Ryan Air was founded in 1985 by the Ryan family to provide scheduled passenger airline services between Ireland and the UK, as an alternative to the then state monopoly carrier, Aer Lingus. According toÂ (2001) Ryan Air was the first low-cost, nor frills airline that had an impact on the European airline industry. When launched in 1985Â targeted the Irish ethnic market between Ireland and the United Kingdom by offering a more or less traditional type of service with a two-class cabin but at significantly lower fares. It stimulated a rapid growth of passenger traffic across the Irish Sea, much of it diverted from the sea ferries. On the London-Dublin route, where traffic had been stagnant for three years, passenger numbers more or less doubled in the next three years in response to the low fares introduced by Ryanair and to the lower fares forced on Aer Lingus and British Airways. But Ryanair was not profitable. Its unit costs, though lower than those of Aer Lingus, were not low enough to sustain its low fares strategy. By 1991 its accumulated losses amounted to close on (Sterling) £18 million and the airline was facing serious cash flow problems. It had also gone through five chief executives.
Â Â Â Â Â Â Â Â Â Â Â After a visit to Southwest Airlines in Texas in 1991 yet another new management decided to reinforce the low-fare strategy but to abandon all frills in order to reduce costs. It also moved its London base from Luton to Stansted airport, which was new and offered high-speed access to Central London. The new strategy slowly turned the company round and it recorded a small pre-tax profit in 1992. Subsequently traffic and profits grew steadily and in summer 1997 Ryanair was successfully floated on the Dublin and New York stock exchanges. In the financial year 1997-98 alone its profits rose by 51 per cent to US$53 million. Ryanair's sparkling financial performance was an encouragement to other European entrepreneurs to assess the low-cost, no-frills model as a way of entering European aviation markets.
Ryan Air's Strategic Intent
Â Â Â Â Â Â Â Â Â Â Â Strategic intent concerns the direction in which a business id headed in the long term (Proctor 2000). The strategic intent of the firm is to maintain its leadership position in the low-cost airline sector.
Leadership in the Low-Cost Arena
Â Â Â Â Â Â Â Â Â Â Â Ryan Air is considered as the largest low-cost airline in Europe. The company carries more or less 35 million passengers on 325 low fair destinations across twenty-one countries in Europe. The airline has 12 European bases, a large fleet that has more or less 250 aircrafts and more that 2700 employees. In order to maintain its leadership position in the low-cost sector, Ryan Air renders point-to-point services, cutting airport charges. Part of the strategic intent of the company is to maintain its leadership position by acquiring other companies. According toÂ (1980; 1985), in order for a firm to maintain a sustainable competitive advantage, it must follow one of the three generic strategies. These strategies are:
1. Low-Cost - involves the sacrifice of some quality, fashion and even product innovation in order to keep costs low - the lowest in the industry (2000).
2. Differentiation - focuses on the factors ignored by the low-cost strategy such as product variety, quality and service (2000,).
3. Focus - requires a firm to concentrate on a particular market segment rather than the overall market ( 1993).
Â Â Â Â Â Â Â Â Â Â Â The firm exemplifies most of the characteristics of a cost focus strategy. In order to keep the costs down, the airline maintains a no frills strategy. No frills is a direct approach to low cost which removes all frills and extras from a product or service. The goal is to generate a cost advantage that is sustainable for one of two reasons. First, competitors cannot easily stop offering services that their customers expect. Second, competitors' operations and facilities have been designed for such services and cannot easily be changed (2000).
Stakeholders and Their Importance
Â Â Â Â Â Â Â Â Â Â Â Stakeholders are the people who are affected by or can affect the activities of the firm. There are two types of stakeholders - primary and secondary. Primary stakeholders are those who have formal, official, or contractual relationship with the organization. The secondary stakeholders are other societal groups who are affected by the activities of the firm. This section identifies the major stakeholders of Ryan Air and how they are important to the firm. The stakeholders of Ryan Air are:
Shareholders - the shareholders participate in distribution of profits, additional stock offerings, assets on liquidation, inspection of company books, election of board of directors and other rights established in the contract with the firm.
