Critical Evaluation Of Ryanairs Internal Environment Business Essay

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Ryanair was founded in 1985 by the Ryan Family to provide scheduled passenger airline services between Ireland and the United Kingdom, where Ryanair started with full service conventional airline with two classes of seating, leasing with three different types of aircraft. Ryanair known as the largest and most successful low airline fare of Europe which targets leisure travellers, visiting friends and relatives segment of the market (Hoffmann, 2004). By the end of 1989, Ryanair had six BAC-111 jets and three ATR 42 turbos (Box, Byus et al. 2007). However, in 1990's Ryanair had suffered loss of 20 million of pounds (IR). Further to survive in 1990s the Ryan family pumped in capital to sustain the business and also successfully implemented strategies to positioned itself to become Europe's first low-fares, no frills, carrier, built on the model of southwest airlines. And also the new management team led by Michael O'Leary was appointed by the founder Tony Ryan. In 1991, Ryanair first floated initial public offering (IPO) on the Dublin Stock Exchange and later on registered in London Stock Exchange and NASDAQ (Johnson, Scholes et al. 2008).

2.The Key Factors Related To The Internal Environment Of Ryanair:

2.1 Strategic Capabilities Of Ryanair:

Strategic Capability is a one of the important factor of an internal environment which analyses its internal resources and core competences. During the study, it is observed that Ryanair invested heavily on fleet rather than distribution centres. Hence during the years of growth, there has been procurement of large number of fleets from Boeing spread out until 2012. They also replaced their old fleet with new and more efficient and environmental friendly aircraft which also is a youngest fleet of any major airline with an age of just 2.4 years (Johnson, Scholes et al. 2008). This has helped them to reduce their maintenance costs. It further reduced the requirement of extra staff, emission on fleet and decreased the fuel burn and noise emission. They kept their staff happy and motivated by offering incentives and a share option scheme which allows them to participate in the in the success of the company overall (Butler and Denholm). Despite of 74% increase in fuel costs they made a 12% increase in net profit which include traffic, passenger revenue etc (Johnson, Scholes et al. 2008). This is because the loss was not transferred to the customer. Hence the price was kept under control. Another important area of focus in core competence is Ryanair's introduction of web based bookings and check in which reduced the check in staff cost as well as time. Online booking plays an important role in helping the brand to expand its ticket sales, to the extent that 95% of sales which are now controlled solely by the web (Anon,2003). And also charges on check in bags encouraged the passengers to travel with few baggage which again save the costs and enhancing speed. Rivals of Ryanair's like Aer Lingus and FlyBe also followed the same strategy as on February 2006 as well as Easyjet succumbed in September 2006. Whereas the no-frills carriers, through clearly articulated strategies, have successfully challenged the power and dominance of major carriers, and have contributed to the identification of a market segment attracted by low air fares and efficient airline service(Gilbert, Child et al. 2001).

2.2 Critical Success Factors Of Ryanair:

Some of the critical success factor which made Ryanair most profitable airlines is the world in August 2006 given in an `Air Transport World` magazine. It created the brand name of low airline flight. They also replaced their old aircraft with new and more environmental friendly aircraft. Ryanair focuses on short haul routes like the connection between England, Ireland, and the rest of Europe (44.2% of the routes and whereas 49% of the flights start at British or Irish airports). Apart from this, another major route was between Italy and England i.e. 14.6% and also between Italy and Spain where 3.1% of the whole Business (Malighetti, Paleari et al. 2009) . They focused on operating from secondary airports like Dublin airport which helped them to cut costs due to competitive prices for hanger and parking slots in the airport (Pitt and Brown, 2001). They use to operate only one type of aircraft, so that operate that crew and maintenance-staff training is simplified whereas operational flexibility is achieved and economies of scale created both aircraft and parts purchasing (Anon, 2003). No frills carries was also a success factor for Ryanair to support this there is an example, During August 2005 there carried 1,56,000 people more than British Airways who carries on it entire worldwide network for the first time it happened (Anon,2005). For Ryanair success behind the low-cost carrier is only reason that is containment of cost whereas the alertness to low-cost carrier is "latent demand" which is characterised by the passengers who willingness to pay elastic prices which is not the attitude of the so-called "traditional passengers"(Malighetti, Paleari et al. 2009)

