Company Overview
Ryan Air is known as a budget airline which can afford to charge lower fares due to the lower cost of operations. Budget airlines are unlike other airlines as they have a limited service and charge for extra items such as baggage, seat allocation, food, etc. Ryan Air is a budget airline which only flies passengers on routes between Ireland, UK and most of Europe. Ryan Air employs around 5290 people while its headquarters are based in Dublin Ireland. They are one of the biggest budget airlines in the world. They were also one of the first airlines in the world to start making a profit based on their low cost model. A lot of people fly on Ryan Air mainly because the cost of flying is lower and they can save more money. Some people are not fussed about the services offered on a plane and just want to reach their destination. This is where Ryan Air has been the most successful.
Environmental Analysis
SWOT Analysis
Ryanair’ strengths are in the fact that it was the first European Budget airline to begin operations. They started off with only 57 staff and one plane in 1985. This led to bigger opportunities and they managed to expand their staff and gain more passengers in the longer run. They know fly to around 1100 plus routes to over 153 destinations. They have 232 planes in service to help them fly their passengers. Ryan Air has a staff of around 7000 people and is expected to fly around 73 million passengers this year.
Ryanair made a loss of 11 million Euros in the third quarter of the year. However the loss was quite small compared to the number of budget airlines going out of business which would only lead to more market opportunities for RyanAir.
It will be easier to determine the standing of the company through a micro environmental analysis which will determine the strengths, weaknesses, opportunities and threats faced by them.
Strengths
Low Cost of Operations
The biggest strength of the airline is the fact that it provides proper flights from one point to another instead of routing them through a central hub. This is beneficial to them because it does not entail extra costs. Most of the routes on Ryanair utilise smaller airports such as Stansted Airport in London, and various other smaller regional airports. The strategy of using regional or smaller airports is the fact that they are less prone to face congestion. This in turn leads to lower airport costs, higher rate of flight departures and more facilities at airports.
Ryanair is able to afford the costs of flying passengers on short haul flights and charge them lower fares as they don’t have to provide in-flight entertainment or meals. Their operating strategy is to go for short haul flights as they don’t have to provide any additional services which will eat into their revenue stream. They save money by flying from point to point as they don’t have to pay for services such as transit or baggage transfer. Ryanair had the highest measured turnaround time of 25 minutes as compared to other major airlines. This is the reason why they have made higher revenues than other airlines.
Impressive Fleet
Ryanair has one of the biggest fleet of aircraft for a small budge carrier. They have around 232 aircraft which are all Boeing 737-800 aircraft. They can easily carry around nearly 200 passengers per aircraft. Ryanair uses the same type of aircraft for all its operations simply because it lowers of the costs by having spare parts and maintenance for only type of aircraft. They do not have to get additional equipment required for servicing other types of aircraft nor do they have to hire engineers for that particular purpose. They can easily rotate the staff they have to do the maintenance and personnel work.
Huge Network of Routes
Ryanair operates around 1100 routes throughout Europe, UK, Ireland and some holiday destinations such as Morocco. They have one of the highest market shares in the market mainly due to all those routes and all the passengers who fly on it.
Weaknesses
Lower Profits and Cash Flow
Ryanair has been facing a lot of growth but then their profit margins are not the same as they were when they started out. The numbers have been decreasing from the mid 2000s mainly due to the fuel prices and the eventual fallout of the Global recession. The costs of operations went higher because of these factors. It has been criticised for not being able to control its cost strategy. They need to do something about it as it will affect them in the longer term period. They have also faced a fluctuation in their cash flow which does not bode well for the company.
Criticism
They have faced a lot of criticism over the fact that they charge for everything extra on the flight. Customers have to pay super high charges when it comes to in-flight snacks. It was also criticised for making physically challenged passengers pay for wheelchair support which they should be entitled to in the first place due to their disability. They have also proposed a charge where customers would have to pay a pound to use the toilet each time on a flight.
http://www.dailymail.co.uk/travel/article-1263905/Ryanair-toilet-charges-phased-in.html?ITO=1490
One of the other drawbacks on travelling on Ryanair is the fact that it has very little legroom. It can prove to be quite uncomfortable for a number of them when they are travelling. They also charge extra if the baggage goes overweight.
