Ryanair External Analysis
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Keywords: ryanair introduction, ryanair company
Ryanair is an airline company which is well known for its low cost airline service in Europe. Ryanair was founded in 1985 by Christy Ryan, Liam Lonergan and noted Irish businessman, Tony Ryan. It has its head office in Dublin Airport in Ireland. The company which was running in loss was restructured in 1991 by Michael O'Leary with no-frills, low-cost service which yielded profits to the company. It operates more than two hundred and twenty Boeing 737-800 aircrafts from 40 bases all over Europe, which is the largest airline company that carries millions of passengers every year. Revenue where raised from $231million in 1998 to $843 million in 2003.It showed considerable profits from £48 million to £239 million over the due course. The company yielded revenues of £ 2,713.8 million during the financial year which ended March 2008, which is an increase of 21.3% compared to year 2007.The other revenue provide to Ryanair where car hire, travel insurance, etc which account to 16% of the total revenue. So the major vision of the company is to be the leader in the low fare airlines in Europe. The objective of the Ryanair airline company is to be the number one company in terms of customer service.
In the environmental scanning process we are going to see the external analysis. The PESTEL is an macro environmental scanning tool. The PESTEL which is known as "Political, Economic, Social, Technological, Environmental, Leagal". Let us discuss the factors in detail.
The major political factors that affect the Ryanair are the pressure which is caused from the trade unions especially Pilot trade unions. The act of terrorism is another major political factor which will affect the airline service with increased time delays for security services. The landing charges is another important factor which influences politically. Due to the high landing fee in Stansted, Ryanair has decided to move routes from the Stansted to Gatwick (which is providind lower landing charges). Also the EU which has abolished the sales of duty-free items also causes major impact.
The major economic factor is the unstable conditions in the fuel prices which affects the airline company's growth. Ryanair estimated that fuel bill is set to increase £732m (in the financial year 2008) to £1.01bn which had affected the profits down to £235m between 2008 and March 2009.Further the weakening of the Pound value(GBP) also influences a lot on the growth of Ryanair. The recession and increase in the inflation rates have also affected the growth. The taxation issues are a very important factor which affects the economic growth of the company.
The major social factors is the increase in travelling lifestyles of the people which affects the business of Ryanair .There are a variety of people who will prefer different ways of travelling and comfort. The increasing population which will be focusing on the health and fitness safety measures provided. So this will make the company spend a lot on the security service. Further the ageing population needs more leg space and health safety measures implementations.
The new bigger planes with good modern technologies are required for the huge passenger traffic. So this in turn affects the economy of the company. The other important factor is the internet. The online ticket booking has increased from the year 2001 which made the company invest more on the outsourcing of these operations. Further the new technology planes with less fuel consumption are very important focus to buy in the situation where the fuel prices are increasing.
The most important environmental factor which affects the company's revenue growth is the carbon emission and green house issues. So this makes the company to upgrade its existing planes to less carbon emission and less noise producing new technology planes. Further the carbon emission schemes differ between countries which in turn increase the taxing policies, so this also affects the economy of the company.
These include the EU regulators and the regulations which in turn reflects in the company's growth. The health and safety measures are also one of the legal factors in which case the passengers might sue the company for any accidents occurred . Further the landing charges varies between the countries which causes the company to pay more for landing in some bases.
For the industrial analysis we use the Porter's Five Forces.
In this picture
Considering this porter's five forces the bargaining power of customers and the suppliers will be low because the airfare is already low which is quite reasonable. The threat of the substitutes will be medium which might depend on the relative price and quality of the substitutes. The threat of new entrants and the competitive rivalry is very high. For example the major competitor for Ryanair is the EasyJet airline which offers low price airfare with good customer service. This is described as below
Market Segmentation Positioning Of Ryanair:
Ryanair targets the people belonging to the middle class. It offers best low airfare with attractive packages. Even Ryanair offered free carriage of skis and snowboards to passengers flying to the Alps on September 2009. This even made people more happy to choose Ryanair for their travel, whereas their rival British Airways stopped their passengers from carrying their skis
Positioning Of Ryanair:
2. Premium/ Competitive
2. Excellent/ Average
4. Average/ Acceptable
2. Original/ Customized
4. Customized /Basic
3. Restricted/ Selective
4. Selective/ Universal
2. Prestigious/ Respected
5. Respected/ Functional
4. Standard/ Minimal
PRICE QUALITY FEATURES AVAILABILITY SUPPORT REPUTATION
Resources of Ryanair:
The resources are known as the tangible and intangible assets that a firm uses to choose and then implement them in strategies. The capabilities are the skills that the firm uses in order to bring its resources to bear the ongoing things. The Resources of the Ryanair are
Physical Resources - Ryanair operates a fleet of 232 new Boeing 737-800 aircraft. Ryanair has 41 bases and more than 1100 routes across 26 countries, which is connecting 153 destinations. Even the company has ordered 82 new flights which will be delivered within 3 years of time. This shows the company's rapid growth and expansion.
