Marketing Essays - Ryanair Airlines

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Ryanair Airlines

INTRODUCTION

The problem is not that there are problems. The problem is expecting otherwise and thinking that having problems is a problem”.

Theodore Rubin

Strategic management can be defined as the art and science of formulating, implementing and evaluating cross functional decisions that enable an organisation to achieve its objectives.

Fred R. David (2003). “Without strategy, an organisation is like a ship without a rudder, going around circles. It’s like a tramp; it has no place to go”.

Joel Ross & Michael Kam

Strategic management basically helps an organisation to answer the following questions: where are they now; where they want to go and how will they get there? The various strategic decisions that company takes provide the long term direction; provides strong identity to the firm. The airline industry is a unique and fascinating industry. It captures the interest of a wide audience because of its glamour, reach and impact on the large and growing numbers of consumers/travellers worldwide. (Corporate Location Journal, 1994, p.15). But the introduction of the low-cost airlines models has instigated a series of radical changes in the aviation industry within a very short period of time. The ability to deliver cost efficiency and productivity improvements are central to any airline’s competitiveness and success.

VISION STATEMENT

To be Europe’s leading low fare airline.

MISSION STATEMENT

To become Europe’s leading low fares scheduled passenger airline through continued improvements and expanded offering of its low-fares service.

OBJECTIVES

Number1 for customer service

STRATEGY / TACTICS

  • No frills, low cost approach
  • Point to point short haul flights
  • Regional or secondary airports

Further down the report, we will be looking at the various environmental factors affecting Ryanair airlines and also how the latest no-frills airline use their strengths and weaknesses to make most of the prevailing environment.

HISTORY OF RYANAIR [WHO, WHAT, WHERE]

Ryanair has indicated the future of aviation strategy [Refer appendix- Pg. 7] by posting a double-digit profit for seven consecutive years. There are concerns as to how an industry dominated by price wars can best survive. (“STRATEGIC DIRECTION” 2006, pp 6-7).Ryanair has made a drastic change in the aviation industry. With a business model that turned perceptions of travelling by air upside down. Cathal and Declan Ryan Rollin King and Herb Kelleher got together and decided to start a different kind of airline.

Ryanair is set up by the Ryanair family with a share capital of just £1 in 1985 with a staff of 25 and showed a rapid expansion as a result of the deregulation of the air industry in Europe in 1997 which provided the new companies [Ryanair] freedom to set their own fares and fly whatever domestic routes they want. The company, with the mission statement- “To become Europe’s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fares service”, launched their first route in July with daily flights on a 15-seater Bandeirante aircraft, operating daily from Waterford in the southeast of Ireland to London Gatwick. Ryanair's first cabin crew recruits were less than 5ft. 2ins. tall in order to be able to operate in the tiny cabin of the aircraft.

In March 2007, Ryanair became the world’s largest international airline [refer to appendix- Pg. 10]. In May, 2007 they launched the world's first free seat giveaway (including taxes and charges), offering 1 million passengers the chance to snap up flights for absolutely nothing.

Ryanair Passenger Growth in Millions [SOURCE]

In the current year Ryanair carries 52m passengers on 633 low fare routes across 26 European countries. We have 26 European bases and by the end of March 2008 Ryanair will operate a fleet of 163 new Boeing 737-800 aircraft with firm orders for a further 99 new aircraft (all net of planned disposals), which will be delivered over the next 5 years. Ryanair currently employs a team of 5,000 people, comprising over 25 different nationalities.

CORE COMPETENCIES OF LOW-COST AIRLINES

  • Short haul flights
  • High frequency
  • Low fare
  • No-frills
  • Point- to –point

AIRLINE INDUSTRY IN THE UK

UK air travel has increased five-fold over the last 30 years. Half of the population now flies at least once a year. And freight traffic at UK airports has doubled since 1990.

Britain's economy increasingly depends on air travel, for exports, tourism and inward investment. The aviation industry directly supports around 200,000 jobs and indirectly up to three times that airports are important to the economies of the English regions and of Scotland, Wales and Northern Ireland. So, if we want to continue enjoying its benefits, we have to increase capacity. But we can't add to airport capacity regardless of the environmental cost. So, we need a balanced approach which recognizes the importance of air travel, but which also tackles environmental issues. (ONLINE: www.dft.gov.uk accessed on 23/11/2007)

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RYANAIR’S STRATEGY SO FAR …..

