Ryanair Case Analysis Report Management Essay

This report will provide a strategic analysis of Ryanair by looking at the company’s current strategic position, undertaking an internal and external environmental analysis, providing an in depth analysis of various strategic options, and ultimately providing a recommendation for the future strategy of Ryanair.

Ryan air was the first budget airline in Europe; Ryanair is the World’s favourite airline with 37 bases and 950+ low fare routes across 26 countries, connecting 150 destinations. Ryanair operates a fleet of 210 new Boeing 737-800 aircraft with firm orders for a further 102 new aircraft (before taking account of planned disposals), which will be delivered over the next 2.5 years. Ryanair currently employs a team of more than 7,000 people and expects to carry approximately 66 million passengers in the current fiscal year.

External Analysis

The external environment consists of broad environmental factors that impact to a greater or lesser extent on almost all organisations.

The PESTEL framework can be used to identify how future trends in the political, economic, social, technological, environmental and legal environments might impose on organization. The PESTEL analysis provides the broad data from which to identify key drivers of change. These key drivers can be used to construct scenarios of possible futures. Scenarios consider how strategies might need to change depending on the different ways in which the business environment might change

PESTEL Analysis

The PESTEL framework provides a comprehensive list of influences on the possible success or failure of particular strategies. PESTEL stands for political, economic, social, technological, environmental and legal. Political highlights the role of governments.

Porters 5 forces Analysis

Porters five forces framework constitute an industry’s structure. The industry structure analysis with the five forces framework can be of value to organisations. It can provide a useful starting point for strategic analysis even where profit criteria may not apply: in most parts of the public sector, each of the five forces has its equivalents. As well as assessing the attractiveness of an industry or sector, the five forces can help set an agenda for actions on the various ‘pinch-points’ they identify. Porter’s essential message is that where these five forces are high, then industries are not attractive to compete in. there will be too much competition and too much pressure, to allow reasonable profits.

Below we can see the porter’s five forces analysis being conducted for Ryanair in order to check market industry attractiveness.

Threat of new entrants

High capital investment required

Labour and fuel intensive industry

Restricted slots

Flight authorization required

Threat of substitutes

Low brand loyalty of customers

Low switching costs for customers

Availability of other modes of transport; car, train etc.

Bargaining power of buyers

Buyers are ‘price sensitive’

Low switching costs to other airlines

Transparency on price and services provided

Customers are not buying large volumes

Bargaining power of suppliers

Only 2 a/c manufacturers – Boeing/Airbus

Switching costs are high (mechanics/pilots would have to be retained)

Price of aviation fuel directly related to oil costs

Competitive rivalry

Cost advantages can be copied

Low differentiation factors; especially prices

Limited route availability

High threat of substitutes

Threats to industry profitability

Competitive force

Low

Medium

High

Threat of substitutes

Threat of new entrants

Competitive rivalry

Bargaining power of suppliers

Bargaining power of buyers

Unless they are able to find some way of changing this situation, this looks like a very tough industry to survive in. Maybe they’ll need to specialize in a sector of the market that’s protected from some of these forces, or find a related business that’s in a stronger position.

Critical Success Factors

Threshold Features

On time flight departures

Available seats for all passengers

Appropriate safety measures

Minimum staffing levels met

Secure baggage handling

Cheap air fares

Differentiators

Food and drink provision

Seat arrangement

After sale services

Good customer service

Entertainment on board

Extra legroom

Reclining seats

Loyalty benefits schemes

Internal Analysis

To develop a successful strategy, the internal strategic capabilities of Ryanair must also be understood. This section will focus on identifying the key internal strengths and weaknesses (from SWOT). This will be achieved by examining the resources and competencies for Ryanair, applying the VRIO model to these resources and looking at the performance of various business functions within the organisation.

An organisation’s resources can be Physical, Reputation, Organisational, Financial, Intellectual and Technological (Johnson et al, 2004), the table below shows the full extent of Ryanair’s resources and capabilities and only the key factors will be drawn upon here.

VRIO Analysis

Based on the above resources can Ryanair develop its core competence, on which a competitive advantage is possible. In order to figure out whether the above resources can be translated into competitive advantages for Ryanair, the VRIO model can be deployed.

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V-value. This emphasizes that whether the resources are being able to be deployed to meet the needs and expectations of customers. Combining the government subsidies, airport charge reductions and its low-price business model, Ryanair is able to deliver the lowest price, which attracts millions of customers.

R-rareness. In the short-haul budget airline business, only Ryanair has government subsidies and airport charge reduction. Other competitors, especially its strongest and most direct competitor: EasyJet, do not have that resource. This makes Ryanair’s government subsidies and airport charge reduction rare and valuable. On the other hand, the government subsidies and airport charge reduction are given to Ryanair is because its secondary routes and ability to attract customers. Thus, it helps secondary airports develop quickly and bring much more tourists and consumption for local government. Consequently, the resource is hardly transferred.

I-imitability. Apparently, it can be seen through the case that Ryanair, compared with airlines without the resource mentioned above, owns a big cost advantage. And this resource, as mentioned in the previous paragraph, is hardly transferred or imitated.

