressive rivalry between Airbus and Boeing. Their engineering technology was different from other suppliers. Frequent fluctuation in supply of fuel and also increase in rate of oil price.
BARGAINING POWER OF BUYER:
Ryan air faced a strong power of buyer as it had the monopoly in the market, they use to cost a lot on additional services like food, check in baggage, provision of wheel chair, which in turn was totally not likable by the customers .Due to direct customer booking and no involvement of travel agents were also a threat to Ryan air as buyers find it easy to do their work through travel agents. The power of buyers was high as Ryan air use to provide low cost.
THREAT TO SUBSTITUTES:
Ryan air acted as threat to other modes of transport like cars and all sort of road transport as they offered low cost and was much safer to and also was accessible to the places where it was difficult to go by car or any other land transport. Ryan air acted as a treat to all high budget airlines due to its low cost no frills service.
STRATEGIC GROUP ANALYSIS:
Strategic group analysis aims to identify organizations with similar strategic characteristics, following similar strategies or competing on similar bases. (Johnson et al, 2005)
Analysis can be done in three steps firstly to identify the competitors, than evaluating the strategic space and finally evaluating the strategic mobility.
Like Ryan air, easy jet and virgin express are all low cost airlines following the same strategy. Although these airlines have certain characteristics in common but their certain characteristics made a lot difference between them. Porter five forces already helped in identifying the forces then by doing this analysis various competitors will be outlined.
Ryan air the world’s leading international passenger carrier, with over 57.6 million passengers transported during the course of the year, according to IATA
These spaces are created by changes in the macro-environment- particularly globalization and information technology (Johnson et al, 2005). Ryan air was thinking to diversify and expand its business by buying an airport; it was also thinking to start its own profitable private company like hotel as it noticed that Air Lingus had earned 40% profits from it. Ryan air was to start its 12th European base at Liverpool.
This refers to those factors which stops the organization from entering into any other market segment. One of the barriers can be that traditional airlines can stop or act as a hurdle for Ryan air from diversifying into long haul routes. And another barrier which Ryan air would face will be financial back-up.
From Oct ’09 easy jet carried 45.4 million passengers with average load factor of 85.7% and on the other hand Ryan air transported 64.1 million passengers with load factor of 82%.
Strategic capability is the adequacy and suitability of the resources and competences of an organization for it to survive and prosper (Johnson et al, 2008).
THRESHOLD RESOURCES: are the productive assets owned by the firm (grant, 2005).
TANGIBLE RESOURCES: they are easy to calculate and analyze.
Ryan air had total of 35000 employees and also had a consistent growth in its profit from the year 2003 to 2007of € 110557 to €362104 consecutively. Ryan air had newest and quickest fleet by 2010 the average age of fleet was 3years. Ryan air took advantage of low oil price to maintain its fuel price for the year 2010. Being a budget airline Ryan air didn’t do much expenditure on its infrastructure.
INTANGIBLE RESOURCES: these are those resources which largely remain invisible but do more than tangible resources. Ryan air does not allow its employees to discuss its information within them; it is unethical that they pass their information to any third party. Every firm has some sort of trade secret and strategy, it was totally impossible for any other airlines to imitate Ryan airs strategy and trade secret.
THRESHOLD COMPETENCES: activities and process needed to meet customer minimum requirements and therefore to continue to exists (Johnson et al, 2005). Ryan air use to provide special training to its employees before officially hiring them for the job. And was ranked number 2 in providing best services and product.
UNIQUE RESOURCES: resources that underpin competitive advantage and are difficult to imitate or obtain(Johnson et al, 2005).
TANGIBLE RESOURCES: Ryan air unique resource was its aircraft it used Boeing 737-800 and it used the newest and quickest aircraft in the whole Europe. It also use to provide lots of ancillary revenues like it use to get commission from the website on every complete sale , use to charge on usage of debit or credit card. It also use to provide in flight services like serving of drinks, food, watches, Bluetooth sets were easy way of making extra revenues. Passengers were also able to buy motor tickets from the flight itself.
