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The present report attempts to present the micro and macro environmental analysis of Ryanairs business and human resources strategies. Through the use of theoretical models e.g. PEST analysis, Porter’s five forces, value chain activities, Vrio analysis it is given an overall view of Ryanair’s strategic model.
Ryanair strategy (Resource Based Review)
Ryanair Holdings is one of the most popular airlines founded in 1985 with its headquarters at Dublin in Ireland. Its first flights began in 1986 between Ireland and United Kingdom breaking the duopoly of British Airways and Aer Lingus. In 1990, Ryanair adopted the Southwest Airlines Business model in an attempt to become competitive as regards the low fares (Ryanair, 2012).
Today, Ryanair operates 1,500 flights per day from 44 bases across 27 countries, whilst the number of its employees is over 8,000. Its fleet consists of “next generation” Boeing 737 – 800 (Ryanair, 2012). Its basic capability is the achievement of low fares, the minimisation of delays (punctuality) and service commitment (notification of delays, speed up check – in) (RyanairPassengerCharter, 2013). Its resources and capabilities will be further analysed in the value chain activities chapter.
As far as the number of passengers, it is considered the largest European low – cost carrier and the second largest airline company. Moreover, Ryanair is the world’s biggest carrier of passengers all over the world and the fifth largest carrier in and outside Europe (Byles, 2013).
Analysing the microenvironment
The internal analysis concerns all the resources and capabilities that are required so as the organisation can be able to implement its strategy (Porter et al., 2006). Actually, internal analysis involves the identification of core competencies, which represent the “distinguishing factors” that build the competitive advantage (Hamel & Prahalad, 1994) (Bani – Hani & Abdelgader AlHawary, 2009), (Porter et al., 2006). Also, Hamel and Prahalad (1994) argued that the success of the organisational strategy is linked more to company’s internal resources than the external factors (resource – based review).
For the airline companies the competencies involve the effective marketing of their flights, the training of the personnel and the maintenance services for their aircrafts (Robinson, 2009)
Ryanair’s core competencies concern the establishment of cheap and low cost fares, which are considered to be unbeatable and difficult to be copied by the rest of the airline companies (Robinson, 2009). This is supported by industry experts, who claim that Michael O’ Leary, the chief executive officer of Ryanair Holdings, has managed to create a “singular focus” on cost efficiency practices that other airline companies are unable to imitate (Byles, 2013).
Ryanair’s strategic intent
According to Ryanair’s official website there is no published and clear mission of the company; however in its annual report in 2012, it is stated that “Ryanair’s objective is to firmly establish itself as Europe’s biggest scheduled passenger airline, through continued improvements and expanded offerings of its low-fares service” (Ryanair’s annual report, 2012). Company’s strategic goal is to offer low – cost fares in order to increase the number of passengers “focusing on cost-containment and operating efficiencies” (Ryanair’s annual report, 2012).
According to Porter (1980), there are three types of strategies that the organisations can follow in order to achieve a competitive advantage. They are referred as generic strategies as they can be applied to different organisations in different industries (Henry, 2011). These strategies are: overall cost leadership, which allows to the company to make a profit through the low cost policy; differentiation strategy, which concerns the production of products that customers perceive as different; focus strategy, which allows to the company to focus on the production of products either according to specific characteristics of a customer group, or geographical markets (Henry, 2011).
Ryanair’s generic strategy is considered to be the overall cost leadership as its vision and mission is focused on “being established as the leading low -cost European airline company” (Ryanair’s annual report, 2012). Furthermore, the company focuses on ensuring that all of its internal activities within its value chain are associated with the low cost strategy. This is achieved by the use of its value chain activities i.e. operations, customer service, the use of on – line services, the ancillary revenues and human resource management, indicating how Ryanair manages its internal activities for succeeding competitive advantage in the lowest cost fares (Byles, 2013). Thus, Ryanair’s strategy is based on differentiate itself as the lowest cost carrier by implementing cost efficiency operations by lowering personnel expenses, customer service cost and use of secondary airports.
Value chain activities
The value chain analysis is important in order to acquire a sound understanding of how the organisation uses its resources in order to create the competitive advantage towards competitors (Porter, Smith, Fagg, Winfield, & Bishop, 2006).
Ryanair in an attempt to implement its strategy takes advantage of its internal resources which are the control of operational costs, customer service, use of Internet and ancillary revenues.