2.3 Value Chain Of Ryanair:

Ryanair' has great relationship with the suppliers due to which they use to get aircraft at low rates. Whereas as Operators they use to use low cost maintaining aircraft like Boeing 737 planes where it was further replaced with more environment friendly aircraft which reduces the average age of its fleet to 2.4 years (Johnson, Scholes et al. 2008). In new aircraft they had larger seat capacity, produce less emission, less amount of fuel is burn, produces low noise emission and less maintenance. Whereas there strategy of selling ticket to the customers was direct there was no interference of travel agents due to which no extra commission was charged from customers. And service provided to the passengers in the flight was very low like no proper food facilities; behaviour of staff with passengers was not so good. After disappointing services provided to the passengers then also it has earned higher margin of profit because Ryanair basically focused on economic people. The model of the airline was based on the Southwest airline. They introduced the new technology for check in bags which reduces their cost and time.

2.4 BCG Matrix:

BCG (Boston Consulting Group) Matrix which comes under Portfolio Analysis, under the case of Ryanair, comes under third quarter which named as 'Cash Cow' which means there is large market share but no longer growing of the business .In Ryanair it is observed that they are basically domestic flights within the European nations from which they earned great amount of profit .They also tried to buy over Aer Lingus which was unsuccessful. if they have overtaken then combined operation would account for 80% of all flights between Ireland and other European countries (Johnson, Scholes et al. 2008). They also need to utilize their profits in technical and human resources in which they are lacking behind. Due to which most of their customers are unhappy and criticize about Ryanair's maintenance factors.

During the research, it is observed that the internal environmental factors plays a vital role for strategic development. Internal environment analysis a company and assess its strength and weakness. This will help the company to attain competitive advantage than its competitors (Johnson, Scholes et al. 2008).

2.5 Strength Of Ryanair:

Ryanair, has created its own brand name of providing of low rates of flights to passenger which will attract more and more customers. And although the increase in fuel surcharge they continued offering the flights rate at low rates which attracted more and more customers. They didn't get more affected by fuel surcharges because these charges were mainly for long haul flights. Whereas amount of profit collected by them in various steam like traffic, yields, and ancillary revenue made them more and more stronger. Also with the introduction of new fleet which are more environment friendly aircraft, where there comfortable options like large seats capacity, it produces less emission and also less amount of fuel is burned. Whereas route's continued to be point to point, choosing secondary as well as regional airport destinations which reduces some airport charges rather than main airports destinations. Ryanair is only one amongst those carrier who concentrate on secondary airports

(Bel, 2009) . Secondary airports which require a location advantage that's comes from large economic or population base or other way that may attractive to travelers (Gillen and Lall 2004). During the end of fiscal year of March 2007 they reported the revenue of €2236.9million, an increase of 32.2% over 2006(Anon, 2008). The share which has increased by 3.6%, to £9.28 which was a record high which also intended to improve the marketability and liquidity of the stock (Johnson, Scholes et al. 2008). The cost cutting was done through check in and luggage handling which saved the cost of check in staff as well as time. Whereas charges from passengers on check in bags which made them to carry lesser bags or no bags which enhance there saving on costs as well as speed of the aircraft. On the documentary on training policies of Ryanair where no allegations where found. Later on, it became a strong point for Ryanair to gain more attention of people by launching new services and free flights offers related to the documentary. They use to sell tickets directly to customers mostly through internet which cuts the commission of travel agents (Anon, 2003). And also examined the Ryanair's sustainability products including acceptability to passengers, labour productivity, use of outsourcing, the use of secondary airport, corporate culture, and policy environment and policy obstacles ((Barrett 2004). They had good amount of capital for investment for e.g. where the CEO Michael O'Leary launched a bid of 1.02billion Pounds for its Irish rivals Aer Lingus. And Ryanair website was claimed as largest travel website in Europe and also most recognised brand on Google, where they convert web traffic into e-commerce and advertising revenues (Furlong, 2006).

