This essay aims at analysing the competitive positioning and competitive advantage of Ryanair, a short haul point to point airliner located in Europe using academic models and applying ansoff matrix model to the current and future business model of Ryan air.
COMPETIVE POSITIONING
Ryanair competitive positioning in relation to its internal and external environments. Strategic Positioning can be defined as “the impact on strategy of external environment on an organisations strategic capabilities and the expectations and influence of stakeholders” (Wang, 2009) can be analysed via the use of strategic models such as SWOT, PESTEL and Porters five forces analysis respectively, this gives an analytic view to the operations of Ryan air and its effects and how it is affected by its environment.
PESTEL ANALYSIS OF RYANAIR:
A PESTEL analysis is the impact of Political, Economical, Social, Technological, Environmental and Legal factors on an organisation.
POLITOCAL:
Ryanair adopts different employment contract types in the different countries where it operates; this affects it negatively.
Ryanair protested in the UK and in DUBLIN due to the British Airport Authority (BAA) and Dublin Airport Authority’s (DAA) airport monopoly which affected it negatively from poor security, passenger and flight delay at Stanstead airport, also it was affected negatively by DAA which approved a 750 million new terminal therefore proposing a 60% increase in charges at the Dublin airport. In 17th February 2005 the EU made new regulations to reduce inconvenience caused on air passengers by compensation on cancelations, delays and boarding refusals, this added an estimated 200 million sector-wide bill for Ryanair but however gave Ryanair a credible image in the eyes of the public (Johnson et al, 2008).
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ECONOMICAL:
Due to the current Global financial crisis the general spending power of individuals have reduced, however they benefited from the financial crisis period due to their refusal to surcharge passengers on increase in price of fuel. This in turn increased passenger number. However the financial crisis also forced Ryanair into creating alternative sources of revenue which includes hotel travel insurance, excess baggage services as a means of sustained profit.
SOCIAL:
In the UK there exists a culture of travelling on holidays to other European countries as well as outside Europe, this in turn is good for the Airline industry to which Ryanair belongs, therefore in the long run Ryanair stands to gain from this life style, however the recent epidemic of swine flu first discovered in the Middle East and the Asia-Pacific region (WW1) has definitely changed the rate of travel as people are scared to travel and this in turn will definitely affect the profit of Ryanair as there will be passengers reduction.
TECHNOLOGICAL:
The improvement on technology by aircraft manufacturers has also impacted on Ryanair positively, this is due to the manufacturing of new and improved Boeing 737 with 45% less fuel burn and 45% lower noise emission and larger passenger seat capacity. Ryanair benefits from this as the airline updated its fleet of airplanes thus having a 2% reduction in fleet fuel consumption; however the airline had to make major investment to effect this change which cost more money (Johnson et al, 2008).
ENVIRONMENTAL:
Statistics shows that aviation represents 2.6% of carbon emissions in the Europe and this affects Ryanair negatively as the EU has asked airlines to pay environmental tax for their contribution towards global warming, however Ryanair has made progress positively against environmental degradation due to investing in modern fleet of aircrafts which make more than 50% less emissions and 45% less noise pollution (Johnson et al, 2008).
LEGAL:
Ryanair faces legal issues ranging from governments to consumer’s, operating in different countries meant adjusting to the different legal implications that abound in those countries, an example of this is employment contract laws which had dissimilarities between countries, this meant that the airline could not transfer contracted workers from one country to work in another country, this caused issues for Ryanair with the French government who did not want the airline to bring workers with British contract to work in France, Ryan air have also been affected legally by the European law placed on airlines to compensate cancelled and delayed passengers as well as provide accommodation for them, this law has increased the airlines working capital (Johnson et al, 2008).
2.0.2)
PORTERS FIVE FORCES
This implies an analysis of the effects on competition rivalry, threats of substitutes, threat of entrants, buyer and supplier power on Ryanair.
COMPETITION/ RIVALRY:
Competition is constant for Ryanair as it has other short- haul service provider airlines to contend with such as easyjet and Air Berlin as well as long haul airlines such as Aer lingus.
