Changes Faced By Ryanair Commerce Essay
This report will look in to changes faced by Ryanair over the last ten years and try to identify the impact of the changes on its strategic leadership, structure, culture, market forces, environment and strategic directions by using different strategic tools.
Ryanair was set up in 1985 by Tony Ryan to operate low-cost flights from Waterford and Dublin in the Republic of Ireland to London with a staff of 57 people. In its initial few years of operations, it struggled financially. Michael O'Leary, was the chief financial controller at that time persuaded Ryan to let him try and redress the situation that the company was facing.
Ryanair operates more than 1,500 flights per day from 51 bases to 1,500 low fare routes across 28 countries, connecting more than 168 destinations. Ryanair operates a fleet of 290 new Boeing 737-800 aircraft. Ryanair has to carry a team of more than 8,500 people and expects more than 80 million passengers in the current fiscal year.
This report will identify Ryanair’s internal and external changes the company has faced in the last ten years i.e. 2002 to 2012.
This report will try to establish the impact of the strategic changes on the strategic leadership, structure, culture, market forces, environment and strategic directions of Ryanair.
A swot analysis is a tool used by business’s when planning a project of a venture. It analyses the company’s strength, weakness, opportunities and threats. The company should identify the project before using swot analysis to identify the internal and external factors which are either favourable or failure to the forthcoming project. The strengths and weakness are both at the present and in the past whereas the opportunities and threats are for the future. When a company is compiling a swot analysis they see it only useful on day it was done as within a week the company’s strengths can become its weakness.
As a business, Ryanair has become the biggest amongst the low price airlines across Europe and as a result, it is able to negotiate more favourable deals with its suppliers. Having a well established and integrated strategy based on a low cost operation means it can drive revenue through offering low cost fares to the public.
Ryanair uses new airplanes, which results in lower maintenance costs and greater fuel efficiency.
Ryanair has a significant amount of cash on its books and this can be a major deterrent for any competition contemplating a price war with Ryanair.
Customers became aware that Ryanair to be an airline that does not care for customers.
Ryanair is perceived to be an airline that is obsessed with achieving the bottom line at any cost.
Ryanair has begun to sell a variety of ancillary products on-flight, which have high profit margins. There is the opportunity for this to provide a lucrative revenue stream if developed and managed effectively.
Ryanair’s website attracts a high amount of traffic, therefore could be further developed as another revenue stream through increased marketing and advertising.
In addition, the website’s popularity could also provide a platform to offer complete tour packages. Consumers could find this attractive as it would provide a one stop shop for their holidays or business bookings.
Rapid expansion, which might over stretch management capacity, capability and adversely affect cash flow, is the main threat for Ryanair.
Increasing fuel prices, which are an issue to all airlines, are an additional threat to Ryanair.
The impact of terrorist attacks or threats continues to create an issue for the low price airlines as increased security leads to delays and longer turnaround times.
PESTEL Analysis is a framework used by companies to examine the external factors which they must consider when launching a product. It is a valuable tool for companies to analyse the current market. The term PESTEL stands for political, economic, social, technological, environmental and legal. The PESTEL factors once analysed are often used as either opportunities or threats in swot analysis.
The British government has increased Air Passenger Duty of £ 11 in 2009. The Directive must be transposed into national legislation across the EU in March 2011, which can lead to higher airport charges, depending on how its provisions are implemented and enforced by Member States and subsequently by the courts and thus affecting the costs of Ryanair.
In October 2010, British court has asked BAA to sell Stansted and either Edinburgh or Glasgow airports in the interest of competition and a better deal for consumers. This can help to cope with Ryanair new owners of Glasgow and Stansted Airport, which in case of sale, improve traffic at Stansted which has declined recently because of "high costs of BAA and management missions.
With the impact of the global economic crisis subsides, the International Air Transport Association predicted that the aviation industry in 2010 net profit after tax of $ 15.1 billion. However, the European airline industry still suffers from a weakness of the economy, labor disputes and loss of revenue losses caused by volcanic ash from Iceland. In addition, the expectations of European banks and sovereign debt crisis forced new measures to weaken the European economy.
