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“Ryanair does not publish a formal vision or mission statement, but in accordance with Jack Welchs advice, “Strategy, then, is simply finding the big aha and setting a broad direction…” Michael O’Leary’s broad direction, communicated in public statements, is to simply continue to be the largest Low Cost Leader in the European airline industry and to carry 73 million passengers in the fiscal year 2010/11. Implementing this vision is a function of many individual tactics, including an absolute dedication to low cost performance in every element of the value chain, quick gate turnarounds, nonunion operations, performance-based incentive compensation plans, standardization on one type of aircraft, and flying (in most cases) to secondary airports, which provides significant savings for Ryanair.”
The objectives and structure of this report will consist of four main sections which will enable a strategic direction to be recommended to Ryan air:
To research in to the current strategic position of Ryan Airways.
To critically analyse Ryan Airways’ internal and external environment.
To design a selection of strategic options utilising the internal and external analysis
To evaluate the most appropriate option for Ryan Airways and discuss implementation
1.2 Company Overview
As everyone in this world prefer for the low cost airlines and many airlines do have adopted this strategy and have been a boom. In bigger markets, premium airlines have the disadvantage over the low cost airlines are that premium airlines will never get their costs to a point where they can make a profit at low fares. One of these low cost airlines is the Ryan Air which is an Irish airline company and the first low-cost airline.
In July 1985, Ryanair has started their operation between Waterford in the southeast of Ireland and London’s Gatwick airport. Catlan, Declan and Shane Ryan are the three founding shareholders of Ryanair. The basic idea was to offer low-cost no-frills services between Ireland and London. Now, Ryanair have made their position in its own field, being “Britain’s favourite airline”. Ryan air currently has a team of more than 7,000 people and expects to carry approximately 73 million passengers in fiscal year 2010/11.
1.3 Current Strategic Positions:
The strategic position of any organisations is evaluated by certain factors which are included below along with the environmental analysis which will be followed later.
1.3.1 Market Segmentation:
To the market segment Ryan Air claimed that they were ‘Europe’s first no frills airline’. Due to their increasing competitive edge, Ryanair made the strategic decisions to attract customers at both ends of their routes. Haberberg and Rieple (2001) supported Ryanair by enticing passengers from France, Italy and Scandinavia. This had increased their market share as well as added the bonus of creating a well recognised brand name across Europe.
1.3.2 Prescriptive, Emergent or Something Unique?
“Where the objective has been defined in advance and the main elements have been developed before the strategy commences is a prescriptive corporate strategy where as an emergent corporate strategy is one whose final objective is unclear and whose elements are developed during the course of its life, as the strategy proceeds”. Lynch (2000)
As is shown above by Lynch (2000) the two recognised strategy models are extremely different, however these are the two dominant strategy approaches as stated by Dennis Foster in his lecture on Managing Strategic Change (2006).
So it is safe to recognise that Ryan air does not follow either of the strategy. As a whole, however certain aspects or functions make up the carrier but for an organisation of Ryanair’s size different parts would have different aims and objectives underneath a main umbrella strategy for the organisation.
For example, Ryan air would follow the prescriptive model for any planning undertaken for the new routes or planes as the objective would have been defined beforehand and elements such as finance will have had to have been agreed before any purchasing goes ahead.
On the other hand the training and development will follow the emergent strategies where elements can be discovered along the way for example if staff needed more health and safety training then the training programme could be redirected.
The Ryan air as already stated follows neither of the strategic approach religiously but possesses a strategy which is unique to their organisation, which has identified their needs and objectives. However their approach to strategic management isn’t unique in itself as the majority of organisations will tailor strategies to suit their business’ own individuality.
1.3.3 Competitive Advantages:
As the number of low-cost carriers has grown, these airlines have begun to compete with one another .The main competitors of the Ryan air are carriers including Easy Jet, BMIbaby, Fly Be and Thomson Fly who by emphasising their low cost tickets try to attract potential customers. This makes the competition in this market segment fierce as in order to offer the lowest fares, costs must also be kept to a minimum.
Despite the presence of other low cost airlines in Europe, Ryan air continues to maintain its leadership of the lowest cost airline in Europe. The advantage of this company is its ability to drive down the cost as lowest fares at the same time are profitable. This is done through:
The airline’s fleet uses the single type of aircraft made up of Boeing 737, which reduce the training and servicing cost. This type of aircraft is commonly used.
Contracting Out of Services
To reduce their costing and providing good customer service, Ryanair contracts out of services like baggage handling, ticketing, aircraft handling, and other functions to third parties. But firm have maintained their staff and services on the Dublin Airport, this is the exception. By doing contract out of services, company is able to obtain competitive rates and multiyear contracts at fixed prices, limiting exposure to cost increase. It also helps Ryanair’s to employee responsibilities and potential disputes.
