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This coursework is carried out to analyse the strategies used by Ryanair and its cause and effects on its customers and other competitors in the aviation sector. This report starts with the importance of strategy in a broad spectrum and how this is used by Ryanair to create a podium for its success and growth in formation of its future. Porter's Generic strategy, Bowman's Strategic Clock, Porters Five Forces theory, PEST Analysis are the tools being used in this research to analyse the theory and how its being practically being used in by Ryanair, which gives them a competitive advantage in the market by focusing on the low-cost airlines, which is the heart of Ryanair and where the customers get worth for their money.
Strategy is the flow of resources and scope of an organisation for a long-run. So, it is a plan of action framed out to attain a particular goal and objectives. This has its birth from military camps, where they plan strategies in attacking the opponents and defending themselves. So, the strategy helps in identifying the current position of an organisation and plans for its future where it wants to be after a certain period, and how to get there, using certain steps and actions, which also frame out the mission and vision statements of the organisation. Vision of an organisation is the point where it wants to stand or what it focuses to achieve, where it reflects its values and aspirations which extends to the minds and hearts of its employees and its stakeholders. "The vision is the foundation for the firm's mission. A mission specifies the business or businesses in which the firm intends to compete and the customers it intends to serve" (Hoskisson, R., 2008, p. 18)
Aim and Objectives:
The main aim and objectives of this coursework is to find the strategies that are being established in Ryanair Airlines, in comparison with its rivals including British Airways and Lufthansa in Europe and how it uses the Porters strategies in identifying the competitive advantage over others to be a market leader and increase their market share. The PEST analysis helps to identify the external opportunities and threats that come out in their way.
What is Strategy?
Strategy focuses on low-cost leadership, diversification, flexibility, mergers and acquisition, product leadership, integration, differentiation, so on and so forth. So, these means that strategy focuses on moving the organisation from the current stand to an higher level using the above mentioned techniques. The supply chain and the product life cycles also place a major role in identifying and fixing the strategies. The Japanese philosophy of "Kaizen", encourages all bloods of the organisation to focus on continuous improvement to increasing the operating efficiency of the organisation, (Harvard Business School, 2005).
Growth Responsibility Low-cost
This figure shows that Achieving leadership is the vision of Ryanair by following the strategies of being Low-cost airlines, taking up responsibilities, and growing in the competitive environment.
DELL uses Low-cost strategy by avoiding intermediaries, Franchising, Physical stores, etc, to reduce their operational expenses, which gives the products at a low cost, being a cost leader in the computer sector.
Apple uses its Quality strategic option to differentiate it from other products in the relative industry.
Ryanair uses Low Cost approach to achieve market share.
Comparison of Ryanair and British Airways strategies
Ryanair has been operating in the industry for the past 23 years, in which it has not 'had any major incident injuring passenger or its crew. So, Ryanair is committed to safe operations, using safety equipments and safety training, which has been approved by Irish Aviation Authority (IAA), which periodically audits operations control standards and crew training standards compliance with JAA requirements.
British Airway's Profile:
British Airways has been in the industry since 1910s, which has started its first route in 1919 between Le Bourget - Honslow. Since then it has increased its routes and expanded over time, as the small airlines faces huge competition from French airlines which has been taken as opportunity by British Airways where it acquired the small airlines to expand its operations, and compete with big rivals. British Airways aims at providing high customer satisfaction and high quality service, in terms of comforts, services, food, etc. British Airways buys aircrafts from both Boeing and Airbus with variety of models. BA has faced economic problems since the September 11 attack at US, which has been changed during 2003, where 38 millions passengers used BA's 237 aircraft, where the major income came from its "First Class", and "Business Class", seats.
Strategies used in Aviation Industry:
Aviation industry is one of the major service sector industries where the globalization has seen its real usefulness through them. So, there exist a highly attributable works in this sector to compete with each others and provide good services in terms of luxury, safety, speed, flexible and customer focused and friendly. European aviation industry is one of the worlds most highly active sector, as the global hubs like Germany, France, United Kingdom, United States are at its heights in dealing their financial markets. This has become more advantageous as well as opportunity for the aviation industry to grab them. So Alliances, Spin-offs and Cross-Holdings are some of the major strategies used to gain competitive advantage over others.
Strategy of Ryanair against British Airways:
British Airways (BA) is the nation's flag carrier airline of United Kingdom, and it's the biggest airlines in its fleet size, international destinations, and international flights. BA was formed by merging two major London-based airlines British Overseas Airlines Corporation (BOAC) and British European Airlines (BEA), and two smaller airlines, which made it as biggest Airlines, which was privatised during 1987 and floated its shares in London Stock Exchange. British Airways is a major client of Boeing and Airbus, which operates major long haul fleets and most expensive and biggest fleets in the world. Till 1984 it was very successful, after which Virgin Atlantic has shared its market and eventually the entry of new budgets airlines including EasyJet and Ryanair has taken it completely down. Ryanair on the other hand has entered the aviation market to compete with others including British Airways since 1985. Ryanair operates Boeing 737-800 across 850 routes in Europe and Morocco and gained as the third largest airlines in Europe in terms of passengers' number, which was gained in terms of passenger numbers. The short haul airlines, Ryanair over take its rival Long Haul airlines, British Airways, by using its strategies to increase the passenger numbers.
