Strategies used by Ryanair to strenghten their position in market

“Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations”. (Johnson and Scholes)

Ryanair – The Low-Fare Airline

The purpose of this report is to discuss the strategies used by this airline company, how does this strategy helps to strengthen the company’s position in the market. This report highlights on Ryanair planning, organising, decision-making and controlling. It further incorporates the history, business operation, the treats, challenges and opportunities faced by Ryanair. It also states the alternative solution and offers recommendation which might help the company to compete in the market, by providing appropriate service to its customers thus it is easily for Ryanair to dominate in the European airline industry as a budget airline.

Introduction

1.1 European Airline Industry:

1.2 Journey of Ryanair:

Ryanair- The second Irish (1985-1990)

Ryanair was founded in 1985 by Ryan family to provide service between the UK and Ireland, the Ryan’s plan was to create a no-frills, low fares scheduled passenger carrier which was accepted by the Irish Government.

During set up phase Tony Ryan was not clear of the vision, the direct competition from BA and Aer Lingus.

Ryanair- coming back to life (1989-1992)

At this time O’Leary was in charge of the airline and implements the cutting cost policy with consultations with the airport, which created a base for Ryanair.

O’Leary went to USA to learn and practice the low-cost model followed by Southwest Airlines. Now Ryanair would not only reduce their price but would also try to achieve a cost leadership in the market. Apart from the low fare and no frill service, Ryanair followed other features of Southwest model: used Boeing 737.

Ryanair- Open to sky (1993-1996)

European Commission (EC) introduced competition rules that helped new entrants in the market, obstructing the big airlines to perform greedy pricing and regulating the terms of state aid.

Ryanair was now a popular airline in Europe: it had become the first low cost airline to run a domestic route in the UK.

Ryanair: Winning Europe (1996-2001)

1997 Ryanair was marked on the New York and Dublin stock exchanges and due to deregulation of the EU air transportation Ryanair started working on new routes.

1997-98 was the financial year, alone its profits rose by 51 per cent to US$53 million. Ryanair’s financial performance was a boost to other European entrepreneurs to evaluate the low-cost, no-frills model as a way of entering European markets.

Ryanair: Low cost airline (2001-2007)

2001 the company was publicly traded and had Europe’s largest travel website.

After the tragedy of 9/11, the entire air industry faced problems and had to change their strategies in order to adjust to the new situation that led to a downturn in traffic and an increase in oil prices. Instead of cancelling hundreds of flights, O’Leary said the Ryanair would follow the opposite strategy: the company took advantage of free slots in the airports to retain its position.

Ryanair: Towards future (From 2007)

In 2007, Ryanair was operating 134 aircraft (Boeing 737: which helped Ryanair in social and environmental factor), have 436 routes in 24 countries and 18 bases. Ryanair initiated an important change in airline industry and made air travel reasonable for everyone.

1.3 Competitor:

Direct competition from:

1.4 Ryanair’s Strategies were:

Low fare

Frequent Point-to-Point Flights on Short-Haul Route

Choice of route

Low Operating Cost-: (i) aircraft equipment costs; (ii) personnel expenses; (iii) customer service costs; and (iv) airport access and handling costs

Maximizing the use of the Internet

Commitment to Safety and Quality Maintenance.

Porters 5 forces:

Source. Johnson & Scholes 2008, 8th edn:60

Competitive rivalry (HIGH) -direct competition from easy jet and other low cost airlines.

Bargaining power of buyers (HIGH) – though Ryan air is the cheapest in the market customers are price sensitive and no switching cost to choose other means of transportation.

Bargaining power of suppliers(LOW shifting to HIGH)- use of only regional airports which are now getting clogged up, shift of supplier from Boeing to airbus is high, no control over oil prices

Threat of entry (MODERATE) – requires a lot of legislation and investment, there are limited routes, no space in the airports.

Threat of substitutes (LOW) – customer prefer Ryan air because of low price.

