a. Identified Issues
Ryanair is the leading low-cost airline in Europe that has won numerous awards since its inception in 1985. The airline has been rapidly increasing its fleet of Boeing 737 aircrafts, as it continues to add new bases and routes. Ryanair adopts a low cost concept, emphasising on keeping costs low with hassle free, no-frills offerings to ensure high efficiency in every part of its business. Nonetheless, with the emergence of several new low-fares airlines as well as stiff competition poses by the conventional national carriers, the company’s current business model and its implementation may not be robust enough to face the turbulent, fast-changing, uncertain business environments and increasing levels of competition.
b. Current Strategies (if any)
Ryanair employs the cost leadership strategy to target a broad customer segment that is highly price sensitive. It concentrates in lowering its costs by constantly finding ways to rethink their primary and secondary activities to reduce cost. The airline has done well in 3 main areas to achieve cost leadership.
First, Ryanair follows a very deliberate strategy which is only configured with a single passenger class, serving no meals and assigning no seats, as it offers a simple and low fare structure. In this sense, it manages to attract strong growth in passenger number and high passenger load, hence leading to profitability.
Second, the airline insists on a single aircraft type i.e. Boeing 737 and it has helped it to better negotiate a low leasing and maintenance rates for its aircrafts. Moreover, Ryanair constantly purchases new and more fuel efficient and environmentally friendly aircrafts. This is in part to keep its fleet of aircraft young and at the same time, reduces the fleet’s overall fuel consumption. In the end, it translates to more costs saving for the company.
Aside from the above, Ryanair also attempts to keep cost controlled through hedging fuel prices, and in doing so also helps the airline to achieve lower fuel costs. As a result, the carrier is able to attain higher saving and this leads to passing its savings to passengers in the form of lower airfare price.
c. Results of Internal Analysis (systematically compiled)
The internal analysis of a firm examines its portfolio of resources, bundle of heterogeneous resources and capabilities managers have created. Fundamentally, it serves to identify Ryanair’s strategic capabilities, and evaluate them through a test for four criteria of sustainable advantages to determine the company’s competitive consequence. From the analysis carried out, the success of Ryanair will be gauged based on its core competencies and strengths.
Strategic Capabilities
Resources Tangible Intangible Remarks
Provides ancillary
services
Include in-flight sale of food and beverages, merchandise, as well as other services such as car rental, accommodation services, travel insurance, credit cards, and airport transfer. Utilises information
technology system
Enables web-based check-in and seats reservation. Possesses strong
company financial performance and healthy cash flows
Ryanair’s healthy accumulation of profits throughout the years has seen remarkable growth and success. This substantial growth will serve as one of Ryanair’s competitive advantage to gain confidence and trust of their customers.
Operates extensive flight network and operations
Ryanair operates more than 1,500 flights per day with more than 50 bases, flying 1,500 routes across 28 European countries, connect more than 160 destinations
Possesses recognised
brand name
Pioneered the low-cost airline business concept in Europe and has established its reputation as one of the largest budget airline.
Threshold Capabilities
The above strategic capabilities are derived from Ryanair’s threshold capabilities. Indeed, to remain economically viable, the company needs to retain certain threshold capabilities in this highly competitive industry. Below are the required attributes that Ryanair maintains to remain competitive.
Low airfare to continuously attract customers
Minimum incidence of airplane downtime and malfunction Minimum baggage delay
Statutory compliance and conformity of relating authority
Ryanair’s distinctive capabilities (core competency)
Amid the business uncertainties and unpredictable environmental concerns, Ryanair continues to enjoy steady growth. This is because the airline adopts numerous cost cutting strategies which are unique to its competitors.
Marketing strategy – Ryanair promotes its website heavily through the traditional media as it seeks to divert customers to its own website and online booking system. Consequently, it has resulted in 99% of all reservations being done online. Moreover, it minimises its marketing and advertising costs, through free publicity in the form of “controversial and topical advertising, press conferences and publicity stunts”. In doing so, it has greatly reduced cost of advertising for the company.
Outsourcing of services – Aside from cutting down on advertising expenditure, the company has also contracted out numerous non-core services such as aircraft handling, ticketing, and baggage handling to third parties providers. Ultimately, this has helped in shortening its operation processes to achieve cost reduction, as well as allows it to channel its resources to its core competences to further enhance its capabilities.
Single passenger class operation - Ryanair only operate a single class service (economy class) and this has allowed them to target the majority of customers – from price-sensitive business travellers to those on student budgets. In the end, the company is able to keep costs down as it eliminates the need for higher standards. Further, Ryanair insists on procuring only a single type of aircraft: Boeing 737, to keep staff training and aircraft maintenance costs as low as possible as well as periodically renewing its fleet to the more fuel efficient new aircrafts while disposing of its older and less efficient planes.
Taking advantage of the internet – As mentioned above, Ryanair exploits the full potential of the internet to achieve cost reduction. Essentially, it eliminates the need for check in attendants as much as possible, as internet users are able to access to the airline’s host reservation system to purchase the flight tickets in real time. Through this process, it greatly contains the cost of staffing as no longer customers are required to go through a real person to transact as he is able to perform various procedures via Ryanair’s self-directed website.
The VRIO framework
Capabilities Valuable? Rare? Inimitable? Supported by the organisation?
Competitive implications
Strong Financial Resources Yes No Yes Yes Temporary competitive advantage
Providing Ancillary Services Yes No No Yes Temporary competitive advantage
Strong Brand Name Yes Yes Yes Yes Sustained competitive advantage
Innovative Technology Yes No Yes No Temporary competitive advantage
d. Results of External Analysis (systematically compiled)
External analysis entails the examination of the challenging and complex external environment in which firms operate. It is crucial to determine how these factors are changing now and for the future, so as to draw out implications for the organisation. In this respect, PESTEL analysis will be employed to study the general environment, followed by Porter’s Five Forces that will examine the Ryanair’s industry environment.
