Strategic Capability And Competitive Advantages Management Essay

Ryanair is the World’s favorite airline with 41 bases and 1100+ low fare routes across 26 countries, connecting 153 destinations. Ryanair operates a fleet of 232 new Boeing 737-800 aircraft with firm orders for a further 82 new aircraft (before taking account of planned disposals), which will be delivered over the next 2.5 years. Ryanair currently has a team of more than 7,000 people and expects to carry approximately 73 million passengers in fiscal year 2010/11. (www.ryanair.com)

Cathlan and Declan was the founder of Ryanair. It was the Europe’s leading first budget airline and was founded in the year 1985 by Cathlan and Declan with the financial help of their father Tony Ryan and they started their airline with just a share capital of $1 along with a staff of 25 employees. Ryanair started passenger airline services between Waterford and London with the single 15 seated flight. Ryanair model was actually built on south west airlines after the highly successful U.S carrier (Texas based operator). After 15 years, the Ryanair flew through a great deal of turbulence, in which company lost its 5 chief executive. In the early 1990’s Ryanair survived and successfully restyled itself as a role model of south west airline and become a Europe’s first leading budget airline, with low fares and no frills carrier with two classes of seating, more than two types of different aircrafts. After that Ryanair was led by Michael ‘o’ Leary, who was appointed by Tony Ryan in late 1990’s.

Ryanair first floated on the Dublin stock exchange where it was admitted to the NASDAQ-100 in 2002. Subsequently Ryanair started its operations in 2006. During this Michael o’ Leary implied many strategies to make their profit high while sticking to the low fares. They used many tactics like yield enhancing measures for passenger check in, using secondary airport to reduce the landing cost; they switched to the new aircraft which consumed less fuel, offered online tickets booking, discounts and on flight internet-gaming facilities.

2. Objectives:

This paper focuses on the Strategies adopted by Ryanair to survive in the competitive industry. It further expands into how this strategy has affected the business in terms of market share and reducing the cost of air tickets while earning high profits. We will use the internal methods and models like value chain, Swot Analysis, BCG Matrix to interpret the strategies. We will also look for the competitive advantages which the company had over its competitors.

3. Ryanair Passenger Growth in Millions

(Source – Ryanair official website.)

Ryanair’s booked passenger and load factor statistics for April 2010 are as follows:

 

 

Apr 09

Apr 10*

Increase

12 mth to Apr 10*

Passengers (m) 1

5.3M

6.2M

+17%

67.4M

Load Factor 2

82%

83%

+1%

82%

 

1.     Represents the number of booked seats sold by Ryanair.

2.     Represents the number of passengers as a percentage of total seats available.

 

*The booked passenger and load factor figures for April 2010 includes up to 1.2M passengers who were booked to fly between the 15th to 22nd of April but whose flights were cancelled due to the closure of much of European airspace following the volcano eruptions in Iceland.

Analyzing the key factors of Ryanair-

4. Internal analysis:

Strategic capability and competitive advantages:

Michael ‘O’ Leary effectively made the European airline cheaper, Ryanair was started with the very low share capital but after the few years Ryanair was on top for their resources and capability. In 2006 Ryanair aircraft had 103 routes which increased gradually (Ryanair operating statistics). Ryanair strictly maintained the low cost airline policy. Ryanair replaced its fleet of previous aircraft, with the new, advanced eco friendly aircraft, which produced 50 percent less emission, 45 percent low noise emissions per seat and 2 percent reduction in fuel consumption. Further more Ryanair launched European largest website www.ryanair.com in January 2000. In the period of 3 months the website recorded 50,000 online bookings per week 1.(Box, Byus et al. 2007) “Ryanair is the southwest of Europe and they continue to take market share at phenomenal place” says Chrish Lozier when the Ryanair announced there order of 70 new boeing 737-800 aircraft.(Byron 2005)