As far as the operational costs is concerned, the company uses for its flights the “next generation” Boeing 737 – 800 which are bought from a single manufacturer allowing Ryanair to minimize the costs related to training, maintenance, flexible management of spare parts and efficient scheduling of flight crews. Since Boeings 737 -800 are widely used it allows to Ryanair to hire flight crews; what is more, the purchase of aircrafts from a single manufacturer enables Ryanair to negotiate and achieve low prices (Byles, 2013).
Another Ryanair’s operation related to cost control is the use of secondary and regional airports for “point – to – point flights” that offer competitive prices; many times the cost is determined by the traffic volume as it is agreed with the airports (Ryanair’s annual report, 2012). Even though the selection of secondary airports could create an inconvenience to passengers due to their distance from the cities, it has minimized the possible delays that frequently occur at the big airports due to the increased traffic volume (Byles, 2013). According to Ryanair’s annual report 2012, “Ryanair’s performance on time for the year 2012 reached 91%. Additional operations are the selection of outdoor boarding stairs instead of jet ways, which are considered to be much more expensive and dysfunctional. Furthermore, Ryanair has launched the on line checking and the checked – bag fee in order to reduce the handling costs and the number of bags carried by passengers (Ryanair’s annual report, 2012).
In contrast to other airline companies, Ryanair avoids including meals or in flight services that could increase the cost.
According to its annual report 2012, Ryanair’s strategy concerns the achievement of customer satisfaction in congruence with its low cost fare strategy. This is accomplished through the reduction of services such as free checked bags and in flight meals/movies and reinforcement of others such as on – time arrivals and departures and fewer lost luggage. Ryanair in its official website claims that its competitive advantage towards the other airline companies is based on the achievement of the elimination of delays through the operations from regional airports and the reduced number of cancellations. The company has based its strategy on its belief that customers are interested more in low fares and additional services with an extra cost instead of being delivered with high quality services expressed in a high fare (Ryanair’s annual report, 2012).
Nonetheless, according to Air Transport User’s Council, in 2009 Ryanair and Easy Jet have faced most complaints about cancellations and missing bags of all European Airline companies (Byles, 2013). What is more, the quality of the services provided was quite poor. The chief executive officer of Ryanair, Michael O’ Leary stated that “passengers will put up with just about anything such as high luggage fees, relentless in – flight sales pitches for smokeless cigarettes, minimal customer services, bad, expensive food, cramped seats and flights to secondary airportsâ€¦.” (Felix, 2010).
Basic element of Ryanair’s internal activity is the set of ancillary revenues. Those revenues are beyond the cost of the ticket and concern accommodation services, travel insurance, charges for food, checked package, priority boarding, sports equipment, infant equipment and other services (Ryanair’s annual report, 2012). Ryanair has been considered to be quite innovative with the services related to revenues.
In 2009, Ryanair has promoted the sale of cigarettes without smoke; yet on February of the same year, it has been the first airline company that allowed mobile services on regular uses across UK airspace which has been welcomed by the Air Transport Users Council (BBC, 2009). Also, it has contracts with companies to handle services that are available on the official website of Ryanair in exchange of a fee (Byles, 2013). One of the contracts presented on its annual report 2012 is the one with Hertz Corporation in order to handle all the car rental services promoted through Ryanair’s website. Moreover, it sells bus and rail tickets onboard its aircrafts.
Since 2010, Ryanair charges £2 fee for cancellations either due to the volcanic eruption in Iceland or strikes in Spain and Barcelona and £40 when the passenger fails to print out his/her boarding pass. The above fee has been considered as illegal by a judge in Barcelona (Byles, 2013). According to the Amadeus Guide to ancillary revenue in 2010, Ryanair is estimated to have earned over 22.6 billion dollars for the 2010. For the fiscal year 2012 ancillary revenues have accounted for 20% of total operating revenues (Ryanair’s annual report, 2012).
Taking advantage of the Internet
Since 2000, Ryanair uses Navitair as an on – line reservation system. Today, Ryanair is considered to be as one of the largest travel websites in Europe and it has managed to build up on its corporate image making it a valuable intangible asset. According to Barney (2001), intangible assets are able to develop the company’s competitive advantage and when are associated with its culture, it is difficult to be imitated by the competitors. Ryanair has managed to take advantage of the Internet for booking, check – in and boarding evolving into a competitive advantage as it remains the fifth recognised airline brand for the on – line services (Byles, 2013).
