Strategic management analysis of European airline industry
The ultimate objective of this Ryan air case is to carry out strategic management analysis of the airline industry in Europe, evaluate the business strategies, performance, management functions, capabilities, future capabilities, success factors and the failures of the Ryan Air Airline company and propose relevant recommendations for the Ryan Air in order to be the market leader in the budget airline industry in Europe. As a secondary analysis of the case study, international marketing, operations management and business ethics are to be discussed with relevant examples.
When focusing about the case it is evidently illustrates that the performance of the Ryan air almost target the low cost segment particularly it has given more priority to the budget influenced business and recreation travelers. The company could attain higher profit margins and they have achieved success in the low cost market by solving their past problems which vastly occurred in decision making, planning, customer service, ethics and corporate social responsibility. The SWOT analysis point outs main problems that the Ryan air faces in organizational culture and it shows the direction of how to accomplish the future objectives and growth objectives by adjusting their organizational cultural problems. By conducting the PESTEL analysis organization could identify the key factors that the organization has to consider barely in order to upgrade the organizational controlling functions, organizational values, relationships with the stake holders. As an end result of both SWOT and PESTEL analysis, it is recommended that Ryan air leadership should change in to and develops in to open and integrated departmental organizational culture to generate value for the organization. And it is need to differentiate from the other budget airlines. Ultimate target of above mentioned differentiation strategy of empowering people is to achieve competitive advantages for the organizations.
Then we arrive to the section which elaborates the industry relations and impact it has for the organization. The first measure to access the industry analysis was to study and evaluate the competition among the players in the budget airline industry and Ryan air airlines. For this the report was used the Porter’s five competitor analysis which elaborated the competition with the parts such as Supplier Power, buyer power, threat of new entry, threat of substitution and competitive rivalry.
After the competitive industry analysis the next part of the report is the financial analysis of the Ryan Air airline according to the Profit and loss account at the year ending 30th March 2006 and the balance sheet account provided by the case study as at 30th March 2006. The financial analysis has conducted under the subtopics Liquidity ratios, Profitability ratios, Activity ratios and Leverage ratios.
At the end of the financial analysis, conclusions of the report and references have been indicated. Next Appendix can be seen as a next main topic. At the appendix all support articles and details about the case study can be found. Most of the theories and practical examples have been further explained in the Appendix. Therefore special attention should be given to appendix as well as to the body of the report.
Ryan air was established in the year 1985 by a wealthy Irish business family known as Ryan family. The person who was behind creating the idea and opportunity to start the business and thus planting the seed was Mr. Tony Ryan who was the head of the whole business procedure. The Ryan air company was started with a share capital of £1 and a flight crew of 25 individuals. The company first flies its passengers from Waterford in the southeast of Ireland to London Gatwick airport and after continued to fly daily. The company did its inaugural flight from Waterford to London Gatwick with their only flight at that time which flied daily in this route 15 seated Bandeirante aircraft. From the beginning of the business the Ryan air was functioning as another conventional airline service. They continue to grow their airline fleet and extended their destinations in order to be successful in the Europe region. During the 1986 the Ryan air has legally acquired the permission for challenged the established BA and Aer Lingus in low fares policy and thus the Ryan air was able to provide a return ticket to £99 from Dublin to London which was a half price of the standard fares of other liners. By the time of 1987-1988 the Ryan air had developed its destination routes to 19 routes and the air flight fleet to 7 with 6 jets and 1 turbo prop aircraft. The company was transporting from 5000 passengers (1985) to 592000 passengers by 1988.
In the later part of 90’s the Ryan air had underwent a serious overhauling procedure in terms of the business processes and their product. The company had faced a major financial downturn with the unexpected failure in the business class service and the frequent flying program. Then the Ryan family has invested more £20million and structured the Ryan air according to the model used by an airline in based in Texas in US known as Southwest Airline service and the Ryan air was re-launched as the Europe’s first low fares airline. The company was able to provided a return ticket to a passenger for £55 from early £99 and thus to cut the cabin services such as meals and entertainment systems.
After the restricting process the Ryan air reduces its 19 destination routes to just 6 routes (Dublin-Stansted, Dublin-Luton, Dublin-Liverpool and Cork, Shannon and Knock to Stansted). Though the flying routes had reduced the passenger traffic had continued to increase as a result of the low fares with other airline services. The Ryan air had overtaken the BA and Aer Lingus to become the largest airline or the dominant airline in Dublin to London route and it had also become the largest Irish airline to operate to/ from Dublin. In 1996 the Ryan air voted as the best airline and in 1997 the Ryan air’s shares had sold first time in the Dublin & NASDAQ share markets with a over floating subscribe. During the next few years the Ryan air had voted as the Airline of the year by the Irish Air Transport Users Committee and again voted as the Best Managed National Airline by the International Aviation Week magazine.