As the airport includes landing fees, passenger loading fees, aircraft parking fees and noise surcharges so in order to reduce this Ryan air flies to many regional or secondary airports in a point to point model rather than traditional model. This model will further allows the airline to offer lower fares due to the lower landing and handling costs.
Staff Costs and Productivity
A performance related pay structure was followed by the firm in order to control employee compensation costs although the company provides lower labor costs, but based on their performance the employees can earn additional pay.
Ryan air uses newspapers, radio, television and its website as their main advertising tools and reduces the market cost by cutting the rates on commission to the travel agent.
2.0 External analysis:
The external environment awareness is necessary for the success within the airline industry, this section aims to highlight the position of the industry, in particular looking at competitors and assessing Ryan’s capability to meet current and future challenges.
2.1 PESTLE Analysis
PESTLE analysis means analysis of Political, Economical, social, Technology, Legal and Environment factors. These are the six main macro external factors. We can examine these factors in order to realize Ryanair’s future external and opportunities.
Implications for RYAN
Heavy regulation (AEA, 2009).
Compliance is essential if Ryan wants to continue operations.
Increased security due to past terrorist threats (DFT, 2008).
Sufficient security measures should be in place to ensure consumer confidence and competitive advantage is maintained.
Global economic crisis:World growth is projected to just over 2 percent in 2009 (IMF, 2008). Pound weakens especially against the Euro.
Possible reduction in the amount of business travel as companies are cutting costs and using alternative means of communication such as teleconferencing.
Oil prices: declined by 50 % since their peak retreating to 2007 levels. Decline in fuel price = strengthening of the dollar (IMF, 2008)
Fluctuations in oil prices and exchange rates will directly affect Ryan’s cost base.
UK consumer spending saw its sharpest decline for 13 years between July and September 2008 (Channel 4, 2008).
More intense competition
The UK has an aging population (see appendix 3) (National Statistics Online, 2008).
Potential opportunity for growth as older generations hasmore time to spend on leisure activities such as international travel.
Increasing unemployment (Kollewe and Sager, 2008).
Increased bargaining power as an employer.
A recent survey revealed that 34% of online consumers plan to use price-comparison sites more in 2009 (NMA, 2009).
Increased consumer awareness and therefore bargaining power.
Online booking services and check-in is becoming increasingly used by the airline industry.
Ryan must ensure that they remain up to date with these technological advances whilst avoiding becoming overly reliant, as this may isolate certain consumer markets (i.e. the elderly) who don’t feel comfortable using such technology.
Noise pollution controls,and energy consumption controls (DFT, 2008).
New legislation (e.g. Climate Change Bill) enforcing tighter environmental regulation may increase operational costs each year.
Limited land and for growing airports – Expansion is difficult at Heathrow as it would result in a loss in the London’s Green belt area. (BBC News 2006)
Limited capacity=>utilization of capacity.
Consumers are becoming increasingly ‘green’ and more aware of the environmental impact of their actions.
Failure to adopt an integrated environmental strategy could lead to a detrimental effect on the Ryan’s reputation and income.
Cancellations of flights and loss of baggage (Channel 4, 2008).
Such ethical issues could have a detrimental effect on reputation if left unresolved.
Recognition of trade unions and industrial action e.g. Cabin Crew strikes.
Good employee relations are essential if Ryan wants to avoid industrial action and interrupted operations.
Open Skies Agreement (AEA, 2009)
Opportunity for Ryan and its competitors to freely transport aircraft between the EU and US.
In the airline industry, competition is very cruel especially after credit crunch in 2008. Due to recession companies are struggling to maintain their position as well struggling to survive in the airline industry. But we can also see these threats into opportunities. Ryanair has converted these threats into opportunities as becoming the most suitable company to gain advantages in the airlines industry. So this is one of the answers to the questions related to their future strategy and their position’s of the future competition
2.2 Porters Five Forces
The main characteristics of the low cost airlines companies are reducing their cost as minimum as they can without compromising their customer service. It may be just one-side of them is their low fares.
One of the main strategies in Ryanair airline is no frills such as free food or any air-mile promotions. They prefer only Boeing 737-800 aircraft and their aircrafts seat density is very high. The bookings of the airlines are made through internet so there are no sales commissions and they earn huge amount.
Porters have their main five-core element which we can show in the given figure:
Bargaining Power of Customers
As Ryanair is mainly low cost airline, therefore their customers are highly price sensitive especially during the recession times so it will be very easy for customers to change their airlines. In this era customer’s knowledge about cost of service is highly and Ryan air does not provide customer loyalty but the bargaining power of customer is very low .Still Ryan air is able to maintain the cheapest airline in all Europe destinations.
As there are lots of barriers to the entry and the capital invested in this sector is very high so you should always take the flight authorizations. It is also very difficult to be new in airline industry as it will be hard to find the suitable airports for flights. It will also be difficult to take a place in current competition. Ryan air will not be affected by any threats by new entrants. Even the existing companies are changing their strategy or reducing their tickets price it won’t affect Ryan air (Lufthansa).
