Suggest on the strategic issues for ryanair

Time has evolved itself and brought different revolutions to life, making human’s life easier. Air transport is among one. It is one innovation in one era mankind never believed that will be possible. “Heavier-than-air flying machines are impossible. – Lord Kelvin, 1892”, (SPACE QUOTES, n.d). But now it is evidencing that anything is possible, with the latest technology things are changing before the pen’s ink dries. Moreover, predicting anything of this ever changing technological era is much more difficult.

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At the same way, Air transport industry has brought several revolutions and is constantly changing by making the predictions more complicated. Budgeted Airlines are one of the very recent additions to this particular industry where several major players are competing with each other head to head without any fear and favour. Ryanair is one of the major players who take pride of having a successful history by being the first budget airline in the industry. In 2006, Ryanair’s bid for fellow Irish carrier and another major player in the industry, Aer Lingus strike the whole industry. Other than analyzing the challenges facing the industry as whole, Ryanair in particular is fascinating.

The aim of this report is to provide the study and consultancy service by Sky is not the Limit Consultancy Service Pvt Ltd with regard to the strategic analysis of the environment and the industry as well as the Ryanair as a whole. Also provide the strategic choices, and recommend new strategic initiatives and areas for improving strategy implementation for the senior management team of Ryanair based on the contract between Ryanair Holdings Plc and Sky is not the Limit Consultancy Service Pvt Ltd. However, the study has divided into two phases and as the initial part, the following are the main focus of this report.

Executive summary

Brief Background of Ryanir

Macro-environment analysis – PESTEL

Industry analysis – Porter’s Five-Forces Model and the concept of strategic groups.

Internal analyses – SWOT and organisation’s strategic capability analysis.

Conclusion

In addition to that, a full literature review was conducted and reference list has attached with the report.

Executive Summary

The purpose of this report is to identify and suggest on the strategic issues for Ryanair to strengthen its market position and expand the market share. The report includes a study of external environment, industry analysis and internal environment.

By being the market leader, Ryanair offers the cheapest airfare to its customers and promise its customers that they will continue it. One of the co competencies of Ryanair is not charging oil chargers from its customers and uses every possible method to keep its costs low and keep its promise to customers. Even though, Ryanair was first to enter the industry, by 2006 there was 18 more competitors even in Europe. However, yet Ryanair is successful in maintaining its market share. Its punctuality, efficient cost cutting strategies is the main critical success factors.

By looking at the external environment, it has opportunities to expand by having a strong financial reserve and brand name. However, the threats of external forces are also high since the allegations against Ryanair are high and possibility of new entrants is also high. The policies of Ryanair with its employees are very unfavorable which was identified as one of the major gap Ryanair need to bridge to reach its future goals. New technologies are in favour of Ryanair which enhance its strength in competing with its competitors.

Ryanair at a glance

Ryanair Holdings was found in 1985 by the Rayan family. Since then company had survived through different challenges and is the proud current market leader of low-fare airline industry, surpassing all the other players. The Company which started with a share capital of just £1 and 25 staff (Ryanair, n.d) are the most profitable airline by the end of 2006. In fiscal 2006, It employees 4200 people and has 120 aircrafts of Boeing 737-800. It carries 35Mn passengers a year by making 169Mn as net profit by the fiscal 2006.

The company, which’s head quarter, is based in Dubline offers low cost passenger flights within Europe. The airline serves short haul, point-to-point routes between Ireland, the UK and Continental Europe. In the airline which has only one class, customers can check-in online and can travel ticketless with no frills. They aim to keep the product as simple as possible.

The Vision

The vision of the airline is: creating a world where the fare could drop to nothing as local communities would subsidize the airline to bring a steady traffic of business people and tourists to their region (Ryanair, n.d).

The Mission Statement

The Mission of the airline is to become Europe’s most profitable lowest cost airline by rolling out the proven ‘Low-fare-no-frills’ service in all markets in which we operate, to the benefit of our passengers, people, and shareholders (Annual Report & Financial Statements, 1999).

Main objective of Ryanair:

Remain as market leader of the budgeted airline industry who provides the lowest- fare with best customer service to its customers across all its destinations. It guarantees no fuel surcharges ever from its customers.

