The Vision And Goals Of Ryanair Management Essay

Irish low cost airline Ryanair was founded in 1985 by the Ryan family. Initially, the company started flying between Waterford and London Gatwick airport with a 15-seat Embraer bandeirante turboprop aircraft (Johnson 2004 and ryanair.com). Ryanair started with a share capital of just £ 1, and a staff of 25. By 1990, company incurred loss of £20m, even though there was increase in number of passengers.

Business developed because of effective resources planning and restructuring by Michael O'Leary. Going forward he added advantage with "No frills" and low-cost services. Ryanair's strategic planning reduced costs by using low cost regional airports, rather than using international airports with expensive handling charges (ryanair.com, Johnson 2004, wikipedia).

In 2009, Ryanair is expected to carry 67m passengers on 830+ routes across 26 European countries. Offers the lowest fares at all time on all routes, no fuel surcharge on any fare, allowing reservation changes in date, time, route or the name of the passenger traveling, measures for the speed up check-in and Minimize the number of passengers who are involuntarily denied boarding (Ryanair.com).

Ryanair has got its brand name/ benchmark of providing low cost services to the customers. Going forward we will discuss in detail the future strategies, plans and improvements of the business.

1.1 The key issues of the case study:

Survivability

Highly competitive

Price sensitivity , Capital intensive

Highly regulated limited market segment

Environmental conditions

Satisfying buyers is insufficient

Capturing value is essential

Lower costs and lower price ceiling impacts on returns.

Fuel prices

2. Ryanair business model and key strategies:

We will discuss the key business strategies of Ryanair and the unique business model which helped in being Europe's original low fares airline and is still Europe's largest low fares carrier. The following are the key elements in Ryanair's strategy:

2.1 Low fares:-These are used as demand stimulators, it aims to target fare conscious or business travelers who will not travel by air all or use other substitutes. Fare sets are done according to the demand of particular flights and in regard to the days remaining for the departures (strategic direction 2006).

2.2 Point to point and hub & spoke model: This is cost effective and time minimizing model where unit operating costs are lower as aircrafts are utilized more often instead of wasting time for the connecting flights. However, hub and spoke model has cost effectiveness but drawback is more waiting time and lower aircraft utilization time. In this mode, airlines try increase the number of passengers on each flight by offering connections to the domestic and international destinations.

Figure 1: point to point model.

Figure 2: hub and spoke model.

(Source: http://ostpxweb.dot.gov/aviation/airlinebusinessmodel.htm )

2.3 No-frill carrier: They emphasis on using conventional method where no free meals and drinks are provided. Where in traveler has to pay for the extra service so as to generate more revenue. This helps generate more business for airline while traveling long routes.

2.4 Choices of routes: Ryanair makes itself conveniently available at large population area and regional airports which creates more competitive access and lower handling costs. As well it makes much quicker departures, unload and reload passengers and luggage if required in short span. Quick turnaround is key factor in higher utilization of aircrafts (Ryanair.com, Michel Allé 2004).

2.5 Low operating costs: Ryanair is Europe's largest low fares carrier and it has built it through its strategies and action plans. It has minimized it expenses through aircraft equipment costs, personnel expenses, customer service costs and most importantly by airport access and handling costs. Initially, to minimize the aircraft purchase costs Ryanair used to purchase aircrafts of single type but now it is not in use and they started using 'next generation' aircrafts. In personnel expenses, they control expenses by increasing productivity of its own staff, by providing productivity based incentives, commissions for sale to flight attendant and payments based on number of hours motivates work force to work more; eventually adding value to the business(Michel Allé, 2004). Airport access and handling is key competence for Ryanair as the charges are low comparative to the international airports.

3. SWOT analysis:

STRENGTHS

Being first to launch low cost airlines in Europe and continues services as 'low cost carrier'

Aggressive and innovative leadership (Michael O'Leary)

Maintaining operations in busiest aviation traffic areas.

Point to point flights, no frill, innovative ancillary schemes.

WEAKNESS

Poor customer relationship and low level of empathy with the employees.

High sensitivity to any new taxes and fuel price changes.

Fluctuating cash flows.

Declining margins.

Opportunities

Accelerating UK airline industry.

Growing European airline industry.

Mergers and acquisitions can help in expanding its routes.

US-European open skies agreement could be source for increased routes and passenger traffic inwards.

Plan for expanding into non-European markets in near future.

During financial downturn, the new fleet could be leased out, reducing other sources.

