"Ryanair's chief executive ,Michael O'Leary said the airlines outlook for 2009 was "bloody brilliant" and boasted the carrier will aim to nearly treble its passenger based to 150 million people by 2016.O'Learly also insisted today that it will cost to passengers a pound to spend a penny as he confirmed plans to change for facility fee on his aeroplanes within two years." Addition to this Ryanair said its 2.3bn cash pile is still rising in sharp contrast with BA and Aer Lingus which are burning through cash to sustain business models that have a fair heavier depends on expensive long-haul routes.History
History of the success started in such a small airport in Ireland in 1985 now as a leader of Low Cost Airlines , Ryan Air currently supplies hundreds of affordable flights to many countries in Europe. Currently the company has 39 base and almost a thousand of routes in 26 countries in Europe. Ryan Air owns more than 218 Boeing aircrafts with the inclusion of new aircrafts, which will be delivered in next three years. Moreover, Ryan Air employs around 7000 people to serve their 66 million customers every year.Ryan Air: As a Europe Low-Cost Leader in 2009
Ryan Air's objective is to maintain its position as a low-cost airline leader in Europe. Despite that there is no mission statement of the company we can clearly understand the company's mission from its strategy that it uses, flying frequently point-to-point on short haul and especially using small size of airports enables to Ryan Air reaches its goal. The actual strategy is based on no frills service to create a demand with low fares.Analyzing Ryanair's Low Cost Business Strategy
External analyzing is a critical part of a strategic analysis for the reason that organisations do not exist in a vacuum, they are part of a complex world and many factors can influence operations, beneficially and unfavourably. However, these can be difficult to comprehend due to their complexity, diversity and fast changing nature. Consequently a number of techniques have been developed to facilitate the process and to contribute to answering the key managerial question of what opportunities and threats might arise in the future.(Johnson & Scholes 2002).
Therefore we now are going to analyse external factors which affect Ryanairs environment in the competitive industry.The Macro Environment Factors
To analyse macro environment we will use PESTEL investigates the present situation of the company about political, economical, social, technological, environmental and legal ways which influence the company's strategically success or failure.
- Political Aspect
- Economical Aspect
- Social Aspects
- Technological Aspect
- Environmental issues
- Legal Aspects
In political factors our focus in mainly on the taxation rules ,route changes, security and union policy as announced by the government.
There have been political and legal issues concerning Ryanair such as, a new European Union (EU) regulation came into effect, various legal actions, terrorism, and security. The new EU regulation was to compensate passengers that were inconvenienced by delays, cancellations and denied boarding.
Terrorism and Security increase had an impact on costs and risks in the airline industry worldwide. Ryanair suffered a loss of about 1.9 million in just a few days following an incident in the United Kingdom. In addition Ryanair has been in dispute with several airports over landing charges. A recent dispute is with a rival Air France over Marseille airport, which Ryanair air planned on basing two aircrafts serving 13 routes. The dispute was mainly about unfair discounted landing and passenger charges on flights within France. (Thompson, Strickland, Gamble, 2008)
Ryan Air, the biggest low cost airline in the UK and Europe (LFA)* reported its results with a 46% increase in profit(£257m) compare to a net profit of £176m a year earlier in the second-quarter for 2009 . Ryan Air experienced weak market conditions, high fuel costs (oil prices around $71.03 a barrel, ATA*) 1
Addition to this affects of recession in Europe and UK economy from the previous years result in not so strong future profit expectations.
However, the budget carrier took an advantage from 37% fall in fuel prices and passenger number increased 18% by the end of last year. Ryan Air achieved the 2008 pre-tax profit target by the minimum 200m to 300m range, while British Airways was refusing to release profit forecast last year.
Considering the European countries population growth rate,it is lower than USA and Asian countries. However, life style and cultural changes impacts travelling frequency and this affects to Ryanair short haul and low cost strategy positive.
Another important change is, as the economy is increasing people are more interested to fly for vacation that helps low cost airline industry. Moreover, low-cost strategy has an important influence on the travelling demand with providing affordable tickets.
Nowadays people are more integrated to technology with internet and Ryanair optimize its system with online booking. With using internet services for booking and customer services Ryanair saves from time and lessen its expenses. Internet booking enables Ryanair to give efficient service to their customers.