The key elements that make up Ryanair’s strategy are:

  • Low fares
  • Frequent point to point flights
  • Short haul routes
  • Choice of routes
  • Low operating cost
  • Aircraft equipment cost
  • Personnel expenses
  • Customer service cost
  • Airport access fees
  • Maximizing the use of internet
  • Commitment to safety and quality maintenance
  • Focused criteria for growth

EXTERNAL AND INTERNAL ANALYSIS:

INTERNAL ANALYSIS

The Internal Analysis of strengths and weaknesses focuses on internal factors that give an organization certain advantages and disadvantages in meeting the needs of its target market. Strengths refer to core competencies that give the firm an advantage in meeting the needs of its target markets. Weaknesses refer to any limitations a company faces in developing or implementing a strategy. Any analysis of company strengths/weakness should be market oriented/customer focused because strengths are only meaningful when they assist the firm in meeting customer needs and customers often perceive weaknesses that a company cannot see.

EXTERNAL ANALYSIS

The External Analysis examines opportunities and threats that exist in the environment. According to Hill and Jones, (2004) both opportunities and threats exist independently of the firm. Opportunities refer to favourable conditions in the environment that could produce rewards for the organization if acted upon properly. That is, opportunities are situations that exist but must be acted on if the firm is to benefit from them whereas; threats refer to conditions or barriers that may prevent the firms from reaching its objectives.

ORGANISATIONAL COMPONENTS

http://www.thestairway.co.uk/developing-strategy.html

TARGET MARKET

Low-cost airlines operate in small market niches; focus on people who want to fly in small routes (time oriented) and to those who are price sensitive, knowing that this target market is consisting the biggest market share.

Typical market for the low-cost airlines would be travellers who do not prefer extra services such as meals in the flight, people who can afford cheap tickets in other words a person with normal income can carry out his day travelling through air and want to avoid busy airports.

PESTE ANALYSIS [EXTERNAL]

http://www.marketingteacher.com/Lessons/lesson_PEST.htm imp

POLITICAL AND LEGAL

  • Terrorist attacks on the World Trade Centre had a huge impact on the aviation industry, as the criminals used the planes as a form of weapon to cause destruction. As a result of which people lost their faith in the aviation and forced many companies to face heavy losses, some also went bankrupt.
  • The rise in the UK air passenger duty is all set to impact the whole of the airline industry as estimated approximately 6.1 million less passengers to fly from UK in 2007( www.iata.org accessed on 15/01/2007)
  • Labour disputes over low wages and downsizing and long working hours have been important issues to low-cost airlines which some airlines have tried to counter by improving staff morale with incentives and profit sharing and maintaining excellent working environments and culture.

ECONOMIC

  • Ever increasing fuel costs have been a major concern over the years and during the fuel shortage in 1979 in the US had led to a number of airlines to declare bankruptcy in the following year.
  • Economical issues such as recession, one of those of the early 1980s in the US had profound effect on the airline industry. Ryanair opposes any form of environmental taxation like ticket tax, fuel tax. Taxing the aviation industry will have adverse effect on European economic growth.

SOCIO-CULTURAL

  • In order to increase their cost efficiency Ryanair has reduced the number of staff they require to operate, therefore- by enforcing multitasking and also outsourcing of services such as aircraft maintenance, so during busy times the pilot helps in unloading bags when schedules are tight and the flight attendants assist in clean up of the aircraft [Refer appendix- Pg. 21]. Use of temporary flexible contracts is common and so the employees can work for longer hours. This has therefore led to unemployment and is affecting the section of the society.
  • Prices being extremely low [refer appendix- Pg. 16] and the easy availability of air tickets operating between two points has encouraged more of leisure travel and has helped in a global cultural confluence.
  • A high frequency of flights round the clock has enabled the passengers to travel according to their convenient time of the day. May be this can be used as a marketing tool by increasing the price of the tickets during some popular hours of the day when there is the maximum demand for flights such a early mornings or evenings.
  • The relative affordability and speed of air transport today have made international travel accessible to many people who would never previously have had the time or financial means to enable them to travel overseas.

