Ryanair

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Question 1

Analyze the European airline industry, with implications for the budget sector and especially Ryanair

The European airline industry comprise of well established national competitors such as British Airways, KLM and Luthansa which controls the market share at the higher end of the market. The abovementioned companies use differentiation strategies to compete and win market share. It is very difficult for new entrants to the European market such as Ryanair to compete against well established competitors on that basis. New entrants therefore must adopt different strategies to be competitive such as low-price strategies to gain market share in a highly competitive European market.

Ryanair competes in the low-fare end of the European airline market. Ryanairentered the European market by targeting the low-cost/low-added-value sector of the market. This strategy proved its success with R recording highest return on capital employed of all shares on the Irish Stock Exchange. Any company competing in the lower end of the market for market share, the ROCE must be considered to be the most important or crucial financial measurement for success. Furthermore, any company competing in the low-cost market in any given industry rely heavily on good management skills. Most of these skills are being acquired through experience which takes time but lead to core competencies and certain resource capabilities as has been demonstrated by R in recent years. The lower-end of the European market is well contested at present and all possible measures must be introduced by competing companies to improve on its core competencies.

As previously mentioned, Ryanair strategically positioned itself in the budget sector of the airline industry in the UK, also competing in the European market. The high-cost sector is well covered by established competitors in the European market and Ryanair, although highly successful will not consider new opportunities in that sector. Ryanair from its humble beginnings learned from previous experience and by only targeting the segment of the market it knows well, managed to secure thirty-three percent of the European low-cost sector.R is always searching new frontiers in the market, looking to exploit new possibilities and new routes that might prove to be profitable. Business currently originates from three different segments and its main segment at present is situated in the UK. That suggest that business in the UK is well covered and the very next growth market is inter-continental flights in Europe where some scope for growth in market share exist.

The key factor for success in the future would be for R to compete successfully in a niche market for low-cost air travel as to protect itself from a well established market competing in the high-cost market in Europe. It is simply not worth their while for companies such as Luthansa to try and win market share from the low-cost market since they compete for a different market share in a market they do understand , niche players such as Ryanair control the market share and profit margins are too small.

Introducing the value-chain concept into the European market with companies competing in the air-travelling industry, companies such as Ryanair will be classified as being an upstream company. Ryanair and the other companies competing in the lower-cost market typically adopt resources such as process innovation, and capital intensive strategies to obtain competitive advantage. For example, opting for secondary airports all over Europe with the opted advantage of time saving on travelling and the all important cost savings factor secure better market share for Ryanair in the well contested lower-end of the market.

Innovation will play a very important role in the future success of Ryanair. Rayair certainly control the biggest share of the market at present, but this advantage can be eroded in a very short period of time. Aspects such as developing of core competencies and better exploitation of resource capabilities should give Rayanair some leverage in gaining market share in the well contested lower-end of the market for airtravelling in Europe and the UK.

Question

Eveluate Ryanair's strengths and weaknesses

Ryanair positioned itself from the onset different than the existing airways companies in Europe.They followed a strategy that enables them to achieve competitive advantage in the business they operate.

According to Johnson et al. (00 1) a competitive strategy is the bases on which a business unit might achieve competitive advantage in its market.

Basically there is two Price-based strategies that can be followed.

· "Nofrills" strategy is where you combine a low price, low perceived added value and a focus on a price-sensitive market segment.The strategymay also be a viable means of competing in an industry in which major firms are following a different strategy.This reflects directly to Ryanair's positioning in a very competitive industry they positioned themselves well and followed different strategies to differentiate themselves.

The heart of Ryan's strategy was based on providing a no-frill service with low fares designed to stimulate demand, particularly from budget-conscious leisure and business travelers, who might otherwise have used alternative forms of transportation,

· "A low price strategythat seeks to achieve a lower price than competitors whilst trying to maintain similar value of product or service to that offered by competitors.

This is also the case with Ryan's.Their objective was to maintain its position as Europe's leading low-fares airline, operating frequent point-to-point flights on short-haul flights, mainly out of regional and secondary airports.

To reach the company's common goal which is to be profitable on new routes from their inception, by pitching their fares to be low enough to attract new customers but high enough to provide a satisfactory operating margin.