O-organization. Based on the case, Ryanair makes good use of its various resources and capabilities to deliver the lowest cost and lowest price successfully. The strong management team and effective CEO, its effective operating strategy and marketing strategy all make the deployment of its resources successful, on which its competitive advantage is built up.

In conclusion, Ryanair exploit its resources and capabilities successfully to maintain the cost leadership and provide the lowest price to customers, which is also its competitive advantage.

Valuable?

Rare?

Imitable?

Exploited by organization?

Competitive implication?

Physical

Yes

No

Yes

Yes

Sustainable competitive advantage

Reputational

No/Yes

Yes

Yes

No

Competitive parity

Organizational

Yes

Yes

Yes

Yes

Sustainable competitive advantage

Financial

Yes

No

Yes

No

Competitive parity

Intellectual

Yes

Yes

Yes

Yes

Sustainable competitive advantage

Technological

No/Yes

no

No

Yes

Competitive parity

Key Competencies:

Good brand awareness – Michael O’ Leary has a strong presence in the public eye which has increases awareness of Ryanair across Europe, “O’Leary’s publicity seeking antics earned him a high profile” (O’Higgins, 2004:13). Although some of the press has been negative towards Michael O’Leary, he has clearly turned around the airline and is recognized as having a good leadership style.

Organisational structure ‐ using regional and secondary airports allows for favourable fee

negotiations, quick turnaround times, low delay/cancellation statistics. HR set up allows for

flexible staff contracts, often to save time and reduce Ryanair’s risk to disputes.

Standardisation of aircraft allows for limited number of engineers, quick turnaround times,

and easy access to inventory, all of which reduce costs.

• Financial Stability ‐ one of few airlines with a high net margin of 28.4% in 2003, compared to 8% for Aer Lingus and 3% for EasyJet, market capitalisation had grown from €397million (1997) to €4.74billion (2004), high cash and liquid reserves of £1,060,218,000.

• Strong management team – Michael O’Leary inextricably linked with the success of Ryanair and is often credited as turning the airline around single handedly. Voted one of the “Top 25 Business Stars by the Financial Times in 2004” (O’Higgins, 2004) and airline has won various awards, including Best Managed Airline.

Ansoff’s Matrix

The Ansoff’s Growth matrix is a tool that helps businesses decide their product and market growth strategy.

Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets.

Existing Products New

Existing

Markets

New

Diversification may be of two kinds: related and unrelated. Related diversification divides into backward, forward and horizontal integration:

· Backward integration is a move towards supplier and raw material in the same overall business

· Forward integration is a move towards the marketplace and customer

· Horizontal integration is a move into a closely related business (Ansoff, 1965)

a) Present Product – Present Market Need

1st Option: Cancellation of aircraft orders with Boeing – this would enable Ryanair to optimise its mix of owned and leased a/c – rather than buying, the company could use the investments to lease

2nd Option: Deeper penetration of the EU market -through alliances / mergers (e.g. Air Lingus), Ryanair could increase slot availability and gain access to primary airports / routes

b) New Product – Present Market Need

1st Option: “Ryanair Executive” – business class only flights on existing routes seems attractive as the business traveller rate increases; however, cost for services will increase; eventually pilot project to start on certain test – routes

2nd Option: “Season tickets” / “Family Card” -> customer loyalty / increased load factor & avoid

overcapacity by secure booking

c) Present Product – New Market Need

1st Option: US low cost market entry – idea seems attractive, however, it would require a detailed business case analysis. As the competition among low-cost carriers in America is extremely high, it would be suitable for Ryan air to focus on the SouthAmerican / Latin American regions opening up a hub for continental American flights.

d) New Product – New Market Need

1st Option: “Ryan Hotel” – operated on “low-service / low cost” bases; can be booked online over

Ryan air’s website; no reception – keys will be available at the airport; hotel situated close to the airport

2nd Option: Intercontinental flight between EU and US and thereby entering the new US market – Air

Lingus Acquisition (?); would require different strategic focus (long-haul & frills – cost intensive)

SWOT Analysis

A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W) and those external to the firm can be classified as opportunities (O) or threats (T). such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firms resources and capabilities to the competitive environment in which it operates. As such it is instrumental in strategy formulation and selection.