Financial Resources - The major financial resource like the number of flights that the company yielded is from the low cost airfare. The financial resources of Ryanair is quite strong when compared with its rival Easyjet which is shown in the table below
Human Resources - Ryanair currently has a crew of around 7000 people and carries around millon more than 58 million people in the year 2008.
Capabilities Of Ryanair:
The capabilities of the Ryanair are the lowest airfares and the quickest turnaround time. Their innovative strategies on the cost reduction and the principle of "No Frills" are also an added advantage. They also focus on particular segment of market with some clear offers. They also have the large brand awareness.
Ansoff Strategic Direction Matrix:
The Igor Ansoff direction matrix helps the firms to decide on the possible ways to grow the business in the existing or new products , in the existing or new market. In this way we get four possible combinations. They are:
- Market Penetration
- Product Development
- Market Development
These are describes in the picture below
So by using the combinations from Ansoff , the Ryanair company seems to have successfully penetrated into the airline market by offering its customers with a very " Low Airfare" . Here the product which means the various services offered by Ryanair in the flight . The most significant one is the Low Airfare pricing offered to the passengers. Hence their market penetration is very strong and successful and also their product developed very well because of the low pricing of the air tickets. So naturally this made the company to become the largest low fare carriers across the Europe . This also influenced the development of the company in the airline market with the purchasing of many Boeing aircrafts with modern facilities. Further the company has expanded its routes to more than 1100 in more than 26 countries with 153 destinations. This is the major development in the airline market which attracted more customers. The company recorded the largest passenger carriers with 58 million passengers travelling during the year 2008. This expansion made them to be more popular internationally which in fact required the divergence of employees and culture. So these have diversified the management and people they operate and made them to successfully unite them together. This is the major factor which made them to further penetrate and result in the product development to the existing and new markets. Hence the Ryanair here maintains B2C which yields them more profits. This also helps them to make a good customer relationship and also give them a reliable low priced air tickets. This makes the company Ryanair to be the leading Low airfare carriers among the European airline companies. Hence the low pricing strategy of Ryanair have targeted on the middle class people but with very basic services.
Cost Reducing Strategy:
The Ryanair follows the most effective strategies which is the cost reducing strategies. This cost reducing strategies helps the company to achieve the desired targets of low cost airfare. These are achieved by five major aspects. They are:
- Fleet Commonality
- Contracting the services to third parties
- The charges in airport and route policy
- Managing the staff and productivity costs
- Managing the marketing cost
The Ryanair has only the new Boeing 737 flight models which help the company in reducing the costs spent on maintenance such as obtaining the spare parts and also the training costs .This is the major advantage to the company to maintain single model of the air fleet which even increases the travel line security with new technology flights. Even these will help the company to save the fuel consumption and these flights are more fuel efficient and also maintain good safety. This also helps them in scheduling the fights and assembling the crew members.
Contracting the services to third parties:
The Ryanair has outsourced the services to third parties. They made deals with Hertz car rentals and hotels. So in this fast moving world people prefer to go for these good services along with their trips in order to save time and money. In this way they earn ancillary revenue of 16% of the profit. Further apart from the Dublin airport where they have their crew members to serve, the remaining airports they have contracted to the third parties to serve the ticket handling. In this way they also escape from the direct exposure of the potential disputes.
The charges in airport and route policy:
Since the Ryanair sells the tickets on its own, there is no activity of the agents required most often. So there is no necessity for the agent commission. So the company saves upto 15% on the agency commission. In order to reduce the airport landing fees, passenger landing fee, etc the company select the secondary and the regional airports which in turn increases the passenger throughput.
Managing the staff and Productivity cost:
The Ryanair follows the principle of paying the salary to their employees based on their performance. This is one of the best practices the modern companies are following these days to increase the work force performance and which in turn bring good revenue to the company. Hence they follow the modest salary policy. This in turn increases the productivity. Further most of the pilots are recruited when they are young pilots cadets which makes the company to train and make short term deals with them. Even the cabin crew should pay for their uniforms to be clean.
Managing the marketing cost:
The Ryanair in order to reduce the marketing costs it makes most of the marketing on its own without the travel agents. So it saves a lot in the agent commissions. Further the company spend a reasonable amount of money in advertising. The advertising tools used are like the newspapers, company website and also television.
Porter's Value Chain:
The porter's value chain is a chain with various activities for the company operating in a specific field. It has various varies Primary activities like the Inbound Logistics, Operations, Outbound Logistics, Marketing & sales, Service. The other part is the support Activities which consists of administration infrastructure, Human Resource Management, Technology part and the Procurement. These values are very important for the company to maintain its performance and get a good profit in turn. Here the very important value is the no frill service and which makes the company to offer a low cost airfare. The various value drivers and their costs are identified for each of the value activity. Hence here for the Ryanair airline company the following are the identified values using the Porter's Value Chain.
