Ryanair: Porter’s Five Forces
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Published: Thu, 26 Jul 2018
Ryanair, is Europe’s first and largest low fares airline. It was founded in 1985, set up by the Ryan family, with 2 aircrafts, 51 staff and 1 flight route from Waterford in the southeast of Ireland to London Gatwick daily. The vision of Ryanair start as no frills brand, low fares flight, raise ancillary revenue and finally to be no fares flight if available. Ryanair’s objective is become the leader of the Europe’s low-fares airline through continued improvements and expanded offerings of low-fares passenger service. It aims to offer low fares to attract and queue up the passenger during the aircraft maintenance checking to ensure cost-containment and operating efficiencies for shorten the turnaround time.
Nowadays, Ryanair own uniformed fleet of Boeing NG 737-800s in total of 210, hired 7200 staff and 150 destination points within 26 countries. The passenger traffic grew to about 65,300,000 passengers a year, it hold 28.67% of the entire passenger in the European Low Fares Airline Association (ELFAA). Ryanair had listed at the first place, as the champion airline with the most passengers in Europe which provide low fare short-haul travel. The low fare strategy provide Ryanair a shortcut to raise the profit and ancillary revenue, it made Ryanair kept success in the future. This is the reason that Ryanair has been so successful thus far.
Five Forces analysis
Threat of entry
Ryanair is a well-known low-fares airline in Europe since 1985 and it was a strong airline brand. If there have any potential new entrants get into the airline industry market, they may need to outlay a large amount of advertising fee to compete on Ryanair’s battleground, the European airline industry. Ryanair after setup the online booking and reservation system “Skylights”, it has heavily promoted its website through newspaper, radio and television advertising, there have been savings the marketing and distribution costs.
Ryanair has an advantage over other rival airlines, no-frills and low-fares are the company policy. It expanding the short-haul flight routes, using point-to-point strategy and shorten the flight turnarounds to reduce the cost outlay. However, other airlines compete in cost increasing competition, for the more price sensitive customers with high customers benefit, using price wars between rival airlines. At the low price airlines, EasyJet is one of the competitor, but not really compete with Ryanair. The aim of the competitive rivalry is the threat to lead for sales decline.
Bargaining power of Suppliers
For an airline, suppliers are mainly limited to the aeroplane and fuel supply. Ryanair had made very good relationship to its unique aeroplane suppliers, Boeing. Ryanair made a large volume contract with Boeing within the economic downturn at 2002 while other airlines on hold the aircraft purchase, and Boeing need to provide up to 150 of 737-800 type aircraft for Ryanair. In addition, Boeing also provides various ancillary products, spare parts support and technical support for Ryanair. By the expanding to the aircraft, Ryanair can expand more destinations in Europe and provide low-fare ticket to the passengers, this make Ryanair become the youngest carrier in Europe and listed as second largest airlines worldwide which behind the Southwest airline. The fuel price is governed by world trade and fuel market dominated by the Middle Eastern countries. Ryanair was dependent on hedging, based on educated guessing for the fuel, to meet its low-fares policy.
Bargaining power of buyers
In airline industry, there have standardized product, flexible demand, airline brand and the service quality for consumers to determine and concern. Ryanair sold the flight ticket for customers through its website online system, this is the main reason can provide competitive price which in the industry level.
Threat of substitute
In continental Europe, it offers an excellent railway trains which connected to the major cities that Ryanair can fly to, but the train ticket is very expensive than Ryanair and also need to endure a longer journey. The second choice is driving car travel from place to place, but it is also time consuming than Ryanair and may meet lots of road problems and hassles. And the last one, it should be the video conference, this is not a kind of transport service, it is global communication technology which solves the travel time and timing problem for the meeting and dealing agreement via web-camera, computer and internet network. It should be much cheaper than Ryanair and most convenience for Business Corporation.
There was political stability in the countries inside Europe, it attracts more people to travel within Europe and feel safety. Middle East OPEC had a political force for the fuel oil. European Union (EU) had expansion to 27 countries, and abolished the duty-free sales, this encourage Ryanair plan to open new flight routes to gain profits and raise ancillary revenue. The impact of political factors was low.
The market which outside the Europe was undeveloped, their market and the countries’ economies was non-stable. Most of the Europe countries had joined into the EU, the economies and consumers was stable and growth. However, the fuel price had kept increase on a high price level, depreciation of US dollars make inflation in US economy and affected other countries currencies. In case, Ryanair can gain lot of regional subsidies to solve the high fuel price. In Europe, some countries had its own local high-speed trains as main transportation for citizens. The impact of economical factors was low.
The economies of the EU countries was stable, this change the citizens’ lifestyles, such as increasing holiday travelling and business travelling. The consumer demographics were changing and consumer preferences also fluctuating. This brings the increase of the grey market. The impact of social factors was high.
The use of Boeing NG 737-800s aircraft was low emission, low fuel burning consumption and environmentally-friendly. This reduces the flight cost to provide low fares for passengers. Ryanair also provide online booking and reservation service on its website (www.ryanair.com) which called “Skylights”, designed by Accenture Open Skies. It allows internet users to access Ryanair’s host reservation system and to make payment for confirmed reservations in real time. The result of internet booking had growth rapidly since Ryanair launch the Skylights system. The impact of technological factors was low.
Ryanair had changed its fleet from Boeing 737-200 aircraft to Boeing NG 737-800s “Next Generation” aircraft since the replacement and expansion programme start at 1999. Ryanair own and operate the youngest and most fuel efficient aircraft fleet in Europe. Ryanair as the Europe’s greenest airline has minimized and continues to reduce fuel burn and CO2 emissions combination with numerous fuel saving measures, such as using latest aircraft winglets design and engine technology. It helps to increase fuel efficiency and limit emissions. Ryanair is also the European leader in noise levels controls, and it is good at waste reduction of low-fare low-cost business model, such as no “free” meals, drinks or newspapers offer.
Ryanair was focus on airports’ terms and conditions and deal airport access and service charges agreement among airports, many airports has allowed Ryanair to negotiate favorable contracts with access airports’ facilities.
Ryanair had the first mover advantage and it is a low cost Airline Business Model that restructured European Aviation Industry as low cost leader with substantial growth. It use pioneer innovative cost reduction methods and established market share with high load factor. Ryanair had a good strong public image which provide various ancillary services and kept expanding flight routes. Ryanair also is the member of safety committee.
Ryanair had incompatible relationship with competitors, with fickle customer relations. It manages uncharacteristic expansion and only relies on Michael O’Leary.
Ryanair mainly focus on online bookings service and only provide one class travel with ticketless boarding and unallocated seats. Their flights just fly to secondary or regional airports with point-to-point flying and reduced turnaround times. Ryanair work their marketing in-house, no frills and no refund policy. It owns Europe youngest and large uniform new fleets of Boeing NG737-800s. It operations denominated in Europe and hedge fuel risk to avoid high fuel cost.
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