The following diagram shows how a SWOT analysis fits into an environmental scan:

SWOT Analysis Framework

Strengths

Weaknesses

Strong brand position and brand share

Strong profitability

Low price enabled by government subsidies and airport discounts

Effective CEO, management team and chairman

Effective operation strategy

First mover advantage

No customer loyalty

Poor human resource management policy

Secondary routes cause inconvenience for customers

Weak employee relationship

Dependence on third pray service providers

Opportunities

Threats

Advances cost reductions

Established market share

Strong public branding

Ancillary revenue income

Use alternative fuel

Technology impact on cabin service and system

Acquire rivals to expand

Diversify into car rental and hotel management

Government regulation charges

New competition

Possibility of being taken over

Increased competition

Trade unions

Currency fluctuations

Increasing oil prices

Environment charges

Strategic Choices

There are numerous factors that have contributed to Ryanair’s profitability:

Ryanair’s objectives, as set forth in its 2004 annual report, include:

– Increasing passenger traffic by 20% each year – Reducing fares by 5% each year

– Reducing costs by 5% each year

– Realizing a profit margin of 20% or more

To date, there are numerous factors that have contributed to the company’s profitability, including the following:

1. Cut-price deals.

Ryanair will frequently sell a large number of seats in advance for a nominal fee, for example, €1.00 or less. Indeed, currently approximately 25% of passenger tickets are free, and Mr. O’Leary has a goal of eventually bringing this figure to 50°o by 2010. This attracts immense publicity as customers scramble to log in and purchase seats. For each seat purchased, tax and duties must also be paid, which typically amount to €3040. The tickets are sold on a nonrefundable basis. Because they are so cheap, many buy multiple seats to gain flexibility, and the “no show” rate is therefore much higher for these types of tickets. Average fares reflect these cut-price deals as well as higher fares that travelers pay to secure seats on routes in higher demand.

2. Point-to-point flights.

Each route is a mini-business unit. Capacity is customized to fit demand according to computer-simulated models. If a route is unprofitable, it can simply be cut from the schedule. Passengers may not buy connecting flights so must check in for each Ryanair flight individually. This reduces the firm’s liability in the event of a delay and reduces instances of lost baggage.

3. Flights to secondary airports.

By avoiding the large hubs, Ryanair is able to negotiate reduced landing charges. There is the added benefit of lower congestion at such airports. This allows the aircraft to complete the journey in the shortest possible time. The downside to passengers is that sometimes these airports are located in locations far from the intended destination. For example, the company flies to Frankfurt-Hahn, not Frankfurt, which is 100 kilometers away. Asy states, “For the price-sensitive customers, distance is no problem.”‘

4. Quick turnaround.

Ryanair aircraft are expected to land and take off again from an airport inside 25 minutes. This is only possible because they fly into secondary airports. This allows the firm to maximize the number of flights per day.

5. No overnighting of staff.

By flying point to point, a Ryanair plane ends the day where it started. This means that crew can return to their homes, and expensive hotel bills and per diems are avoided.

6. Internet bookings.

The firm sells over 97% of its tickets via the Internet at its website, ryanair.com, which is now the most popular European travel site. This cuts out travel agent commission costs (averaging approximately 10% of the ticket cost) and gives the airline maximum control over scheduling and capacity. Moreover, it funnels customers towards other services such as car hire and rail tickets, for which Ryanair collects a commission itself. O’Leary is not bashful about this substantial source of cost savings and revenues, having stated, “Screw the travel agent. Take the [agents] out and shoot them. What have they done for passengers over the years?”‘

7. One class.

Ryanair does not offer passengers the choice of business and economy class, eliminating the requirement for food to be delivered to the aircraft when it lands, thus facilitating low turnaround times. Moreover, offering only one class of service furthers the goal of providing low fares, which the company believes is the ultimate in customer service. According to its passenger service and lowest fares charter, “Ryanair believes that any passenger service commitment must involve a commitment on pricing and punctuality, and should not be confined to less important aspects of ‘service’ which is the usual excuse the high fare airlines use for charging high air fares.”‘

8. One aircraft type.

The company flies Boeing 737 planes exclusively. This reduces maintenance training costs and allows for bulk buying of spare parts. The strong financial position of the company allowed it to purchase many of the aircraft that had been canceled by incumbent airlines. These new airplanes are more fuel efficient and have a higher passenger capacity. As of the end of fiscal 2004, the company had fully hedged fuel costs through September 2004, but were largely unhedged thereafter. Subsequently, the company hedged its fuel through the end of fiscal 2006 at US$49 per barrel, while market values topped US$70 per barrel. Additionally, the company has ordered winglets that will be retrofitted on all aircraft, which will reduce fuel burn by approximately 2.5%, which translates into savings of approximately US$10,000-14,000 per aircraft per month.

9. Personnel costs and incentives.

Because the aircraft that Ryanair pilots fly are new, the firm claims that their pilots’ experience is of value to the competition. Therefore, it charges pilots for training, the cost of which is earned back by the pilots through years of service. Pilots have financial incentives for smooth landings, not so much for passenger comfort but for reduced maintenance costs. Additionally, the airline does not provide food or beverages for free but does offer items for sale on each flight. Flight attendants are paid a commission based on the total of beverage and other sales in flight.

Monitoring of the Plan

Monitoring will help us determine which of our marketing strategies are workable and which are not. Monitoring will basically involve;

Tracking and evaluating customers.

Surveying and interviewing regular users for comments about why they find our services important.

Conclusion

Ryan Air has emerged in the recent years as the strongest low fare carrier in Europe. The report has identified the factors leading to Ryan Airs success story until 2003, however, it also describes future challenges on the airline industry and how Ryan air will be able – by adjusting its business strategy- to sustain its competitive position.