Threats

Slowdown of UK and Ireland economy.

Intense competition and discounting.

EU regulation on denied boarding compensation.

Upcoming contract negotiations with demand of secondary airports as number of fleets are increasing.

Excess capacity filling and retaliation by other competitors through cost cutting may affect growth.

From this we can interpret that Ryanair has key important strengths which makes it a better company with low fare policy. Michael O'Leary has restructured its whole business which has gained more fame in the market. There weaknesses which are subject to the changes in economy, government polices and regulations, and mergers/acquisitions from the other competitors (strategic direction 2004). So, converting threats into opportunities should be big challenge for the airline. There are many great opportunities in the market but this need to be utilized properly.

4. Ryanair analysis- using Porter's value chain:

"The purpose of the value-chain model is to assist companies to evaluate and select the optimum set of activities and methods of performing them to create the most value for the firm." (Wayne McPhee, 2004). This model provides model that incorporates both traditional business activities that continue to provide value to the organization and wide range of activities from modern strategic theory. Most importantly 'The expanded activity set ensures that no potential strategic activity is forgotten and no opportunity for enhancing value is over-looked.'

Expanded activities

This contains three new primary activities and one new support activity to the set of activities originally included in Porter's value chain:

Supply chain management. It involves interaction between organization and suppliers regarding product quality, R&D, product-development partnerships, and sharing of production knowledge.

Product use. Activities related to how the customer uses the product, including managing customer networks, product testing and development, and outsourcing.

End of primary use. It relates to the management of the products as users are finished with products use - such as, leasing management, product take-back, management of secondary markets, and recycling.

External networks. 'Activities related to the management and interaction of external networks that may include other firms, educational institutions, communities, governments, civic organizations and groups of customers, which provide an opportunity to co-create unique value'(Wayne Mcphee, 2006).

In case of Ryanair, it has minimum infrastructure required for corporate HQ. HRM part of this involves Low cost training, limited crew, management control, in-house and performance contracts which is done by technological development as internet, information systems and low tech marketing on internet sales(Wayne Mcphee 2004). The procurement of low cost training is done with discount from Boeing, limited crew procurement involved alliances which result in 'No frills and low cost operations', management control is outsourced for quicker turnaround and reliable services of outgoing operations, marketing and sales incurred very low expenses which has more internet sales involvement with low cost promotions, free publicity through controversies and yield management. Performance contracts are low cost productivity based which utilizes the limited productive resources.

Applying porter's five forces:. Analysis of Ryanair using porter's five forces is as follows;

5.1 Buyer's bargaining power: Buyer's bargaining power is high. as Ryanair practices low fares policies try to keep its flights full, earning profit and gaining major portion of buyer power. However, if other low cost carrier (LCC) starts providing any value added or free extra service then buyer's bargaining power will be high. Ryanair strategies always keep them ahead in the industry but charging for extra service is draw back to the business.

5.2 supplier power: Supplier power is high. Boeing is main suppliers for Ryanair from the two possible suppliers of planes i.e. Boeing and airbus. Overall, switching costs between the suppliers is high because all the mechanics should be rearranged and pilots will have to be retrained accordingly (porter 1980). However, bargaining power from the regional airports is low because of its dependence on one airline. Periodically, fuel supplier has high power.

5.3 Threats of new entrants: Threat from new entrants is low. Economies of scale deter the entry, as the new entrant have come in large scale or will not sustain because of not providing effective costs. High capital requirements and brand recognition are the key success elements which can not be fulfilled by new entrants. And government policies make it very difficult to get license and adjust with the regulations.

5.4 Threat from substitutes: Threat from substitutes is high, as there is no close customer relationship and there are no switching costs for the customers. Not being accessible to every important part of the country may create disadvantage; and may free seats and cheaper services from national express, and other traveling makes it very competent. The other modes of transport are more convenient involve less costs.

5.5 Rivalry: The LCC market is very competitive, and involves high competition by providing low cost with some extra services to empathize with customers (strategic direction 2006). If any airline wants to compete on the same basis of Ryanair, there will be high pressure on prices, margins, services provided and most importantly profitability margin. There is high competition from BMIbaby, easy jet, virgin express and fly bee etc. which affect change in the strategy (Johnson, 2004).