Furthermore, Ryanair takes advantages from having one type fleet of airplanes such as there is no extra maintenance cost for Ryanair and they just need to deal with one supplier. Ryanair's current fleet of 202 Boeing737-800.Next Generation aircraft have an average age of just over 2.5 years and future growth plans provide for the purchase of a further 140 brand new aircraft of this new type. The Boeing 737-800 Next Generation aircraft has a considerably superior fuel burn to passenger kilometre ratio than that of the previous type aircraft. The change from these older 737-200 to new Next Generation aircraft alone has reduced Ryanair's fuel consumption and CO2 emissions per passenger kilometre by 45%.(ryanair.com)
Ryanair currently owns the youngest and most fuel unwasteful aircraft fleet around the Europe. Ryanair has reduced and continues to minimise fuel burn and CO2 emissions per passenger kilometre. Ryanair's fuel burn is currently less than 3.5 litres per 100 revenue passenger kilometres (RPKs).It is expected to lessen this figure further due to fuel saving measures currently being implemented.For instance, Ryanair's aircraft reduced fuel burn and CO2 emissions by up to 4% with using the fleet-wide installation of winglets on all.(ryanair.com)
Ryanair have been ordered to repay several million euros is subsides to the southern Belgian Walloon region. Having not obeyed the rules like every other airline they have to repay some subsidies received for using Charleroi as a destination. The local community feel it has a negative impact to the economy due to huge amount of pollution build up from the engines. This is a huge setback as major debt builds for the business. This will cause an economic problem has Ryanair will have to cut back on there services and limit their customer's the best deal (s) or service. (http://news.bbc.co.uk/1/hi/business/3660370.stm)
Addition to this Ryanair recently faced another legal issue .Ryanair's new services will compete with Aer Lingus Group Plc, the Irish carrier that O'Leary tried to buy in October. Ryanair's hostile takeover bid has lapsed since being referred to the European Commission on concern the combination might harm competition on Irish Airline Industry. (flights.bloomberg.com)
To conclude,as we can understand from analyse there are environmental issues that affects Ryanairs low-cost strategy. Hence, some of the environmental factors ,such as political and economical aspects, are playing a critical part in Ryanairs objectives.The Industry Environments
Today travelling industry experiencing difficulties of changes in the vacation tour markets. It has been just 2 years travelling industry still trying to recover from financial crisis like all other industries. Consumers firstly cut back from their holiday expenses during the recession as it is expected. As a result of this companies in this sector should pay more attention to their near environment. Ryanair' industrial environment analyse:Threats of New Entrants
First thing to look at is the threat of entry to the low cost airline market. The treat is relatively high in airline industry but it depends on the performance that the airline have at the end. There have been factors that have influenced the threat of entry, over the past a few years, are follow:
- High customer demand and the expanding market make which pulls in new entrants and reduces the effect of entry barriers (Jhonson&Scholes 2002)
- Deregulation system lowers the barriers to entry for new airlines in Europe. Addition to this existing airlines take advantage from the new system too. For example, Go Fly entered the market in 1998 ,which was owned by British Airway to compete the other budget airlines like Ryanair and Easy Jet. It is taken over by Easyjet in 2002 and this was the end for the airline.
- High budget needed for such investment and this is an important barrier to some extent.
- Lots of strong competitors, lack of landing and take off slots make the conditions difficult for the entry.
Therefore, new entry level for the market is medium to high and this affects Ryanair's strategy position in the market positively.Threat of Substitutes
The threat of substitutes significantly important for the airline industry market which has been increasing within the last few years for Ryanair and the other low cost airlines.It is result of lack of confidence in airlines related to airplane crashes and terrorist attacks happened within last couple of years.
- The other mode of transports such as train, coaches are in the transport industry and they increase the bargaining competition.
- Especially fast trains like Eurostar compete with budget airline companies within short haul destinations.
- Boeing is the most important supplier for Ryanair ,which currently supplies aeroplanes to many budget airlines. Ryanair's owns one type of fleet and these are all from Boeing.
- An other supplier is oil companies but Ryanair cant alters this supplier.
- Airports and airport services suppliers have critical effect on the company's strategy as well. Ryanair cooperates with other service companies for maintaining their services such as luggage handling and passenger loading at airports, in other words the company outsources this services.
Although, low-cost airlines have taken over some of the high speed trains and ferries in Europe.Bargaining Power of Suppliers
Companies rely on their suppliers to ensure that their services and goods are available on time in this aspect suppliers have an impact on the company's efficiency. Ryainair's suppliers,
Recently, Ryanair announced that it was confirm that the company is planning to close all check-in desks in the beginning of 2010.Michael O'Leary said that passengers will be able to leave their luggage at a bag drop but otherwise everything will be done online. (21 February 2009.Ryanair.com/news)Bargaining Power of Buyers
Price dominated short-haul market with little or no product differentiation. Buyers power is influenced by other substitutes and competitors.Thus, buyers face low switching costs and the effect of buyers power is low for Ryanair.
- The first priority is value of the money for the low cost airlines' customers.
- There is a great competition in online booking services as a result of this Low cost airline customers now can have a range of choice.
- Most of the business world customers chosen low cost airlines for the flight frequency and value for the money.
