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Every organization is unique in the way they carry their operating their businesses. Corporate strategy is what makes the corporate whole add up to more than the sum of its business unit parts. It is seen to be concerned with the overall purpose and scope of the organization and to meet the expectations of major stakeholders.
This project has been done on Ryan Air and it has been asked to critically analyze the macro environment and the internal environment using the appropriate technical tools to get an effective report. This report includes the most important theories used in the course of this report will be explained with reference to diagrams attached in the appendix for better understanding.
All aspects of Ryan air's value chain are important to the company and their shareholders as Ryan air's decisions add value to both. The following report outlines the two important factors influence the organization they are internal and external environment. The internal analysis has outlined by using Porte's five forces model and the external analysis done by using PESTEL analysis and Porte's Diamond analysis.
The necessary issues has been addressed and discussed and we believe we have done the justification to this report.
Ryan air initiated it operation in year 1985 with only 57 staff members and with one 15 seated plane from the south of east of Ireland to London-Gatwick which carried 5000 passengers on one route. In the beginning their cost structure and controlling is not good therefore they couldn't reach the top. But now it has become the market leader with the different team of working force with the CEO Michael O' Leary and with the unique strategy.
It is the World's preferred airline with 41 bases and 1100+ low fare routes across 26 countries, linking 153 destinations. Ryan air operates a fleet of 232 new Boeing 737-800 aircraft with solid orders for a further 82 new aircraft which will be transport over the next 2.5 years. Ryan air at present has a team of more than 7,000 people and anticipate carrying approximately 73 million passengers in upcoming years.
Their mission is to become Europe's highly profitable low cost air line with no frills. Vision of the CEO is making Ryan air used by all categories of people at low cost. Their objective is to develop themselves and expanding.
As a consultant firm we have provided a task from Ryan air to research on internal industrial and external research behalf of them to create new strategies in the future and to eliminate their weaknesses.
3.0 Critical Issues
Ryan air implement diverse marketing strategy to make the company survive in the competition and to be able to gain competitive position in the airline market. And because of the strategy of the industry, Ryan air is now recognised as the second largest airline in United Kingdom and Europe's largest low-fares airline having a network of over 57 routes in 11 countries and served by a fleet of 31 Boeing 737-200 and -800 aircraft with over 1,400 staffs and personnel.
Although the company had reached a massive level of profit and growth in the low cost sector it is encountering some issues regarding the decreasing level of customer satisfaction, lack of training provided to the employees, uncertainty of the price of fuel and the nature. Even though they are providing cheapest price for the passengers but they are ethically gone back in the mind of customers. Ryanair has eliminated extras such as in-flight meals, advanced seat assignment, free drinks and other services, but still these features are important to its target market.
Recently the European Air Lines Industry was severely affected due to the ash of volcano spread near Europe. This is a threat to Ryan Air because they are providing service only to Europe Countries.
Ryan Air should be aware of the above problems and implement new strategies to overcome those issues.
4.0 External Environment Analysis
Establishing a sustainable marketing strategy for Ryan air means to plan for its future. To plan the future one has to recognize the present in a broader perspective. Here the environmental analysis, which identifies the internal and external factors of the particular environment an organization is operating in and transform it into useful plans and decisions . The environmental analysis gives Ryan air the chance to spot the main parameters affecting the industry it is operating in and to find its opportunities and capabilities.
If we see the life cycle of Ryan air, it is in the maturity position. This explains they are earning the huge amount of profit and high amount of sales at this stage. The next level in the product life cycle is declining therefore Ryan air should be more focus on adapting or creating innovative strategies to overcome their declining stage.
Next in the Ansoff matrix model Ryan air is in the penetration stage which means they are in the existing product in the existing market. Ryan air has adopted differentiation strategy according to Porter's generic theory. They are the leaders in their low cost market.
Here we are going to focus the six factors based on the future how they are going to affect or support Ryan air.
Here we are going to analyze the political factors affect Ryan air. The payment charged by the government for the rout increases it will affect, and the laws such as the law of carbon emission to airline industry, compulsory security measures and change in government policies and procedures will definitely affect the industry. Increase in tourism will support Ryan air.
Increase in the rate of GDP, high price ceiling of petroleum products and fuels, unemployment rate and depreciation of dollars and uncertainty of fuel price will be a negative impact to Ryan air.
Increase in business travelling, the change in life style, disposable income increases will react positive towards Ryan air.
Environment related issues such as carbon emission, global warming will impact negatively.And the recent issue of ash of volcano spreading is a massive problem to the industry.