Area of difference
Public and being Privatised
Low congested Airports
City and Business Airports
Many varieties of both Boeing and Airbus
Europe and Morocco
Smallest having 202 fleets with 189 seats each.
Largest and leading in size with 231 fleets of various models and capacity
First class / Business Class / Economy Class
Customer focus and luxury
Increasing over period
Increasing with a low pace when compared to Ryanair
Strategic future plans
Increasing fleets and seats by reducing toilets
Making the seats absolutely free
Introducing Long Haul and Business class
Taking opportunities abroad than Europe
Increasing the services and being quality oriented
Improving the services offered and taking more mergers
Increasing Business class seats and facilities
Comparison of Ryanair over its rivals in the sector including BA
Porter's Generic Strategy
Michael Porter gave this strategy during 1980s, which is very useful even at the current economic situation. This strategy gives an organisation an option to achieve a sustainable competitive advantage over its rivals. So, the Generic Strategy proposed by Porter depicts three sources,
Are the products differentiated from others in the same sector
Is there any focus group or market segment
Are the products are offered at a cheap and competitive price.
Porters Generic Strategy Model
Michael Porter has given the above strategy which stated that to gain competitive advantage an organisation has to use any one of the strategy which will differentiate them from others in the industry.
1. Cost Leadership
Cost Leadership is the strategy with the low cost market leader gains advantage over others by offering cheap deals for their products and services, which is being used by Ryanair as its major principles of leading the market over its competitive low fare deals. Ryanair's low fare strategy stimulates demand in the market, for its services, and those who are fare-conscious leisure and those who never travelled on flights. Ryanair uses to sell one way basis which reduces the minimum stay requirements, wherein its competitors like British Airways, Air France do not operate one-way pricing method, which makes them a market leader of cost.
Differentiating the goods and services to satisfy the customers which has been offered from those of others gives a competitive advantage. This gives firms to concentrate on quality, service, timeliness, safety generating higher revenue and a better margin. So, this requires good market understanding and segmenting the target market to differentiate the services from others to make it selling. This is incur additional costs in differentiating a particular service with others service. Ryanair has distinguished its services with its rivals including BA in terms of punctuality, where the reports from the Association of European Airlines and statistics has shown that Ryanair has achieved better punctuality, fewer cancellations, no crashes and injuries, and very few lost baggage, and reducing the flight turn around time, with a record of 25 minutes which makes to "Sweat their Assets".
3. Focus or Niche Strategy:
The focus strategy also known as 'Niche' Strategy, which means an organization will focus on a particular field or area of business to reduce unnecessary waste of costs and time to focus on particular segment or focus on particular strategy. Ryanair focuses on low cost which is the "Heart of the Airlines". Aircraft fleets are being purchased which is of 11 to 17 years old and Ryanair buys only Boeing 737-800 which focuses on less training and availability of trained staff on board.
Bowman's Strategic Clock
Cliff Bowman has given the Strategy Clock to analyze competitive advantage by comparing over its rivals. Similar to Porters Generic Strategy, Bowman uses cost advantage and differentiation advantage strategies.
Bowman's Strategic Clock
The Bowman's Strategic Clock posts many strategic points at each point of the clock.
Low price and low added value where the market is segmented.
Ryanair uses Low-price Strategy and it segments its market with the economy class travellers and those who are price conscious, where luxury doesn't matter.
Low price and low risk of price competition with low margins.
Ryanair uses this as its heart of the business.
Hybrid were investment and reinvestment is more on low priced goods
Ryanair uses Hybrid strategy in purchasing its fleets, which were 11 years to 17 years old reducing the cost of new fleets.
differentiation without any price premium or with premium
Ryanair gives the seats at a really low price and charges for other services like food, drinks and usage of toilets on the aircraft which makes it so different with other airlines.
Focussed differentiation on a 'particular segment'
This strategy is used in terms of its segment were Ryanair focuses on regular travellers who doesn't take any baggage and uses only seat.
Higher price and higher standard
Ryanair being a short haul airlines, has a strategic plan of entering into luxury and long haul airlines, where business class will be very expensive and economy class will be very less. Even there will be Strip poker games, snooker, blowjobs, etc for business class, as mentioned by its CEO Michael O'Leary.