Ryanair has decided to freeze its base in the United Kingdom due to the weak economy, British growth and reduce its flights from London Stansted Airport. As a result, the total capacity of the United Kingdom decreased by 16% during the period 1 November 2010 to March 31.2011.
While the global economic crisis recedes, IATA expects the net profit after tax in 2010 for the airline industry will be U.S. $ 15.1 billion. But European airline industry was still a loss because of weak economies, labour disputes and revenue losses of ash from the Icelandic volcano. In addition, banking and sovereign debt crisis in Europe require additional measures that would weaken a number of European economies.
Due to weakness of the British economy, Ryanair has decided to freeze the growth of its bases in the UK and reduce its flights from London Stansted. As a result, the total capacity in the UK fell by 16% during the period 1 November 2010 to March 31.2011.
Rising fuel prices have been affecting the operating costs associated with the growth of Ryanair. The impact is huge on Ryanair as in the short, medium and long term, as fuel prices rise. These strategies can not be expected to eliminate the impact on the Company increased market price of kerosene. At the end of 2010, the fuel, which represents 40% of total operating costs compared to 35% in the period preceding comparative rose 42% to € 943.9m due to a higher price paid per gallon , and an increase in the number of flying hours. In future fuel costs may also increase due to the depletion of oil reserves, the lack of capacity of fuel and / or restrictions imposed by the production of petroleum fuel producers.
The fluctuation of interest rates in the UK may affect both the income and expenditure of Ryan Air. Ryanair interest income and similar income decreased by 68.8% in the year of 2010 due to lower market interest. On the other hand, interest expense and similar charges Ryanair declined from 44.7% in fiscal 2010, primarily due to the impact of lower interest rates in the market.
Fluctuations in exchange rates may affect the turnover by Ryan Air. Ryanair has recorded losses of $ 1.0 million in fiscal 2010. This is due to the strengthening of the pound sterling in the UK and the exchange rate of the U.S. dollar against the euro during the year 2010.
With the growth of globalization, people have become more open to travel as his regular visits for business or student exchange programs. This can directly affect the growth of the travel industry in the future.
Ryanair is currently the industry leader in terms of environmental effectiveness and constantly working to improve its performance using the following strategies.
Ryanair operates a fleet of single aircraft type Boeing Next Generation 737-800 with an average age of only 2.94 years, which aim to minimize drag, which lowers levels of fuel burn and noise. The emission per passenger due to the increased capacity inherent in Boeing 737-800 is also reduced.
Ryanair offers direct services rather than connecting flights, to reduce the need for passengers to transfer to major intersections and thus reduces the number of take-offs and landings per trip from four to two, which reduces fuel consumption and emissions per trip.
Ryan Air operations, such as the removal of most airports Ryanair operates from the lack of night operations, etc. Reduces environmental impact.
On 19 November 2008, the European Council of Ministers added CO2 Emission Control to aviation industry allowances from 2012. This system is a system of cap and trade CO2 emissions to encourage industries to improve their efficiency in CO2. Accordance with the law, airlines will be granted initial CO2 quotas based on historical data and an efficiency criterion CO2. Response to any additional requirements, allowances must be purchased on the open market and or public auction. This may affect the cost management based on Ryanair quotas to be necessary in 2012.
Internet is the most powerful tool available for marketers of travel. It is now used to buy a ticket, and also to compare prices online. Ryanair as well as some of its competitors have their booking system based on the Internet that helps to increase the number of passengers, but once again the possibility to compare prices of different travel options increases competition.
Many airlines have started using the GPS receiver to fly better and synchronize their operations in and out of congested airports. These tools can help smart and expensive all airlines flying safely and better.
The repeated European government-owned air traffic control strikes can cause great loss for the airline industry as recently led the strikes Ryan Air to cancel many flights. Ryanair also had to pay compensation to passengers on the basis of the reform EU261.
Porter's five forces
Porter's five forces model allows for an overview of an industry taking into account barriers to entry, the power of suppliers, purchasing power, the threat of substitution and competition.
