The European airline industry has been very dynamic especially over the past twenty years. This dynamism is due to the increase in low budget airlines and fares. The figure below shows the percentage increase in the proportion of low cost airline travel in Europe. The percentage grew from about 1% in 1995 to about 20% in 2008 (Cento 2008).
Figure 2.1 Showing the percentage increase in the low cost airlines in Europe between 1995 to 2008. Source: Cento 2008
This is mainly as a result of the deregulation of the airline industry in the 1990's which removed many restrictions on the routes airlines can fly and how much they should charge, the presence of very enterprising entrepreneurs and explosive increase in internet sales and marketing which makes cheap tickets easily accessible to many people etc. (Cento 2008)
2.2 SWOT Analysis of Ryanair Ltd.
SWOT Analysis will be used to describe and explain both the external and internal environment of Ryanair. "A SWOT analysis summarises the key issues from the business environment and the strategic capability of an organisation that are most likely to impact on strategy" (Johnson & Scholes 2006). Opportunities and Threats will be examined first to determine the external environment of the business.
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There are several opportunities that Ryanair faces in today's environment, they include:
Increase in tourist destinations: with more countries joining the European Union (EU 2010), there has been an increase in the possible number of holiday destinations for many people in Europe. In the UK, for instance, more people are travelling outside the countries for their holidays and short breaks (ABTA 2004). This provides a tremendous opportunity for growth for businesses like Ryanair that not only provide cheap flights, but also provide hotel bookings and other holiday services in Europe.
The establishment of the European Low Fares Airline Association (ELFAA): this association was formed in 2004 and its main purposes include promoting the interests of its members, influencing regulatory issues and addressing other policies that might affect the industry. With this association, the interests of Ryanair and any other low cost airline are protected. For instance, at the moment, ELFAA is calling for the retention of the current EU rules of flight time limitations challenging the claims that they were unsafe (ELFAA 2010). Increasing the flight time limitations will affect the airlines' business since they will have to hire more pilots or reduce the number of flights they are presently offering.
The current economic climate: this sounds like a problem but the fact that many people have less disposable income during the economic recession means that they are more likely to travel on low cost airlines (Times 2008). Many people cannot afford luxury flights and a no-frills flight such as what Ryanair offers suddenly become more appealing. Despite the general slump in sales in Europe in 2009, Ryanair's operating profit margin was 5% (see figure 3.2). Despite the drop in profit, Ryanair passenger growth was about 53% in 2009 (see figure 3.1).
Like every business, there are threats in the environment which affect Ryanair. These include:
Trade unionism: like with any other major industry, the trade unions always serve as a check on the companies in which their members work. For instance, the claim that flight time limitations are unsafe has come from a group of pilot trade unions who are lobbying for better working conditions for their members (ELFAA 2010).
Competition: there is always the threat that new businesses will come in to a seemingly profitable industry. There is already an intense competition between the airline companies; low cost airlines and full service airlines (Copenhagen Business School 2007 cited in airline business models n.d.). This also touches on the first two of five forces of Porter. Based on the five forces of Porter, the threat of new entrant is medium and the intensity of competition is high.
The existence of substitute products: while there are other travel methods, they do not constitute a very serious threat to the industry. Even with very fast trains in existence, many people will still prefer to travel by air. Therefore, this threat is medium.
Suppliers' bargaining power: suppliers include the labour (employees), advertising and marketing service providers and perhaps most importantly aircraft suppliers etc. These suppliers have low bargaining power at the moment especially with poor aircraft sales.
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Buyers' bargaining power: this is also low because they cannot afford to choose better substitutes. Being able to choose between the competing airlines are the only bargaining power that the consumers have but the power to choose another industry instead of the airline industry is very low.
In summary, the industry appears to be attractive. The opportunities outweigh the threats; buyer and supplier bargaining powers are low making it easier for the airlines to get relatively cheap supplies, demand fair prices from their buyer. The only drawback is the intense competition between the airlines themselves. See Appendix 1 for supporting PESTLE analysis.
Internal analysis of Ryanair
To fully understand the strategic capabilities of Ryanair, this report will also examine the company's core competencies, its strengths and weaknesses and its value chain.
3.1 Ryanair's Strategic Objectives
For this analysis to be complete, it is also important to know what Ryan strategic objectives are. They are:
To have the highest numbers of air transport routes in Europe
To offer the lowest air fares in Europe
To provide the best customer service for air travel in Europe
To achieve enormous growth
3.2 Ryanair's core competencies:
It is in fact the leading airline providing low cost fares to the public. In providing these fares, it stimulates demand and targets people with low income or people who just do not want to spend a lot of money on short flights.
Ryanair has adopted business processes which produce high quality services while at the same time reducing cost.
Ryanair's employees are trained to carry out multiple functions and this reduces the number of people the company has to hire. In addition, the employees are paid based on their productivity (Boesch 2007).
It offers a high number of routes; 1,400 flights every day from 44 bases along over 1,100 low fare routes across 27 countries and a total of 160 destinations (Ryanair 2010).
3.3 Ryanair's strengths
Low cost fare strategy: the popular Ryanair saying 'stack 'em high, sell 'em cheap' has proved to be very successful and continues to be the company's greatest strength. It ensures continuous demand. It has proved exceptionally popular in the present economic climate but even as the economy recovers, there will be people who cannot or will not buy tickets for luxury flights.