There is no monopoly situation for Ryanair, which was the once a monopoly market for British Airways, which has been a competitive market after Virgin Atlantic, Ryanair, Easy Jet entered the market providing the services in a better way.
Standard Price and low value
British Airways has lost its market share in terms of passenger numbers and market value as Ryanair being more competitive wherein BA follows the standard price strategy.
Porter's Five Forces
The concept of pure competition implies that the risk and returns over the industry would be around the same levels. However, some studies affirm that different industries sustain at different levels, wherein the industrial structure is very important. Michael Porter has framed a model stating various forces influencing the industry, which is known as Five Forces model.
Porter's Five Forces Analysis
Competition between rivals drives profits to zero, and competition is not perfect at all times. Firms strive to take competitive advantage over their rivals to out perform others to get profits, and strategic analysts are much interested to know this difference.
Ryanair has its rivals from various other airlines including British Airways, Air France, Lufthansa, Easy Jet, etc, where the competition between them is so high which makes the firms to keep up their prices more closely the same, in order to strive in the market.
Threat of Substitutes
In this model, Porter has given importance for substitute products in the same industry, as the substitutes take makes share in the profits and business. So, the elasticity of the products is affected by substitute products, as more substitutes are available the demand for other products reduces, and the demand becomes more elastic since the alternative increases.
Ryanair has substitutes from other short haul commuting like railways and bus where Virgin trains has been using its first railway coaches to substitute with airways which provides short haul flights. So, the availability of substitutes makes the demand for airways seats more elastic.
The buying power of the customers have an impact on the products and this impacts the price to be charged for the products and services. So, if the economy is monopolistic, the seller has impact on fixing the prices of goods and services.
Ryanair has no monopolistic advantage and it has perfect competition from other airways, and the buyer has impact on the prices fixed by Ryanair. So, the buyers have impact on the management while fixing prices for their services.
The firm requires raw materials like labour, supplies, components, etc, where the relationship between the buyer and supplier is very essential in carrying out the business in a smooth way.
Ryanair has its suppliers including Boeing, Airport authorities where the services of them are much essential to make their strategies as planned by the management.
Barriers to Entry
The possibility of new firms entering into the industry affects the competition and pricing strategies of other operating firms. So, the globalization and privatisation has given free entry for all firms. However, industries which has high impact on the market will protect rivals entering into the market.
Ryanair has no impact on protecting the rivals entering into the industry. Ryanair being small developing airlines has no more impact on protecting the rivals in entering the firm.
Ryanair's position in Porter's Five Forces strategy:
So, Ryanair has its place in focusing on the five forces revolving around the industry as to operate smoothly. Ryanair plans its prices, and its services according to the five forces. Hence, the strategic team needs to analyse all these factors before planning any strategy plans.
The external environment of the firm is very important to operate as the environment has their impact on the industries in that society. So, the PEST environment has impact from several views on Ryanair. Hence, the PEST environment means,
ÂÂPolitical environment includes the government rules and regulatory issues under which the firms operate. So, it is very important for the firms to follow the rules and policies set up by the political factor, which is outside the control of the organisation. Hence, political factors includes the following items, like
Rules and regulations
Ryanair has to comply with the political rules and regulations including the tax policy surviving in the environment as to make it going concern, as the ruling party or the political party governing the country have their impact on the functioning of any industry. The airport under the control of the government levies airport charges which are not controllable by airlines and they have to pay as fixed by the Airport Authorities.
The economic factors which has a direct relationship with the purchasing power of the customers and the cost of capital for the firm. So the economic growth, change in exchange rate and interest rates and inflation, has their impact on the demand and supply of goods and services. Economic factors are outside the control any particular industry and it times default in one industry affects the economic conditions for the other industry, like the economic crisis in financial sectors during 2008 affected all industries.
Ryanair has been affected due to economical shirk caused by financial sectors during the 2008-2009 crisis.
Social factors are the demographic and ethical culture of the macro-environment, including the health and safety issues, ageing population, attitudes and population growth rate.
Ryanair considers the safety and maintenance issues as one accident or lose of baggage will reduce the reputation of the airlines.
Technological factors reduced the barriers to entry for many sectors and increased competition and quality by providing choice to customers. The Research and Development activities, automation and related services through internet has increased the opportunities and threats for all sectors.
Ryanair has taken advantage of the internet service by avoiding booking agents by creating their own domain website to book flights and hotels. The usage of Flightspeed system, an agreement with Accenture Open Skies, which is used to book and pay for confirmed reservations.
To conclude, Ryanair uses its strategies based on famous strategists and builds its success through Ireland and UK operations expanding to Europe., where it targets specific markets. It is analysing the opportunities in routes, frequency of its operations, creating domestic routes, acquisition of other small airlines and economic ways. So Ryanair strategies are paying back them.