A business analysis of Ryanair airlines
This project has been made on Ryanair, one of the leading cost lost air line in Europe. In the below lines there are presented the overall scenario of airline industry as well as the company analysis, for this purpose we have searched the available resources and found some good information. In the second phase strategic commentary is presented based on the information available in resource banks over internet and also the data and analysis provided in the case. We have tried to touch the management, HRM, and strategic marketing areas so that a comprehensive view can be presented and that can help in better decision making.
External Environment Analysis
The airline industry is been highly sensitive in terms of Government regulations and safety standards, this industry is governed by the domestic laws as well as EU also monitors and place check on this industry. Since Ryanair is Ireland based company it is also subject to the EU laws and well as domestic Irish laws, Ryanair is being watched by the Department of Transport, the Irish Aviation Authority and Joint Aviation Authority. By the passage of time the safety standards and checks are increasing, and official pressure on airline industry is also increasing to have their security standards improved(www.iaa.ie,2010).
Airline industry is highly competitive worldwide, same in the case in European market, high quality of service and safety standards are in company with intense price competition; whereas increasing operational costs and fuel prices are also making it difficult to compete in price sensitive market.
Talking about airline industry Ryanair have to compete with flag carriers, independent airlines, franchises and their indirect competitors are other modes of travelling within Europe such as express rail services which are perceived more safe and less risky after the 9/11 scenario. The competition is on two dynamics, one is availability of routs and maximum number of destinations and other is price, the large players like British Airways use small player like Virgin to compete on domestic routes with independent airlines, because their large size increases cost and does not allow them to compete efficiently on domestic market, however independent airlines have to face intense competition in terms of Airport slots to serve their customers and for better turnaround time.
There other factors that affect the overall performance of any airline company, one of which is post 9/11 situation which has affected the airline industry and people started fearing travelling in air, however Ryan air made some good decisions and capitalized the opportunities that emerged after 9/11, however other were unable to do so and had to face losses. Other factor is oil prices that are increasing worldwide and every percent increase in oil results in increase in millions of extra cost; there is also production caps by the oil producers that makes the input more sensitive and leave the company uncertain about future. Operating costs are increasing but buying power is decreasing due to recent economic crises, the luxury flyers reduced and people are losing their jobs that are resulting in low rate of flying people. In such scenario situation is becoming difficult for the companies that are already working on low price model.
Ryanair has the strong brand name and recognition in term of independents airline market, they have been investing in brand for last decade and now the result is the strong brand name. The company also gets benefits from low airport charges that help them save costs; it also has first mover’s advantage in regional market where other has still to explore opportunities. They have all Boeing aircrafts that saves them maintenance and training cost, more over their new purchases also have more seats than other aircrafts which is the source of more revenues. Their distribution channel is strong and cost effective that saves company a handsome amount in terms of travel agent commission(www.ryanair.com/en).
Their perception of being an arrogant airline gives them the disadvantage of bad word of mouth and any minor incident gets more attention, their treatment with employees are also their weakness where they are paying them only base line packages and expecting high standard of service like cleaning of plane by crew staff. Sometime low cost airports tend to be at more distance from the destination and that result in hassle and disappointment for the customers. Company is has operating in its niche that is resulting in a limited opportunities in terms of expansion.
Expansion of European Union can bring lots of new destinations and expansion opportunities for Ryanair; economic crisis is beneficial for the company because with reducing buying power people are looking for the less expensive travel solutions, especially the corporate sector is moving from expensive flag companies to cheaper solution to save their own operating costs.
Ryanair is dependent on oil market and any percentage increase in oil prices can increase their cost in millions, either they will have to raise prices or absorb costs; both options are going to decrease profit. There is an increase of competition in low fare airline market the other player are being aggressive in terms of price competition and number of destinations, more over customers are also becoming more price sensitive. Ari traffic control charges are increasing and Ryanair is powerless if any environmental affect charges are deployed to airline industry, all these going to increase in a market which is already prices sensitive and margins are squeezed, along with aggressive prince competition by the competitors(http://www.elfaa.com/environment.htm,2010).
Ryanair Business Model
Ryanair has been positioned as low cost airline throughout its business operations, although there are other who has the same positioning but Ryanair has been identified as pure low cost airline, is has been facing a tough competition by Easyjet but have an advantage over it of low cost airports. Virgin is also coming on low cost model but will have to wait for some time to achieve pure low cost advantages. Below is presented a brief review of Ryanair’s business model.
Ryanair targets price conscious leisure and business class travelers, they charge on one way basis as opposed to other airlines, this low fare positioning is their competitive advantage over other airlines and this way they are also building the air traveler market, people who would have choose other mean of travelling such as train, are now preferring to use Ryanair because of its low cost. Their fairs are determined on demand basis; however there are certain promotions are also available in peak seasons.
