Analyse The Current Strategy Of Ryanair Tourism Essay

You are to critically analysis the current strategy of Ryanair which comprises the following tasks.

Undertake an environmental analysis of the European airline industry with implications for the budget sector and Ryanair in particular.

Analyse how Ryanair has been successful in the European budget airline industry.

From the above analysis, critically assess the sustainability of Ryanair’s strategy.

Executive Summary

In this recession period to sustain a business and make it different and unique id definitely a big task and to make it growing need to implement different Strategies. Strategy is the direction and purview of a business organization in long run to achieve an advantage over other rivals by adapting with available resources and build competency. today we are discussing the Environment Analysis, strength and weaknesses and its strategy to sustainability of Ryanair a low cost Airline.

This assignment will analyse the business environment of the airline industry in Europe, then it considers the competitive strategy and sustainability of Ryanair.

Introduction

Ryanair start its business by Mr. Cathal and her wife with the financial help of their father Tony Ryan with the total capital of £1 in 1985. The company Head office is in Dublin, Ireland. Initially Ryanair provide flights between Ireland and UK by using secondary airport due to national airlines monopoly. In 1990 Ryanair loss was IR£20 Million and at the end of 1990 the new management team under the supervision of Michael O’Leary adapted the model of Southwest USA base airline introduced the low budget cost concept in Europe and became market cost leader with no frills carrier. Gulf War 1 broke out in 1991 and airline traffic all over the world distorted. Although the down turn in overall airline traffic, Ryanair made a profit of £ 0.3 million for the year and carry 651,000 passengers with a total work force of 477 people. In 1997 Ryanair first time ranked in Dublin Stock exchange and London stock exchange and in 2002 on NASDAQ. Ryanair added number of aircraft and number of European destinations in 1999. And in 2000 Ryanair introduced Europe largest travel website, www.ryanair.com within three months, the site was record 50,000 bookings per week. In 2005 May 26th Ryanair Holdings, PLC celebrated its 20th birthday. At the celebration party Ryanair CEO Michael O’Leary said that “Ryanair will be overtake British Airways by carrying 3.5 million passengers a month in 2005”

In June 2009 Ryanair is offering 1200 scheduled short haul flights per day along with 145 locations throughout Europe and Morocco with an operating fleet of 196 aircraft flying approximately 845 routes.

Environment Analysis

The external business environment of Ryanair means the other European airlines and other influencing factors which affect the decision making, making of business strategy and the performance of Ryanair. There are number of external environmental factors which affect the Ryanair like PEST (Political, Economic, social and technological factors) Strategic management in any airline industry plays very important role to make them successful airline. The strategy of Ryanair is depends on the vision and mission its vision and mission which is based on the environment factors which are internal and external factors. These environmental factors normally called environmental analysis. In Strategic planning techniques environmental analysis plays very important role to evaluate or scan that business environment is suitable for business or not. In Ryanair these strategic policies clarify its resource strengths and deficiency, its market opportunities, the outside threats to its future success and its competitive status relative to rivals.

Environmental analysis in airline industry helps them to develop and change their strategy to meet the upcoming external changes and its help the company to lead. D. Stoffels 1994).

Concept of Environmental Analysis

Environmental analysis means the environmental scanning or appraisal (L M Prasad).

There are two types of for Strength, Weaknesses, opportunities and threats. In Ryanair Strength and weaknesses are internal factors whereas opportunities and threats are external factors. Ryanair environment is analysis based on following structure.

Figure No 1: Ryanair Environment Analysis

External Analysis

The external analysis is based on the opportunities and threats.

Threats

Volcano crises

9/11 terrorist attacks

War in Iraq

Oil prices

Economic downturns

Government Regulation

The airline industry in Europe has always been under pressure from domestic and European Union. At the end of 1980 E.U deregulate the airline industry and an array of liberalisation measures followed that were to be applied throughout its territories. In 1997 E.U any airline can operate its business from anywhere within Europe.

Competition

At the start of 21st century competition in airline industry exploded and this competition will continue to grow up new entrants to take this advantage. Due to price competition and economic downturn and financial crises there is no entrants who want to enter in the market.

Porter’s Five Forces Analysis of the low cost Airline

According to Porter 1985 “Five force analysis is a means of identifying the forces which affect the level of competition in an industry”. Porter’s five forces model is based on the opportunities and threats of Ryanair from the external environment. Here porter analysis is applied on Ryanair external business environment. Porter five forces analysis are as under.