TECHNOLOGICAL

  • With the utilization of the internet it was possible for Ryanair to bypass travel agents and their fees and commission which truly shows why it became so popular during the 1990s and the new millennium as the internet became the lifeline of the society.
  • They also used internet for promotional purposes for their exclusive offers and allowed Ryanair to cut down on advertisement costs as well [Refer appendix- Pg. 20].
  • With both Boeing and Airbus, the two major aircraft manufacturers, developing more aerodynamic models that reduce the air friction and hence increases fuel efficiencies, a lot of fuel cost would be saved making the airlines more competitive.
  • Larger aircrafts with more capacity would allow the increasingly popular Ryanair airlines to achieve more economies of scale.

ENVIRONMENTAL

RYANAIR EUROPE’S GREENEST AIRLINE

Ryanair is currently the industry leader in terms of environmental efficiency and It is constantly working towards further improvements. Ryanair’s regular investment in latest aircraft and engine technology has reduced the fuel burn and co2 emissions by 45% over the past 9 years. [Refer appendix- Pg. 24]

Ryanair’s low cost business model [Refer appendix- Pg. 17] includes the use of secondary airports and point to point services which further reduced the fuel efficiency and limit emissions.

In comparison to other airline like BA [55%] Ryanair has reduced the overall fuel consumption and emission by 55% between 1998- 2007.

NOISE:

Ryanair is again the European leader in minimizing the number of people affected by the noise level of their aircraft. By the use of modern technology aircrafts which comply with current noise requirements and use of winglets which further reduces noise by 6.5% ; ryanair does not operates in the night; remote location of various airports it flies and the compliance with all local noise restrictions.

WASTE:

Ryanair;s low cost business model basically does not offer customers any additional features like newspaper, food, free meals drink etc. which reduces the amount of waste produced by the other traditional airline like BA, who provides the passengers with lots of free stuff.

THREATS FROM SUBSTITUTES

The substitute products include the bus and the train, covering long distances. But these alternates fail to provide the speed with price as compared to the airlines which attract customers. According to a survey, one third of Ryanair’s customers (the biggest low-cost airline) have switched to the airline from car or train because of the low prices. The railways are unable to compete with the discount airlines’ rock-bottom prices. Private transportation, Video conferencing has posed a major threat as people do not fly for meeting as they prefer to have a video conferencing.

(www.cafebabel.com accessed on 16/01/07)

BARGAINING POWER OF SUPPLIERS

Bargaining power of suppliers affects the intensity of the competition in an industry, specially in case where there is a large number of suppliers. Suppliers are those who provide product/service which is necessary for Ryanair to perform their business function. The suppliers for the airlines include mechanics, fuel providers. Food.

BARGAINING POWER OF CUSTOMERS

The market has become extremely price sensitive these days, slightest change in price may lead the customer to switch over to the competitors airline.. The customers include both residential as well as commercial sectors; as it is very rare that customers would build their own planes and fly. [Ryanair’s traffic growth in appendix Pg. 5]

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THREATS FROM RIVALRY OF COMPETITORS

Rivalry is sometimes considered good/crucial as it helps to set the price. In the aviation industry the rate of competition between the airlines is increasing day by day leading to shrink the size of the market. as traditional competitors like BA downsize, the competitors become more or less equal in size and offer similar products. It basically means that due to bad economic conditions, competitors have to downsize and then face the competition for the rest of the market. The major competition faced by Ryanair is form Easy jet [Refer to appendix- Pg.13]. Most cost advantages can be copied very easily therefore, there is not much difference in services, thus price being the main differentiating factor.

The figure below shows the impact that Ryanair airlines can make, even British Airways, which was at the top in all sectors is facing tuff competition from a great margin.

RYANAIR SHARE PRICES BEATING BA

http://news.bbc.co.uk/1/hi/business/2958230.stm

THREATS FROM NEW ENTRANTS

The threat of new entrants for Ryanair is high as the wide-spread of the free-market economy and the deregulation of the airline industry, barriers to entry into the industry has been reduced and thus the potential loss of market share to new airlines are relevant.

