European low-cost airlines
Think of any business first thing that comes to our mind is how to compete with our competitors in such a competitive environment. How to sustain our business and make it different and unique is definitely a big question. To run our business efficiently and sustain our self in this bad business world, consistently we need to think and implement different “Strategies”. “Strategies” what does this word mean? It is the direction and purview of any business organisation in long run to achieve an advantage over other rivals by adapting with available resources and build competency.Success of a strategy is determined by firm's initial competitive actions, how well it anticipates competitor's responses to them and how well the firm anticipates and responds to its competitor initial's actions.Today we are going to talk about an Airline known as RYANAIR-LOW COST AIRLINE.They succeeded in providing low fares to the passengers and also they gained profits. The number of passengers who travels in these flights is increased significantly.They also got much more profits in the form of revenues from ancillary services. Here the important factor is that they keep on gaining profits though fuel prices were high.They have a very good model of replacing the old aircrafts with new aircrafts, and also they used the aircrafts which were less carbon emissive.Bottom line of the organization was to maximize the revenue
CASE ANALYSIS: RYANAIR
European low-cost airlines
The European aviation industry at some point of time focused on low costing which became the optimal model of operation for the entire industry. They were extremely affordable which doesn't rely on the range of destinations. Average airfare in low-cost airlines sector accounts for just 3% of the average monthly EU industrial wage. Europe has more than 100 airports servicing low-cost airlines are the overall expansion goes on in the fleet size,(). The low-cost carriers are booming that tends to give up a change and focus on low-costing even by the largest airlines. These dynamics were very constructive and resourceful for the aviation industry to have a great start. The following analysis will facilitate in comprehending supplementary values and ethics about the European aviation industry.
Ex: Ryanair Airlines.
Ryan Air was the first budget airline in Europe.
PORTER'S FIVE FORCES
It explicates about threats from supplier, buyer, new entrants, and substitutes and also from competitive rivalry. The Suppliers has superfluous of their buyers as they have thorough marketplace for the material. The Buyers have the control of the acquiring authority which is high. They also have additional choice on choosing of better services. The New entrants have several entry barriers on this business and it tends to be very high due to high investment. Substitute products like the train and the road transport also acts as rivalry as it can be used as choice of airline service by a consumer. The Competitive rivalries of more than 20 players exist in the market by ways of direct competition to reside in the alive in the market
- Due to increase in rivalry, due to deregulation, and last but not the least increase in competitors on more routes creating overcapacity of Airlines from different competitors. Which itself increases power of buyers
- Airlines try to counter increasing rivalry by forming different and periodical strategic alliances.
- Various Mergers and Acquisition Ex. Air France- KLM
- Various attempts by Airlines to increase number of customers flying in specific Airways, through maintaining database of frequent flyer programmes. Giving special perks and discounts to frequent flyers, to increase customer loyalty for specific Airways.
- Various other Airlines were thinking to provide comfort and extra services to their premium Business passengers. Different comfort zones and services to different class of customers.
- Due to Economic downturn in U.S. and overcapacity of different competitors on north Atlantic routes forces carriers to concentrate rivalry on European countries.
Intense and increasing competitive rivalry.
THREAT OF ENTRY:
- In EUROPEAN countries a regulation was passed which removed barriers for new and different competitors in Airlines to enter European Airline Industry.
- New entrants in European national markets were either the existing European based Airlines or newly based competitive Airways giving competition to other Airways by taking advantage of deregulation.
- Newly established Airlines or new entrants in European Aviation Industry or Established Airlines on Established Airways on different routes might lose money in the beginning, so all the new entrants need big Financial Backing.
- European countries has many landing slots which were reserved or used by national carriers, so due to scarcity of landing slots it act as a barrier for entry for new and competitors Airways which in turn helped existing players to play for a long time in Aviation Industry. RYAN Air's Perspective: According to me RYAN Air suffered from moderate threat of Entry.