Employees - Employees are believed to be a source of competitive advantage. The knowledge, skills and abilities of the employees contribute to the success of the organization. In return, the employees expect economic, social and psychological satisfaction in the place of employment. The employees also expect freedom from arbitrary and capricious behavior on the part of company officials. The employees expect to share in fringe benefits, freedom to join union and participate in collective bargaining, individual freedom in offering up their services through an employment contract.
Customers - the customers are the source of the firm's earnings. The customers purchase the firm's products and services in exchange with satisfaction of needs, wants and requirements.
Suppliers - the suppliers are part of the firm's value chain. In exchange with the suppliers products, services or expertise the firm is expected to be a source of business and facilitate a professional relationship in contracting for, purchasing, and receiving goods and services.
Competitors - competitors are also important stakeholders. They expect the company to observe the norms of competitive conduct established by society and industry.
Governments - the national government and other governmental departments are important stakeholders that have direct impact on the firm's strategies. The government expect the firm to pay taxes, to adhere to the letter and intent of public policy dealing with the requirements of fair and free competition; discharge of legal obligations.
Local Communities - the local communities are also important stakeholders. The firm needs to participate in community affairs and to provide regular employment and support to the local government.
Main Resources and Capabilities
Resourced-Based of the Firm
Â Â Â Â Â Â Â Â Â Â Â The resource-based view presents a perspective of competition that portrays the value of a resource or capability as derived from the dynamic interplay of market forces. While the market and environment establish external constraints and pressures, a firm's response through resource allocation and capability development become a source of competitive advantage (). The resource-based perspective views a firm as an organization that has a bundle of protective resources and capabilities. Resources are tangible and intangible assets a firm uses to choose and implement its strategies. Capabilities are the skills a firm uses to bring its resources to bear.Â The capabilities of the firm are:
Lowest airfare rates
Simple processes (no frills)
Large brand awareness
Clear offer (focuses on particular market segment)
Innovative strategies on cost cutting
Quick turnaround time
The resources of Ryan Air are:
1. Physical Resources - consists of the resources that are needed to operate such as aircraft fleet, headquarter, secondary airports.
2. Human Resources - the company has 2,700 employees.
3. Financial Resources - The financial resources of the company comes from the Ryan Family, shareholders, investors and creditors.
4. Intellectual Capital - these are the knowledge, skills, abilities and talents that every in Ryan Air possesses.
Sustainable Competitive Advantage
Â Â Â Â Â Â Â Â Â Â Â Ryan Air continues to be the lowest cost airline in Europe. The firm manages to maintain its cost leadership despite the presence of other low cost airlines in Europe. The source of competitive advantage of the company is its ability to drive down costs to sustain low fares while at the same time remain profitable. This is done through:Â
1. Fleet Commonality
Â Â Â Â Â Â Â Â Â Â Â The airline's fleet is made up of Boeing 737, the most common aircraft being flown in the present. Because of fleet commonality the firm is able to cut on costs in obtaining spares and maintenance services.
2. Contracting Out of Services
Â Â Â Â Â Â Â Â Â Â Â Other than Dublin Airport where the firm maintains its staff and services, Ryan Air contracts out aircraft handling, ticketing, baggage handling and other functions to third parties. The firm is able to obtain competitive rates and multi-year contracts at fixed prices, limiting exposure to cost increases. Third [arty service outsourcing also limits Ryan Air's Direct exposure to employee relations responsibilities and potential disputes.
3. Airport Charges and Route Policy
Â Â Â Â Â Â Â Â Â Â Â Airport charges include landing fees, passenger loading fees, aircraft parking fees and noise surcharges. In order to reduce these fees, the firm avoids congested main airports and chooses secondary and regional airport destinations which are very interested in increasing passenger throughput.
4. Staff Costs and Productivity
Â Â Â Â Â Â Â Â Â Â Â In order to control employee compensation costs, the firm implements a performance related pay structure. Although the company provides lower labor costs, the employees can earn additional pay or remuneration base on their performance.
5. Marketing Costs
Â Â Â Â Â Â Â Â Â Â Â In order to reduce marketing costs, the firm cut its rate commission to travel agents. The firm's main advertisement tools are newspapers, radio, television and its company website.
Future Strategy and Recommendations
Mergers and Acquisitions
Â Â Â Â Â Â Â Â Â Â Â Mergers and acquisitions have become one of the most important corporate-level strategies in the new millennium. Merger and acquisition strategies are important to firm growth and success in the 21st century ( 2001). As Ryan Air continues to grow it is expected that the company will acquire other companies such as Buzz, in order to improve its capabilities and acquire more competitive advantage.
