Ryanair Case Study Analysis Commerce Essay

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Ryanair started in year 1985 with only 57 staff members and with one 15 seater turboprop plane from the south of east of Ireland to London-Gatwick which carried 5000 passengers on one route (, 2002). In 1986, inspired from the story of  the company go after the big guys for a slice of the action and end up smashing the  or British Airways high fare cartel on the Dublin-London route. The staff increased from mere 57 to 120 staff members and the plane carried for about 82,000 passengers on two routes. In 1989, the company employed 350 staff and their average maximum passengers increased to 600,000. In 1990-1991, the company has 700,000 passengers.

However, despite of the increase of passengers, the company is not so good in managing cost that the company has lose its money. A new management team is brought in to sort it out and re-launch as a "low fares or no frills" airline, closely modelling the Southwest Airlines model in the U.S. And in 1994, Ryanair bought its first Boeing 737 aircraft which carried over 1.5 million passengers. In 1995, Ryanair is the biggest passenger carrier on Dublin-London route, the largest Irish airline on every route being operate and carried 2.25 million passengers in the year (, 2002).  

In 1997, the EU air transport deregulation allowed the airline for the first time to open up new routes to Continental Europe with over 3 million passengers on 18 routes carried. Ryanair launched services to Stockholm, Oslo, Paris and Brussels and took time out to float Ryanair plc on Dublin and NASDAQ Stock exchanges. The company was awarded as Airline of the Year in 1999 by the Irish Air Transport Users Committee.

In 2000, they announced the launch of 10 new European routes for the summer 2000 after much deliberation and watching others burning money. The company has also jump onto the internet with the launch of their new online booking site and in just 3 months the site is taking over 50,000 bookings a week. By 2001 there are more than 1500 employees working for Ryanair and more than 10 million passengers are carried to 56 cities in 13 European countries. The company has opened Frankfurt-Hahn in 2002 as their second continental European base and announce a long term partnership with Boeing which will see the company acquiring up to 150 new Boeing 737-800 series aircraft over an eight year period from 2002-2010.

The booking in their web accounts have increased to 94% which has probably has something to do with opening another 26 routes. In year 2003, the company is characterised by rapid expansion and the start the year by announcing that the company has ordered an additional 100 new Boeing 737-800 series aircraft to facilitate the rapid European growth plans(, 2002). They acquired Buss from KL M in April and re-launched 13 buss routes in May. In February they opened their first base in Italy at Milan-Bergamo and launched their Stockholm base in Sweden with six new European routes. In all 60 new routes are added throughout 2003 to bring the company a total of 127 routes. By 2004, the company is named as the most popular airline on the web by Google and they launched their 10thand 11th bases in Rome Ciampino and Barcelona Girona and continue to add more routes to their already extensive network. The company has also passed out British Airways to become the UK's favourite airline in United Kingdom and throughout Europe (, 2002).

 

Critical Success Factors

            Although the company had encountered different problems, specifically in line with its cost structures, the company had been able to survive and grow in the marketplace.  Ryanair implement different marketing strategy to make the company survive in the competition and to be able to gain competitive position in the airline market.  It is said that the company was regarded recently as the most punctual airline between Dublin and London. And because of the strategy of the industry, Ryanair is now recognised as the second largest airline in United Kingdom and Europe's largest low-fares airline having a network of over 57 routes in 11 countries and served by a fleet of 31 Boeing 737-200 and -800 aircraft with over 1,400 staffs and personnel.

In order to position itself in the marketplace the company continuously concentrates on driving own its costs to offer the lowest fares possible and remain profitable.  In addition, Ryanair offer minimum standards of service and very low prices for point-to-point, short haul flights.  The goal of Ryanair is to meet the needs of travelling at the lowest price.  The Critical Success Factors (CSFs) are as follows in airline industry: the strategic focus of having the lowest prices, being reliable within the marketplace, comfort and service and frequency. 

It is noted that low-cost companies concentrate on this first critical success factor by trying to offer the lowest prices.  Although Ryanair has eliminated extras such as in-flight meals, advanced seat assignment, free drinks and other services, it still prioritises features which remain important to its target market. Such features include frequent departures, advance reservations, baggage handling and consistent on-time services.

 

External environmental analysis

By using a PESTEL Analysis we scan the macro environmental factors that would influence the performance of an organization. It is often used to generate market ideas and product ideas.

Factor

Ways which factor might affect RyanAir

Political/ Legal

Change of government/policy

Ryanair have been involved in various legal disputes with governments both in this country and the EU regarding their business deals with airports and airline regulatory bodies

Political changes in countries where they have routes to (could also be affected by above point)

Governments in countries they fly to may support their own flagship carrier

Local councils objecting to noise and new runways being built as in past

Governments looking to increase tourism might welcome Ryanair and therefore act in their favour.