THREAT OF ENTRANTS:
The threat of entry is moderate, this is so due to the size of the airline industry which is very large due to number of airports in Europe thereby creating enough space for new comers, however due to economies of scale it is also difficult for new comers to break into the industry or compete with Ryanair low fares. Also already established airline are often granted right to use a slot if it has already made use of it at the same time during the preceding season (Gröteke and Kerber, 2004), this is beneficial to Ryanair.
THREAT OF SUBSTITUTE:
The threat of substitutes exists as there are other means of transportation besides air travels such as road, rail and water, this affects Ryanair as it involves in short haul flights which can easily be replaced by road, rail and water transport. It is obvious in the loss of 1.9m by Ryan air in reduced bookings due to terrorism and security threats notice in august 2006 (Johnson et al, 2008).
BUYER POWER:
Buyer power is low as passengers have little or no choice within the industry due to the low air fares offered by Ryanair. Other airlines may have better services but Ryanairs main catch which is low air fare which keeps the passengers returning even with they have complaints about services on board. In October 2006 Ryanair was voted the world least favourite airline by a pool of 4,000 travellers conducted by Trip Advisor but however in the same year Ryan air was reported as the world’s most profitable airline by Air Transport world magazine (Johnson et al, 2008) and also The airline increased from 4 million passengers in 1998 to 24 million in 2004 (Gröteke &Kerber,2004).
SUPPLIER POWER:
Supplier power is high; Ryanair operates only Boeing 737-800s, and as of June 30, 2008, the company’s operating fleet was composed of 166 Boeing 737-800 aircraft (WW3), the airline chose to maintain the use of Boeing aircrafts in order to reduce cost of training and maintenance cost. This gives the aircraft manufacture more power as it can increase prices of aircraft and maintenance cost, another supplier power can be noticed in the fuel suppliers who can set any price standard as Ryan air has little or no control over these prices (Johnson et al, 2008).
2.0.3)
SWOT ANALYSIS
A swot analysis can be defined as the internal effects of strength, weakness, opportunity and Threat of an organisation.
STRENGTH:
The major strength of Ryanair is in its ability to provide air travel services at low rates; it also provide higher rates of on-time departures and faster turnaround times due to its operations from less congested airports.
WEAKNESS:
The major weakness of Ryanair lies in their provision of short haul air services which can be easily replaced by other means of transportation such as road, rail and water, another weakness of Ryan air is the fluctuating profit of the airline due to frequent changes in fuel price, this is evident in its declining margins since 2005 (WW3).
OPPORTUNITIES:
This involves the consideration of the potential value of complimentary products (Johnson et al, 2008), Ryan air is served with lots of opportunities for diversification, providing other channels for making profit ranging from hotels, excess luggage bookings, travel insurance which had climbed by 36% in 2006, also in western European countries alone there are 431 airports (Fewings, 1999) which were underutilised because national airlines concentrated on hub airports, therefore providing greater opportunity for Ryanair.
THREATS:
Ryanair faces its major threat owing from governments and airport authorities who formulate different rules and rates that affect and distort the operations of Ryanair as well as reduced profits caused by the global economic financial crisis.
3.0)
RYANAIR COMPETITIVE ADVANTAGE:
Ryanair has continued to maintain its position in airline industry as the world’s most profitable airline, this it has achieved via various practices thus giving it a competitive advantage over others. Competitive advantage can be defined as strategies, skills, knowledge, resources and competencies that differentiate a business from its competitors (Wang, 2009).
Ryanair competitive advantage would be analysed using two models namely;
Porters Generic Strategy.
Bowman Strategy Clock.
3.0.1)
PORTERS GENERIC STRATEGY:
Ryanair operations identifies with cost leadership competitive advantage strategy which provides airline transport services at low cost and operates a broad scope as it carries over 42 million passengers out of 18 European countries at the cheapest rate, however due to its short haul point to point routes and taking Europe as its major market its strategy can also be viewed as a Cost focus strategy.
3.0.2)
BOWMAN STRATEGY CLOCK:
Ryanair strategic advantage over competitors can also be classified under two systems which are the Hybrid and the Low Price Low Added Value systems. The Bowman Strategy clock is away to analyze a company’s competitive position in comparison to the offerings of competitors (Wang, 2009). Bowman considers competitive advantage in relation to cost advantage or differentiation advantage.