SWOT ANALYSIS INTERNAL

STRENGTHS INTERNAL

  • Ryanair serves substantially smaller portions of geography, if compared to their traditional competitors who serve customers coast-to-coast. Therefore they can concentrate on focused-niche markets to obtain a better market share.
  • Point-to-point service provides maximum convenience for passengers who want to fly between two cities, non-stop. [Refer to appendix- Pg. 9]
  • Point-to-point service also enables aircrafts to have a faster turnaround time, the time it takes to unload a waiting plane and load it for the next flight — was average 15 minutes for low-cost carriers, compared with the industry average of 45 minutes, as they do not have to wait for the connecting flights to come in as it is in the hub and spoke system. [Refer to Appendix- Pg. 6]
  • Brand Name with high service performance: Ryanair through its 14 years in the LCC market has developed a recognition in the market and became market leaders with features including- punctuality, high rate of flight completion, low baggage loss, provides a good image of the company’s reliability. [Refer to Appendix- Pg.10]
  • This time saving is also accomplished with a gate crew 50% smaller than that of other airlines. Pilots sometimes help to unload bags when schedule are tight. Flight attendants regularly assist in the cleaning of airplanes between flights. This shows how low-cost airlines can save up on labour cost as well.
  • Non congested airports
  • Low operating costs, for example - Internet site 100% bookings, eliminates the need of travel agents. [www.ryanair.com] Lowers the cost of distribution as over the phone.
  • Has first mover advantage on regional airports (e.g. Charleroi): Acts as a barrier to entry
  • Currently no. 1 in customer service [appendix- Pg. 4].

WEAKNESSES INTERNAL

  • The low-cost model does not utilize a hub and spoke system that allows the bigger competitors to reach further out. They still follow the traditional point-to point service. A hub is a central airport that flights are routed through, and spokes are the routes that planes take out of the hub airport. Most major traditional airlines have multiple hubs. They claim that hubs allow them to offer more flights for passengers and also save money as they can avoid the danger of low demand and loss of revenue on certain unpopular routes. A lot of traditional airlines use this advantage to market their products.
  • In their efforts to lower cost fly to less frequented airports and avoid the more busy hubs and may face the danger of half-full flights and hence loss of revenue due to low demand.
  • It has been very successful in short-haul flights but find it difficult to compete on longer routes.
  • Prone to bad press: Ryanair is perceived as arrogant and the slightest incident gets a lot of press
  • Coverage area.
  • Niche market: Restricted expansion possibility
  • Distance of some regional airports from advertised destination: Over time customers may find this a big inconvenience.
  • Poor service: people skills.
  • Ryanair is extremely sensitive to changes in charges(increase in fare value)

OPPORTUNITIES EXTERNAL

  • Less developed countries, where the spending power of the consumers is low and the barriers to entry into the market is also less as India should serve as happy hunting grounds for such no- frill operators. The vast expanse of the country and the growing state of economy could be used to the advantage and a large array of routes could be offered to the clients.
  • With dealings over the internet becoming more secure and increasing awareness and confidence development amongst the general public, it is getting popular by the hour and generates great potential for such operators to increase their market share by leaps and bound by proper channel distribution and promotion in the right markets at the right price [Refer appendix- Pg. 14,15].

THREATS [EXTERNAL]

  • Now, the bigger companies are trying to follow the low cost model style by narrowing the price gap, all the luxurious services which were earlier supposed to be very expensive have now become more affordable. Thus eating up a major share of the low cost market.
  • Saturation of airlines offering low cost travelling and thus leading to over-capacity of the airline industry.
  • Concern over the high contribution of airlines to the global warming may cause stricter laws and policy formation to limit carbon emission causing a loss of almost £400 million to the GDP and the airline industry in the long run as estimated.(www.iata.org) However, the environmental costs of aviation can be global: climate change will affect every person and its consequences may be most damaging for those in the developing world

VALUE CHAIN ANALYSIS [EXTERNAL]

http://www.netmba.com/strategy/value-chain/

In the year 1985, Michael Porter described about a generic value chain in his book Competitive Advantage that includes a series of activities which are mostly common to many firms. He identified the common primary as well as support activities of a firm.

The primary activities of a value chain are :

Inbound logistic: It is the warehousing and distribution of raw materials.

Operations: It is the process in which inputs are transformed into finished goods.

Marketing & Sales: Customer needs are identified and sales is generated.

Service: It is the support provided to customers after the products and services are sold to them.