Goals

Goals and objectives till 2012

To have 200 aircrafts by 2012

To expand the market share up to 40% within the budgeted airline area by 2012

To raise its net profit up to €1,230 billion in 2012

To double the annual passenger of 40 million to 80 million by 2012

To be the first airline which introduce mobile phone service on board

To upgrade the system and solely depend on online booking

To eliminate all the call centers and its costs.

(Ryanair, n.d)

ENVIRONMENT ANALYSIS

Airline industry exists in an intensely competitive environment. There have been industry wide shakedowns. One of the major changes in the industry in the past few years was indentifying niches and targeting the service to those niche markets instead of competing and taking the industry as whole. Low-Fare or Budgeted Airline was one of the recent additions in the industry. Ryanair is one of the airlines striving in the low-fare industry through cutthroat competition with a number of players such as Easy jet, AerLingus, Air Berlin etc. To conduct a thorough analysis of the external environment of the industry model of “PESTEL” has been used.

External environment analysis (Macro environment)

Macro environment includes all the external and uncontrollable factors which affect the decision making of the organization. In order to execute a thorough analysis on Macro environment, one of the most common and reliable model, PESTEL (Political, Economic, Socio-cultural, Technological, Environmental and Legal factors) have been used. And in understanding the environment, diversity, complexity and speed of change has taken into consideration.

Figure; 1 Source: (E-book www.toodoc.com, 2009),

POLITICAL

European political situation: The political situations of the region/country have a huge impact on the economy there by affecting the people’s purchasing power. Currently European political situation is stable and as long as it stays stable, the economy will grow. Hence it was predicted that air traffic will increase by 7% with the favorable effect to purchasing power of people.

The EU regulations: the EU regulations will help to reduce the inconveniences to passengers by flight delays, cancellation and denied boarding. Mean while it aims to increase the customer satisfaction by providing immediate care, meals and accommodations when the flight get delay for long period of time. By meeting these expectations of EU, airlines are meeting the customer expectation and satisfaction. This translates, the rate of choosing other alternatives for transport will be reduce, by increasing demand for airlines.

ECONOMICAL

Price-conscious customers: with the changes in living standards of the countries, customer’s needs have increase dramatically together with expenses. This has led customers to think twice before they spend a penny by making the industries more competitive, especially where customers are expected to spend a fair or huge amount of money. Customers are immensely concerned about the price, especially during recession. Therefore, by being a low-fare airline, Ryanair stands with an advantage.

Oil price: cost of oil is the biggest expenses of an airline. The increasing cost of oil with its increasing price has led the airlines to increase the price of airfares. However, the Ryanair’s policy of “not charging oil price from customers” has put the other airlines in a more tense competition and made the industry competition more ruthless.

Growth of the industry: the 20% growth in low-fare airline market with air traffic is a favourable news for the airlines. Hence, Ryanair, stands with an advantage of increasing its revenue.

SOCIO-CULTURAL

Perception of people: the hostile perception of stakeholders towards Ryanair played a vital role in losing its bid for Aer Lingus.

Pull out of the rent game: this in-flight entertainment game was pulled out due to the low demand. People’s perception was, it was not worthwhile in spending another coins for a short flights.

TECHNOLOGICAL

Technological advancement: the availability of latest new technologies around the globe via internet has helped Ryanair to reduce its distribution cost. Such as mailing important and required documents to its customers and also delivering the important messages to customers.

Internet booking: Ryanair sold over 90% of its seats over internet. This helps customers by saving time and reducing their transport cost to the ticket office, as well as Ryanair by reducing the cost of employees

Largest travel web site: by being the largest travel web sit in Europe, Ryanair has the opportunity to increase its revenue through e-commerce. Such as providing space for other companies to advertise on its website.

Introduction of new services: Ryanair hopes to introduce first ever in-flight mobile service and on board online gambling. However, public response to these innovations was very negative (72% negative about online gambling on board)

ENVIRONMENTAL

European commission’s environment policies: the increasing environment concern factor and the steps taken by European Commission to reduce the adverse impact to the environment by airlines will increase the cost of airlines there by increasing the airfare. This will lead airline to more pressure.