Opportunities
EU Expansion
Ryanair will be able to capitalise on the fact that the EU is slowly expanding. They are already flying to a number of routes in Europe and will be able to fly to a large number of routes if more countries become part of the EU. There will always be the need for airline travel as people would like to travel abroad during their holiday breaks. the industry is poised to grow even if the revenues fall.
Opportunity to gain more customers
The Global Recession has affected airline travel in a big way. Consumers and corporate companies have been looking into saving money in various ways. It is a good opportunity for them to reach out to those customers who have never travelled on a budget airline but are looking forward to making savings.
Threats
Oil Prices
Oil prices can prove to be a big threat for RyanAir as they are a budget airline. It has already affected bigger carriers such as BA, KLM, etc. Fuel prices have the tendency to go up and this can affect how the airline can make profits. If fuel prices go up either the prices of travelling go up or the airline has to suffer from a lower profit margin.
Price War
Ryanair is the biggest budget airline but it still has to face a lot of competition from other budget airlines. The recession has made the market place tighter and all airlines are fighting to gain a share of the market. There is always the possibility that some carriers may reduce to lowering their rates which can lead to a price war. A price war is harmful for everyone as it can affect the earnings of an airline.
PESTEL analysis
There are certain factors which affect the way Ryan Air is affected in the vast macro environment.
� Political
A number of European Governments give a more favourable treatment to their own national airlines in order to protect their economy. Some governments impose tough conditions on them to benefit their local carriers and economy. Ryanair can also feel the heat from the ever changing aviation policies implemented. They also have to contend with the Green tax imposed by the government to combat carbon emissions. The added threat of bombings has brought upon the need to have extra security for the benefit of passengers.
� Economic
Ryan air has to deal with the fluctuating fuel prices which can be a headache for them in the longer term. The fuel prices are something they are unable to avoid and that is one reason why they are bound to pass on the buck to their customers by passing on the costs to them. There are also the factors of the Euro and Pound fluctuation which can cause cash flow problems. The recession has also caused them to find areas to cut costs and that is why they have reduced or cut back on benefits for their staff. This can have a long term bad effect on the morale of the company.
� Social
There are a large number of customers who find Ryanair to be a feasible solution for their travel needs due to the low cost involved with it. A majority of their customer base is from the EU have moved to the urban areas from rural areas and have found new financial freedom. They are the sort of customers who want to travel around but at a reasonable cost.
� Technological
Ryanair can favour from innovations in technology where new generation aircraft are more fuel efficient, produce less noise and are less prone to polluting the environment. This will make it easier for them to run their operations at a lower cost while keeping the environment safe. Ryanair has used technology to cut costs by using e-ticketing, allowing people to check in online and to promote its products online.
� Environmental
The environmental factor affects RyanAir as they have to do their bit to reduce carbon emissions. The EU has made it mandatory for airlines to reduce their carbon footprint and find a way for airlines to come up with ways to deal with it.
� Legal
The airline industry is one of the most regulated industries in the world. RyanAir has to adapt to the ever-changing rules and regulations imposed on to them by the law. They have also gotten into trouble mainly due to misleading advertisements in the media. They gave cheap prices in their ads but the prices were without tax and other charges.
Porters Five Forces
Bargaining Power of Suppliers
RyanAir has an exclusive fleet of Boeing aircraft. This gives Boeing a lot of bargaining power over Ryan Air. The cost of switching from one provider to the other is not easy because costs a lot of resources to train the pilots, engineers and mechanics if they were to ever switch to a rival company. They are also at the mercy of oil suppliers who dictate the prices of oil. They have to buy oil at the prices they quote and there is no way out of that. RyanAir is also at the mercy of bigger airports as they can dictate higher charges due to the amount of traffic they receive. RyanAir is unable to avoid some of these airports as they might be the only hub which can handle their type of aircraft.
Bargaining Power of Customers
Customers are the main draw for the airline as it won’t generate any profits unless there are any customers. Customers are always looking for the perfect bargain and will not pay a higher cost. It is easy for them to find a cheaper fare if they are unable to get the right rate from ryanair. There are plenty of fare comparison websites on the internet which will allow them to find a better price if they don’t get what they want. This is one reason why customers are not loyal and will always go where they get a good rate.
New Entrants
It is not easy for new airlines to make an entry in the market as the airline industry has become really saturated. It requires a very high investment from a company to start an airline. The organization should be able to bear the losses which can be made while starting a budget airline. Then there is the factor to take in that it is not easy to find the right slots at certain airports because some airlines already have a presence there. They also have to contend with the fact that they it is not easy getting flight routes nor is it easy to find a good place to set up base.