Ryanair provide frequent point to point flights, they prefer such services on secondary and regional airports, and this strategy eliminates the need of frill services and baggage transfer costs, giving with the cost advantage that they can use in their tariffs.
Choice of Routes
Ryanair uses alternative airports and routes to major population destinations, this choice gives them the better costs per airport service and serves their low cost strategy, they have better turnaround time, fewer handling and terminal costs and that is their competitor advantage over Easyjet which is still operating in mainstream airports.
Low Operating Costs
They have lowered their operating cost by adopting the strategy of one supplier, Boeing is their main fleet supplier and their all planes are Boeing, this way they save on training and maintenance cost of aero planes. Choice of airport also plays role in their low operating cost strategy, they save on the handling and terminal charges, they select only those air ports that give them the best deal.
Maximizing the Use of the Internet
Shifting from BABS to Skylight has been a success, their strategy to get customers book their flight right from the company website and eliminating the third part flight bookers has been saving them a lot in terms of agent commissions, now their 90% seats are books over internet, giving customer a convenience and company cost saving, win-win situation for both.
Safety and Quality Maintenance
Their major focus in on uncompromised safety and quality maintenance, there have been zero reportable incidents on safety standards for Ryanair, they have been investing on training of their maintenance staff and on installing latest equipment for safety. Since they are operating on low cost model and security concerns has been risings in airline industry but Ryanair did not compromise on its security measures.
Strategic Commentary on Ryanair
It is believed that Ryanair is operating on low cost model which is a purely scientific model however if we closely watch its operations and strategies then we come to know that it is not purely a low cost model, some differentiation is also mixed in it.
To achieve a cheaper airline image yes they need to reduce prices and for that they have to reduce their costs, but what about the diversity of routes, where other big players are not operating, Ryanair is serving there that is differentiation, so in my point of view it can be called a mix of low cost and differentiation, an unscientific approach to business. Every business wants to reduce cost, but Ryanair has been able to do so in successful manner, and to achieve the low cost they had to differentiate in the way of doing business, from fleet selection, airport and route selection and at the end the selection of channel of distribution, they differentiated, let us take the example of Internet booking, they eliminated the need of intermediary, yes that saved substantial cost, but they also differentiated in selling tickets, that is the practice that others are also following.
They have been aggressive in marketing and building brand name, especially their campaign to register their website and encouraging customers to book flights through company’s own website has been fruitful. Below are presented few suggestions for Ryanair to cope with upcoming challenges.
Increase the Frequency
Since other are also entering in the low cost market and due to economic conditions customers are also seeking the low cost solutions, company should increase their frequency to get maximum out of current scenario, frequency can be increased on most popular routes where there is already rush for seats.
Open New Routes in Europe
Competition is there, to be competitive and get advantage on untapped areas this airline should open new routes in Europe, this will yes give them low cost advantage as they will be in good position to bargain the charges on terminal with airports, as well as they can build market that other have not yet thought of.
Ryanair should expand its businesses now, may be they can expand to central Europe, Eastern Europe, and North Africa is also good option to expand. And why only Europe now, there are other markets that still seek cost effective solution, yes that will be a great strategic decision but company should consider going international, at least they can start to USA, basic philosophy will be remain same, cost effectiveness and cheap, but yes they can expand to USA.
Seek To Take Market Share
Ryanair with its current potential and operation can surely be a market leader in low cost airline business, how they need to be more aggressive and focus on getting on maximum market share, focused and controlled growth is good thing, but some time aggression is also required, they can easily come in charter airline segment and get the market share.
Customer Service Re-Engineering
Yes, that is area where they need to focus on, customers are seeking low cost solutions but they have not forget their increasing standards for customer service, they are still as demanding as they are with flagged airlines.
Ryanair has the reputation of being rude; they need to re-engineer their customer service standards and procedures, as they have re-engineered their ticketing procedure, this is going to be increase cost but it’s better to increase cost then to get a bad reputation on customer service. Ultimately this is word of mouth that plays a major role in brand building and bad word of mouth can be disastrous in such era of competition.
Keep On Finding Ways of Reducing Costs
In pursuit of their low cost strategy they should be looking to find new ways of reducing costs, being 100% online and setting the target of selling tickets purely online can save them more, finding more deals with airports, especially on their new destinations, they can have better cost effective deals, finding cost effective but efficient ways of marketing and also build their brand equity but also reduce the cost of bringing the customers on board.
Invest In Human Resource
Ryan air should be investing in their human resource, currently they are giving baseline salaries and benefits, however they have not faced labor relation problems but this can happen in future, since their expectations from employees are high, these base line salaries and benefits are not going to create motivation. Cost cutting should not be the only criteria especially when managing human resources in highly competitive and sensitive industry.
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