Current strategic position: The airline delivers basic customer expectations- about on time arrivals, baggage delivery, check-in and ticketing with a smile as well (HRM international digest 2007). Ryanair has made complete online check-in facilities from 2009. As per reports, with economic downturn Ryanair incurred high losses in 2008 but according to Michael O'Leary, they have built contract for cheaper prices which will be core competence over other airlines and their ancillary income strategy, check in at airport, extra luggage and for extra facilities will make huge impact on the business (dailymail.co.uk). By number, more than 58m passengers will be carried out by Ryanair, over £116m amount was generated from charging for extra check-in bags, in-flight food and booking fees, £16 is being charged for each at airport, 682 number of female staff volunteered to pose for the airline's 2009 charity calendar, and each passenger has to pay £10 for check-in at airport , after online check-in passenger has to print boarding pass at home, passenger will have to drop luggage in Ryanair drop-in desk before proceeding to the security (airline industry information, 2009). As per its carry on luggage policy we comply passengers to carry only one bag any extra will be charged GBP 30 for each and they also announced 1m seats across EU for gbp10 (find articles.com, Ryanair.com). 'Strategic capability can be defined as the adequacy and suitability of the resources and competences of an organization for it to survive and prosper' (Johnson et al, 2005). From this we can conclude that Ryanair has the strategic capabilities to sustain, grow and impact the industry.

Key critical success factors:

Technology related factors as online bookings, online check-in etc.

Market related CSF's as it is leading brand, niche player and low cost fares.

Ryanair's 'Double the Difference' Fare Guarantee ensures that on these rare occasions when a passenger finds a lower air fare on a competitors flight to the same route at the same date/time then that passenger will be repaid double the fare difference between the Ryanair and competitors ticket price as long as they book to travel on Ryanair.

Where we become aware from time to time of any competitors special offer fare which is lower than Ryanair's, we will immediately lower our fares to ensure that we are lower again.

After payment for the ticket has been made, no fare increase will apply.

As per Association of European High Fares Airlines (AEA) confirm Ryanair's position as No.1 in Europe for punctuality which also minimizes lost or delayed baggage (Ryanair.com).

Criticism: Can Ryanair afford to be friendly? Ryanair was voted as 'least favorite airline' in 2006 poll by Tripadvisor. It was criticized for some of its practices such as extra costs for the services, unfriendly and complacent staff (Wikipedia). You would have seen Michael O'Leary's business plan that said: "Zero focus on customer service + charging customers at every touch point = major growth and high repeat business?" (Ian ackland 2008). Having individual unique way of doing things in generating revenue shows arrogance in some cases. From the recent event as they declined tickets issued by third parties or agents, we can imply that Ryanair does not want to work with the trade, not get involved in partnerships and no service agents to minimize the costs. However, other airlines have different ways of getting things done. In terms of cost effectiveness it can be more customers friendly but providing extra free services will divert its way from being low cost airline.

Financial analysis: This clearly indicates, 20% increase from 2007 in number of passengers and average fare including bag was lowered by -1% which is good for passengers and the increase in number of passengers eventually showed hike of 21% in revenues. Most importantly it increase net margin by 18% by changing its strategies. March 2008 balance shows strong accounts but net debt of 96.9 Euro million is area to concentrate on.

Financial highlights

Source: Ryanair presentation March 2008.

As per 31st march, 2008 records Ryanair shows the lowest fares and highest margins. It had avg fare of 44 euro and showed highest net margin of 18% which was highest among the air Berlin with 1%, easy jet with 8%, air lingus with 8%, Lufthansa with 7%, air France with 3% and BA with 8% (Ryanair.com quarter 4 financial analysis).

Future recommendations:

It is important to pursue free flights, third parties covers costs and generates revenue through other means. For in-flight services, online-shopping, online-gambling, pay-per-view televisions, alliances as to sell flight to companies which will provide commissions sales % and upper edge over others. To minimize increase in unit cost Ryanair should utilize the opportunities available in the market and combining cost leadership strategy with not too much but a bit of differentiation strategy. It could be done by providing service on routes where no other low cost carrier goes.

Conclusion:

Dublin based Irish airline is low cost carrier which emphasis on gaining more customers based on low cost leadership strategy, one of the generic strategies from Michael porter 1985. Through SWOT analysis, value chain model and using porter's five forces we analyzed Ryanair for creating competitive advantage, and develop with its low cost strategies. From this whole analysis we can conclude that Ryanair should remain LCC as it will help in long run. Creating relationship with passenger and employees will add value to the business. Its lean and high productivity aims are most attractive. It future planning make it different from others as making contracts when fuel prices are low minimizing resources for check-in and luggage handling.