They want to be seen as the most affordable airline with successful growth based on the supply of cheap transport to the Irish population in the UK and their relatives and friends in Ireland, availing of low fares to travel more often.

Also they want to gain the bulk of the second more informal airlines, that supply flights between primarily Irish - UKand various cities in continental Europe.

From out the case we can clearly see that the company is performing well for the past years, whether their strategy will sustain the current success depends on how the market responds and competitors that is making their way into the same market with the same strategies in place.

We can distinct between the following strengths and weaknesses within the company, that is mainly as result of their strategies that they implemented.

STRENGTHS

· Is Europe's first low-fares, no-frills carrier, built on the model of the highly successful Texas-based operator.

· The company that is able to go into a process of flotation, to put themselves in a better financial position, pay of loans and to purchase aircraft.

· The mere fact that they dominate the market when it concerns low-fares airlines, operating frequent point-to-point flights on short-haul lights, mainly out of regional and secondary airports. Rendering a no-frill service with low fares to stimulate demand, particularly from budget-conscious leisure and business travelers.

· The initiation of additional routes from Dublin and London to other locations in continental Europe, new UK-Ireland routes, and new intra-UK routes, which are all served by high-cost, high-fare carriers.

· In 17 Ryanair took over one of the most successful Airlines namely Aer Lingus, the number one carrier on flights between Ireland and the UK.They gained an extra 4 million passengers and a 7 % market share.

· The expansion also resulted into more routes to be offered for passengers from various cities in continental Europe.

· The establishment of the new hub at Brussels South/Charleroi Airport also boost their activities.Lower fare rate could be introduced, more flights was sold online etc.

· During 17 Ryanair dropped its cargo services, without the need to load or unload cargo, the turnaround time of an aircraft was reduced from 0 to 5 minutes.

· Extra essentials such asin-flight meals, multi-class seating, access to a frequent flyer programme, complimentary drinks and other amenities was excluded and enable Ryanair to stick to their low-cost delivery of its basic flights.

· They also enhance their revenue through ancillary services offered in conjunction with its core airline business.Include on-board sales, charter flights, travel reservations services, travel insurance, car rentals services,in-flight television advertising services, advertising outside its aircraft where sponsor paint its logo onto the plane etc.

· Ryanair'scost reduction strategy that focused on the areas offleet commonality, contracting out of services, airport charges, staff costs and productivity, and marketing costs.

· Ryanair dropped fees such as landing fees, passenger loading fees, aircraft parking fees and noise surcharges.The fact that they avoid the congested main airports, choosing secondary and regional airport destinations, which are anxious to increase passenger throughput.

· Ryanair's policy stating point-to-point flights on short-haul routes does not interline with other airlines.This allows the airline to offer direct non-stop journeys, avoiding the costs of providing through service (baggage transfer, passenger assistance etc) for connecting passengers as well as delays often caused by the late arrival of connecting flights.

· Their future plans to built their own airline terminal at Dublin Airport, and investigate the possibilities to move its center of gravity away from Dublin towards Great Britain and mainland England.

· Another advantage of Ryanair is their relationship with their staff.They give all cabin crew and pilots the opportunity to earn more than the norm , by means of maximizing the number of sectors flown daily within regulation limits

· When it comes to their marketing costs and expenditure, they also follows a very reasonable strategy.They advertise on their website, national and regional Irish and UK newspapers, on radio and on television.They were the first to cut its rate of commission to travel agents.

· They established their own website where tickets can be booked. This enabled them to respond to the travel agents, but still they decided to utilized some travel agents still, because their own system breakdown and other adverse events affecting the operation of a single centralized reservation center.

· Ryanair established a good name for themselves, they received awards for being the number three of 60 Irish Stock Exchange companies, as well as the "Irish Company of the year"accolade by Business& Finance.

WEAKNESSES

· The fact that Ryanair expand their business with the takeover of Aer Lingus resulted into substantially lower fares and significant increase in traffic on the routes serviced by Ryanair.

· The moment they cut their commission rates with the travel agents, certain factors was influenced.For example the travel agents negatively perceived their change and stop selling their tickets.

· The current status quo now needs to be maintained, and focused on its niche to keep costs under control.This can easily be influenced by external factors such as an increase in the petrol price.Because they increased the amount of flights can also increased the usage of petrol.