Threat of Substitutes
Recession has ensured the fact that customers are very fickle with their money. They will go for the best option possible for them. Ryanair is a budget airline and people use it for necessity and not for the reason that they are loyal to the brand. They can always opt for other options such as the train, ferry or cars to go to other countries if they don’t want to travel by plane. The other modes of transport make it easier for them to have alternates.
Competitive Rivalry
There are a lot of rivals in the budget airline market as they all want a share. Ryanair has to deal with rivals such as Easyjet and AerLingus for a share of the market. These rivals do not compete with each other on the same routes as they know that competition will bring more problems such as lowering of margins and lower profits. they also have to contend with airlines forming strategic alliances so that they can combine resources to fight RyanAir.
Value Chain
� Firm infrastructure –
Ryanair has kept their primary bases at Stansted and Dublin while they operate a further 16 other basesi n Europe. They are able to make higher profits as they use lesser congested airports which are further away from the city. Ryanair makes its profits mainly by charging for extra services. They only have one type of aircraft and save plenty on training costs. They also have a centralized form of management where all managers report directly to the upper management.
They can easily make savings by making their employees sleep at their bases instead of sending them to costly hotels. It allows them to make long term savings. They plan their schedule in such a manner that their employees get 3 days off while they work the other 4 days.
� Technological development – Ryanair was one of the first firms to introduce online booking and therefore was able to reduce their costs. They also introduced a self-check in service which enables the passengers to check-in and therefore reduces the staff needed and also costs. They also have also got the youngest fleet in the EU which they have done in order to reduce their costs by using newer aeroplanes. They are also less costly as they do not need as many repairs.
� Procurement – as Ryanair do not produce any products, they only provide a service; they therefore outsource the material they need. They have to buy fuel and equipment as well as leasing their planes.
� Inbound logistics – outsourcing of handling services (cleaning services, food, medical services and security/safety) it is very common for a business to outsource these elements.
� Operations – they have to check all the planes and equipment before setting off, this is done by the pilots. Uses not very congested airports and only make point to point trips.
� Marketing and sales – they have the biggest website in Europe, advertisements in the tube and large advertising boards in the airport. They also try to increase sales by selling the products in flight; they sell duty-free products as well as food and drinks. They tried to introduce entertainment onto the flights that you had to pay for however this was unsuccessful as people were not willing to pay due to them being short-haul journeys. They also encouraged you to buy the hotel package as well which includes hotel reserves, car renting, travel insurance and transport.
� Service – try to keep fleet up to date. Their staff has to go on courses once a year to improve their knowledge and make sure they know all the new regulation.
� Margin – in 2006 Ryanair was the most profitable airline in the world on the basis of its operating and net profit margins, on a per-airline and per-passenger basis
Strategic Analysis
Ryanair is one of the biggest budget airlines in Europe. They face a lot of competition from airlines such as easyjet, BMI baby and Thomson. They all have fierce competition when it comes to the airline industry. Ryanair has a better footing in the industry due to its aggressive pricing and extensive routes it flies. They have a better relationship with most of the airport operators as they get a better deal than the other airlines. RyanAir used to have a fleet of used aircraft as compared to Easyjet. However they changed their strategy and bought new aircraft. Ryanair has a huge network while Easyjet has a huge frequency of flights. The difference between the two is that Ryanair goes for smaller and lesser known airports while Easyjet operates from big airports. However the cost of operating from bigger airports has an effect on the prices of Easyjet which makes their prices higher than Ryanair. Ryanair targets leisure passengers while easyjet targets business passengers to make up for their overheads as they are the ones who travel more often. However ryanair does not face any congestion as flights take off on time and the turnaround is faster but then easyjet is able to target those customers who want to travel from major airports as they don’t have to travel too far. Easyjet has a far superior customer service as compared to Ryan air.
Operating in the most competitive marketplace especially European airline industry, Ryanair is faced with the inevitable threat of stiff competition. For a company to succeed in global competition there is a continuous plan to develop new products with higher quality than its competitors. New product and new business development must be highly effective and efficient, however that alone will not ensure its competitiveness. The expansion of its operations to other areas means adjusting to the trade policies and political problems of the locality. The dynamic needs and demands of customers served to be a challenge to the management. Furthermore, consumer behaviour and satisfaction with regards to the product/service procurement is also a risk. If the company will continue to be a vertically integrated corporation, the company may fail in terms of management ability. The division of the company may tend to have internal complexity. Additionally, fast paced technological advancement may be a threat to Ryanair as a whole. In terms of the competitors, the company should be able to provide unique and more technologically advanced services to be able to survive in the competition in the world airline industry.