Figure 3.1. A figure showing the passenger number and load factor growth from 2006 to 2009. Source: Centre for Asia Pacific Aviation.
The provision of other ancillary services: Ryanair not only provides airline tickets but also provide ancillary services such as hotel bookings, car hire services, advertising space on aircrafts, credit card fees and telephone bookings (Boesch 2007). These services increased the company's revenue by 36% in 2006. In addition, Ryanair has the largest travel website and is easily the most recognised brand on Google. The company has been able to convert the enormous web traffic into opportunities for online advertising revenues.
Figure 3.2: Figure showing Ryanair's operating profit margin from 2006 to 2009.
Source: Centre for Asia Pacific Aviation.
3.4 Ryanair's Weaknesses
Poor customer service: despite the company's objective to provide the best customer service, it actually was voted the world's least favourite airline in 2006. Ryanair scored badly in every aspect including, unfriendly staff, flight delays and poor legroom (TripAdvisor 2004 cited in Boesch 2007). This is very poor especially since Southwest airline, whose model Ryanair adopted was voted the 5th most favourite airline (TripAdvisor 2004 cited in Boesch 2007).
The use of secondary airports: Ryanair uses secondary airports which are usually less congested and have low landing fees. However, these airports are usually far from main cities which most travellers aim to go. It poses transport challenges to its customers.
3.5 Ryanair's Value Chain
The value chain of a company refers to the activities in that company. As the products or services pass through the chain of activities, they increase in value (Appendix 2). Ryanair's value chain can be described as follows:
Quality Training of Staff
Low cost of suppliers
Favourable airport agreements
Minimum Corporate HQ
Low cost training
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The 'no frills' and low cost operations
The limited crew
Alliances with other contractors
Quick turnaround flights
In house management control,
Marketing and Sales
Low cost promotions
In-house human resources
Low technology marketing especially through internet sales
Employee performance contracts
Low cost procurement
This report has described and analysed Ryanair's external environment and industry as well as its strategic capability. It has made use of different strategy tools to achieve this such as PESTLE, SWOT, Five forces of Porter, Core Competencies and Value Chain. These tools have helped to understand the attractiveness of the airline industry, Ryanair's strengths and weaknesses in achieving its strategic objectives.
The report found that the European airline industry, although highly competitive, is quite attractive and conducive to the company's growth and survival. It also found that Ryanair's core competencies which include being the leading low cost airline in Europe, having a highly productive staff and flying a large number of routes have helped to achieve some of its objectives. However, its weaknesses show that the company still needs great improvement. It appears that in the process of cutting costs, Ryanair overlooks customer comfort, staff friendliness all of which has earned it a reputation for poor customer service. This and the fact that the company sometimes does not adequately inform the public about the actual destination in its advertisements have resulted in poor public relations.
In summary, Ryanair has been a hugely successful company and is poised to achieve even more success in the following years. However, it needs to be aware of its shortcomings especially in public relations. Despite its strong desire to save costs, it might want to consider some flexibility in services that keep customers happy.
References and Bibliography
Boesch F. (2007), The Ryan Air Model - Success and Impact on the European Aviation Market. GRIN Verlag.
Airline business model (n.d.) A Question of Change. [Online]. http://www.aea.be/aeawebsite/webrsc/resources/07_SURVEY_Model_Innovation.pdf. Accessed 09 January 2011.
Cento A. (2008). The Airline Industry: Challenges in the 21st Century Physica-Verlag HD.
Centre for Asian Aviation (2009). Ryanair SWOT Analysis: Addicted to growth, a great model for bad times. [Online]. http://www.centreforaviation.com/news/2009/06/03/ryanair-swot-analysis-addicted-to-growth-a-great-model-for-bad-times/page1. Accessed 08 January 2011.
ELFAA (2010). Background of ELFAA. [Online]. http://www.elfaa.com/background.htm. Accessed 10 January 2011.
ELFAA (2010). ELFAA calls for retention of current proven EU rules on Flight Time Limitations. [Online].
http://www.elfaa.com/101221_ELFAA_PressRelease_EASA_FTL.pdf. Accessed 10 January 2011.
Gilmore G. (2008). UK disposable income is at its lowest level for 11 years. The Times. [Online].http://business.timesonline.co.uk/tol/business/economics/article4603164.ece . Accessed 08 January 2011.
Johnson G. & Scholes K. (2006). Exploring Corporate Strategy: Text and Cases. 7th edition; Financial Times/ Prentice Hall.
Johnson G., Scholes K. & Whittington R. (2008) Exploring Corporate Strategy: Text & Cases. 8th edition; Prentice Hall.
Mennen M. (2010). An Analysis of Ryanair's Corporate Strategy. Grin Verlag.
Ryanair (2010). The history of Ryanair. [Online]. http://www.ryanair.com/en/about . Accessed 13 January 2011
Increased political stability in Europe
The economic recession which has caused less disposable income for many people.
Increased desire to see the rest of the continent and explore new countries just added to the
The availability of the internet to most people
Increased EU laws and regulations especially on security
Increased environmental concerns such as noise control