Ryanair services can be classified as Hybrid from the point of the airline which claims that it offers best services at low fares but however this can be contested as a survey carried out by a pool of over 4,000 passengers by Trip advisor voted Ryanair as the worlds least favorite airline indicating a poor service delivery in terms of staff friendliness, delays and poor leg room, seats and safety standards (Johnson et al, 2008).
In all of these arguments Ryanair has maintained its low air fare standard which keeps its strategy permanently on the left-side of the Bowman clock.
4.0)
AN ANALYIS OF RYANAIR BUSINESS MODEL:
This section classifies the application of Ansoff’s product / market growth matrix on Ryanair business model.
The Ansoff matrix model “is used by marketers who have objectives for growth. Ansoff’s matrix offers strategic choices to achieve organizational objectives (WW2). It exists of four major sectors namely, Market Penetration, Market Development, Product Development, Diversification.
Ansoff’s Product/Market Matrix
All four strategic choices indicated in the Ansoff matrix model can be said to be applicable to Ryanairs present services. Analyzing the operations and future of Ryanair using Ansoff matrix includes the following.
4.0.1)
MAJOR MARKET PENETRATION:
Ryanair is involved in market penetration, i.e breaking into new market with already existing products, however they faces some constraints in their quest of seeking major market penetration in the following ways, Buying off Rivals and consolidation, Retaliation from Competitors, Legal Constraints.
Ryan air made an attempt to buy Aer lingus which was one of its major competitors, this however was a tall dream which never saw the light of day (Johnson et al, 2008), it is a welcome method for increasing a company’s market scope but difficult to execute in a perfect market environment were competition exists. In conclusion this sort of method is not suitable for Ryanair as it does not guarantee an increased market share.
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Ryanair is situated in a market environment were competition is a major factor due to the amount of airlines that run short haul point to point flights within Europe. The airline is faced with counter actions from its fellow competitors regarding its strategies and policies. This hinders Ryanair from expanding its market share at present and in the future (Johnson et al, 2008).
Legal Constraints is a factor that deters Ryanair from increasing market share, as it has to constantly deal with incoming law suits that are cost effective (Johnson et al, 2008).
4.0.2)
PRODUCT DEVELOPENT:
Ryan air developed its product in terms of updating its fleet of aircrafts by acquiring over 100 new Boeing 737-800 aircrafts. The airline also develops its services by the provision of ancillary services such as hotel services, travel insurance, excess baggage changes, flight changes fees, car rental services, in- flight sales etc. These are all means of diversification; it modifies the primary product which Ryan air provides which is low air fare travel and at the same time increases profit as well as ventures into new markets for these various services (Johnson et al, 2008).
4.0.3)
MARKET DEVELOPMENT:
This involves Ryanairs ability to break into new markets with already existing products. They can achieve this due to the ever expanding airline industry in Europe. Ryanair has potential market in already existing airports in which it does not fly to but has to compete with the various airlines already operating in such airports, but however its low fare is a very competitive strategy in order to break into new markets.
4.0.4)
DIVERSIFICATION:
Ryanair diversifies its services by providing ancillary services. This means that Ryanair would have to venture into new markets by providing entirely different services from what it has already been known for; this expansion attempt by Ryanair may pose various challenges and resistance from existing firms in such industries which may jointly work against its success. However there is future for Ryanair in finding a place in such industries because airline passenger services cannot exist on its own and needs other external services to ensure its smooth run, thus it can venture into businesses that supports its own air transport services without actually breaking into mainstream hotel or insurance.
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CONCLUSION:
Ryanair is situated in an existing market offering an existing product therefore diversification in this industry is limited as it has limited supplemented services which it can run alongside its transportation of passengers ranging from cargo transport, internet bookings and advertisements, hotel and transport services to and from airports, this however does not eliminate the possibility of diversifying into other support services. It is obvious that the future of Ryanair lies in its ability to penetrate the market and consolidate on its market share. Due to the different barriers that exist in detracting Ryanair from expanding its market share, the future of the airline may lie in uncertainty but due to the expanding size of the airline industry and the possibility of providing its services in totally new countries the future looks bright for Ryanair.
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