Threat of New Entry
The threat that newcomers can meet to enter the industry and reduce the profits of existing firms is analyzed by this force. In the case of Ryanair, it was able to build a brand identity quality over the years from the time of deregulation. As a result, a large amount of investment is required to be spent by a newcomer through the sunk costs in advertising if it wants to compete on a level playing field.
Competitive Rivalry in the Existing Market
The high cost of rivalry between competitors can be very high so that customers get the benefit of these price wars between airlines. This is why Ryanair has advantages over other airlines because they have developed a policy of low cost, low frills that help them to become a serious competitor for customers who are more price sensitive.
Bargaining Power of Suppliers
In a very basic level, the aviation industry suppliers is limited to two divisions. One plane supplier and other fuel suppliers. Ryan a major supplier of aircraft, the Boeing Company have a very healthy relationship. With the economic downturn in the airline within their procurement in a very limited range.
Bargaining Power of Customers
A number of new customers of EU are from one destination to another due to low interest in flying airline prices. Distribution capabilities of a growing number of travel agents are more and more inclined to book tickets on the Internet or direct threat.
Threat of Product Substitute
Customers have the others modes of travel, which are sometimes considered to be safer than airlines such as high-speed train or bus, preferred by the majority.
Critical Success Factors
Specifically, the cost structure in line with the company was experiencing other problems, but the company was able to market survival and growth. Alive namgigwa competitive aviation market position in the competition in order to be able to secure a variety of marketing strategies to implement the company Ryanair. Airlines between Dublin and London in the most rigorous evaluation in recent years, the company is said to be Because of the industry's strategy, Ryanair, Europe's largest low-fare airline in the UK and in 11 countries, with 57 routes network is recognized as the second largest airline provided by a fleet of 31 Boeing 737-200 of, and more than 1,400 employees and staff, and -800 aircraft.
To position themselves in the market, this company focused on driving their own costs in order to remain profitable, and provide the lowest possible fares consistently. In addition, Ryanair minimum standards of service and point-to-point, short float and offer flights at very low prices. Ryanair's goal is the lowest price that will meet the needs of the travel. Will have the lowest price in the airline industry as the critical success factors (CSFs) that are reliable in the market of strategic focus, comfort and service and frequency.
Strive to provide the lowest price the company concentrated on the first important success factor has been pointed out that it is a low cost. Remove the in-flight meals, advanced seat assignment, free drinks and other services, such as the addition of these features, but Ryanair important to the target market, yet maintain functionality prioritises. These features can often arrange a time for departure, reservation, baggage handling and consistency in service.
In order to achieve its goal of having a competitive position in the aviation market, Ryanair uses cost-saving strategies. Like these cost-saving strategies, services, airport charges and route policies, contracts, and vehicle commonality relies on five major aspects of employee costs and productivity, and manage marketing expenses. Common in terms of the vehicle, the company has the kind of one of the planes to limit the costs for the reservation aircraft and crew assigned to the facilities of the acquired facilities, staff training, and maintenance services. Ryanair has the capacity to purchase a Boeing 737 aircrafts, was able to get and maintain cost savings and existing foot of exercise equipment to comply with the European Union (EU) - to reduce the average age of the.
Ryanair's cost-saving strategies in accordance with the following elements: services contracted. Aircraft handling, ticketing processing and other functions in this manner, contracted to a third party by Ryanair. Ryanair's staff to perform routine maintenance, while also, in order to limit the cost of their own heavy maintenance and engine dating contract signed.
Another factor is the company's cost-saving strategies for airport fees and policies from the perspective of the path. Here, Ryanair traffic jammed and fees incomparably low does not select judicious in dealing with secondary and regional airports have made. Ryanair the airport for a truly surprising, because the airline has negotiating power in getting favourable access rates. , Ryanair also provides point-to-point service, passengers on the connection; it does not have to cost more. In addition, because the means to maximize the utilization of the aircraft, on-time departure, the company paid a special focus.