In 2006 Ryanair’s average staffs was 3063 from 25 different nationalities which rose by 18 percent as compare to year 2005 and the average staff cost 53,306 euro (Ryanair operating statistics).Ryanair reduced the airport charges by avoiding congested main airports and selecting the secondary airports for instance. Ryanair uses Torp, which is 100 kilometres away from Oslo. Ryanair flew for various destination and routes continued to be point to point only. Its low -fares policy attracted the customers with guarantee that they do not impose any fuel surcharges on its customers. Ryanair is famous as a ‘no frills airline’ in which there is no business class only single class aircraft polarization. Ryanair was the Europe’s biggest low fair airline and only ryanair was offering lowest fares in the whole European market.(Hägele 2006) Michael O’ Leary quotes that any company can sell at the low fares and lose money. The main thing is to sell at the lowest fares and make profits; you can’t lower your airfares or invest in new aircraft. (To quote Michael O’Leary).Constantly decreasing the cost of fare was Ryanair’s strategy to attract the passengers by offering them no surcharges ever. Ryanair in 2006 increased the market shares and left the competitor behind. Cost cutting method made the Ryanair unique with the other airlines; Ryanair plans to close the check in desk to reduce the baggage handling charge by 50%. Now Ryanair is currently negotiating with stansted owner BAA ltd for lowering the charges which is forced by the operator.(Niththyananthan 2009).Ryanair controls its cost to fly point to point for one way; it makes all booking separately with no baggage transfer, even to its own flights. Quietly but tightly Ryanair’s warns the passengers on its official website that if they are taking a Ryanair flight for its base and then for taking another Ryanair flight onwards they should allow 3 hrs between the arrivals and departure and the passenger will have to collect their luggage and check in for the another flight. Like South west airline, Ryanair offer free for all no seating assignment.(Velocci Jr and Bond 2001)

Critical key success factors of Ryanair’s:

To continue holding position in the market, as well as to maintain the low fares strategy. Ryanair started online booking by issuing the discount and cutting down the distribution cost. In 2006 Ryanair claimed that the Ryanair official website is the largest travel website in Europe and the 5th most recognized brand on Google and offering huge power for ryanair to convert this web traffic into advertising revenues. (Furlong S. 2006) In addition to this Ryanair got free publicity through the media. Michael O’ Leary pulled airline in an entertainment service in which they provide the internet facility and video games. New Boeing aircraft was the most successful key factor in the progress of Ryanair airline. It reduces the fuel consumption and noise emissions per seat as well as the eco friendly aircraft. Mainly all the companies fully concentrated by trying the less prices fares. Even though Ryanair reduces the on board meals and drinks and its major concern is market target like advance reservation, cargo safety and fast departures. Chief successive factor of Ryanair was its punctuality and less loss of baggage which attracted the customers to choose the Ryanair low fare airline. As well as Michael O’ Leary who was credited for transforming European transport. In spite of these success factor if we talk about critical factor without which the Ryanair fails was only one Michael O’ Leary who make the dream possible to fly cheap, without Michael’s strategies and tactics the budgetary business module can’t succeed.

5. Financial Analysis –

Ryanair, Europe’s largest low fares airline announced an 80% increase in half year net profits to €387m. Revenues fell by 2% to €1.8bn, as a 17% decline in average fares was largely offset by a 15% growth in traffic. Unit costs fell 27% due to lower fuel prices (excluding fuel, unit costs fell 5%) and rigorous cost discipline.

Summary Table of Results (IFRS) – in euro Half Year Results

Sept 30, 2008

Sept 30, 2009

% Change

Passengers

31.6m

36.4m

+15%

Revenue

€1,811m

€1,767m

-2%

Adjusted Profit/(Loss) after Tax (Note 1)

€214.6m

€387.0m

+80%

Adjusted Basic EPS(euro cent) (Note 1)

14.44

26.23

+82%

– Average fares down 17% to €39.

– Traffic growth up 15% to 36m pax.

– Net profit up 80% to €387m.

– Industry leading net profit margin of 22%.

– Ancillary revenues grew 8% to 20% of total revenues.

– Unit costs down 27% (ex fuel costs down 5%).

– 100% web check-in from 1st October.

– Fuel hedges extended for fiscal 2011, Q.1 to 50% and Q.2 to 50%.

6. Competitor Analysis –

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.

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 My Travel Lite, who started to compete with Ryanair on the Birmingham to Dublin route in 2003, Ryanair set up competing flights on some of My Travel Lite’s routes until they pulled out. Go was another airline which attempted to offer services from Ryanair’s hub at Dublin to Glasgow and Edinburgh in Scotland. A fierce battle ensued, which ended with Go withdrawing its service from Dublin.

In September 2004, Ryanair’s biggest competitor, 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. Easyjet announced in July 2006, that it was withdrawing its Gatwick-Cork, Gatwick-Shannon and Gatwick-Knock services; within two weeks, Ryanair also announced it would withdraw its own service on the Gatwick-Knock and Luton-Shannon routes.

Ryanair has asked the high court to investigate why it has been refused permission to fly from Knock to Dublin. This route was won by CityJet, which was unable to operate the service. The runner up, Aer Arann, was then allowed to start flights, a move Ryanair criticizes on the basis that not initiating an additional tender process was unlawful.

DFDS Seaways cited competition from low-cost air services, especially Ryanair, which now flies to Glasgow Prestwick Airport and London Stansted Airport from Gothenburg City Airport, as the reason for scrapping the Newcastle-Gothenburg ferry service in October 2006. It was the only dedicated passenger ferry service between Sweden and the United Kingdom, and had been running under various operators since the 19th century.