POWER OF SUPPLIERS:
- AIRCRAFT SUPPLIERS: Oversupply of Aircraft parts and their engineering technology from different suppliers. Number of suppliers for Aircraft parts was increased so there was a fierce rivalry between Airbus and Boeing.
- FUEL SUPPLIERS: fuel depends on supply and it's supply subject to fluctuations
For Ex. In 2004 due to uncertainty from suppliers and their supplies from Nigeria, Russia and Iraq, three of world's top producers, oil prices rose.3.There are two types of Airports called as primary and secondary Airports. Primary have greater power— because Air traffic is more on these primary Airports. Power of Airports increases as Air traffic increases.Ryan Air's Perspective! According to me RYAN Air was affected from Low to Medium power of suppliers.
POWER OF BUYERS:
- Millions of new consumers from new European member states were taking interest in flying from one destination to other due to low prices of Airlines.
- Distribution— power of travel agents was decreasing as prospects used to book tickets from internet or through direct booking. So it was a threat for travel agents, so they used to offer complete travel solutions to customers.
- Ryan Air's Perspective: according to me Ryan Air faced strong power of buyers.
THREAT OF SUBSTITUTE
- Accessibility: there were other forms of transport which were convenient and safer than Airways. Other means of transport were Fast rail and land travel.
- Other means to travel from one place to other was cars which were used by vacationers more than anyone.RyanAir's Perspective: according to me Ryan Air faced very low threat from substitutes
PORTER FIVE FORCE
Micro environmental analysis
The macro analysis dwells about the analysis with in the organisation such as SWOT (Strength, Weakness, Opportunities and Threats), Value Chain, Activity Maps, Bench Marking, and resources of the firm. Company has owned ‘103 airplanes' with ‘127 destinations' across ‘27 countries'. The financial assets the firm is about 4,634.2 million, with total debt of 1,787.0 million, along with total equity of 1,992.0 million. The human resources of the firm are about 3, 5000 employees, where as the intellectual Resources of the company is the 35million loyal customers. It has also acquired an award for being a profitable company, by air transport magazine. Its cost efficiency has reached economic of scale; it also has 25 years familiarity in this field. Ryan Air has developed itself benchmarking with the midst of South West Airline. But still there are some drawbacks that take back the company from being a healthy firm.
The most important factor that we can consider as Strength for Ryan Air is their marketing strategy— which includes strong branding and reputation, which leads to strong and aggressive pricing strategy. Due to their marketing strategy they can attract more prospects. It also holds reputation of biggest Irish budget Airline and also carries lots of publicity due to Father of Ryan Air Michael O' Leary and his controversial issues.Due to its reputation of biggest budget Airline in Europe Ryan Air was a market leader with a First mover Advantage.Customers were happy with value for money proposition of Ryanair. Only Ryanair can offer better prices then its competitors through lower prices.
Ryanair is marketing and strategic team were very innovative creative and resourceful as they constantly used to find new sources of revenue like On-Board entertainment and sales.
older Aircrafts from Ryanair was a major concern to think for. Older Aircrafts used or wasted lots of fuel so it needed high maintenance costs to reduce wastage of oil and other fuel. Currency fluctuations also made fuel costs either costly or unpredictable.Too cost conscious— customers are unhappy with Ryanair other than value for money. It means to attract customers it had only one strategy Low fares.STAFF ISSUES— Ryanair was afraid of commitment and loyalty from their staff. After investing money on them to teach all those activities they are afraid that staff doesn't leave Airways had touched Michael O' Leary.Outsourced services outside Ireland may decrease employee commitment; also all cash earned were kept aside to buy new Airplanes.