PESTEL analysis of Ryanair
PESTEL Analysis Positive
(Opportunities) Neutral
Negative (Threats) POLITICAL factors: Government support for
national carriers
ECONOMIC factors:
Fuel prices
National growth rates
SOCIOCULTURAL factors: New demography of travellers TECHNOLOGICAL factors:
Fuel efficient engines
100% Web-based
check-in policy
ENVIRONMENTAL factors:
Noise pollution controls
Energy consumption controls LEGAL factors: Restrictions on merger/acquisition Preferential airport
rights for some carriers
GLOBAL factors:
Natural disaster,
terrorism and war
Secondary airports
Ryanair operates in an environment which is highly influenced by government intervention, technological advances, population demographics as well as global factors. Indeed, the biggest force that weighs heavily in the industry is the volatility of fuel price and government
regulation. These factors can influence and change the entire industry within short period of time and at the same time, impact heavily on the airlines’ bottom line. Nonetheless, with the adaptation of its fleet commonality policy of the more environmentally-friendly Boeing 737, Ryanair is able to keep staff training and aircraft maintenance at low costs. Moreover, through only using secondary airports, the airline is able to further reduce airport charges which also help to maintain the company’s profitability.
Porter’s Five Forces Framework
Porter’s Five Forces – Threat of New Entrants Threat of New Entrants is MEDIUM
HIGH when: High Low Explanations
Economies of scale are: Huge capital investments to acquire fleet
Product differentiation is: Cost leadership Capital requirements are: High capital outlay Switching costs are: No switching costs for
customers
Ease of Access to distribution channels is: Online, travel agents, etc.
Cost disadvantages are:
New entrants not able to reap economies of scale as market is dominated by existing big players
While the initial capital outlay serves as an effective barrier to entry, the overall threat of new entrant is actually high as new entrant, particularly those of national carriers which have the financial capacity to enter into this industry can have significant impact on Ryanair even though the number is small. In addition, regional governments may encourage the development of budget airlines to stimulate tourism and investment.
Porter’s Five Forces – Power of Buyers
Power of Buyers is LOW when: High Low Explanations
Concentration of buyers relative to suppliers is: Many buyers
Switching costs are: No switching costs for
customers
Product differentiation of suppliers is: Similar products/services Threat of backward integration by buyers is: Impossible due to high
capital outlay Extent of buyer’s profits is: Great savings
The bargaining power of buyers is relatively low as there are many customers who are unable to integrate backwards and have little bargaining power even for bulk buying.
Porter’s Five Forces – Power of Suppliers Power of Suppliers is MEDIUM
when: High Low
Explanations Concentration of suppliers relative to
buyer industry is:
Only Boeing and Airbus
Availability of substitute products is: No other products can replace aircraft
Importance of customer to the
suppliers is:
Suppliers can exert considerable pressure on buyers via increasing prices or lowering product or service quality
Differentiation of the supplier’s
products and services is:
Aircrafts can be differentiated in terms of technology, size, design, features, etc.
Switching costs of the buyer are: Maintenance, inventory, training Threat of forward integration by the
supplier is:
Suppliers unlikely to offer flight service on top of aircraft building
The bargaining power of suppliers appears to be medium. The suppliers of aircrafts are mainly by Boeing and Airbus which sell globally and head to head competition. In this sense, it greatly undermines the ability of airlines to exercise control over suppliers and earn higher profits. Nonetheless, Ryanair may sign long-term lease and maintenance agreement with the suppliers to lock in price and reduce their power.
Porter’s Five Forces – Intensity of Rivalry Intensity of Competitive Rivalry is MEDIUM
when: High Low
Explanations Number of competitors is: EasyJet, Aer Lingus
Industry growth rate is: High population
Fixed costs are:
Cost of aircraft, maintenance cost,
insurance, etc.
Storage costs are: Parking of fleets
Product differentiation is: Cost leadership
Switching costs are: No switching to
consumers
The success of Ryanair and deregulation of the airline industry has invited many players, some of which originating from established full-service carriers. Further, products offered in the low-cost airline industry are similar and cannot be differentiated widely, thus resulting in high rivalry.
Porter’s Five Forces – Threat of Substitute Products Threat of Substitute Products is
High Low Explanations
LOW when:
The differentiation of the substitute
Cars, buses, trains, sea routes, etc.
product is:
Rate of improvement in price-performance
Low cost airlines willing to lower price to match price of substitute product
relationship of substitute product is:
The threat of substitutes at the industry level is low. The substitutes such as long haul air travel, rail, ferry and coach are not close substitutes which lose out in terms of destinations covered and times.
Ryanair operates in an unattractive and competitive industry. While competitive threats from product substitutes are low, it has medium high threat of new entrants, suppliers and buyers with strong bargaining positions, and strong and intense rivalry among competitions.
e. A matrix showing Strengths, Weaknesses, Opportunities, and Threats.
The definition of success for a firm is dependent on its objective and looking at Ryanair, its definition of success will be measured by its ability to keep cost low and to maintain profitability.
Based on internal and external analysis conducted on the airline, it shows that it is able to sustain its success. With the help of SWOT analysis, the company’s strengths and core competencies will lead to the capitalising of its opportunities and subsequently allowing it to sustain its success.
I have presented my findings from both internal and external analysis in the following table. SWOT Analysis
Strengths Weakness
Strong financial resources Providing ancillary services Strong brand name
Innovative technology
Extensive flight network and operations
High cost
Opportunities Threats
Secondary airports
Rapid technological growth Economic downturns Government support
Changing preference of consumers
Increased Competition Government support
Rapid technological growth Secondary airports
