The establishment of the Ryanair Company
Ryanair is a one of leading low fare airline with 41 bases and 1100 routes across 26 countries which connect 153 destinations. It has currently 7,000 staff and expected to provide service approximately 73 million in fiscal 2010/11. (“Ryanair (about us)”, n.d.)
Ryanair was established in 1985 in Ireland with only 51 staff and 15 seated Bandeirante aircraft. At that time Ryanair operated daily flight from Waterford in the southeast of Ireland to London Gatwick as an alternative to monopoly carrier Aer Lingus. Within very short time Ryanair got the permission to expand its service to Dublin-London route especially to challenge the British Airways and Aer Lingus high fare. (“Ryanair (about us)”, n.d.) At that time Ryanair was successfully able to slash their competitor’s high pricing strategy by attracting more passengers towards their low fare in its operations. Thereafter Rianair continuously was able to expand its operations in European airline industry.
As a result of rapid growth, high competition in aircraft, Ryanair accumulates £20m losses in year 1990. This badly course to Ryanair survival at that time and its invested additional money to restructure the company. It was successfully able to restyle Ryanair by imitating Southwest Airline model which was highly successful Texas based operator. (“Ryanair (about us)”, n.d.) Thereafter Ryanair became Europe’s first low fares and no frills carrier. This was the main strategic decision that the Ryanair took to face the backdrop of the European airlines.
After restructuring as a low fare career, Ryanair was able to expand its operation rapidly by overtake other main competitors like Aer Lingus and British Airways and became the largest passenger airline. In year 2006, the company records profits of £329m and with 42 million passengers. According to Air Transport World Magazine Ryanair was the world most profitable airline in terms of operating, net profit margins and per-airplane, per-passengers. In fact it was maintain upon no fuel surcharge. With this success Ryanair was bid for fellow carrier Aer Lingus.
2.0 Critical Issues Analysis
Ryanair’s main business strategy is low fare strategy and it’s continuously able to implement that strategy by getting maximum outcome. Even with these great business achievements, we can analysis the Ryanair business operations by highlighting several critical issues. These issues and organisational performances are can analysed under financial performances, customer performances and internal current performances as mentioned in Appendix 1.
3.0 External Environment Analysis
When considering about the external environment of the organisation, it is made up with main two sub environments including macro environment and task environment.(Appendix2) Before move into each type of environment it is important to understand the nature and the complexity of the given environment (Appendix – 3). When consider the external environment, it’s basically consists of uncontrollable external factors. As a business organisation Ryanair is also affected by both of these two environments. Under the macro environment Ryanair is affected from influences like political, economic, social/cultural, technological, ecological and legal factors. Moreover as a task environment factors like customers, suppliers, competitors, stakeholder, new entrance, etc.
3.1 Analysing the Macro Environment
3.1.1 PEST analysis
PEST analysis is one of main strategic analysis tool which use to analysis organisational macro environmental factors. This analysis tool is use to examine the impact of main macro environmental forces. Those are
Ryanair is company which operates in highly dynamic airline industry which always influenced by dramatic environmental changers. Therefore as a strategic tool, it is important to do a PEST analysis to analysis the macro environment of Ryanair. PEST analysis of Ryanair Company is mentioned under Appendix 4.
3.2 Industry Analysis
Next step of external environmental analysis is to analysis the business task environment. This task environment is also known as industry environment. Therefore to do a full external environmental analysis, Industry analysis is essential. For the purpose of analysing the industry environment we can use different types of analysing tools like five forces analysis, portor’s diamond model analysis, strategic grouping, strategic driver’s analysis, industry life cycle analysis, and external factor analysis.
3.2.1 Five forces analysis
Industry environment of an organisation is another area of importance in analysing organisational external environment. In analysing industry environment, five forces analysis become one of most importance analysing tool. This five forces model is able to identify the forces that affect to the profitability of organisation. Under this analysis, we are able to have in depth understanding about the profitability forces, changers of these forces and its affect to the organisation. According to the five forces model (Appendix 5 figure 3) we are able to analyse industrial environment in terms of main five components. Those are threat of new entrance, suppliers, buyers, substitutes and rivals. Under this analysis we are basically analysis of the impact of each those components on profitability in an industry.
Since this analysis method provide specific insights of organisational suppliers, competitors, customers, substitutes and industry trends; we can use this analysis method in analysing Ryanair industry environment. Ryanair five forces analysis is mentioned in Appendix 5.