Environmental tax: Ryanair protested the environment tax by saying it is a “irresponsible face of capitalism”. This may brought negative impact to the airline in the form of negative perception towards the airline, since the Europeans are becoming more environmentally concern.

LEGAL

Miss leading advertisement: Advertising Standards Authorities upheld a misleading complaint against Ryanair. Miss leading customers lead to increasing the dissatisfaction gap of customers there by losing their trust towards the airline. Angrier customers bring bad publicity to the airline there by costing many other customers.

Refusing to recognize unions: Ryanair refuse to recognize unions. By doing that Ryanair is probably increasing the pressure on them.

INDUSTRY ANALYSIS

In analyzing the industry it is vital to draw the focus on the term “industry” before moving into discussion to foster a healthy debate. Hubbard, Rice, & Beamish (2008, p.69) defined industry as, a group of organizations or business units producing close substitutes. “Market” is a word which use very closely to “Industry”. Perhaps the most frequent word use as a substitute to “industry”. However, “market” defined as a group of consumers with similar needs. (Hubbard, Rice, & Beamish, 2008, p. 97).

By being a low-fare airline, Ryanair is operating in the hemisphere of Airline industry. Its target market consists of any one between ages 15-65 who wants to travel by with a low airfare. The airline operates within Europe, routes between Ireland, UK and Continental Europe. Together with Ryanair there are several other players in the industry. To present a thorough analysis of the industry in relation with Ryanair I have used Porters Five forces.

Five Forces Model

Threat of new entrants

Supplier power

Buyer power

Industry Rivalry

Power of substitute

Figure. 1. Source: (Hubbard, Rice, & Beamish, 2008, p. 79)

Threat of new entrants

The capital requirement to enter the airline industry is high. However, with the help of loans and financial institutions arranging necessary finance may not be that difficult. For example, Ryanair started the business just with only £1 (Ryanair, n.d). In the past few years there are many new entrants in the industry. Even in Europe market there is 18 players competing with Rayania despite the fact Rayania was the first low-fare budget airline. The product differentiation is very low since it is almost same thing everyone selling. The main reason customers fly by low-fare airline is saving cost. Hence, it was clear that, the threat of entrants is high.

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Threat of Substitutes.

Generally customers switch a product or service for several important reasons. Such as likelihood of fare amount of saving on cost, more comfort and convenient, save time/quick etc. the substitute of air transport include, all the other methods of transports such as car, train etc. Taking these factors, threat of substitutes may be little higher for a domestic flights. On the other hand, even from 2005 to 2006, Ryanair’s passenger percentage has increased by 26 percent. That concludes, amount of using substitute is low. Hence, threat of substitute is consider is low.

Buyer power

There are many other careers that are providing the same service. The cost of switching the plans will be very high. Airplane manufacturing industry is dominated by very few suppliers such Boeing and Airbus. Ryanair’s customers have the option of using various other airlines with the same services. However, Ryanair has various functional benefits such as being punctual, low cost to compete with its competitors. Therefore, the buyer power is consider being as low.

Supplier power

The supplying or manufacturing industry is dominated by two main suppliers; Boen and Air buss. The brand names of these suppliers are very strong. Buyer’s switching cost will be very high due to the huge investment. Therefore, it is clear that the supplier power is quiet high.

Industry Rivalry

Taking the low-fare industry into account, there are many competitors competing each other head to head. Due to the high initial investment required, it is clear that, hence, once the competitor enters into the industry there exist to a high exit barrier. The service is undifferentiated. In fact there is no much services provided by the any of the low-fare airline. Therefore, Industry Rivalry is high.

Product life cycle

Product life cycle shows all the stages a product/service goes through in its life. It provides a guideline and enhances the understanding of industry, thus arrive to a better decision. Therefore other than 5 forces analysis, life cycle model has been use to enhance industry evaluation of Ryanair.

Ryanair is a service provider in the form low-fare transport. It operates in the niche of airline (one of the recent niche market identified in airline industry) industry with many other newly entered players.