Internet competition being increase then the competitive advantage of Ryan air the online booking will be used by others as well. Then the standard of suppliers product will be increased means Boeing will supply high efficiency of fuel and less noise pollution aircrafts. At the same time other transports also will be highly technologised with the fuel efficiency. This will be a threat to the industry.
To protect the consumers Government may establish laws related to the security charges and consumer protection laws. It will impact negatively.
4.2 Strategic Drivers
Strategic Driver means the critical factor that determines the success of the organisation. Here we have found the drivers of Ryan air which factors made their company successful. Their main factor put them towards the success is cost reduction strategy.
Such cost reduction strategy relies on five main aspects like fleet commonality, contracting out services, airport charges and route policies, managed staff costs and productivity and managed marketing costs. In terms of fleet commonality, the company used only one kind of plane which limits the cost for staff training, maintenance services and facility of obtaining spares, facility in scheduling aircraft and crew assignment. With their purchase of aircraft Boeing 737, Ryan air has been able to gain capacity and reduces the average age of fleet which means savings on maintenance costs and avoiding the fit of European Union-conform equipment on old feet.
The next factor under the cost reduction strategy of Ryan air is contracting outsourcing. In this manner, aircraft handling, ticketing, handling, maintenance and other functions are outsourced by Ryan air to third parties.
Another factor for the cost reduction strategy of the company is in terms of airport charges and route policies. Managing staff costs and productivity is another factor used for reducing the cost for Ryan air. At the end, managing marketing costs is another factor that makes the company decreases it costs. Ryan air advertises mainly on it website with its logo “Ryanair.com, the Low-Fare Airline”.
5.0 Industrial Competitor Analysis
This is the analysis to acknowledge the competitiveness of Ryan air.
5.1 Michael Porter's Five Forces Analysis
As Porter's 5 Forces deals with factors external of an industry that influence the nature of rivalry within it, the forces internal environment that influence the way in which firms compete, and so the industry's likely profitability is carry out in Porter's five forces model. A business has to be aware of the dynamics of its industries and markets in order to compete successfully in the marketplace. Porter has defined the forces which drive competition, challenging that the competitive environment is created by the relations of five different forces acting on a business. Porter suggested that the passion of competition is determined by the relative strengths of these forces.
Here we have analyzed Porter's five forces model to Ryan Air to understand their position as well as their competitiveness in the market.
Bargaining Power of Suppliers
- Boeing is Ryan Air's main suppliers
- Restricted number of suppliers in the market therefore they can fix the price.
- Switching costs from one supplier to the other is high because all mechanics and pilots
would have to be retrained.
- Price of aviation fuel is directly related to the cost of oil (Ryan air controls these through
- Local Airports have little bargaining power as they are heavily dependant on one airline.
- Bigger airports, where Ryan air's competitors operate, have greater bargaining power but
Ryan air's policy is to try and avoid these airports.
Bargaining Power of Customers
- Customers are price sensitive
- Switching to another airline is relatively simple and is not related to high costs(Internet-all
airlines are online)
- Customers know about the cost of supplying the service and nowadays most of the customers are losing loyalty.
· Difficult to enter in the market because more legal procedures should be followed to enter in the market.
- High capital investment
- Restricted slot availability makes it more difficult to find suitable airports.
- Need for low cost base
Threat of Substitutes
· No ‘close customer relationship'
· No switching costs for the customer
· Other modes of transport, e.g. fast trains and cars
· Highly competitive market
· Most cost advantages can be copied immediately
- Low levels of existing rivalry as the two major low-cost airlines have avoided direct head to head competition by choosing different routes to serve
- Compare to the competitors price is the main factor being differentiated other services are same.
6.0 Internal Analysis
This is to analyze the Ryan air's internal growth and the perception of the employees.
6.1 Value Chain Analysis
As Ryan air's low cost approach leads to go beyond value chains, the company is an ideal example of connecting its opportunities. From a Value Based Management point of view, Porter's Value Chain framework can be seen as one of two dimensions in capitalize on corporate value creation, exactness how well a company performs relatively towards its competitors. Even Ryan air subscribes to a similar basic model compared to e.g. easy jet; the airline has completely dissimilar value chain. Ryan air's low cost/price approach adds value to most of Ryan air's processes, e.g. clear corporate identity and brand image in addition to limited organizational complexity, increasing the differentiation towards their competitors. Ryan air maintains their efficient, high quality and low cost services through operating from secondary airports and by make use of the advantages of outsourcing, a strategic management model, shift the business processes of services to outside firms, e.g. passenger and aircraft handling, ticketing. The picture below explains the value chain of Ryan Air.