2.5 Weakness Of Ryanair:

In the case of Ryanair there are weakness which affected the company, they didn't had great relationship with their staff like pilots because during 2006 in July the Irish high court found that pilots were forced to agree on new contracts where they have to pay costs of 15000 Euro for retraining on new aircraft. Due to which 'Ihateryanair' and 'can't-fly-won't fly' such codenames where used by pilots to protest against Ryanair. From all of this Ryanair was asked to pay excess of '1m' Euro in legal cost. Ryanair use to provide poor working condition for e.g. staff members were banned to charge their mobile phones while at work to reduce the company's electricity bill. Whereas In 2006, workers of Ryanair airlines in Girona airport went on a series of one-day strikes called by the Spanish CCOO trade union to protest about the working conditions of Ryanair ground staff in Spanish airports (Anon, 2008). They didn't had good relation with government where Ian Pearson the UK Minister for Climate Change reacted on the Ryanair's protestations on branding the airline as irresponsible for capitalism and on that reaction by Michael O'Leary commented Minister was foolish and ill informed (Hall and Done, 2007).

Well from the above diagram we can see in Ryanair's case where quality provided to the passenger was low such as unfriendly staff, delays and poor legroom , seats are not comfortable, safety and security, poor catering facility. In cost factor passengers were charged money on check in bags also due to which passenger used to avoid carrying even a check in bags. Whereas insurance fee charged to passengers was very high and insurance surcharges which amounted to more than 10%more then average fare of Ryanair's. Apart from that poor treatment was done with the passengers whose flights has been cancelled or delayed where they were not provided with accommodation or meal vouchers. Other then these passengers who cancelled their tickets were charged 'administration' fee of €20 for handling refunds. For this activity Norwegian consumer authorities have fined €64000. Ryanair's to save the cost use to use secondary and regional airports which are far away from main destination for e.g. Ryanair uses Frankfurt Hahn which was 123 km away from Frankfurt. Due to which it increase the cost and wasting the time of the passengers to travel long way down. The weakness which is always taken in consideration was the size of the company was smaller as compared to other competitors like Air France, Lufthansa, and British Airways which are larger in size and also enjoys a competitive advantage in accessing financial, technical and human resources (Anon,2008).

2.6 Leadership And Culture:

Michael O'Leary has been associated with Ryanair Airlines for more than 20 years. He is an accountant by training but a combative entrepreneur by inclination whereas he had many issues with trade unions, government officials and rivals with his "bare knuckle" but has achieved growth and higher profitability status in this competitive airline market(Box, Byus et al. 2007). He was credited with single-handedly transforming European air transport which has won various international awards for the Ryanair such as Best Managed Airline whereas in 2001 Fortune magazine had awarded Michael O'Leary with the European Businessman of the year. In 2004 he was named as business stars from one of the 25 European businessmen (Groom, 2004). And in 2005 he was ranked 18th as World's Most Respected Business Leaders in a Financial Times. Whereas according to Tim Jeans a former Sales and Marketing Director of Ryanair said that Michael is a genius person who has the ability to motivate and energise the people due to which people work incredibly hard and produce more out of it. Also the leadership style of Michael O'Leary has been praised by present as well as former staff members. There is also a point of culture where employees in Ryanair are comprised of different nationalities. However, it is observed that Ryanair is dependant on Michael O'Leary for decisions and the power is concentrated.

3. Conclusion:

Ryanair airline is based on the cost model due to which Ryanair has maintained its competitive advantage over its competitors by offering highly differentiated products which is a continuous lower fare. Therefore Ryanair has achieved a sustainable competitive advantage. The other advantage was the use of secondary airports which has two main characteristics which has better capacity as compared to primary airports (Barbot, 2004). And secondary airports were mainly used for short haul whereas the other competitors like British Airways have to use main airport for long haul which are more congested than secondary airports. There are also many competitive advantages which made Ryanair a success full airline within the European nations such as maximum utilization of air-crafts , low staff levels with higher productivity, higher rate of internet sales of tickets which are operated at much lower cost than its rivals'(Noakes 2003).