7. Value chain

Analyzing the aspects of case study Ryanair as a low cost fuel aircraft and low cost fuel supply, it also embraces the airport authority contracts and Ryanair’s has a warm relationship with there suppliers. Ryanair has an outstanding record in punctuality for take off which make a prestigious in the airline industry. Ryanair luggage service provided to the customer was also best as compare to other airline and they also provide many entertainment amenities during on flight which attracted passengers and helped to switch to the Ryanair airline. Some famous incident made the Ryanair’s unique value or frame in the market through the free media publicity. Through the survey passengers rated no. 1 airline on the prospects of there low fare, punctuality and less loss of luggage and also no. 1 for European routes (149) and bases (11).(O’Cuilleanain, della Falle et al.). Ryanair scored highest across all categories in its earning to revenue ratio. In creating wealth Ryanair was second to united parcel service based on net return productive assets compare to all airline companies.” It remains our medium-term view that there will only be one or possibly two large low-fare airlines” we are determined that the biggest and lowest-cost of these carriers will be Ryanair,” say company of official(Sparaco 2004)

8. BCG matrix

The analysis of BCG matrix in the case study of Ryanair. Ryan air comes in third column of BCG matrix Cash Cows which means inflow is high (market share) and the outflow is less (limited investment). Ryanair generates huge amounts from the market by there low fare and domestic flight strategies .They only focus to invest in the domestic region rather than invest in other sectors, which means earning is high but no future growing scope.

9. Ryanair Strength:

They have an unique capability of optimizing their production cost efficiency and co sequencing maintains the leading position among the European low cost airline and reduced the landing fees by avoiding the congested airports, choosing secondary regional destination airport and avoid the competition with big network carriers.(Mayer 2008). A low aircraft acquisition cost has made the Ryanair low cost airline. Ryanair low aircraft acquisition cost is the main factor of its low price policy. Ryanair purchased 21 second hand aircraft (737-200s) whose cost ranged between $5 and $9 millions with a comparison of $30 millions for new 737-800s. After that Michael O’ Leary conducted the Ryanair’s operation in 2006, in which ryanair replaced its old aircraft with the new more eco friendly which reduce the 45 percent noise emission and also reduce the 2 percent fuel consumption. Ryanair’s reduces there distribution cost which means no travel agent, no commission. About 48 percent of Ryanair booking was done directly through the official sites and offering 5 percent discount for the online customers which cut down the travel agent commission around 7.5percent. They reduced its crew members or flight attendants while they used 130 seater aircraft, whereas in big carriers there were only five employees.(Sophister) Ryanair’s was famous for there entertainment service by issuing rent game and internet services on flight. Ryanair has the outstanding record in punctuality and loss of luggage which gives a good image of the company reliability. Ryanair has developed the low fares product with the high employees productivity.(Barrett 1999).

10. Ryanair Weakness:

There are many weaknesses due to which Ryanair may be perceived as an arrogant airline. Ryanair’s was always surrounded by the issues which media highlighted in the news and the rivals took the benefits of it. Major weakness of Ryanair is poor management and lack of attention towards the customers. Bad industrial relations with there staff mainly their pilots. For Example Company banned there employees for charging there mobile phones because of electricity bills and the pilots gave extra money for their training on new aircrafts. Rowdy behaviour towards the government policy and statements, Michael O’ Leary reacted after the minister speech that he was foolish and ill informed like other politician, minister Pearson talks a lot but does little.(Hall, b. 2007)and(, k. 2007). In addition Ryanair was against to pay any refund which was arising due to the cancellation or delays. Using of secondary airport or advertised destination sometime made big inconvenience for customers and the main weakness that has to be stressed is, its fully focus on regional airport not congested airports, which may result in a less ability to be a focus for certain customer group (Mayer 2008).

11. Culture of Ryanair:

It is noticed that ryanair has a flat organizational structure which focuses on a lean business budgetary model. The board directors and managers are from diverse areas and bring in rich knowledge. Ryanair strategies are clear towards there no frills and low cost policies and the high productivity of its workers is a testimonial to its control and rewards systems. However different nationality workers work in the ryanair. (Ryanair 2010)

12. Conclusions:

In conclusion, the uses of internal methods and models like value chain, resources and capability, action plan give us understandable view of industry. Furthermore the theory effectively offered more chances for growth and improvement of the airline. Continuous study and analysis of the internal factors can help the organization, for struggling competition and economic growth. Ryanair implies the cost reduction method to make there business budgetary model which destructed the European airline industry. The low fare airline which exploits the cost budgetary strategy to make a competitive place as well as build up its core competencies and capacity to boost performance those help Ryanair to get its major success. Thus, the competitive advantage and core competencies of the Ryanair make its competitive position in the cheap airline industry.