- In the airways industry competitive rivalry is considerable high and an example to this, is Easy jet adds extras and flexibility as a Ryanairs rival.
- Airlines like BA are more likely to do promotions and special offers in the specific routes to compete the low cost airlines
- Moreover there are new entrants in the market so it s getting difficult to compete them. However,cost is a critical impact when it comes to competing with low fares.
Competitive Rivalry within the industry
Industries with high fixed costs, perhaps because they are require high investments in capital equipment or initial research, tend to be highly rivalrous.(Johnson&Scholes,2008)
Ryanair have a number of advantages compare with its rivals, especially about the low cost strategy. Nevertheless Ryanair still have strong rivals such as Easy jet, Airlingus and British Airways.Value Network and Business Partners
Ryanair enjoys having millions of passengers as the company provides no frill and low-cost flights to their customers. Ryanair's current growth rate is over 25%, and the company has been on the top of the low-cost airlines list in Europe since it s opened. Ryanair needs a strong value network and business partners to sustain it s position in the airline industry. After analysing environmental and internal environment we can understand how important role taking it's business partners in Ryanairs low cost strategy and efficiency.Strategic Resources and Capabilities
Strategic resources and capabilities are crucial to understand whether the company's strategy can stay fit in the environment and how efficient can it use the opportunities that exist in the market. However, considering capabilities can bring in benefits to the organization and leading the company to new opportunities.Ryanair's Valuable Resources and Strategic Assets
Capabilities and resources can be identified as tangible and intangible for the companies. These resources and assets are really important for implementing the strategy which company uses. Tangible assets range from physical, organizational, technological and financial ;while human , company's reputation and innovation are intangibles. These are as follows:Financial Resources:
Shareholders are the most significant resources of the company as they are
- The company itself and The Ryan Family
- Ryanair's employees
- Chief Executive Michael O'Learly
- David Bonderman as a Chairman of the Board and Director
- Irish Air
- Shareholders from EU.
- Ryanairs fleet made from around 218 new Boeing aircraft and most of them are new.
- Mostly secondary airports all around the Europe.
- Ryanair has 6616 employees all over the Europe and Morocco.
- Micheal O'Leary
- The company's employees are all perfectly well trained.
- They have high standard of relationship with people.
- The employees are friendly with the customers.
Ryanair is significantly successful in implementing its low-cost strategy and delivering high standard customer services makes Ryanair stronger compare to other companies in the market. Other firms have been trying to imitate Ryanair's strategy but most of them are failing to set up such a well organized strategic plan and operations. Most important and crucial tangible and intangible resources are difficult to imitate such as knowledge management, experience and organizational design/culture.Core Competiencies
- Low Cost Policy
- Benefits of having standardization on the fleet
- Low Wage Bills
- Advantages of using secondary or airports outside of city
- Only Online Booking and Sales
Ryanairs main point was cost focus strategy that helps it to get a big market share by offering affordable tickets.The very first time tickets were started to sold at a price of £99 and that was almost 20% cheaper than the all other airlines cheapest price. For example, Air Lingus /British airways minimum return fare was £209 which was more than double price of Ryanairs return ticket price. In respond, both competitors had to lower their ticket prices to compete with
Ryanairs strategy, this result in starting the trend of low-cost fares in short haul. Providing no frill flights and cutting down from additional expenses such as baggage handling enables the company to keep the ticket prices low. Although the other carriers cant manage to apply this strategy successful like Ryanair.
Ryanair focused on standardization their flew, therefore its flew entirely consist of Boeing 737s this simplifies the maintenance and lessens the maintenance cost. In addition, purchasing same type planes provides advantages of low cost of storing spares.
Ryanair also lessens the training cost , cabin crew and pilots have to learn how to operate a single type of aircraft.
The low-cost leader applies low wages to it's employees and hire little as possible employees than the other airlines in the market. Ryanair is able to keep its wage billow by increasenig the productivitiy per employee and hirin fewer employees per plane than other air lines.
Short haul flights gives advantages of simple operation and keeps the transfer cost low.
Furthermore, Ryanair's attendance number less than major carriers number of five attendances. Also, it's online service strategy enables Ryanair to keep the wages cost low.
Firstly,Ryanair have an advantage of using secondary airports.There is a significant differences between city airports and secondary ones about their landing charges. As we know there is also relatively less delays than big city airports due to less traffic at smaller airports.
Furthermore, major carriers spend almost an hour to turnaround each plane while low cost carrier planes spend less than that at secondary traffic free airports. Ryanair opetrates short-haul flights that allow it to land a plane, disembark its passengers, board another set of travellers and take off in 25 minutes.Fast turnaround time is very important as it allows planes to do more flights and keeps the cost low.
Ryanairs' planes can do almost nine trips in a day which is really high turnaround compare to major airlines average of six trips as this makes its assets more efficient and productive.