Staff costs and productivity management is another factor used in cost savings for Ryanair. In this way, the company urged employees to maximize employees pay a modest salary, but has set up a performance-related pay structure
Daily flight sector. Ryanair productivity keeping costs under the control of the employee. Finally, the company that manages the marketing costs, reduce IT costs another element. Ryanair logo "Ryanair.com, low-fare airlines' Web site primarily to advertise., Also national and regional radio and television, Irish, British newspaper ads.
Ryanair's results are very high as a result of the lousy customer service direction and focus on how to get only the result of achieving results. Regardless Stress, more focus on the results rather than on the quality of the work is to create a work place.
Focus more on the organization's employment practices in the European Union (EU) has been criticized by these practices due to the processing time and the results are given in Ryanair's because the user is very low or negligible in the direction of the organization to decide what in taking account of people do not seem to.
There is no concept of team environment in the organization, and it seems individuals oriented culture and that could be due to the leadership acts whose behaviour. Strong signal to send to the employees for their professional behaviour towards others
The Ryanair culture gives the signal of the status quo, because of their consistent same behaviour and their choices, which means that they have a high stability factor to emphasize in their culture.
Innovation and risk taking is very low in their culture and people are not going to take risks and decisions on their own in this scenario because it is estimated that one person who make risky decisions put all at the stake.
Attention to details is very low and people are not on the stage with the standards. They should exhibit the attention to the details of their work.
Critical Set of Issues
Creating organisational culture of shared values where employees are willing and enjoy to work. Empower employees to do their job, support and encourage them in their decisions. When employees are empowered and respected at the work place, they feel as part of the organisation and their decision are appreciated, then they will work whole heartedly at the work place irrespective of the department resulting in improved customer service, less complaints and improved organisational performance. The better customer service will result in creating better image for the organisation providing low cost and desirous service.
Enhance organisational Decision making and planning process, the organisation should provide clear objectives and specific plans to peruse rather than directional plans or media announcement based objectives in order to avoid future risks of heuristic and intuitive decision making. As leaders play a key role in building organisational image. It is the leaders whose actions and behaviours send strong signal to the employees to react in the same way as the leaders do.
Improve Customer service, as many new & mainstream airlines are entering the low cost arena to get share in budget market. By providing better services and attract Business customers that prefer to fly from main airport locations, can fly through Ryanair if receiving better customer service.
Ryanair should be more socially responsible by addressing the demands of the stakeholders, as corporate social responsibility is very important for growth of the business, as there is proven direct link with the organisational performance and its responsibility in social issues. Building the sense in the organisation being socially responsible will improve corporate image to create value for the organisational.
Comply with regulatory authorities, EU commission requirements to avoid major financial losses.
Shaping the shared organisational culture
Build better communication channels within the organisation. The communication within the organisation is a vital element in shaping the shared organisational culture. The open culture can only be achieved if all the departments in the organisation are inter-related.
Facilitate the mangers to set clear and SMART objectives. Objectives will be understandable down the hierarchy, the sharing of information within the departments on a flatter scale will enable the employees to coordinate and understand where the organisation is striving to go. As the case shows that the objectives presently set are not clear and do not provide clear destination in a specific period which is not only hampering the organisational performance, customer satisfaction rather hatred by the regulatory authorities, competitors and customers.
Improve the planning process at the Ryanair. The traditional top to bottom planning can be improved, when the employees are involved in the organisational decisions, the approaches top to bottom and bottom-up can both be used in order to create an environment of equal understanding of objectives at all levels. Everyone in the organisation will strive and contribute to achieve those objectives.
Facilitate effective control functions. Empower employees, shared and open door culture will create an environment of feedback mechanism for the entire departments, which will enable the organisation to re-evaluate its procedures and processes in order to provide better services. The shared culture at the organisation will enable the departments to use feedback, feed forward and concurrent controls at the time when required because the flow of the information within the departments will facilitate this function. As planning is directly related to the control systems so Ryanair control functions will help the organisation for better planning in the future and measure their current performance.
Integrated departments within the organisation will facilitate Ryanair to measure their performances not only at the departmental; organisational but also at the individual levels. This integrated culture will enforce individual’s sense of responsibility and understand Ryanair objectives clearly.
