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Ryanair Holdings is Europe’s leading low-fare scheduled passenger airline, carrying roughly 34 million passengers per year, across 19 countries (Ryanair, 2006). The company operates short-haul, point-to-point routes between Ireland, the UK and Continental Europe, and the company’s leading market position provides the company with the ability to leverage its market position to further expand its operating network: a key part of its current operating strategy. However, the predicted decline in the domestic European air travel market (Global Market Information Database, 2005) is likely to decrease the demand for the company’s services and thus harm its resultant revenues, and so the other key aspect of the organisation’s strategy is to reduce its exposure to these external threats. (Johnson et al, 2005). Hence this work aims to examine the interplay between these two strategies, critically analysing both their current, and potential future, success.
Leveraging market position to drive revenue
Ryanair has the leading market share on most of scheduled routes between Ireland and provincial cities in the UK, carrying approximately 43% of all scheduled passenger traffic between Dublin and London. Additionally, the company has more than 45% market share on scheduled routes from Dublin, which include London, Manchester, Glasgow and Edinburgh, and London, which include Venice, Rome, Milan, Hamburg, Valencia and Gothenburg, as of January 2005. (Datamonitor, 2005) Ryanair has also been voted as the airline with the best punctuality highest frequency which, combined with the company’s leading market position, provides the company with the ability to leverage its market position to further expand its operating network.
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Ryanair has also been reporting strong revenue growth since fiscal 1999, and the company reported revenues of 1336.6 million Euros during the fiscal year ended March 2005, an increase of 24.4% over 2004. (Ryanair, 2006) The increase was primarily attributable to an increase in passenger volumes, which increased by 19% over 2004, and the company’s revenues increased at a compound annual growth rate of approximately 28.6% from 1999 to 2005, despite the overall fall in air travel during that period (Global Market Information Database, 2005). Additionaly, Ryanair’s net income increased at a compounded annual growth rate of 29.1% from 1999 to 2005. Thus, the company’s strong consistent financial strength provides its operations with financial stability and the ability to fund its expansion strategies.
Ryanair thus has an extremely strong and aggressive business strategy, which is focused on its objective to firmly establish itself as Europe’s leading low-fares scheduled passenger airline. The company offers low fares designed to stimulate demand, particularly from fare conscious leisure and business travellers. (Ryanair, 2006) The company favours secondary airports, as they are generally less congested than major airports and can be expected to provide higher rates of on-time departures: the company can thus achieve faster turnaround times and fewer terminal delays and gain competitive handling costs. (Datamonitor, 2005) The strategy has enabled the company to have a better ‘on time’ performance record, than its bigger competitors. In addition, Ryanair enters into agreements with third party contractors to handle passenger and aircraft handling, ticketing and other services, and the company fixes its contracts on competitive terms by negotiating multi-year contracts, at prices that are fixed or subject only to periodic increases linked to inflation. Ryanair’s strong business strategy thus enables the company to synchronize its operational strategies in accordance with the market requirements, thereby enabling the company to maintain a cost effective business strategy.
Hedging against external threats.
Crude oil prices are at an all time high: in March 2005, light crude oil prices climbed to $55.40 per barrel after peaking at $56.1 per barrel. Additionally, jet kerosene prices have increased by over 80% from 2004. In order to protect their operations from significant volatility, airlines have fairly robust hedging positions, as the volatility in oil price and availability of jet fuel significantly affects operations. Although its European competitors have traditionally been sufficiently well hedged against volatile oil prices, Ryanair has always been unhedged. As of April 2005 the company was not covered by any hedging protection against oil prices however, as of November 2005, Ryanair hedged 90% of its estimated demand for the second half of its fiscal year, at prices corresponding with oil averaging $49 per barrel. Part of the carrier’s strategy is now to build hedges forward, and its financial prowess means it has the cash position to succeed. (Fiorino, 2005)
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The company’s revenues are also highly dependent upon revenues from the UK and Irish market: historically the company has generated over 50% of total revenues from the UK. For fiscal 2003 and 2004, passengers on Ryanair’s routes between Ireland and the UK accounted for 35.9% and 28.6% of total passenger revenues respectively, with Dublin and London accounting for approximately 13.4% and 10.7%, respectively. Additionally, total passenger revenues, and the Dublin-London route accounted for approximately 7.6% and 6.0%, respectively. (Datamonitor, 2005) The company’s dependence on Ireland and the UK, could significantly impact the company’s revenues due to regional factors, and thus although Ryanair is also attempting to increase its market share as a whole, it is specifically attempting to do this into more diverse areas, such as Eastern Europe, in an attempt to reduce its exposure to the demand changes in the UK and Irish market.
Ryanair’s primary business strategy has always been to fly as many passengers at as low a cost as possible (Ryanair, 2006). Despite the fact that passenger numbers are generally not increasingly significantly (Global Market Information Database, 2005) and the fact that Ryanair has been forced to divert some of its resources to hedging, due to market conditions (Fiorino, 2005), this strategy still forms the core of the airline’s business model, and is often viewed as the company’s core competence (Johnson et al, 2005) Given that revenues, profits and passenger numbers have soared over the past few years, despite the uncertainty in the external environment (Datamonitor, 2005), this analysis concludes that, not only are Ryanair’s current strategies hugely successful, but they will continue to be for the foreseeable future.
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