Ryanair flys its planes for almost 11 hours each day compare to 7 hours of British Airways(BA).Ryanair's pilots put in 900 hours a year,50 percent more than BA and the other airways pilots.
Secondly, Ryanair negotiated with the small airports for around 15 or more years on landing charges and others costs in return attract number of passengers to those desolate airports. For instance, it's first base in Europe was Charleroi in Brussels that Ryanair made a deal of 15 years flights from the airport in 1997.Thus Ryanair bring in other airlines to the airport. Ryanair's incurred expenses such as marketing support, incentive payments for each route started, and the costs associated with hiring, training local crew, even office and hangar places provided at a minimum cost to Ryanair by the airport.
Ryanair launched online ticketing system in 2000 and started providing online based services. The system easy to use and enables the customers to save time and money. Instead of having offices and hiring people for operation, Ryanair set every services up on online and phone line base. Thus, millions of passengers use online service that keeps transactions time and cost low and the process much simple than the other type of service systems, ultimately benefits from it pass on the customers through cheaper ticket prices. Furthermore, Ryanair cut the commisions from booking service companies and holiday agencies by using it's own online booking services.Value Chain
Value chain system provide us information abour company's infrastructure, technology improvements, human resources, inbound logistics ,outbound logistics, operations, marketing sales and services.The Strategic Situation
We will analyse strengths and weaknesses within the company's attributes also opportunities, threats for the company as a external factor that affects Ryanair's strategic situation.Strengths:
- Low-cost leader in most of the regions
- Capable of keeping innovative cost low for most of the expenses Fleet maintaining cost Cabin crew and staff training cost Passenger check-in costs Less fuel cost (having new fleet)
- Market share growth
- Unique organizational culture
- Strong brand awareness
- Robust route network
- Secondary airport services
- Fluctuating cash flow
- Poor customer relations
- Additional cost sensitive strategy
- Negative media reputation
- Other markets to expand market share
- Merger with other low-cost airlines
- Accelerating UK airline industry
- Positive movements in the European online travel market
- Growing European Airline industry
- Slow down of UK and Europe economy
- Intense competition and price discounting----------Publication Date: 17 Feb 2009
- EU regulation on denied boarding compensation
Ryanair has exceptional capability of optimizing their production cost efficiency and therefore maintains the leading position among European low cost carriers. The only weakness that has to be stressed out is its concentration on small regional airports, which may result in a reduced ability to be a focus for certain customer group. However , this can be interpreted as strength as well because the focus on secondary airports leads to minimized landing and ground fees and avoids direct competition with big network carriers. Ryanair profit from several opportunities on the market-further EU-enlargement on the one hand creates the opportunity to expand in new markets. The fact that the low cost concept has not be established constantly on long haul routes, gives Ryanair the chance to demonstrate its ability to go new ways. However, the airline is always threatened by a rise in fuel prices and the general dependence of the airline industry on the economic cycle, but keeping its good cost structure and pursuing an elaborate fuel risk management could limit the threats in the competition.Strategic Choices
After analyzing the current situation of the company we can move on to strategic choices for the possible future plans and how to assess them.Strategic choices for Ryanair can be analyzed with Ansoff Matrix:
The market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow.(quickmba.com)
As a result of all analyses that I made ,strategic choice should be market penetration for Ryanair. Although this strategic choice can not meet the company objectives in the future. Product development and market development choices can be the further choices for Ryanair but currently the company experiencing a bad time run in the market alongside the strong competitors for this reason I have in a short time period the company needs to keep its market share and grove in small steps.Addressing The New Opportunities for Ryanair
There are two different ways to stay in the same market and grow with existing product or services. Ryanair can both apply penetration or consolidation and securely grow in the it s existing market and keep its existing market share.
Airline industry is significantly affected by financial crisis in Europe in the first place and in the other countries all around the world. Nowadays, all industries are in a recovery term and this included travel and holiday markets. However, people need holidays and travelling is a necessity for that. Instead of travelling far countries people change their choices to closer countries in the Europe. Therefore, Ryanair have an advantage of being low cost leader with its various short haul flights, this creats an opportunity to target more customers in the Europe. Ryanair is a strong leader in low-cost airline industry with its great resources, capabilities and strengths.Recommended Strategies for Ryanair
Firstly, Ryanair needs to identify market gaps in the existing market and there are still opportunities to expand its share in the market such as new EU member countries. Ryanairs Investments can be made to new operations or in improving customers' services and that can lead the company to larger number of customers.
The graph describes percentage of change in passenger growth , we can easily understand that there is still potential customers can be targeted. Ryanair can compete the big carriers like BA with its Low-cost policy and brand awarness in Europe .Finally company have enough resources, liabilities and capacity to make differences in the airlines industry for so many years.