3.2.2 Porters Diamond Model
This is another strategically analytical tool that is use for analysing organisational industry environment. In this analysis, entire industry environment is subjected to analysis base on four factors. Those are firm rivalry, demanding customers, favourable (supply) factors, and existence of related industries and supporting infrastructure. This model is suggest that any organisation should have a support all above mentioned four factors in developing world class industry.
Porter’s diamond model analysis for Ryanair is mentioned under Appendix 6.
3.2.3 Strategic Group Analysis
Strategic group analysis is another important industry analysis tool which enables to have clear understood about competitors in currently operating industry. In most industries, not all competitors are competing directly with each other. They are competing in different way by using different strategies or a different target market. But when closely examine each and every competitors in a particular industry, we can find some sort of similarities of their current strategies and target market. In fact its enable us to strategically group those competitors by concerning each competitors strategic dimensions (product or service, quality, geographic scope, etc).
In analysing Ryanair industry environment, we can use this analysis tool as mentioned in Appendix 7.
3.2.4 Industry Life Cycle Analysis
Industry life cycle is another main industry analysis tool which can use to identify particular organisation current status in related to other organisations. This is one of main aspect that any organisation should focus when developing strategies. In order to gain success in organisational operation it is important to change strategies according to industry life cycle. Therefore it is important to have a good understand about industry life cycle and the current life cycle stage, before implementing any new strategies.
Industry life cycle analysis for Ryanair is mentioned in Appendix 8.
3.2.5 Synthesis of External Factors (EFAS)
Synthesis of external factor analysis is another important analysis tool that we can use to analysis the external environment. According to this analysis strategic managers are able to organise the external environmental factors in a generally accepted manner. Out of all external factors this analysis categorise main opportunities and threats which affect most in doing business operations. Under this analysis each categorised opportunity and threats are rate by considering how well the organisation is responding to these factors and weighted by considering its impotency to the organisational management.
When analysing the industry environment of Ryanair, this analysing tool will provide us a real path way to analysis most important opportunities and threats available in its task environment in terms of respond of organisation to external factors and its impotency. EFAS table for Ryanair is mentioned in Appendix 9.
4.0 Internal Analysis
For the purpose of analysing the internal environment of Ryanair, we can use different types of analysing tools like Value chain analysis, internal factor analysis summary and ratio analysis.
4.1 Value Chain Analysis
Value chain analysis is one of main analytical tool use for internal analysis purposes. The value chain describes all activities that make up the economic performance and capabilities of a firm. Therefore value chain is an excellent means by which managers can determine the strengths and weaknesses of each activity with regards to the firm’s competitors.
Value chain analysis for Ryanair is mentioned under Appendix 10.
4.2 Internal Factors Analysis Summary (IFAS)
Synthesis of internal factor analysis (IFAS) is another important analysis tool that we can use to analysis the internal environment. According to this analysis strategic managers are able to organise the internal environmental factors in a generally accepted manner. Out of all internal factors this analysis categorise main strengths and weaknesses which affect most in doing business operations. Under this analysis all strengths and weaknesses are rate by considering how well the organisation is responding to these factors and weighted by considering its impotency to the organisational management.
Internal factor analysis summary table for Ryanair is mentioned under Appendix 11.
4.3 Ratio Analysis
Financial ratio analysis is another important internal analysis tool which is able to calculate and compare financial data derived from organisational financial reports. These ratios will reflect current financial performances and future predicted financial performances. This analysis is very useful to get in-depth understand about the organisation current position comparing to other competitors.
Ratio analysis for Ryanair mentioned under Appendix 12.
5.0 External Environmental Evaluation
Ryanair was the European first low fare airline which operates under highly competitive and dynamic environmental condition. According to the International Air Transport Association (IATA), there are main three types of airlines operate in Europe. Those are flag careers (main line careers), low cost careers (LCC) and domestic careers (Regional careers). Market leading flag careers include British Airways, Air France, and Lufthansa. Main low cost careers include Ryanair, easy Jet, German wings, etc. In fact there are main domestic airlines like FlyBe, city jet, Lufthansa regional.
In low cost airlines market segment, there are nearly 60 airlines operating and Ryanair is holding the leading position. Starting from Ryanair other low fare airlines are offering extremely affordable packages with wide range of destinations. In Europe more than 100 airports now have these low fare services. (Datta & Chakravarty, n.d.)