Porter's Generic Strategies:
Michael Porter categorised the three general strategies that are to be used by the business firms in order to achieve competitive advantage. Hence these three strategies are defined in two different dimensioned they are the competitive scope and the competitive strength. The various generic strategies that the Ryanair company has chosen are the cost leadership, differentiation, cost focus, differentiation focus.
The cost leadership is the major strategies used by the Ryanair which still makes it to the leading airline companies in Europe. The Ryanair maintains the low cost policy which is an advantage for its good market existence. Further it has made the people to choose the option of low airfare even in the existing market competition. Differentiation here is that it made their customers to be more satisfied regarding the low pricing airfare. Hence there it still retained the long run customer satisfaction regarding the airfare cost. The cost focus is mainly targeted on the people choosing low airfare travels. So the company has chosen the "no frill" strategy which still makes it more profitable in the markets. Even it has very cheap advertising concept which even adds more advantage. The reduced turnaround time and the various corporate partnership offers are also the competitive advantages of the company. The outsourcing of services in various international airports is also helpful to maintain its low cost airfare. Further the Ryanair follows the In-house marketing which also helps it to focus on low cost airfares. Even the company focussed on the narrow customer segment which will be including the Irish and the UK passengers who cannot afford to fly in expensive airlines. So the major goal of the company Ryanair is to provide the people with no frill service and low cost airfare all time. So Ryanair is the only company which has not yet revealed its strategic position. It has tried to mix up the focus and cost leadership together. So finally in 1997 the cost leadership strategy was being chosen by the company. This made the company more successful in its campaign. Hence the cost leadership is the best chosen strategies which make the company to be the leading one in the European airline industries. Hence this is the major competitive advantage the company has pursued.
Hence from the above analysis the Ryanair proved to be the low cost airline which is confident of competing with its competitors in pricing. It is recommended that it should increase its services in the web which will yield more revenue these days. The Ryanair will surely make its successful way in Flying people withlow cost airfare.
From the above discussed strategies the Ryanair airline company has achieved its goal of low cost airfare through "no frill" services. But still there are some areas that the company still need to improve in the strategic aspect. So based on the analysis we strongly recommend Ryanair to consider the airline expansion which is specifically the atlantic routes which is having the world's 60% of air travel. Hence if it is moving on to the new market with this low cost airfare with some added services , then it will yield more profits compared to the present level. Further I recommend the Ryanair company to focus more on the following fields to improve its performance and which also yield good revenue to the company.
- Merging and Acquisitions
- Better reforms in human resource management
- Improving the market planning strategies
- Additional third party services
Merging and Acquisitions:
The merging and the acquisitions has become one of the major corporate-level strategies in this new millennium. Since the Ryanair is continuing to grow , it should make mergers or acquisitions with the companies in other countries which will rapidly increase its revenue. Even this will improve its capabilities and will also acquire more competitive advantage.
Better reforms in human resource management:
Since from the moment Ryanair started following its low cost airfare, it has sacrificed all its basic services. The company Ryanair does not seem to be valuing its people. Even it charges for the people for using the toilets. This made the pilots to oppose against this rules. There is a belief that the competitive advantage is also dependent on the human resource of the company. So there should be proper reforms in the human resource management .In this technological world the human resources are the only resources which will be bringing the sustainable competitive advantage.
Improving the market planning strategies:
The Ryanair should provide good customer services which in turn will yield good revenue to the company. So it should offer good airfare packages and promotions to the customers. This is the best way of improving the Core competence and will maintain its levelling in the competitive advantage. Further the company should also work out in holding the important air routes which will increase the revenue of the company. Further the expansion strategies are more important among the competitors. Further the Ryanair can give good low cost airline packages according to the various passenger population from different countries. This will helps the company to maintain a stable competitive advantage. The company should also provide the onboard entertainment services, Internet services and satellite television services. In online it can also sell some products with its brand name which is a good advertising strategy and also it will generate revenue. It can also reduce the charges imposed on over weight and extra luggages. The advertising strategies also should be made as digital marketing because the usage of internet has increased and people are more interested in booking tickets through online. So this digital marketing should be more effectively carried out which would increase the revenue of the firm.
Additional third party services:
The Ryanair outsourced the services to the third parties. Even still there are complaints from the passenger for the catering services in the plane. The company doesn't offer food free of cost inside the flight for the passenger. So it can also consider these recommendations to serve the passenger with food at a minimum charge. This will place the company more stable position among the competitors. Further the company can out source this catering service to a third party which also help the company to offer good service to the passengers.
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