The value chain is a useful analysis tool in order to deifne company’s core activities in which they persue competitive adbatnge.

In the report, I have first given the diagram of the Porter’s value chain and then I have made a value chain for Ryanair.

PORTERS VALUE CHAIN

http://www.provenmodels.com/26/value-chain-analysis/porter

VALUE CHAIN FOR RYANAIR

MINIMUM CORPORATE HQ

Low cost training

Limited crew

Management control

In- house

Performance contracts

Internet

Internet information

Integrated systems

Low tech marketing

Internet sales

n/a

Boeing discount

Alliances

Outsourced

Private

Low cost

  • Quality training
  • Low cost suppliers
  • Airport agreements
  • No frills
  • Low cost
  • Quick turnaround
  • Reliable service
  • Low cost promotions
  • Free publicity
  • Controversial
  • Internet sales
  • Yield management
  • Limited resources
  • Basic/low cost
  • High productivity

INBOUND LOGISTICS

OPERATIONS

OUTBOUND LOGISTICS

MARKETING & SALES

SERVICE

Financial policy–Accounting- Regulatory compliance-legal-community Affairs

Flight , route and yeild analyst training

Pilot Training safety training

Baggage Handling Training

Agent Training

In-flight training

Computer rservation systems

Inflight system, flight scheduling system

Yeild management system

Product development market research

Baggage tackling system

Boeing discount

Alliances

Outsourced

Private

Low cost

  • Fuel
  • Route selection
  • Flight & crew scheduling
  • Aircraft acquisition
  • Baggage handling
  • Ticket counter operations
  • Aircraft operations
  • Baggage handling
  • Flight connections
  • Hotel reservation system
  • Promotion
  • Advertising
  • Travel agent program
  • Group sales
  • Lost baggage service
  • Complaint follow up

INBOUND LOGISTICS

OPERATIONS

OUTBOUND LOGISTICS

MARKETING & SALES

SERVICE

PRODUCT LIFE CYCLE

http://university-essays.tripod.com/industry_lifecycle.html

Like every other product or person, industry also has its own life cycle which includes- fragmentation, shake out, maturity and decline. BCG MIX KAR INDUSTRY LIFE CYCLE ME . RYANAIR IS IN STARS IN THE BCG MATRIX

FRAGMENTATION STAGE

The first stage of the industry life cycle is the fragmentation stage. In this stage the industry has just entered the market and survival or break even is the main focus of the industry. The aviation industry before the arrival of Ryanair was only confined to people who could afford the high prices of flying fast and save time. The year 1985 made a huge difference in European airline industry. Ryanair came out as the first low cost carrier in Europe. The tickets being extremely low helped even the low or middle class customers to afford the services of an airline, though Ryanair did not offered the extra services- meals etc like British Airways and other big airlines, instead Ryanair was faster and cheaper.

SHAKEOUT/GROWTH

The second stage in the industry life cycle is the shakeout or the growth stage. Ryanair, after having a great start in the introduction stage is presently enjoying the growth of the industry with few competitors in the market. Ryanair has made lots of new improvements like 100% online booking for the tickets which leads to further reduction in operation cost. In recent years, it has also been named as the GREEANEST airlines in Europe. Many people believe that Ryanair has reached its maximum growth and will soon fall into maturity stage. But many researchers also say that Ryanair has a long way to go and the journey has just begun.

RYANAIR CULTURE

"No business strategy or program can or will succeed without the appropriate organizational culture in place."

According to McKinsey culture is “how we do things around here”.

CHARLES HANDY CULTURAL DIMENSIONS

Charles Handy- the famous and repeected management Guru, has proposed four types of cultures that an organisations might posses, he has also made use of four Greek Gods to illustrate his cocepts. According to Charles Handy, each culture, stems from different assumptions about the basis of power and influence, what motivates people, how people think and learn, and how change should occur.

POWER CULTURE

It can be represented metaphorically by Zeus, who was a strong leader and used his powers. It can also be denoted by a web with a ruling spider and those in the web are depended on a central power source. Such organisations strengths lies in their speed of decision making skills whereas weakness lies in the man running the organisation.

ROLE CULTURE

It can be personified as the God of order and rules by a greek temple as Apollo. In the organisati

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