Americans allowed European Airlines to enter U.S.A.in domestic market as American project for domestic flights too since low-cost Airways like low cost model is not as common in American market as it is in European market.Ryanair will be the first carrier to fly Low-cost to United States America may easily turn out to be in leading position with innovative ideas in the domestic market segment.Ryanair as already was innovative to launch a promotion campaign to make aware that Ryanair- the low cost Airlines now in states— their punch line was “Ryanair Flies to States”.Ryanair wanted to launch new planes with larger capacity to bring in different types of prospects such as business class, family, and vacationers to increase cash revenue.Firstly Ryanair focused on only on Leisure travellers or vacationers but now Ryanair want to target their prospect such as Business people because business professional often require a long haul to locations such as China and America as these states are known as business states where business is done.
Threats to this dynamic Industry are ever challenging and ever changing because threats from macro Environment also constitute and represent a key source of various external problems to our Aviation Industry. For our Low-Cost strategy for our Low-cost carrier model prices of fuel taxes and government regulations are major threats flying all over Industry.A current issue which is affecting everybody in some or different way is rising oil prices as this has worst effects on Aviation Industry as planes run on oil through fuel.Political situation for Aviation Industry is that nearly all oil producing and exporting countries will remain unstable in future.But fuel prices are denominated in dollars in states and also surreptitious exchange rate fluctuations continue make it more worse.
In the PESTEL we investigate about five factors (political, economical, social, technological, environmental and legal). The Factors which affects the business in the future in the airline industry are focused. In political factor our focus in mainly on the taxation rules, route charges and union policy as announced by the government. Where as in the economical, factors the raise in European Union GDP has issued out. Price ceiling in petroleum price, dominance of the dollars and inflation rate are also some of the major issues. The social factor explicates about the terrorism and flight hijack and also about public image in airline industry, providing compensation to travelers is also pointed out. In the technological factor, arrival of new flight by Boeing issue is also focused. In the environmental factor, carbon emission in aviation industry is focused on. The legal factor talks about the government's favor to state owned company, rise in charges in airport handling.
- Increase of route charge by the government
- Increase in trade union pressure
- Government passed ‘The law for carbon emission' to aviation industry to compensate further taxes.
- UK government put on compulsory security measures and restrictions due to terrorism attacks on airlines.
- French government's support for nationalized carriers
- Change in government policies and regulations which will definitely affect Aviation Industry
- Ryanair was in the legal eye of the governments as due to dispute in Business deals from Ryanair with Airports and Airline regulatory bodies.
- Ryanair launched itself in different other countries so government will support their own low-cost carrier as question of nationality comes.
- Increase in tourism will work in favour for Ryanair- as it is Low cost carrier.
- Increase growth rate in GDP, (BANK, 2006)
- High price ceiling of petroleum products & fuels
- Unemployment rate slash down to 8.7%, (NA, unemploynment in europe 2006)
- Depreciation of US dollar
- European Union's Inflation rate is 1.7%, (NA, Euro Area Annual Inflation Down, 2006)
- Energy and fuel costs are cause of Uncertainty.
- Increase in grey marke
- Increasing business travelling
- Change in the mode of travelling due to terrorism attack
- Increase in travelling life style
- As the economy is increasing at this moment prospects are now more interested to fly for vacation which will help our Airline Industry.
- Less cost to company means they can fly more frequently.
- Low-Cost Airline will help to attract a wide range of demographic of prospects.
Green house-carbon emissions' Global warmingNoise level controls
Nowadays more and more people are concern about global warming.
Now almost every country's government are concerned about green house gas effect from carbon emissions. In European Union, alone aviation industry is responsible for 2.6 percent of carbon emissions.
High fuel efficiency, less noise pollution and lessening of carbon emission by the supplier BoeingTechnological expansionInternet competition being raisedWeb sales/servicesLow fuel consumption carsOnline check-in, self service checks at Airports for Ryanair passengers which might be too technical but in tune with our prospects which may make them unhappy.By using proper technology a company can reduce its costs effectively and also can maintain good relationship with customers.