At the beginning of the 21 century the company had launched the Europe’s largest booking website www.ryanair.com the official website of the Ryan air airline with a successful rate of 50,000 bookings per week within 3 months after introducing. And in 2002 the Ryan airlines had pronounced as the no 1 in Europe in customer service with beating all the other European airlines with lower numbers in flight cancelations, lost bags and punctuality. In 2003 the company acquired the Stansted based KLM owned airline Buzz and after one month re-launched the airline with the half of the fares it used to be under KLM, and in 2003 the Ryan air was the most popular website by Google and it was named as the world favorite airline by beating British Airways. At the same time the Ryan air was continued its popularity among the passengers as a result of the no fuel surcharge ever policy undertaken by the management which was still not practiced by other airlines.
Currently the Ryan air is continued to be more popular among the passengers as the world favorite airline. The company is possessing 37 their own bases with 150 destinations in 26 countries carrying approximately 66 million passengers worldwide with a team of 7000 employees.
3.0 Evaluating the scenario
This case is provided with the information regarding the Ryan air budget airline which is native to Ireland. The case study is elaborates the information regarding the early routes of the airline and its owners, the establishment of the business and its little early success, the restyle and restructure of the business, information about the operations in 2006, information regarding the resources, information regarding risk and challenges, information about competition and competitors, and other information such as the cost reduction methods, legal enforcements from outside legal bodies, disputes with the employees and the rivalries with the other competitors and finally the future direction of the Ryan air airline and its CEO Michael O’ Leary.
The case study starts with giving us the information about the encounter Ryan air had with the Irish airline Aer Lingus. The Ryan airline had tried to purchase the Aer Lingus with the help of its stockbroker Davy but when it didn’t succeed the company had offered a price for the company to purchase. Then the case study go into explain the beginning of the company and its u turn in business in 1990. Then the next part of the case explains the Ryan air’s reputation among the passengers and the travelers and its challengers and measures they have conduct to keep the fares as low as possible with no fuel surcharges for the fares policy etc….
And then the ancillary revenues were explained and important part was given to the explanation of the operation in Ryan air from 2006. The importance they give to their aircraft fleet with the modifications and the measure they have taken to improve the employee’s productivity, problems deal with selecting routes and unfair chargers of the main airports were explained in the next pages. A major emphasis was put into relationships which the Ryan Company has with its customers, employees and competitors. The disputes exist with its cabin crews and pilots and the Ryan airs encounter with other companies and governments over unethical aids and underhand transactions were highlighted further to give an idea about the corruptions exist in the industry.
4.0 Critical Issues
Before evaluating the current situation of the Ryan Air it is much needed to understand and taken in to consideration about the Ryan Air’s vision, mission and main objectives.
Ryan air vision statement
“To become a world where the fare could drop to nothing as local communities would subsidize the airline to bring a steady traffic of business people and tourists to their region.”
Ryan air mission statement
“To become Europe′s most profitable lowest cost airline by rolling out the proven `low-fare-no-frills′ service in all markets in which we operate, to the benefit of our passengers, people, and shareholders (Ryan air Report, 1997).”
Ryan air main aim
“To firmly establish itself as low fares, scheduled passenger airline through continued improvements and expanded offerings”
Ryan air main objective
“To firmly establish itself as Europe′s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fare service.′ (Ryan air Report 2007)”
The service which Ryan air provides to the customers is differentiated form the service provides by other services such as Easy jet, Aer Lingus, Lufthansa by marginally. Thus the prices of the fares cannot be determined by individually considering the service type factor. (In Ryan air’s case the fares are at a low state as a result of no fuel surcharges) Therefore the every budget airlines maintain the profit margins by continuously affecting the cost to prosper business. According to Ryan air’s CEO Michael O’ Leary any fool can sell low air fares and loss money. The difficult part is selling lowest air fares and makes profits. Thus the Ryan air’s success is continuously decreasing the operational costs. They have conducted the following to reduce the cost in Ryan air.