Commitment to safety and quality maintenance
Ryanair gives emphasize to the safety of flights as it is considered company’s first priority (Ryanair’s annual report, 2012). This is achieved through the constant training of pilots and its aircrafts alignment to the highest European airline standards. Even though Ryanair’s strategy is focused on maintaining and promoting the low – cost strategy in fares this is not applied to the safety issues of its flights (Ryanair’s annual report, 2012). Ryanair mainly performs service repairs and routine maintenance on its aircrafts, but there are also other maintenance contractors that deliver those services to its aircrafts based on several airports (Ryanair’s annual report, 2012).
Human resource management
Ryanair’s business strategy for low cost fares is reflected on its human resources management strategy (Porter, Smith, Fagg, Winfield, & Bishop, 2006).
The company implements the productivity based incentive system in an attempt to control costs related to its personnel. These incentives are associated with the on board sales and related comissions; as regards pilots, their payment is based on the number of hours or sectors flown (Ryanair, 2012). The maximum number of working hours for pilots is determined by industry standards and regulations. According to the Irish Aviation Authority (IAA) regulations, pilots are supposed to work for no more than 100 flight – hours per 28 – day cycle, 300 flight – hours every three months and 900 flight – hours per fiscal year (Byles, 2013). However, flexibility in the working hours is supported by the management in order to not set at risk the productivity – based incentive system.
Since Ryanair’s strategy is focused on achieving low cost fares, the company has applied the pilot training in order to train pilots how to fly the aircrafts with the least fuel consumption. This demonstrates the company’s flexibility to adjust to the unexpected changes of the turbulent economic and business environment creating a competitive advantage (Teece, Pisano, & Shuen, 1997).
According to Ryanair’s official web page in 2012 there have been many opportunities for its employees to achieve career development. “Whereas other European airlines are cutting jobs, or closing (as in the case of Spanair, Malev, Cimber Sterling, and OLT Express in recent months) Ryanair is proud of its long-standing record of job creation and internal promotions” (Ryanair Careers, 2013).
Yet, most of its employees belong to employee unions as they represent their rights about payment and treatment within the company (Byles, 2013). However, Airscoop which is a consultancy company, in its report for Ryanair’s business model (2011) stated that the selection of employees’ representatives is accomplished by Ryanair’s own management since employees’ unions should not be independent (Airscoop, 2011).
Implications of Ryanair’s competitive low – cost strategy for human resources management and development
From a different point view, Ryanair in an attempt to adjust HR practices and policies to its low – cost strategy, has managed to create the reputation of the “stringiest” employer (Baum, 2006).
The last two years Ryanair has decided a pay freeze on payments for all employees and it is likely to eliminate employment positions affecting negatively the employee relations (Byles, 2013).
Also, in 2005 the ban for members of the staff to use chargers for their mobile phones has cast a shadow over Ryanair as an employer; the ban was communicated to the staff through memo (Clark, 2005).
Nevertheless, all the employees of Ryanair are required to buy on their own expenses the work uniforms, the meals and the training seminars (e.g. pilots). Even though Ryanair’s employees are represented by unions (Byles, 2013), they are discouraged from using the company’s websites to write anonymously their dissatisfaction for its HR practices. The company being aware of employees’ constant complaints applies high court injunction in order to identify the employees, who post bitter comments for the company (Clark, 2005).
In 2005 a representative of the Irish trade union, Shay Cody, has stated in The Guardian that Ryanair is considered to apply hostile HR practices towards its workforce; this is the reason why the turnover rate has been increased, especially among junior pilots and cabin crew.
As far as the recruitment is concerned, even though Ryanair attempts to attract new employees to recruit the cabin crew by high salaries, it requires them to pay for their training (Ryanair, 2012). Also, pilots in order to enhance their skills and their ability to fly the new aircrafts, they are responsible for their retraining, implying sometimes that this is an approach for their “constructive dismissal”, since the old aircrafts are phased out (Clark, 2005).