· The cheap flight deals offered to customers are frequently confusing.Often when passengers attempt to avail themselves of advertised bargains, they discover that the deals are hedged with conditions, and that just a small proportion of seats are offered at the bargain fares.

· They will be forced to maintain the current status quo concerning their low air-fares and costs they charged.The moment they change their price strategy and or the no-frills strategy they will influence their current positioned.

· The mere fact that they focus on secondary airports for stopping will limit their expansion in future.

Question

Is Ryanair's strategy sustainable?

Yes, but short term. There are many factors that can influence this company's sustainability over the next few years. For know they are doing well and should carryon with there current strategy.

The following might hamper to sustain Ryanair's strategy

Price

The heart of its strategy was based on providing a no-frills service with low fares designed to stimulate demand, particularly from budget-conscious leisure and business travelers, who might otherwise have used alternative forms of transportation, or who might have not traveled at all.

It is the 'no frills' strategy, which combines a low price, low perceived added value and a focus on a price-sensitive market segment. It can be viable because there may well exist a segment of the market which, Whilst recognizing that the quality of the product or service might be low, cannot or chooses not to afford to buy better-quality goods (Route 1). Route , the low price strategy seeks to achieve a lower price than competitors whilst trying to maintain similar value of product or service to that offered by competitors. (Johnson & Scholes 001)

With reducing the price every time they might find themselves in a situation where it's no longer profitable for them. If their service is not up to standard, companies that use Ryanair for advertising will be forced to go elsewhere as bad publicity is not good. When one charges for a service, it's natural to offer good customer service, if not what's the sense of giving customer service. By lowering prices, causes ones competitor to follow, if they are strong enough in terms of financial backing they can affect your business.

In 17 Ryanair had 7% Irish customers, by 001 only 0%. This is because of other routes and mostly the cheap airfares.

As fuel prices increases this could also affect the price of tickets and consumer demand.

Competition

Competitive strategy is the bases on which a business unit might achieve competitive advantage in it's market. (Johnson & Scholes 001)

Given its goal of becoming Europes biggest airline so quickly, Ryanair had little choice, as there are limits to internal growth. By buying Buzz, which KLM was glad to ditch, Ryanair gets another 1 routes from Stansted, its main UK base, to Germany, Holland, France and Spain, as well as two French domestic routes. The deal would intensify competition between Ryanair and EasyJet in the discount market. Ryanair would strengthen its position in France and Germany, where it will become No 1 in the budget sector in those two key European markets.

Perhaps the most dangerous is that Ryanair will find it difficult to replicate elsewhere the success it has enjoyed in the UK. Italy may be ripe for picking off because it has a weak national carrier, but Germany and France will be tougher markets, not just because they have stronger national airlines. Good rail and road links also present stiff competition.

Flag carriers will not take Ryanairs expansion lying down either and BA, for one, has already responded by simplifying its fare structure and bringing prices down. BA has also gone for Ryanairs soft underbelly - its poor reputation for customer service.

According to David(001-100) this is normally the most powerful force. Any change in strategy by one firm will automatically cause the competitors to change as well. Big airline carriers will most definitely compete for market share and this might affect Ryanair.

Investment

Ryanair also runs the risk of buying too many planes too fast. It has ordered 45 new Boeings with atbillion dollars. The trouble is that it may base future decisions on the capacity it has to carry passengers rather than developing the best and most profitable routes - a subtle difference.

Ryanairs purchase of Buzz. In it, CEO Michael OLeary says that he will shut down Buzz if its employees dont agree to the low-cost way of business (i.e., irregular hours, quicker turnaround times). Moreover, he immediately slashed flights to unprofitable cities and threatened airports in Buzz cities that if they dont cut landing fees hell pull out. Note OLearys single-minded focus on Ryanairs strategy Flexible staff, quick turnaround, low landing fees to secondary airports if necessary. You can't be all things to all people. The people that work for you are important, they are your customers.

Alternative transport

In the case study we pickup that the rail transport in most of Europe is very efficient and cost effective.Many commuters prefer using this mode of transport thus decreasing seats on flights. This could impact on Ryanair's strategy as they spent $ billion on new planes.

In Europe high-speed rail travel and the construction of major tunnels and bridges, for example the Channel Tunnel across the English Channel, provide viable and often quicker transport alternatives to air for journeys of up to 500km. This has a dramatic effect in some cases. For example after a high speed rail link was established between Madrid and Seville, the rail versus air split changed from % rail and 67% air, to 8% rail and 18% air.