Allegations of misleading advertisementFavoring of company to state owned companySafety measures-pilots and passengersRise of airport handling chargesEU is very strict at safeguarding the competition laws in aviation industry. Getting illegal subsidies from the airports is a crime in Europe. EU will consider these sorts of crimes very seriously and it can penalize the company.
There are more than 20 players in the market. And there is direct competition for existence in the market, which is very high in aviation industry. Another reason is the industry is in the maturity stage. These factors lead to high end competition and thus few companies went on bankruptcy.
THE INDUSTRY LIFECYCLE
Rationale of the analysis on lifecycle
The lifecycle of the industry elucidates about the various stages of the industry, from the initial first entry to till eventual decline. These stages explicate the different stages that the industry undergoes. There are five stages, such as
- Development stage
- Growth stage
- Shake out stage
- Maturity stage
- Decline stage
MATURITY STAGE DEMAND TIME
This analysis is very essential for every organization as it gets into the particular market or an industry and gives a brief analysis. The company has to strategize in accordance to the market growth, opportunities, industry's entry barriers, competitive level and product differentiation.
The scenario of European low-cost airline industry is in ‘maturity stage' Motives behind it:
- High-end competition
- High entry barrier
- Growth is squat
Strategy of low-cost competitor to continue lively in the marketplace
CYCLES OF COMPETITION FROM RYAN AIR
Constructed, accede to entry-barriers
Attracts flexible market sections (Ryan Air initially progressed its course line from Dublin to London)
Amplifies assaults to contiguous sections(Increased its course line)
Start price war(Led downward as a cheapest airline inward as a cheapest airline in EU)
Assaults home market entrants
Resurrected the cycle in contiguous sections(Can promote further break through than the EU)
The firm was started in the year 1985. It is an Irish airline. The firm earned profit through and was well fledged for certain period of time. In the year 1997 the firm went to floatation, thus stepping ahead into a superior step of internationalization. As declared by Air Transport Magazine in august 2006, it was the largest profitable airline of the world in 2006. Still it remains as the biggest low-cost carrier of the European nations, with enormous growth of the passengers in recent years, attaining 30,000,000 in the year 2007, where the employers are about 5,000. It proffers European flights to 26 countries for extremely low-cost price, varying from time-to-time lesser than the airport charges.
Resources are said to be the valuable and affordable source of possessions to endure in the planet. Not every resource is acquirable, since it depends on its tangency. They can be distinguished into two types1.Tangible resources2.Intangible Resource
- Total asset is 4,634.2 million
- Total debt 1,787.0 million
- Total equity is 1,992.0 million (as of 2006)3.Intellectual Resources1.35million customers-20062.Award-World's most profitable Airline by Air Transport World Magazine in August 20063.Low-cost player4.Human Resources1.Total employee is 3,5000,2.CEO-Michael O'Leary3.DCE and COO-Michael Cawley
The skills are ability to accomplish the stage for the surveillance in the market. It may be of two forms;
- Head Quarter
- Office equipments
- Finance resources
- Online booking
- Point to point routing
- Operation of On-Time delivery
- Management Team, Michael O'LearyCore competences
- No Frills Strategy
- Low cost
- Route policy strategy
Cost reduction strategy
To gain advantage over competitor, Ryan air follows the ‘Cost-reduction' strategy. It implies on the five major features of Aviation industry, such as;
- Fleet commonality
- Contracting out services
- Airport charge
- Route policies
- Manageable staff costs productivity and managed marketing costs.
The firm Ryan air had fine tie-ups with its contractors which was useful for the firm to have an advantage in cost reduction as well as in time. Boeing served as its main supplier where was helpful for the timely delivery and also for the delivery of auxiliary products and safeguarding it. Here the lost cost can be added up as its adjacent application. There was an excellent acquaintance with the vicinity of European airport where they subvention to the airlines by which they promote the airlines to offer low cost to customers. The airports were in turn modified into storage space residences as where as the flights that land in there place routinely gets the entire essential things at low rates and in a rapid instance. It has its constructive influence because as they contract out some service actions such as safeguarding and refurbishing inside the organization by which they border the entrance of the foreign players. It also kept back compensation for acts package and revenue sharing models for its domestic associates, thus inspiring them to exert tough.Additionally, they maintain burly good tie-ups with their employees. They instruct them and enlighten their workers to be prepared for any undesirable circumstances, which helps Ryan air in encompassing their employees for their customers.