PESTEL analysis:

Macro-environmental analysis

the macro-environment describes all factors which influence the company as a whole but are out of their direct control including wider social, political and economic factors (Hooley, Saunders, Piercy, 2004).

Political factors: Ryan Air is facing pressure from the trade-union in Europe; as some of the European countries have formed a trade-union thus build pressure for Ryan Air to do business in those countries. Also, the Europe Union (EU) has expanded in the past few years, the EU’s can affect the strategy planning and direction for Ryanair, the new EU regulation came into effect to provide immediate and standardised assistance for customers at the EU airports. Also, during major delays the passenger were helped by providing meals and hotel accommodation due to which the profit margin of Ryan air use to go down. The French government started promoting their national carrier.

Economical factor: The fuel price was unstable this affected the business as most of the airline industry started hedge for the fuel just to balance the price. Another problem faced by Ryan air is fluctuation in US dollars exchange rate.

Social factor: Ryan Air is low budget airline this increase travelling lifestyle, which attract the demographic of consumers. People started with business trip, backpack trip, graduate trips, etc. and become regular customer for Ryan Air.

Technological factor: To survive the competitive environment, Ryan air started with online ticketing where customers can buy the ticket with one click and started making use of Ecommerce. Innovation such as satellite television, internet sales & gambling, high speed trains.

Environmental factor: The major problems faced of any airline industry are carbon emission and noise level, Ryan Air started using Boeing 737 to avoid these problems.

Legal factors: Misleading advertisement created chaos, passengers filed a complaint.

Stakeholders

Source. Johnson & Scholes 2008, 8th edn:153

Stakeholder Mapping

Level of Interest

Low High

Trade Union,

Airports,

Irish air, shareholders

Staff(ground & inflight)

Other airlines.

Passengers

Travel agencies

Low

Power

Minimal effort Keep informed

The Ryan’s

Michael O’Leary

European Union

High

Keep satisfied Key players

Source. Johnson & Scholes 2008, 8th edn:153-157

Cultural web

Source. Johnson & Scholes 2008, 8th edn:198

(Refer appendix for swot analysis, value chain, etc )

3. Evaluating Current Strategy

3.1 Product life cycle:

Source:

Product life cycle is a tool which helps to map the current state of the company, according to this cycle Ryanair approached maturity; as its industry life cycle curve became noticeably flatter and indicates slow growth. While sales are expanding and earnings are growing from these “cash cow” products, the rate has slowed from the growth stage. However due to heavy competition, in the market, it’s time for Ryanair to change its strategy. (Refer porter 5 forces)

3.2 Portfolio analysis (BCG matrix)

Market share

Market growth

Low

Low

High

High

BCG matrix is also known as BCG model relates to marketing, it is well known portfolio management tool used in the product life cycle theory in which products are prioritize according to its fund and attention. In this matrix market growth and market shares is the key variables. “Star” is a business unit having a high market growth and shares which should have less investment needs and sufficient profit. “Cash cow” has high market share but low growth and should be a cash provider like an investor. “Dogs” has low growth and market share, should disinvest and close. “Question mark” has low market share but high growth. For long-term value creation a company like Ryanair should have both low-growth products which generate high cash and high-growth products which need investments. Thus it is beneficial if the company has big share market for the product or fast product growth.

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3.3 Current strategic direction (Ansoff matrix):

Existing Products New

Existing

Markets

New

B Product development

Free flight

IT development- online checking

Use of new plane

Ancillary product

A Market Penetration

Acquisition

Low fare

Consolidating existing route and increasing market share on existing routes

D Diversification

Hotel industry

Car industry

Health and travel insurance

Long haul flights(package discount)

C Market development

Global expansion

Secondary airport

Connecting flights

Source. Johnson & Scholes 2008, 8th edn: 257-262

Ansoff’s matrix gives a strategic direction for Ryanair’s development. Market penetration tells us about increasing Ryan’s sales and profit in the existing market by acquisition and low fare. Product development is the process of analysis the importance of new products for the current market such as online tickets (IT development and free flights. Market Development is developing new products for the new market in the sense of global expansion and secondary airports. Diversification would take Ryanair away from the present market and product which is would be beneficial in the future.