With this rapid expansion of low fare airlines, Ryanair face so much of external environmental influences. Political factor is one of main environmental factor which influence Ryanair in different manners. Tax lows, government policies regarding aviation industry, other rules and policies like union policies are the main political environmental factors that Ryanair facing. In fact Ryanair face economical factors like inflation, oil prices, European Union GDP issues, dominance of dollar, etc. These all economical factors affect to Ryanair in a highly manner. As a social factors, people life style changers, perception changers regarding air travel, terrorism activities, etc influence Ryanair. Moreover in technological factors; types of aircrafts, usage of e-commerce are able to influence Ryanair business activities as external environmental factors. These factors originate and operate without any influence or control by Ryanair. But using different strategies and tactics, Ryanair is able to control and minimise these influences up to certain level. For an example hedging is use to control the affect of oil price fluctuation.
Ryanair introduce low fare strategy to European avaiation industry in 1990s. Later this strategy imitates by many airlines and start low fare careers. Travel in these low fare airlines becomes a European trend among frequent passengers who use air travel. Therefore these types of airlines are able to attract more new passengers and increase traffic. According to International Air Transport Association (IATA) forecast, it is expected to increase air traffic continuously. (Appendix 13) This trend will positively affect to the Ryanair future operations. Moreover US- Europe free sky agreement also will able to expand Ryanair future operations.
6.0 Internal Environmental Evaluation
Under this internal environment evaluation, we are mainly evaluated Ryanair resources and capabilities which enhance its competitive advantage. Resources and capabilities of any organisation play a critical role in gaining competitive advantage. Resources are in many forms. In general perspective, resources can range from widely available resources (easy to implement) to highly differentiated resources. For an example we can mention resources like goodwill, brand name as highly differentiate resources. Therefore we can identify main two types of resources. Those are tangible resources and intangible resources. These resources lead to develop organisational capabilities. Organisational capabilities are the advance mixture of both tangible and intangible resources. (Appendix 14)
When we closely focus Ryanair internal environmental factors we can highlight different types of resources. These resources direct Ryanair to gain competitive advantage by give good challenge to other well establish competitors. For the convenience of identifying resources we can classify Ryanair resources as mentioned in Appendix 15.
6.2 Resources and Capabilities
Moreover, base on the implementation of each resources and competencies we can classify those into two different types. Those are Core (Unique) and Necessary. According this classification we can identify core resources and competencies with necessary resources and competencies. This classification for Ryanair is mentioned under Appendix 16.
6.3 SWOT Analysis
SWOT analysis is one of important analytical tool, which can use to evaluate both internal and external environment of a firm. This analysis basically helps to managers to identify organisational internal strengths and weaknesses as well as external opportunities and threats. By identify these main four elements, managers able to develop strategies by using organisational strengths and opportunities to reduce organisational weaknesses and threats.
By considering all strengths, weaknesses, opportunities and threats of Ryanair; we can analyse its internal and external environment using SWOT analysis as mentioned in Appendix 17.
With the market entry of Ryanair as a European first low cost career, there was a total paradigm shift in European aviation industry. Ryanair initially was able to create high demand for their low cost career by attracting new customers. Continuously Ryanair was able to achieve great business success by using their low fare strategy. This succession factor helps Ryanair to survive from some market challengers like high competition, economical changers, political factors, etc.
Even though Ryanair hold a leading position in European aviation industry, it has to deal with so many upcoming market challengers. When considering the future of European airline industry, we can predict that it will be grow slowly with offering limited opportunities to existing airlines. The main reasons for this is the high fluctuation rate of fuel prices, high cost of labours, high airport chargers, environmental issues and etc. Therefore as a low cost career Ryanair must ready to face all these challengers.
To face these challengers, Ryanair must take initial business actions and improve few business operational areas. Ryanair currently holding leading role in low cost airlines and must expand its operations by introducing new popular routes. In this low fare market segment we can identify two sub market segments. Those are low price segment and value price segment. Ryanair successfully was able to satisfy price sensitive low price market segment but could not able to enter into value price segment. To deal with this market segment Ryanair must take reasonable business action in gaining value of their service in a customer oriented manner. Moreover, Ryanair must take favourable administrative actions to enhance the employee satisfaction in order to maintain low employee turnover. Since there is high demand for airline staffs, this would be a better approach to face for this challenge.
These approaches will positively enhance Ryanair’s future business success by effectively managing its resources, capabilities and core values.
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