Porter Five Forces Analysis

Bargaining Power of Suppliers

Boeing is the main supplier of Ryanair Airline

Regional airports are mostly dependant on one airline

Bargaining Power of Customers

Customers are price conscious

Lack of loyalty

Switching airline is comparatively easy without any cost

Threat from New Entrants

High capital investment

Some barriers to entry

Threat from Substitutes

Lack of brand loyalty for customers

No extra cost for customer to switching

Other methods of transport like Euro train, cars, Ferries and Euro lines

Competitive Rivalry

The low cost airline industry is highly competitive

PESTEL Analysis

PESTLE analysis is the most appropriate model to discuss the Political, Economic, Social, Technological factors, Environmental factors and legal factors.

Political Factors

Political factors means government regulations like taxation policies, environmental law, employment law, trade restriction by government and political instability.

Change of Government taxation policies

An international organization like Ryanair may effect by regulate the Government and taxation policies and some time these policies are in favourable and sometime in opposibe favour.

Political changes in countries where Ryanair have routes

Like in United Kingdom election are coming and may be new party change their business policies.

Political instability

Political stability plays very important role in an international company like Ryanair. Now a day in United Kingdom if government will be labour party then the policies will be in favour of the business community.

Terrorist attacks on airline business

Starting of 21st century the mode of terrorism is totally changed and now terrorist attacks through aeroplanes and target airline industry. Considering the events of 9/11 in USA, Manchester Airport chemical attack in UK it’s totally change the strategy of industry.

Local government office may object to noise and new runway projects

Currently Ryanair is facing Legal issues and disputes with Government.

Economical Factors

These factors are purchasing power of consumer and Ryanair, capital cost, economic growth, inflation rate, bank interest rate and currency exchange rate.

Economic condition may affect positive or negative in the airline industry according to the country economic situation. If consumer’s standard of living will be high automatically they will use airline for holidays and other purpose.

Fuel prices are rising day by day

In these days fuel prices are going up and up and it may affect the consumer purchasing power.

Social Factors

In Social circumstances Ryanair will affect by peoples attitude towards luxury class, population growth and health matters.

Ryanair do not offer luxury class so business trips are frequently possible to reduce company cost.

Rapidly increase in travelling life style

Lack of consumer loyalty

Ryanair low budget airline means to attract more consumers around the globe.

Technological

Every business organize one unique system to operate its business

Ryanair main supplier is Boeing and Boeing have less carbon emission and les noise pollution

Good relationship with customers by maintaining online service

Online sales/service

Environmental Factors

Environmental factors plays very important role in external environmental of airline industry. The important factors are as under.

Natural disasters

In Iceland Volcano ash disturb the whole Europe flights and airline and still writing these word almost 70,000 flights are cancelled. It will affect the airline industry around the globe.

Health problems

During flight some people feel really bad depression and its can decrease the profitability of the airline industry.

Legal Factors

Immigration law

Immigration law is very major barrier in legal factors. There are some restrictions on the peoples to travel to other some certain countries.

Aviation safety rules

Every country has its own aviation and safety rules which affect the airline of other country.

Swot Analysis of Ryanair

SWOT analysis shows the organization existing strategy and position. SWOT analysis based on strength, weakness, opportunity and threats in any organization. In Ryanair this tool is used to analyse the internal strengths and weaknesses and external opportunities and threats. The current scenario of Ryanair on the basis of SWOT analysis is as under.

Strengths

Brand Name: Ryanair spent 15 years in the LCC market to develop its brand name

Low airport charges will automatically reduce the cost of fare.

All Boeing aircraft: Uniform fleet save training cost and technical cost

High service performance: low baggage loss, in time, high rate of flight completion it gave the good image of the Ryanair performance

High Aircraft Utilization

Point to point service

Small Headquarters: Ryanair try to reduce its administration cost due to small offices

Weaknesses

Bad press image

Restricted expansion possibility due to budget cost

Lack of skill staff

Opportunities

New routes and new destination

Provide best and updated customer services may affect the number of customers

Threats

Threats from competitors like BMI, Easy jet, Air Asia, Atlantic and fly be.

Economic downturn may affect disposable income.

European Union may put some type of restriction if Ryanair do not accept the rules and policies.

Mostly hotels are four stars due to low cost package is risky

Change the choice of consumer

Change the status of economy may change the situation of business policies.