4. Discussion: Critical synthesis

4.1 Current state of the industry:

Many airlines are trying to compete with Ryanair’s low-fare strategy, the new entrant is trying to steal market share, and thus Ryanair must remain strong and must stress its unique feature of the product. It would be beneficial if Ryanair pays dividends to its shareholders at this stage. To sustain its market position, Ryanair should either “improve” or “introduce” its product in existing or new market; thus new strategy for Ryanair must be diversification. (Refer Ansoff matrix analysis)

4.2 Current strategic direction (Ansoff matrix):

Market penetration can be done by acquisition i.e. merging with lost cost airline and reduce the competitive edge, it can also be achieved by low fare, consolidation of existing route to avoid direct competition and increasing market share. Product development can be done by offering free flights, IT development to promote online ticketing, use new plane to increase the capacity of carrier, ancillary product can be secondary source of income. With the help of secondary airport, connecting flights and globalisation market development is possible. Connecting flights can increase the frequency of the customer for that particular airport, which would be beneficial. Diversification can be achieved with long haul routes.

4.3 Product Portfolio analysis (BCG matrix) :

[Refer to pg. 11] If we look at the 4 squares of the BCG and try to predict cash ¬‚ow for the Ryanair, by making certain patterns. In case of Ryanair, the market gradually stopped growing, and the star business have tumble into the cash cow.

The BCG matrix is that the best strategy is to dominate market share when the market is mature:

The Ryanair’s pro¬tability is greatest as the market matures.

Ryanair, dominating market share and gives the highest accumulated production volume.

According to the experience curve, high volume of Ryanair leads to lower production costs.

Ryanair’s low production costs can either be used to lower prices and take market share, or to increase pro¬t margins.

5. Conclusion

The Low price strategy at Ryanair is critical flawless:

Advantage: Ryanair took advantage of a gap in the air transport industry and captured a significant portion of the cost conscious customer base.

Consistency: Ryanair’s policies and procedures of low costs with an aim of providing the customer with low prices.

Consonance: Ryanair embarked on providing passengers with a low cost option to fly point-to-point, it was a breakthrough offer in the air transport environment.

Feasibility: A low cost culture was created at Ryanair that the employees and management bought into.

Thus Ryanair seem to be following a strategy which works for them. The company is aware of its business environment and knows the importance of monitoring it , however they need to be aware that the market is constantly changing and progressing, thus Ryanair must readily adapt to any changes should be a fundamental part of their strategy.

6. Recommendation

Open New Routes in Europe- Ryanair can also open routes where the competition is a more expensive traditional carrier thus attracting passengers with the cheaper, no-frills option.

Increase the frequency of existing routes: They can effectively steal some of the customers from the traditional carrier’s thus increasing market share.

Ryanair should not pursue Aer Lingus bid: Ryanair should hold on to its current shares in Aer Lingus as it would be a good buffer against a possible takeover of Aer Lingus by one of its rivals like Easy Jet.

Expand long haul routes: With the experience short haul routes, Ryanair can start with long haul route, this can be achieved using connecting flight

Improve customer loyalty and satisfaction: The competition is high; passengers could switch to another carrier which might be little expensive than Ryanair.

Improve its oil hedging and currency trading practice: The market is very volatile; Ryanair needs to improve its policy of buying US dollars to pay for aviation fuel

Marketing ancillary products: Ryanair should leverage it’s website to better sell ancillary products as well as looking into the possibility of making advertising revenue through it’s website. A Ryanair credit card could be a good addition to its portfolio of ancillary products.

Ryanair 100% online: Aim is to have entire bookings via the internet in order to eliminate the costly call centre.

Improve training facility and employee satisfaction: For safety and security purpose.

Merging with other industry: Hospitality management and make it a package, this will increase the scope.

7. References