Product life cycle

Figure. 2 Source; (Hubbard, Rice, & Beamish, 2008)

In contrast with the product life cycle, Ryanair, entered the low-fare industry as an innovator. However, now the industry is in shake out stage, since the user’s selectivity in choosing an airline is increasing with availability of number of choices (more than 60 competitors and 18 competitors even in Europe) and substitutes. The competition is ruthless than ever. All the players are competing with each other for their share in the market letting the weakest airlines go out of the business. Price-cutting, specially the largest players such as Ryanair’s strategies made the competition almost impossible. Everyone is claiming and trying to differentiate their products with that of others by introducing new services such as in-flight mobile, on board online gambling etc.

Dynamics of Competition

Dynamics of the competition explains the process of competition, the changes of competiton in the industry over the time.

As explained above, the competition in the low-fare airline industry is tense than ever, yet the threat of new entrants is high. However, all the players are seeking for the ways to survive and hold their share. Example, Ryanair is trying to use new technologies to increase its efficiency in cost cutting to maintain its co competency of “no oil charge from customers”. Cycle of competitive response is fast since there is a hyper competition, the advantages of new innovation in the form of new service or adoption of new technique is temporary and changes is taking place in a fast pace as the response of all the players are quick to the other competitors.

Strategic Groups

Strategic groups are organisations within an industry with similar strategic characteristics, following similar strategies or competing on similar bases.

Airline industry as whole is one of the most competitive industry which is very sensitive to changes in oil prices with several players. Low-fare industry is a result of players looking for diversification in the process of surviving. Along with Ryanair there are many other competitors competing in the industry. Easy jet, Air Berlin, Aer Lingus and FlyBE are few players in the industry.

Considering the facts of passengers, no of bases, route and aircraft in service, it was clear that closest competition of Ryanair is Easy jet. Because, in 2006, while Ryaniar’s number of passengers is 34.9m, Easy jet’s number of passengers are 30.3. Both airlines has 16 bases and Easy jet’s number of Aircraft in service is 109 while Ryanair has 107 aircrafts and by having 3 as the Skytrax star(rating), Easyjet is one point ahead of Ryanair. Moreover, both airline use same distribution channels and operate in same geographic area (Europe). Hence, Easyjet is the closest competitor of Ryanair. Its brand name, in filght service increases the competition to Ryanair. However, by being the current market leader and capacity, Ryanair stands with a chance of expanding to other geographic areas without much cost.

Market segmentation.

As mentioned earlier, the target market or customer of Ryanair is anyone who is seeking for savings in their airfare while they travel by air in Europe. The most important factor for these groups of customers is to reach their destination quickly with a low cost. Therefore, the critical success factors for Ryanair include, punctuality, avoid the delays and cancellations and most importantly being a fast airline because these are the most important factors which is valued by its customers. Therefore, taking these factors into consideration is vital for Ryanair to maintain its market position.

Internal Analysis

Internal analysis of the organization involves all the study of dimensions within the organization. To carry out this study SWOT analysis was conducted.

SWOT

Strengths

Ryania was the first budgeted airline and it is Europe’s largest airline in terms of passenger number. And also it holds the position of world’s largest airline in terms of international passenger number. This helped Ryanair establish its brand name.

The rapidly expanded business has over 40 bases and operated more than 220 Boeing 737-800 aircrafts. The expansion helped Ryanair to maintain the position of being Europe’s largest low-fare airline and increased their market dominance.

The low cost model of Ryanair helped to meet the need of large population of price conscious market and capture the majority share by making the first mover to this particular niche market.

The new, environmentally friendly, quiet fleets of Ryanair helped to increase the efficiency of its flights by leaving a huge positive image to the industry. Moreover, this move will help to bridge the earlier allegations of environmental issues with Ryanair.

Ryanair’s main income generator is ancillary revenue.

The use of latest technologies and innovative cost reduction strategies such as online booking made customers life easier together with Ryanair’s efficiency by maintaining their co competency of “not charging fuel charge from customers”.

Strong brand name, public image helped Ryanair to keep its advertising expenses low while still maintains its the market share

Weakness

The misleading advertisement of Ryanair about its speed in compare to Eurostar, led customer complaints resulting ASA to order Ryanair to stop that particular advertisement.

Although Ryanair claim that they are the number one in customer service, its customer service aspects have been criticized heavily over the time.

Ryanair’s poor relationship with its employees has been the one of the major loophole of Ryanair.