INTANGIBLE RESOURCES: Ryan air always use to latest and newest technology and always tried to upgrade its system, it was the first airline to change their system totally. It signed a deal with cable and wireless and outsourced the telecommunication technology. Its use to provide value for money and also being the most experienced air lines in this field it had a great brand image which helped Ryan air its defining its capability from others. Its low cost strategy also acted one of the unique resources for the organization. Ryan air strategy of landing its aircraft at secondary airports proved to be very helpful in cutting down the operational cost.
CORE COMPETENCES: activities that underpin competitive advantage and are difficult to imitate or obtain (Johnson et al, 2005).
The main core competence of Ryan air was its CEO Michael o ‘Leary, Michael Cawley. It also had the advantage of first mover advantage as it was the first low cost airlines and shaped the European airline market. The hedging techniques and policy used by Ryan air used also acted as a core competence for the company even though they never used it hedging techniques up to the mark. The safety records of Ryan air was very good as compared to other airlines as reviewed by its passenger that it does not compromise with its safety and aircraft maintenance.
VALUE CHAIN ANALYSIS OF RYAN AIR
Value chain analysis describes the activities within and around an organization and relates them to an analysis of the competitive strength of the organization. (Johnson et al, 2005).
Ryan air tries building relationship with various suppliers for e.g. Boeing and gets deliver the goods on time and also building a strong relationship with them adding value to its chain, thus by building strong relations hip with Boeing they get some additional service at reduce or discounted price which over all reduces the maintenance fares and offering low price to the customers. In order to add value by providing low fares, it tried building relation with airport authority so that at time when plane enters the place it automatically provides a storage hub and gets refueled and reloaded with duty free products at affordable price so that these things can help in quicker turnaround time by adding value. To add more value Ryan air use to provide its pilots and all the crew members’ special training and maintain close relationship with them. Ryan air use to give commission to the aircraft crew on completion of sale of any item by them. Thus all these service added value to Ryan air airlines by proving good services by its crew members to the passengers. Being a low budget airline Ryan air added value to its strategy by always using cheap marketing techniques by giving special discounts and offers through its website or many a times by declaring free fly through the airlines making high publicity stunts and also full utilization of its limited resources, all these factors added value and resulted in giving high productive results. Therefore, Ryan air was European first successful low cost airlines and was quite successful in its efforts taken.
CRITICAL SUCCESS FACTORS:
Reduction in operational cost:
A company cannot sustain its low cost unless until it maximizes its operational efficiencies. Ryan air used to cut down the cost in following ways by service sayings like low cost and no frills, no expensive office only electronic tickets and no connecting flights. It use to provide point to point service. Its also use to do internet sales on which they use to get commission on debit and credit cards. Ryan air had almost half of the price as compared to the full services airlines.
Competitive fares and point to point flights:
By removing business class and reconfiguring their aircraft can increase the number of seats on their aircraft. The seat cost is just 40-50% of those of rival aircrafts. Combining the load factor benefit and beneficiary cost, can help in reducing the total cost per passenger by 1/3rd of the traditional airlines. Ryan air had never always come up with idea of connecting flights, it have always provided point to point service.
Flying out of secondary airports and giving cut price deals:
Low cost airlines chose to land at secondary airports rather than primary airports avoiding the major hub as taking off and landing charges are high. Operational costs at main hubs are competitively high than compared to secondary airports making passenger land near by their destinations. Ryan air always tries to come up with some innovative and useful ideas of how it can cut down the cost attracting high customer traffic towards the airlines.
The travel distance is short:
The route chosen by low fare airlines are mainly short hauls rotes. Ryan air use to travel short distance and passenger wouldn’t have minded with no luxury on the fight.
COMPETITIVE STRATEGY OPTIONS (BOWMAN’S CLOCK)
The competitive strategy is the basis on which a SBU might achieve competitive advantage in its market (Johnson et al, 2005).