Taking into consideration Schuler and Jackson’s model (1987), who related the competitive strategies and the HR policies, it is clear in the case of Ryanair how the cost reduction strategy can affect the HR policies. The company in order to gain the cost efficiency competitive advantage applies low cost training, low levels of pay and unionism and insubstantial HR function (Porter, Smith, Fagg, Winfield, & Bishop, 2006).
Best fit or best practice?
According to Schuler’s and Jackson’s model(1987) “different competitive strategies imply different kinds or blends of employee behaviour” (Boxall & Purcell, 2011). Under these circumstances, it is entailed that Ryanair belongs to the best – fit school of strategic human resource management; the HR practices and policies are tailored to company’s strategy, which is the low cost leadership, implying reduced employee wages and short – term productivity based rewarding systems with adverse effects on employee relations and company’s internal reputation (Boxall & Purcell, 2011).
The resource based review is based on the value (V), rarity (R), imitability (I) and organisational aspects of resources and capabilities (O), resulting to VRIO framework (Peng, 2009).
In the case of Ryanair, its resources and capabilities are valuable, due to potential passengers’ sensitivity to low prices; this means that air travellers select Ryanair for travelling by plane since its low cost strategy leads to lower cost fares in comparison with the competitors.
According to Byles (2013), the European airline industry is quite competitive; however, there is a limited number of airline companies that can be characterised as low – fare e.g. Easy Jet, Air Berlin and Germanwings.
In the question of immitability, as mentioned above, Ryanair’s competitive advantage is difficult to be imitated by its competitors. This is reasoned by the fact that the comapny’s management has taken advantage of its resources and capabilities, creating “a singular focus on cost control” (Byles, 2013). Under these circumstances, it is likely that the competitors might face a cost disadvantage in an attempt to develop it.
Taking into consideration the key elements of its value chain activity, Ryanair organises its internal activities by emphasising on minimising the cost to all of its stages in order to achieve the goal of cost efficiency e,g. Customer service, operational functions, human resource management(Porter et al., 2006)
Macro environmental analysis
The macro environmental analysis concerns all these external factors that can affect the company and include political/legal, economical, social and technological factors widely known as pest analysis (Hooley, Saunders, & Piercy, 2004).
The introduction of E.U. legislation since 2004 concerning the compensation of passengers, who have valid ticket for a flight and are denied boarding on the specific flight (Regulation (EC) No. 261/2004 – Department of Transportation). The application of this legislation might result in increased costs for Ryanair in case of mass cancellations due to an incident occurred beyond its control e.g. volcanic eruption in Iceland in 2010 (reference).
The introduction of travel taxes by E.U. governments since 2011.
The UK government has increased the Air Passenger Duty from £10 to £13 since 2007. The Dutch government has imposed a travel tax ranging from £11 on short haul flights to £45 for long short flights, which was withdrawn from July 2009. Yet, the governments in Ireland, Austria and Germany have imposed Air Travel Tax, Ecological Air Travel Tax and Air Passenger Tax accordingly, since 2011. The introduction of these taxes is likely to have an adverse impact on Ryanair’s operational results and financial growth (reference).
The implementation of European Emissions Trading Scheme regulation for the airlines since 2012.
All airline companies are required to comply with this regulation, otherwise a penalty of 100â‚¬ will be imposed per missing allowance of CO2 on a flight. Nevertheless, except for financial penalties, non – compliers cannot operate in E.U. airspace (EUcommission, 2013).
Adverse economical conditions in European countries
Even though there is a political stability in the European zone, the rise of unemployment rates in countries such as Greece, Spain, Portugal and others prevents Ryanair from counteracting the increase in fuel costs. Nevertheless, governments’ financial incapability and decreased economic ability to foster growth dissuades Ryanair from expanding its activities such as introducing new routes or growing the number of potential customers (Byles, 2013).
Rise of fuel costs and the airport charges in 2012 has affected the airline industry in terms of financial cost; Ryanair’s business model of low cost fares is considered to be adversely affected by this financial distress (Byles, 2013).
Incidents of terrorism in the United Kingdom and United States and the increased security measures for dealing with these incidents
On August 2006, at a UK airport, 8 people were arrested for being connected to an illegal activity during transatlantic routes. Under these circumstances, the UK authorities have taken drastic measures in order to increase the security at the airports. This resulted in extended delays and mass cancellations for Ryanair.
The 2001 terrorist attack in the United States has an adverse effect for the airline companies worldwide increasing the need for government insurance or passenger insurance during the flights.