Threat of Substitutes
One of the main threats of substitutes for Ryanair is Brand loyalty. As there is no brand loyalty for the customers then customers can switch to another airline without any hesitations and there will be no switching cost for the customers. So Ryanair has to overcome these types of threats by maintaining their brand loyalty to their customers.
As the market is highly competitive, Ryan air’s advantages can be copied. In Europe it had been seen that there is an agreement made between Ryan air and Easyjet that not to compete head to head. However if any company decide to compete on the same basis as Ryanair it will be highly crucial for Ryanair. This will make Ryan air with heavy pressure on prices, margins, and hence lead to profitability.
2.3 Bowman’s Strategy Clock
In “The Essence of Competitive Strategy” book Bowman created his “Strategy Clock”. He explains the company’s competitive position in comparison with their rivals. According to him cost and differentiation is real advantage of companies. There are eight options in his strategy clock which are:
Low cost and low added value is the first option and Cost Leader is second which has the risk of price war and low margin. Third option is the mix option of first and second option i.e. hybrid option. Reinvestment in the third option is the basic difference between second and third which basically deal with low cost but not the lowest price. Differentiation is the fourth option nut differentiation is highly considered in fifth option. It perceived value to a ‘particular segment’ warranting a premium price.
Remaining three options are failure. In sixth option value is standard but price is increased and conditions are not good even very bad in seventh option because price is increased but with the low value. Last option is the main responsible for reducing their market share i.e. low value has a standard price.
During last decade, Ryanair had achieved a dramatic changes and this has flabbergasted its competitors. The growth of the firm has risen up within short period of time with the strategy of low fares, without frills and punctuality in flight services which is their high profit.
In high level competition there should be efficient strategy so as to gain advantages along with the profit. Ryanair’s strategy can be placed at different options in Bowman’s Strategy Clock at different period of times. But all of them can be placed between options 1 to 5. Ryanair’s never had failure in Bowman’s Clock part. Mainly, in these days Ryanair is placed between options 1-2 at clock which is about low price. Ryanair is the best suitable example of this option as they secure their price and give higher valued services.
Three and they will be strongest company in the competition. Virgin airlines follow hybrid strategy and in my opinion it is the most preferable strategy to be followed in the clock. Ryanair will be the strongest company if it updates their lowest price strategy with standard services.
3.0 SWOT Analysis:
Ways which factor applies to Ryanair
Marketing – strong branding and reputation, aggressive price strategy.
Low costing due to airport operator deals.
Reputation as biggest budget airline.
Lots of publicity due to O’Leary and
Cash tied up in purchase of new planes.
Entire company based on European low cost airline market.
Shock profit warnings may have used cash reserves and weakened fiscal
Refusal to back down over issues such as EU Commission
Possible new routes,
New planes = larger capacity.
Advertising space on website and planes, more revenue
Competitors – BMI baby, Easy jet,
Economic recession would mean less
EU Commission could put restrictions
on company if do not adhere to state
Future Strategy and Recommendations
Mergers and Acquisitions
One of the most important corporate-level strategies is mergers and acquisitions in the new millennium as it is necessary for the firm growth and success. It is expected from Ryanair to acquire other companies in order to improve its capabilities and acquire more competitive advantage.
Strategic Human Resource Management
Ryanair, have sacrified its services and processes because of the commitment to low- cost airfare. As a potential source of competitive advantage, human resources are not seen that is the company does not seem to value its customers. It is believed that the company’s human resources are the source of competitive advantages therefore human resources or the company’s people are one source of sustainable competitive advantage. As we know in this era of fast changing environment the technological innovations and other strategies can be copied there human resources will bring sustainable competitive advantages.
Marketing Plan Strategies
In order to provide good customer services such as providing discounted flights and value promotion the firm should has a detailed plan for its strategic moves in the market to keep the competitive advantage at a stable mode within its competitors and will need to focus more on the core competencies that allow Ryanair to practically and wisely designs suitable airline operations within the bracket of their marketing network services in a market standard-based perspective. Ryanair should not stop to change their marketing plans or rejuvenate from time to time, they should be goal oriented in order to re-invent the performance process upon the upgrading of rules and regulations mandated by the state. In order to renew revenue generation Ryanair need to overcome the lack of product differentiation.
In order to be defined as an independent profit centres it is then recommended that Ryanair should outsources as many non-core functions as possible which can abandon peripheral services such as catering or ground handling services.
Based on the above analysis, it is highly recommended that Ryanair should consider the expansion in to haul markets – specially the transatlantic routes which accounts for more than 60% of world’s air travel. Therefore moving in to this new haul market which has low fare strategy along with added service options. And also by introducing complementary goods and services through its web sites, the company can utilize its existing business as this will allow company to reduce its cost base per unit of customers.
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