Enhance customer satisfaction, customer loyalty and increase market share. The belief of the organisation that people can create the difference and make sure that everyone believes it will create a working environment where the customers will get the best.
The competitive advantage as there is intense pressure on the Ryanair in the competitive arena with many competitors entering the market; the shared organisational culture with empowered people will provide the distinct edge over the other entrants. In contrast to the current meagre advantage of cost is not going to last long, if the organisation intends to attain long term competitive advantage then it has to change its organisational culture.
Challenges and Recommendations for the future
Low-cost carrier market expansion will probably slow signiﬁcantly in the next ﬁve years as new opportunities become more limited. As this growth slows, labour costs will continue to rise for the low-cost carriers, in all likelihood reducing the advantage they once enjoyed. Ryanair must be prepared for the inevitable convergence of costs and conditions, but it will still retain the ‘no-frills’ advantage of high seat density and aircraft utilization coupled with lowest fares in any market.
Ryanair’s domination in the low-price market segment will continue but to become the biggest player it will have to expand into more popular routes which will entail better service and good customer relations. This will require high employee retention which is key to customer satisfaction. The business philosophy should be ‘smile, charge and serve’.
Stock market earnings are totally based on growth, expansion and high operating margins. This can be sustained by Ryanair in the existing market conditions. But these conditions are dynamic. Competitions with other established modes of transport in the low price segment will intensify in certain regions. Hence growth will slow down. The current major growth areas in Europe are in the Eastern regions. So it will have to launch new operations in non-European territories like Russia and Turkey. This would require off-base like crew lodging in areas not having home bases service operations increasing operational costs. This will cut into its operating margins. On the other hand, improved service image can have a positive impact on share prices. Hence the Stock market earnings will continue to be vulnerable to market dynamics.
Rapid growth of secondary airports will deﬁnitely in- crease noise pollution and carbon emissions in remote areas which is an environmental hazard. Hence Ryanair has to combat it with pro-nature conservation moves.
The economy traveller segment can be divided into lowest price segment and value-price segment. Ryanair is already the leader in the lower price segment, but would have to cater to the rapidly growing value segment for total domination in the economy segment. The value segment constitute travellers interested to optimize time, comfort and price. This would mean preference for city-centric airports, convenient departure and arrival times, and basic service coupled with the willingness to pay little more for the comfort.
Competitors like easy Jet, Air Berlin, Basic Air, BMIBaby are catering to the Value market segment and have established slots at some primary airports and providing basic cost effective services. Acquisition of Aer Lin- gus or a merger with a similar airline would enhance Ryanair’s showing in stock markets and also facilitate quicker expansion into value-oriented market segments without comprising its top position in the low-price segment.
As the set of critical issues highlight the importance of several factors to be addressed at the Ryanair in order to achieve their growth and maintain cost leadership. But the most evident problem in the organisation is their culture. If fixed it will create an environment in the organisation. The employee behaviour towards customers, peers and managers will create the difference within the organisation and in the market. Employees can only contribute in shaping the culture if the leadership has got the intention to do that and employees will learn about culture.
As mentioned earlier the role of leadership in shaping the organisation and from the example of continental airlines it quite evident that the leadership at Ryanair should immediately adopt boundary less environment in the organisation in order to correct their consistent social, ethical, decision making, planning and customer service problems. Ryanair has mainly profited from the financial crisis period due to the customers cost saving strategy but as the financial crisis diminishes in future their cost leadership strategy cannot provide them significant edge over the competitors. So it is highly recommended that Ryanair should create a difference by adopting the strategies mentioned earlier as this is the only option they can adopt without putting too much financial investments.
Ryanair is the only airline that has been completely focusing on Low Price segment and with the creation of this segment has shown staggering growth rates of 30% and more. Combined with an excellently executed low cost business model and high proﬁtability, Ryanair will emerge as one of the clear winners from future market consolidations.
The key challenge for Ryanair in the next couple of years therefore is developing a successful strategy for not only winning the war in the Low Price segment but gaining a solid position in the Value segment and in new non-European markets.
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