Technology improvement

With the world moving towards virtual office technology, Business people cannot use mobile communication means on planes, but can use this on rail or vehicle. With emergence of video conferencing many business people are not flying and can conduct business from their companies or at home. However on the other hand many people enjoy the luxuries of not being contacted.

Airport policy

Airport charges include landing fees, passenger loading fees, aircraft parking fees and noise surcharges. Ryanair has reduced these fees by avoiding congested main airports. If airport prices are increases Ryanair will have to charge more also if decreased other competitive airlines will also follow this route.

Employees and customers

The employees seem very happy at Ryanair, if they encounter problems with them this could lead to bad service. Ryanair has been newsworthy and controversial company in Ireland with respect to it's employment practices, most specifically in its refusal to recognize any trade unions. The company regards the heavily unionized nature of employment in it's rival Aer Lingus as a huge contributory factor to the state airline's historical lack of competitiveness.

Market orientation and customer satisfaction will continue to be king.Firms will accept this philosophy not in a superficial manner, but as a way of driving most of their business decisions. Firms will base a significant part of their incentive and compensation system on the degree of customer satisfaction.

For now Ryanair has a good working strategy and should continue with it, but for future plans they should consider contingency plans in the above are. This should be part of their future business plan. Some scenario techniques must be used in order to sustain the strategy.

According to Johnson et al (00 8). In dynamic conditions, managers need to consider the environment of the future, nor just of the past. The degree of uncertainty therefore increases.. They may employ structured ways of making sense of the future, such as scenario planning, or they may rely more on encouraging active sensing of environmental changes low down in the organisation and the sort of diversity and variety seen as necessary through the ideas lens.

Scenario is a detailed plausible view of how the business environment of an organisation might develop in the future based on groupings of key environmental influences and drivers of change about which there is a high level of uncertainty.

Question 4

Would you recommend any changes to Ryanair's approach?

No, I will not recommend any changes to Rynair's approach.

Ø Rynair is currently doing well in its industry.Many airlines came into the industry and most of them went under but Rynair managed to survive all the problems and became successful.This is proved by the many awards that the company has received.In 18 survey of the Irish enquiries markets, Rynair had the highest return on capital employed of all shares quoted on the stock exchange.It was ranked numberof 60 Irish stock exchange companies on the criteria of strategic positioning, capital structure and marketing

Ø In 1 and 000 Rynair won the prestigious best managed airline award.The award was based on six criteria 1. Asset utilization, . Productivity, . Financial stability, liquidity and valuation.

Ø The management style that is used at Rynair is very suitable for its employees.

Ø The company is using the latest technology to do its business.Instead of going to buy a ticket one can just do it via the internet.

Ø There is a very high return on investment at Rynair.This is characterized by the following-

Competitive strength

v Market share

v Relative share

v Relative quality

v Patents

v Customer coverage.

Ø Rynair has a very high market share. It was the first mover into the budget airline industry and

many other airlines joined in but most of them did not make itRynair remained the leader of the pack.

Market attractiveness

v Growth

v Concentration

v Innovation

v Bargaining power and

v Logistical complexity.

Rynair went into Europe.It held 60% business in UK Operations, 18% from Ireland and the rest from continental Europe.Rynair had 45 routes across 11 countries in Europe and indicated it was focusing on intensifying competitive pressure on established Europian flag carriers and other low cost airlines.Rynair has increased its profits for 10 years in succession.

Lean Production

v Investment intensity

v Fixed vs liquid assets.

v Capacity utilization

v Productivity

Ø Rynair had a strategy set out for its investments opportunities.It was looking into offering more European routes form Stansted.The new bases would shift the focus of its next phase of growth to continental Europe which was expected to be the source of 40% of Rynair's traffic within the nextyears.

People excellence

v Lean organization

v Participative culture

v Incentives

v Training

v Insiders and outsiders

Ø Rynair puts the interests of its employees at heart.There were incentives that were given to employees for a job well done.It has a performance related pay structure.In 18 Rynair announced an employee share of the company.In 001 Rynair's pilots and in-flight employees received a generous 5 years pay, productivity and share options packages.

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