In order to see the further explanation about Critical Issues please refer appendix 1
5.0 Internal environmental analysis
This part of the report generates information about the factors which are inside the Ryan air contributes for the success or failure of the organization. Generally the main task would be to identify the strengths and weaknesses inside of the organization which could strongly use for the operational process to be more thriving and also to eliminate the loop holes from the operations. At the same time this study focuses on identifying capabilities and competitive advantages for efficiently use the resources which exist in the company to maximize the outcome and profit.
The Ryan air’s survival in the business is determined by the resources (tangible, intangible) and competencies of the organization. These are helping to shape the organizations strategic sustained competitive advantage.
5.1 Strategic capabilities
This is the advantage of possessing the unique resources and core competencies to operate the organization with competitive advantage for the maximum possible success.
5.1.1 Unique resources
These are the resources with high value to the Ryan air which strongly strengthen the competitive advantage with limitation to achieve, imitate or substitute these resources.
Strategic capabilities are further illustrated on appendix 2
5.2 Value chain analysis
“The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organization. The 'margin' depicted in the diagram is the same as added value. The organization is split into 'primary activities' and 'support activities.' Also so value curve.” (http://www.marketingteacher.com/Lessons/lesson_value_chain.htm)
Value chain model has been fully elaborated more on Appendix 3.
5.3 Financial analysis
The financial analysis was conduct to find out the Ryan air’s liquidity, profitability, current assets position, outside liability position and the current market effects to the company. All the calculation conducted for the year ending 31 March 2006.
Financial analysis has been done in the appendix 4
6.0 External environmental analysis
Identifying the factors which have considerable degree of impact to the Ryan air from the external environment is the objective of studying the external environment analysis. This study evaluates the macro environmental factors and other theories such as Porter’s Diamond and globalization factors. The main objective of this part of study would be to identify and analyze the factors which could use by the Ryan air through their budget airline business towards the success and avoid the situations which exist freely in the external environment which acts as enemies of success of the airline (threats).
6.1 Macro environment analysis (PESTEL)
Under macro environmental analysis this report studies about Economic, Technological, Political- legal and Socio-cultural factors.
PESTEL analysis is fully illustrated in Appendix 5
7.0 Industry Analysis
7.1 Porter’s Five Forces model
The five forces model gives a better understanding to a manager about the industry context, competition and their abilities within the industry to have an extra edge over its competitors. The Forces model consists with Supplier Power, Buyer Power, Competitive Rivalry, Threat of Substitution and Threat of New Entry.
Porter’s five forces model is further explained in appendix 6
7.2 Competitor analysis
In today’s business environment the organizations are facing tough competition between each other to be succeed in the industry. The customers are benefited with this trend in the markets as they have the opportunity to buy a better product by going through a larger variety to select the best product for them. So the business organizations are providing products and services which are in a similar quality and physical attribution according to the preferences of the customers. As a result the business organizations not only study about their customers but also about the other businesses in the industry as well.
In this part of the competition the Ryan air is only considering the budget airline industries service providers as their main competitors. That is the all budget airline companies which have distributed their service in the European region. There are forty companies which hand their business in budget airline in this region, thus the Ryan would be studying and researching only about these companies service to adjust their service providing to customers accordingly.
Under this part of the competitor analysis Ryan air will be evaluating not only the customer preferences and direct competitors but also the indirect competition as well. Thus this would be meaning is that the Ryan air will be pointing a close eye on their passengers, other budget airline such as Lufthansa, Easy jet and other passenger non budget airline such as BA, Sri Lankan, Cathy Pacific and so on.
7.3 Gap analysis
A gap analysis is a theory which could used as a strategic plan to set a goal to achieve in the near future time thus to restructure capital, human resources, time, money in order to fill the gap between the intended objective and the current position of the company. The gap has been defined as the free space which exists between the current position of the company and the intended position in the future date. When deciding the gap analysis the step are to decide the overtime which decide the success rate of the process such as the market share achieves and then would be to identify the goals which has to set to achieve to be in the future position. The key is to close the gap between the two ends as soon as possible for that the ideal strategy would be to adjust the marketing mix strategy.
Gap analysis is described further in appendix 7
7.4 Balance score card
This is a strategy which use by organization managers as a strategic planning and management process to guide the organization’s daily work procedures and processes to align with the goals and visions which the organization is planning on to achieve near future, improving the internal and external communication and evaluating the organizations achievements and performances with its strategic goals. The balance score card use the traditional financial measures which provide information about the past event which is not adequate for the today information age, thus it creates the future values in investment of customers, suppliers, employees, technology, innovations and business processes for the business organization.