By using bowman’s clock strategy we can easily find out company’s competitive position along with how the competitors are doing against it, in case of Ryan air it proved to be one of the positive signs for the company. The status of the company can be evaluated by 8 options like low price, hybrid, and differentiation, focused differentiation, increased price/standard value, increased price/low price, low values/standard price. As Ryan air always had the first mover advantage it never faced the price war from its competitors, being the very first airlines that came up with such low prices in European market. Even though having so many competitors following the same strategy, Ryan air always earned profit by using its unique strategy. under bowman’s clock Ryan air comes under no frills category as it is a low budget airline with low cost and no frills tag, it use to provide the same service to all the passengers on the flight, which added value to the fares, it was on personal wish of the customers weather they need the extra services. Ryan air combined options from one to five from bowman’s clock making high profits. It never had the risk of losing market share and also didn’t have the monopoly in the market as it had many competitors. It mainly emphasized on low price value and low price differentiation. It targeted some specific segment of the society .Ryan air proved to be good for the people who cannot afford to fly in traditional airlines experiencing no frills at a very lowest cost.
Ryan air always tried maintaining its strategy of low price, profits made by Ryan air took its competitors to a sudden shock. One of the causes was increase in Ryan air’s profit within a very short period of time. Ryan air having frequent flights imposed its competitors in the market segment.
Michael O’Leary was the back bone of Ryan air; therefore Ryan air cannot afford to lose him as he acted as a competitive advantage to the firm. It should also work hard on its hedging techniques and oil price fluctuations.
Ryan air should focus on the correct low cost business design as in it should make the best deals with the passengers providing them with best offers and discounted offers. It should use its brand image and experience to gain low cots traffic and attracting the passengers giving competition to traditional aircrafts. Ryan air should not make profit out of the product and service they provide in flight, this may cause inconvenience to customers and also can affect the choice of passengers in switching to other airlines who does not charge for any such thing. Ryan air should also focus on the customer services and human resources management.
Ryan air should also focus on its auxiliary revenues, the main revenue use to come from those who paid more for the flight tickets or extra like on board charges or refreshments Ryan air use to make money not from its operations but from the auxiliary revenues like hotel-bookings, booking-fees for E-Tickets, excess-baggage,-sponsor-revenues from Chamber of commerce budgets, sodas and sandwiches.. 1/3 of the revenues are collected by the non used tickets, people do not turn up or bother for taking their money back as Ryan air makes it more difficult. Ryan air charged Credit card fees for paying online. It should also take advantage of first movers in the market as it was the first airlines to come up with such idea of low cost and no frills. Having its own strategy and own trade secrets it’s difficult for the other organizations to imitate it. It should focus on the customer’s choice and behavior, giving all the services through net and may act as hinder to organization. Lastly it should not charge extra charges while booking its tickets online and also should make proper use of advertising revenues and proper focus on business online.
Aircraft In Fleet Orders Options Passengers
(Economy) Boeing 737-800 223 109 84 189
SWOT ANALYSIS FOR RYANAIR
-Low cost strategy -cost structure
-Brand and reputation -use of old aircrafts
-First mover advantage -relationship with employees and passengers
-Value for money -outsourcing of IT
-Innovative and resourceful – relationship with trade union
-American government allowed Ryan air to enter – fluctuation in exchange rates
Its market .
-Ryan air wanted to lunch new planes for – fluctuations in oil price
increasing its revenues.
-Wants to attract business class by offering
Special Services and offers.
-Focus on long hauls routes.
PORTER FIVE FORCES
Strategic Capabilities and Competitive Advantage (Johnson et al. 2008)
VALUE CHAIN ANALYSIS FOR RYAN AIR
Training Crew Management Control In House Performance Contracts
Internet Website Information IS Online Sales N/A
Relationship with suppliers Outsourcing Internal Low Cost
Quality training No Frills Quick Turnaround Controversial Publicity Narrow Resources
Low cost suppliers Consistent Service Low Cost
Airport Contracts Online Sales High productivity
Inbound operations outbound logistics marketing and sales services.
Critical successful factor
CRITICAL SUCCESS FACTORS
Quick turn around
No overnight staff
Cut price deals
Point to point flights
Personnel cost and incentives
One aircraft types