Question No 2. Ryanair European low cost airline

Competitive Strategy of Ryanair

Competitive strategy is key factor for the success of Ryanair. Ryanair followed different types of strategy which kept itself one step up from its competitor. Ryanair aim was establish itself Europe’s low fares leading airline through improvements and expanding day by day of its low fares services. The Ryanair strategy was simple to focus on low fares and catch more and more passenger traffic.

At the end of 20th century the European aviation industry changes its cost strategy and focused on low budget model and now whole industry became low cost airlines. Ryanair based on low fares airlines and growing rapidly due to its environment friendly policies. Ryanair strategy is to provide their customers latest aircraft and advance technologies facility in their aircraft that reduce fuel burn and emissions of CO2 as much as possible.

Figure No 2: Ryanair Business Model

Ryanair plan to invest 17bn Euro on expansion programme of fleet replacement and now all Ryanair old Boeing 737-200 aircraft have replaced with the new Boeing 737-800. Here are the key elements of Ryanair Strategy who make itself European leading low cost airline.

Low fares: Low fares are the main focus of Ryanair strategy. Ryanair sets its fares on the basis of demand of that flight.

Frequent point to point Flights on short haul Routes

Commitment to Safety and quality maintenance

Ancillary services

Choice of route

Low operating costs

Maximizing the use of the internet

Question No 3.

Sustainability of Ryanair

Ryanair business model is adapted from the Southwest airline of USA. Ryanair focused on the secondary airports because majority of the national airlines concentrated on hub airports. At hubs airport acquired a scarcity value and were typically allocated to incumbent airlines in order of seniority at the airport by a scheduling committee presided over by the home country national airline. First time Ryanair used London-Luton route to promote its strategy in 1986 because slots were not available due to rush at Heathrow airport. Ryanair played a vital role to use these secondary airports and make itself a successful low cost airline. On secondary airports the deregulated market brought the opportunity to progress business with the new market entrants rather than remain underutilised. due unused airports substantial reductions was given to new airlines which they used form the expansion of passenger numbers by low cost would be financially worth it.

The Ryanair product

At the starting of Ryanair airline business in Europe its strategy was very simple to reduce its cost and sustain itself in the long term in airline industry was to use secondary airport. All major airports was under monopolistic condition of national airlines so Ryanair target secondary airports and its affect on Ryanair the low congestion charges, low landing charges and low rate of missing bags per passenger. Due to this situation Ryanair fully focused on its customer services.

The Ryanair airport product

The strategy of Ryanair was using secondary airports affect very positive result on consumer. Ryanair offers point to point flights and secondary airports become the hub airports. In secondary airports the consumption of time, cost reduce like less walking time within terminals, less waiting time for baggage retrieve and very cheap car parking.

The Ryanair cost base

Ryanair becomes the cost leader with very small labour force and fully focused on costs and productivity.

Ryanair Europe No 1 in customer service

In February 2010 Ryanair ranked No 1 around the Europe airlines. Only Ryanair is guarantee about the low cost and best customer services. These figures are published in customer service statistics in very month.

CUSTOMER SERVICE STATS FEB

2009

2010

On-time flights

87%

83%

Complaints per 1,000 pax

1.39

0.86

Baggage complaints per 1,000 pax

0.35

0.23

Complaints answered within 7 days

99%

99%

External factors

Ryanair is world fastest growing airline company

According to Ryanair statistics in 2006 42.5 millions peoples travel in Ryanair airline and in 2007 it was 51 million and in 2008 the passengers was 59 millions.

Ryanair Passenger Growth in Millions in 2006, 2007

Pax Chart

Conclusion

The above report examines the environmental analysis of European airline industry and discussed the strategy and sustainability of Ryanair in that environment. Ryanair is using very simple and good strategy according to economic condition at this time which is simple product, strict cost control over airports like aircraft suppliers and distribution costs. Ryanair focused on secondary airports that reduce its operating cost.

BIBLIOGRAPHY

L M Prasad, Business Policy: Strategic Management, New Delhi: Sultan Chand & Sons, Educational Publishers, 2005

An Analysis of European low-cost airlines and their networks accessed on April 10, 2010. From www.sciencedirect.com

Nigel Evants and David Campbell, Strategic Management for Travel and Tourism, 2003, Pages375-378

www.ryanair.com

R. Casadesus-Masanell, Joan Enric Ricart, From Strategy to Business Models and on to tactics

Long Range Planning (2010)

Jay b. Barney & William S. Hesterly Strategic Management and Competitive Advantage(concepts and cases) 3rd Edition, Pearson