In order to refer further details about balance score card please refer appendix 8
7.5 Cultural Web
This part of the theory elaborates on the Ryan air’s organizational culture and how its role decides the performance within the organization. The culture is been identified as the way we do things around here. So the believes, values, norms and other factors which hold in the environment which determine the organizational culture and the mood of the employees. Culture become a dominant factor and get all the attention situations where the organizations undergo significant changes in organization and also when there is an ongoing processes such as a mergers or a acquisition by another organization.
Thus Johnson & Scholes came up with the culture web theory to determine the factors which inside the culture work to the success and do not work well being of the organizational performance. (http://www.scribd.com/doc/514628/The-Culture-Web)
In order to refer more details about the cultural web model please refer appendix 9
7.6 Double Loop Learning Model
This theory is focusing on organization learning. Thus when an error is existing within the organization the relevant parties analyze the situation and detect what is the problem and accordingly find a solution for the problem. This learning procedure made up with two strategies which are identified as single loop learning and double loop learning. Single loop learning model deals with exploring the situation, detecting the errors or a problems and addressing it with a new strategy or solution with the governing variables. These governing variables which are chosen goals, values, plans and rules are never get questioned, review or examined and they are get operationalized as a method of providing a solution. But in double loop it is an alternative response for the demand in the situation and questions the abilities of the governing variables and thus alters and scrutinizes the variables in order to modify the organizational learning.
Thus according to the case study in Ryan air after the company has successfully started its business in 1985 then the company had seriously restructured and restyled its business based on the American airline Southwest airline and for their onwards the Ryan air had worked its way to become the Europe’s leading airline.
8.0 SWOT Analysis
The environment comes under the scanner in order to find out the internal and external environment factors which could enhance the businesses and at the same time could be a reason to downturn of the businesses. Thus the factors are named as positive prospects such as strengths and opportunities and negative prospects such as threats and weaknesses. The challenge would be to achieve the success with positive prospects and using the other negative prospects as a support to convert success into very high achievement.
SWOT analysis is explained further in appendix 10
The company needs to highly focus on customer preferences and they should take imitate actions to satisfy particularly consumer’s basic requirements.
The company should improve the ethical behavior and they need to be more responsible regarding social responsibility activities.
Ryan Air needs to concern highly about rules and regulations enforced by the EU and the local government.
The company should provide much better working environment for the employees of the airline.
Ryan air should avoid anticompetitive activities when they operate their business.
At the conclusion of this project my primary goal was to carry out strategic management analysis of the airline industry in Europe, evaluate the business strategies, performance, management functions, capabilities, future capabilities, success factors and the failures of the Ryan Air Airline company and propose relevant recommendations for the Ryan Air in order to be the market leader in the budget airline industry in Europe. As a secondary analysis of the case study, international marketing, operations management and business ethics are to be discussed with relevant examples.
When it comes to this case this case has given more details about success story of the Ryan air since its inception. It has further explained the main elements, Ryan air’s business dealings and the challenges that they have faced during last two decades. Apart from that case is rich of comparative data regarding Southwest Airline and other several newly established European budget Airlines. Case is consists with the relevant data about the Ryan Air’s resources and the capabilities. Finally it states the important strategies and the expected future movements.
This project had provided me ample opportunities to study about the budget airline industry and the theories which explain about the competition, management structures, internal external environment and organizations competitive advantage.
At the end of this project the knowledge gathered and studied will be used as an assortment of experience and quality information for the people and students want to study about this part of the knowledge and industry and thus I am glad to contribute them for the success of their studies.
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Wade, M. and Hulland, J., (March 2004), “The Resource-Based View and information Systems Research: Review, Extension, and Suggestions for Future Research”.
Retrieved April 8th, 2010, from the web site; http://www.ryanair.com
Retrieved April 12th, 2010, from the web site; http://www.scribd.com/doc/514628/The-Culture-Web
Retrieved April 15th, 2010, from the web site; http://www.marketingteacher.com/Lessonstore.htm#marketing_environment
Retrieved April 8th, 2010, from the web site; http://www.marketingteacher.com/Lessons/lesson_value_chain.htm
Retrieved April 8th, 2010, from the web site; http://www.marketingteacher.com/Lessons/lesson_fivefoces.htm
Retrieved April 5th, 2010, from the web site; http://www.marketingteacher.com/Lessons/lesson_gap_analysis.htm
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