Total units produced over time
SOURCES OF COST EFFICIENCY
FINDINGS OF COST EFFICIENCYEconomies of scale:
Ryan Air as the low cost airlines in the European market has attained ‘economies of scale' from first to last function process. They have amplified the efficiency of their staffs better than the pilots in the air time and they have even condensed the ‘halt point' in time of flights in airports. During bulk purchase of flights from the suppliers Boeing, Ryan Air got various discounts in price.
Ryan air has of familiarity of about 24 years in this field. It has achieved laurels through extending out of their business in to 25 countries.
Innovation and succession blueprint cost has been reduced by distant over the ground effectiveness, strategy of fleet team spirit to continue the groundwork and maintenance of aircraft as lesser as possible. The firm has acquired aircraft by means of greater seat capacity, 45% fewer of fuel burn and 45% lesser noise emission than the other similar types.
Bring in cost is related with location as Ryan Air has neglected the airport fares by rejecting jam-packed which is the most significant airport choosing secondary and district destinations. Henceforth it could create accessible about the cheapest price tag ticket for its customer.
Ryan Air has made up its benchmarking with the midst of ‘South West Airline', which is particularly Texas based functioning.
Critical success factors of Ryan air:
They are various the hazardous of actions essential for guarantying the accomplishment in an organization. The significant achievement factors may be contrasted overtime.
Key success factors of Ryan air
These are some of the important factors which necessary in a business. Company replica of Ryan AirSupplier Boeing's discountsEuropean Union scattering outSuccessful promotionMichael O'Leary as Backbone
Ryan air offers a range of subsidiary services and employs in various other accomplishments connected with its ‘middle air customer service'Ryan air provides accommodation services and travel security as well as vehicle rentals from foundation till the end, both its website and its conventional telephone reluctance organization.Ryan Air management believes that as extensive there services are the way throughout the internet allows Ryan air to elevate sales, and also dropping costs per-unit basis. Still Ryan Air has the possibility to penetrate into large-scale market like USA, Asia and African marketplace.
yan air offers daily point-to-point service on short-haul courses to less significant and restricted airports to avoid route charges, roughly around the most important population centers and journey destinations throughout which it slashes down much operating costsNon-flight instinctive services, in-flight public sale of beverages, food and supplies and internet-related services.
Organizational knowledge is of three specific types such as; 1.Core knowledge,2.Advanced knowledge 3.Innovative knowledgeRyan Air has the contemporary information in its processes and decision-making actions.
Core values Ryan air
The core value of Ryan Air is, reduction of the price as low down as possible such that the customers are made contented and, this is because of Ryan air each and every actions are equipped to curtail the cost as low. Ryan air mainly believes in the ‘NO frill strategy'.
Ryanair the other word for success— in providing lowest fares than others without imposing fuel surcharges on customers. But this company has to think about giving value to the customers.We can conclude from the above analysis that Ryanair should develop its market in globally. According to me company should be increase its cost because in the future oil price is increase than company might be losing its market share from Europe as well as global market. By increasing the frequency of existing routes, identifying new routes in Europe,
expanding the market to other areas inside the Europe as well as outside the continents rather remaining in niche market; Ryanair can increase its revenue. For building customer loyalty it should recruit and train the employees to treat customers in a comfort way by offering all possible facilities from destination A to B.It was enjoying economies of scale and is very much ahead than any other players as far as Experience Curve is concern. It's resources, capabilities and combined them to make Core Competence in Low Cost Strategy is the main reason of it enjoying the high profit margin in the Industry