Economic

Potential economic recession, Ireland's economy has already been stated as growing however this may suddenly change.

Because of above main customers wouldn't fly for business as would be cost cutting

Energy and fuel costs are cause of uncertainty

Economic change within countries they fly to or would hope to open new routes to, for example war with Iraq has shut off any hope of tourism there for the foreseeable future and other factors such as SARS (O'Higgins, 2004) and more recently, Bird Flu.

Social

Because of economic growth at the moment it has become normal to fly away for holidays therefore market has expanded and new opportunities for tourism have opened in previously unconsidered countries.

Business trips, although Ryanair do not offer luxury they are possibly more attractive because less cost to a company means they can travel more frequently.

Lower costs means attract a wider demographic of consumer

Technological

Main threat to business market is video conferencing

To a lesser extent VOIP

Online check-in, self service check in at airport

O'Higgins, (2004) discusses that Ryanair currently have a fleet of mainly Boeng 737s which are one of the best known and used commercial aircraft. 'Thus, the company is able to obtain spares and maintenance services on favorable terms thanks to economies of scale, limit costs of staff training and offer flexibility in scheduling aircraft and crew assignments'

Environment

Using more environmentally- friendly aircraft.

Aviation represents 2.6 per cent of carbon emission in the EU and airline industry should pay environmental taxes for the contribution they make to global warming.

Deploying more efficient aircraft that use less fuel and produce less pollution.

.

Industry analysis

Market Segmentation

Ryanair lay claim to their market segment by stating they were 'Europe's first no frills airline', www.ryanair.com. Ryanair have made strategic decisions based on increasing their competitive edge, the main one becoming involved in attracting customers at both ends of their routes. Haberberg and Rieple , support this by showing that Ryanair's key source of revenue from as far back as a decade ago has been in enticing passengers from France, Italy and Scandinavia. This has had the advantage of increasing their market share as well as the added bonus of creating a well recognised brand name across Europe.

Competitive Advantages

Their main competitors are carriers including easyJet, BMI baby, FlyBe and ThomsonFly all of who try to attract potential customers by emphasising their low cost tickets. This makes the competition in this market segment fierce as in order to offer the lowest fares, costs must also be kept to a minimum. The well discussed fact that Ryanair possesses a more than favourable relationship with airport operators has benefited the carrier in a time of industry

growth and aggressive pricing. The carrier continues to pay little or no costs despite being the focus of the EU Commission in February 2004, 'which ruled that Ryanair had been receiving illegal state subsidies for its base airport at publicly-owned Charleroi Airport', O'Higgins (2004).

Ryanair and the airport in question defended themselves by declaring they paid a fee for every customer and therefore complied with the EU state aid rules. O'Higgins (2004) claims that Michael O'Leary's main argument was that the 'state aid rules allow the Wallonian government to stimulate traffic at an unused airport facility in exactly the same way that every private airport reduces its charges it if wishes to grow its business'. However, although these decisions by the EU Commission went against Ryanair, it also made them even more of a household name across the EU. The free publicity was an added bonus, as well as the position Ryanair took, of being almost asaviour of the lesser known airports, bringing them trade and tourism and then being

persecuted for it.

Porters Five Forces Model

Porter's five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. Porters five forces model has been fully elaborated more on Appendix

Threat of substitutes is medium for Ryanair and is basically in the form of land,travel. Barganing power of buyer is high as low budget air travel is almost a commodity today and carriers are many. Buyer are well informed at prices and deals via internet and other mediums. Barganing power of the suppliers as Ryanair with its large scale holds the power to switch suppliers and demand better terms, especially to cut cost.Threat of new entrants is medium- as entrance to tarvel industry needs special licenses etc as well as high capital investments.Existing Rivalry is high with Ryanair competing against national carriers as well as low budget carriers for their share of market. Overall the industry witch Ryanair in is of medium attractiveness.

Strategic Grouping Model

Internal Environmental Analysis

Ratio Anlysis

Value Chain Analysis

SWOT Analysis

Factor

Ways which factor applies to Ryanair

Strengths

Marketing - strong branding and reputation, aggressive price strategy.

Low costing due to airport operator deals.

Reputation as biggest budget airline.

Lots of publicity due to O'Leary and controversial issues.

Air Transport World magazine announced that Ryanair was the most profitable air line in the world.

2006 Annual Report, Ryanair desinged itself as the 'World's Favourite Airline'.

Weaknesses

Cash tied up in purchase of new planes.

Entire company based on European low cost airline market.

Shock profit warnings may have used cash reserves and weakened fiscal structure

Refusal to back down over issues such as EU Commission

Opportunities

Possible new routes,

New planes = larger capacity.

Advertising space on website and planes, more revenue

Threats

Competitors - BMI baby, Easyjet, ThomsonFly.

Economic recession would mean less disposable income.

EU Commission could put restrictions on company if do not adhere to state aid rules

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