Ryanair is one of the leading budget airlines in the world mainly because it has a great cost reduction strategy. They also utilise Porter’s Generic strategies which separates them from their competition by giving them an edge.
Cost Leadership
Cost leadership is when an organization sums up its activities in such a manner that they come up with the lowest costs within the industry. Ryanair is cheaper than the competition as they have the lowest fares on the market. their main strategy is based on cost leadership and it is the reason why they are the top budget airline in the world.
Differentiation and Focus-Differentiation Policy
The differentiation strategy involves an organization offering a product which is unique and superior to the one offered by its competitors. They can also charge a good price for that product if their customers are up for it. The Focus-Differentiation policy is such where an organization bases its strategy around a targeted segment of a market. They make products or services for that particular segment which they know very well. The differentiation policy is to make sure that their services are at the lowest cost and the customer only pays more for what he/she wants. In this way the customer does not have to pay a huge price for an airline ticket and only pays for what he/she wants. This is linked in a way to the focus-differentiation policy where Ryanair is targeting the cross section of people who can’t afford to pay the price of a normal airline ticket.
Bowman’s Strategy Clock
The Bowman strategy clock is a strategic model which takes a look at the competitive position of an organization in contrast to its rivals. It has eight options which are:
It is not easy to find a place for Ryanair within the Bowman Strategy Clock because it has undergone a number of changes throughout the years. There have been fluctuations in its position so it is not a simple task to place it in the right position. Ryanair is able to offer lower prices and are far ahead of the competition in the current market. They are focussed on offering the lowest price as they cater to a focused segment of the market. Ryan Air has made a lot of profits in the past but it had to keep prices low at the risk of lower profit margins so that it could be the cost leader. They also offer other services at a charge. In this way Ryanair is utilising options 1 to 5 in the Bowman Strategy Clock in order to achieve their goals. Their strategy of keeping prices low despite the recession in the market, high oil prices and competition are keeping them afloat and the undisputed market leader.
Generic Strategy
Q3.
The survival of an airline all depends on their long term strategy. Ryanair is one of those airlines who have been able to stay afloat despite the economic doom cloud which has cut down the economic activities around the world. They are making a big mistake of ignoring the welfare of their staff that is responsible for the success of the airline. It has been proven time and time again if the organization treats its employees well it will be stronger in the longer run and give a good competitive edge. Ryanair needs to come up with a better human resource strategy of taking care of its employees. It can prove to be dangerous in the longer run if they lose key members of their staff to other airlines who can offer them better benefits than Ryanair. It is good to cut costs but not at the expense of the welfare of its staff.
Ryanair also needs to come up with a better marketing plan so that they can compete with other airlines in the market. They are in a comfortable position in the market due to the fact that they offer the lowest prices in the market. It has been proven that no company stays at the top forever and they can always go down. It would be advisable to come up with a strategy where they can keep up with their rivals and offer better incentives to their customers. It is always a good idea to keep reinventing marketing strategies as new ideas are always well received. They will be able to target more people and generate more revenue.
Ryanair needs to focus on its core needs and focus on its strengths. They already outsource a number of their services to third parties. It is a good idea to outsource even more of their services to other companies so that they can focus on building on their core strengths. Their problem is that they do not focus on the needs of the customers enough as they are not a proper airline. Passengers still feel that the airline should treat them like human beings and not like cattle. They should have a proper quality management system which would ensure that their services can satisfy all their clients and customers.
Their policy of using regional airports and airports such as Stansted were a good strategy of lowering costs. However this will only work well for those people who are not based in densely populated areas. It would make more sense for them to shift base to either Heathrow or Gatwick just like Easyjet for a certain number of routes. It will give them more access to those Business Customers who use EasyJet to travel on a number of routes. The lower prices strategy has put them on top and their move to add charges for using the toilet will only make their customers even more upset. This will make it easier for their competitors to sweep in and erode their customer base. It would be a good idea not to implement the pay as you go toilet rule on their routes as it will only turn passengers off especially the elderly, people with young infants and people who generally need to use the toilet.