Strategic Human Resource Management
Â Â Â Â Â Â Â Â Â Â Â Ryan Air, in its commitment to low-cost airfare have sacrificed its processes and services. The human resources of the company are not seen as a potential source of competitive advantage. The company do not seem to value its people. There is a growing belief that a company's human resources is the most important source of competitive advantage. Human resources or the company's people are one source of sustainable competitive advantage. In a fast-changing environment where technological innovations and other strategies can be copied, it is the human resources that bring a sustainable competitive advantage.
Strategic Planning on Ryanair
In the start of the business, Ryanair considers it itself as an underdog in the competition in an airline. The proprietors are aware in the difficulty of handling the business as well as gaining its efficiency and advantage in the market. But in the continuing effort, the Ryanair found the strategy that brought the entire organization on top. The different approach on marketing strategies gave them the chance to compete in the international market. Through the influence of the stakeholder, the analysis of different environment, and the marketing strategies, Ryanair enable to establish the low-cost fare strategy while at the same time, maintaining their effectiveness in the market.
1.0 Introduction: History & Strategy
Ryanair started as an unstable business and after many years, it became the most profitable airline in the world. The organization managed to reinvent and has become the largest low fares carrier in Europe. Today, the spectacular growth of the airlines reflects in the strong economy of Ireland. Through the different applied strategies, Ryanair kept the ability to lower its costs in their aim to maintain the strong positions in the industry (Roseingrave, 2000).
2.0 External Analysis
In the macro-environment and the industry analysis of the business, there are factors that influence the organizations decision to establish the strategies and performance. Due to those factors it is natural for the organization to set standards that made them label as "The Ryanair Effect". Part of the strategies of the organization is to safely deliver the passenger in a convenient and inexpensive form of transportation in the world. The idea of low cost airlines are based on the idea and probably demands of the people to fly more often if the expenses is not that high or affordable for everyone.
Engaging in the low cost strategy is to fly mostly to and from airports that are not necessarily the busiest place which is also referred as the secondary airports. Ryanair proved that operating in the secondary airports is cheaper than the bigger major airports and also less complicated to make a maneuver on their aircraft. And with this strategic approach, Ryanair is the most suggested airlines when it comes to low-cost marketing (de Puget, 2003).Â Ryanair Airlines also managed to gain support from their key stakeholders, as their business partners, and winning their favor to make their plans possible. It is part of the organizational culture to understand the importance of each stakeholder and the benefits they might realize in working with them. And in a broader sense, anticipating the people's reaction in their project may be build a strong relationship and winning their support.
In the combination of the corporate social responsibility and hardware and software systems, Ryanair managed to deliver the efficiency in their customers. Ryanair Airlines and other airlines that falls in the category in servicing the people through the use of aircraft, has always been responsible in delivering the tourists and the other individuals to their point of destination with full of satisfaction. The customer satisfaction is not only based on the affordability of the flying tickets but also on the experience that the airlines will leave to the clients especially when they are first-time flyers. In addition, the no-frills methodology used by the Ryanair has also improved the efficiency and productivity. The traditional flight services like seat allocation, complimentary drinks and meals, and free newspapers have been eliminated. Instead, Ryanair exchanged it with charging the services they offered to the customers for in-flight services and other travel expenses such as travel insurance (Dhalla, 2009). Ryanair's cost advantage are very significant and other low-cost operations began to emerge and pushing the traditional way of offering services.
4.0 Strategic Situation
In the emerging need of the timeliness and accuracy, Ryanair managed to cope with the changes in the technological innovation and promoted the use of the internet, databases, and websites to accommodate all of the customers as well as their target customers. The growth and diversification of Ryanair would not have been possible without reliable computer systems.
5.0 Strategic Choice
The marketing strategy of the Ryanair had been critically assessed by its stakeholders and formed a market busting strategy that made the entire organization of the Ryanair that made them one of the premier airlines in Europe. Aside from the low cost and secondary airports offered by the organization, there are other business approaches that Ryanair applied to fill up some of their losses.Â Furthermore, the low cost and no-frills offer of the Ryanair gives them an advantage against their competitors.