Ryanair’s competition with its competitors is ruthless. The hostile approach made the industry more chaotic

The whole airline is very much dependent on its CEO Michael O’Leary and this is again another major weakness of the airline which make wonder about its future.

Opportunities

The deregulation of Europe’s airline industry provided opportunity for Ryanair to grow and opened doors for expansion.

The excellent financial performance; (according to statistics provided) in relation with revenue and growth in the first half of financial year 2006 translated that still Ryanair has immense opportunity to grow and expand.

Advance technologies such as internet provided the opportunities to Ryanair to implement and carry out its cost cutting strategies more efficiently.

Threats

As the new entrants are increasing (approximately 60 new low-cost airlines was formed by 2004) competition in low-fare airline industry is tightening every day.

The movements of well established airlines such as Aer Lingus (moving from full-service airline to low-fare airline) led the competition for Ryanair tighter on Irish routes.

The Heavy and continuous criticism by public and media has increased the challenges face by Ryanair

The substitutes available for short haul customers/traveler such as car and train is a major cause of losing a good portion of Ryanair.

The pressure of unions has increase the tension of Ryanair.

Cost efficiency

Other than SWOT analysis, a study of internal capabilies has been taken into account to strengthen the final decision and formulate strategies for better performance. In this section main focus is four main areas. It includes; financial performance, employees, Leaning and growth and Internal business/ perspective.

Financial performance

Currently, Ryanair is the market leader in low-fare industry with revenue of €1,692.5m whiles its closest competitor, Easyjet earned €1,619.7m and Air Berlin acquired €1,575.4m (in 2006). (Ryanair, n.d). As per case study, number of passenger of Ryanair was 35mn in 2006 while easy jet and Air Berlin has 30.3m and 13.8m respectively. Moreover, the average growth rate of Ryaniar is 30% per annum and has gained 20% in profit despite the fact of increasing cost on oil. Ryanair’s the first half 2006 net profit after tax was more than the full year’s profit of 2005 (2006 first half-329127000; full year 2005-306712000). In addition to that in the first half of 2006, earning per share was €42.67 (basic) and €42.39(Diluted).

Employees

Taking the employees into consideration, Ryanair has 3,063 while Easyjet has 4,859 and Air Berlin has 4,108 employees (Ryanair, n.d). According to case study, Average staff cost of Ryanair was 50,582 in 2006 while Average staff per aircraft is 29.7. However, Ryanair does not have a good relation with its employees. Employees are expected to fund personally for their training and development. And it was clear that it does not give much importance in providing a good work environment to its employees. The employee benefits and bonuses are also need to improve to a great extent.

Learning and Growth

Ryanair is trying to maintain its market position and increase its efficiency by adopting new technologies via internet for ticket booking and also to increase the market attraction by introducing new services, although the response for the introduction of these services are not favourable. Mean while to increase its capacity, Ryanair is hoping to acquire more aircrafts.

Internal business perspective

One of the promises of Ryanair is not taking oil charges from its customers. And Ryania is putting every possible effort to keep this promise. Ryanair has a ruthless way of competing its competitors and the internal environment is also based on this strategy. However, It has hard working employees to achieve its goals.

Strategic Gaps

By evaluating the internal and external environment, the gaps were identified. One of the important gaps which came into light was the policy of employees. The behavior of Ryanair towards its employees is very unfavorable. This may cause losing very valuable employees costing a fortune if they wish to join competitors. On the other hand their motivation is vital when it comes to achieving organizational goals.

The other important gap which identified was allegation against Ryanair. Ryaniar’s relationship with its competitors was very ruthless, does not have a good relation with unions which increase the pressure, and Ryanair has failed in building a good relationship with media and key personals in the region. This has cause constant criticism which may have a vey adverse effect to the business in the long run.

The improvements in substitutes available for short hauls are also another alarm for Ryanair which need into concentration.

Conclusion

Ryanair was the first and market leader of low-fare airline industry. The competition in the industry is tense than ever with many players and high threat of more new entrants. Ryaniar does not have a good relationship with other stake holders in the market. Therefore, market exist a several allegations against Ryanair. Although Ryanair has a strong brand image, perception of people towards Ryanair is not favorable. By conducting an internal and external analysis several gaps came into light which Ryanair need to take into consideration to maintain its market position.