The increased operations in grey market
After the introduction of Open Skies Agreement in 2008, the airline companies have taken advantage from regulator’s blind eye to the operation of the grey market in order to expand their business performance (Pickett, 2008).
The increase in the labour mobility and the changes in travel behaviours and lifestyles have influenced the frequency of travelling (Lee & Sparks, 2007).
The decrease in the average purchasing power per person in Europe might has a negative impact on selecting the airline companies for travelling (Eurostat, 2013)
Technology expansion (internet sales) for booking, check-in and boarding
Increased internet competition among airline companies
Porter’s five forces
According to Porter (1980) the five forces framework is considered a useful tool with which the competitiveness and the potential profitability of a particular industry can be assessed and evaluated (Henry, 2011). These five forces include:
The threat of new entrants
The bargaining power of suppliers
The bargaining power of buyers
The threat of substitute products or services
The intensity of the rivalry among firms in an industry
The threat of new entrants
In the case of Ryanair the level of the threat of new entrants is determined by the capital required to enter the airline industry, which prevents other companies from entering it. Furthermore, the limited “slot availability”, which is according to the European Council Regulation the permission given to the airline companies to take advantage of the airport operation system for performing in full potential their services (Byles, 2013). But, the need for low cost fares maybe used as a strategy for the new entrants to attract customers. Under these circumstances, it is quite difficult suitable airports to be found. Hence, the level of threat of new entrants can be considered as low.
The bargaining power of suppliers
As far as the bargaining the level of power of suppliers is concerned, this can be considered quite low. This is due to the fact that the possible suppliers for the airline companies are Airbus and Boeing, which is the main supplier for Ryanair’s fleet. Moreover, the switching cost from one company to another is quite high so it is likely to dissuade companies from changing companies. Yet, Ryanair in order to support its cost efficiency strategy has chosen to perform flights from and to regional and secondary airports which have low bargaining power. As regards the fuel cost, Ryanair controls that through hedging; this means that in an attempt to minimise losses from the possible increase in its price, Ryanair has reached to an agreement to buy that in a fixed price for its future needs.
The bargaining power of buyers/ customers
Ryanair’s commitment to low – cost fares has managed to attract customers, who select it for their travels. Since there is no brand loyalty and the customers quite sensitive to the level of fares, they are unlikely to ignore Ryanair. Under these circumstances, the level of bargaining power of customers is quite low.
The power of substitute services
The powers of the substitute services is considered to be medium due to the fact that there is a wide range of alternative means of transportation such as cars, ships, trains. In the case of Ryanair, rail systems and sea transportation could substitute the use of flights mainly to destination within Britain and Ireland (Byles, 2013). However, as mentioned above there is no brand loyalty, so customers can easily switch companies without cost.
Rivalry among competitors
According to Byles (2013), the competition in the European airline industry is highly competitive involving low cost companies e.g. Easy Jet, Air Berlin, the traditional ones e.g. British Airways, Lufthansa and Air France and the charter airlines e.g. Thompson, Titan Airways. Ryanair thinks that the increased competition originates from the significant subsidies that are provided to state- owners competitors such as Air France. Nevertheless, since there was an agreement between the E.U and U.S. in 2008, known as Open Skies Agreement has allowed to U.S. airline companies to share the profits in the European Airline Industry (Byles, 2013).
Even though Ryanair’s low fare strategy seems difficult to be copied by the rest of the companies, a survey in May 2011 conducted by The Telegraph, showed that this strategy can be easily negotiated in case the extra fees are added; this can result in making traditional companies seem more attractive and this in turn more competitive. Thus, this can lead to severe limitation on margins and profits for Ryanair.
Having examined the business and strategic human resource management framework in the case of Ryanair there is a number of future challenges that can emerge associated to Ryanair’s strategy and the sustainability of its competitive advantage. Since customers are becoming more and more aware of Ryanair’s fee structure (low fares combined with poor quality of services by extra fees), its sustainability is questionable. Furthermore, the increasing legislation and the economic crisis in European countries has set the viability of its business model in danger. Nevertheless, is it possible to maintain its competitive advantage by implementing “softer” HR policies and practices? Hence, Ryanair’s management should take into consideration all the possible challenges that could set into jeopardy its competitiveness and business strategic vialibility.
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