Business Strategy of Ryan Air - Case Study Example

CASE STUDY BUSINESS STRATEGY OF RYAN AIR INTRODUCTION: The objective of this study is to look at the current business strategy adopted by Ryan Air-- Europe's largest low-cost carrier and how it should further move towards its growth in future. In the following sections, we will take a brief look at the history and background of the airlines before moving on to its current and future business strategy. HISTORY AND BACKGROUND RyanAir is one of the most controversial airlines in the history of aviation industry. Founded in 1985 by Christy Ryan , it is now the Europe's largest and one of the most successful low-cost carrier. Ryanair flights operate on 460 routes to 25 countries. An Irish airline - it has its headquarters in Dublin and its biggest operational base is London Stansted Airport in UK. Ryanair has profited immensely due to the deregulation of the air industry in Europe in 1997and has undergone rapid growth to become on of the leading names in the industry. But its rapid expansion has been characterized by the numerous controversies and complaints about its functioning. In October 2006, Ryanair was voted the world's most disliked airline in a survey by the TripAdvisor website, and in November 2006, it was revealed as the subject of more complaints than any other airline in the EU. (Irish Examiner, 2006-11-28) But this aside, it has evolved into one of the most profitable low-cost airlines in the world. EasyJet, Monarch Airlines, Centralwings, Air Berlin etc. are the main low-cost competitors for Ryan Air. BUSINESS STRATEGY Business strategy or the long-term business plan is typically characterized by major resource issues or their allocations in an organization. there are two main categories of strategies that are usually followed by the companies ---- the Generic (general) strategies, and Competitive strategies. Some of the generic strategies are: a. Growth or the expansion of the company by purchasing new assets or developing new products. b. Globalization - Going international that is -- moving operations into more countries - becoming multinational companies. c. Retrenchment --- This is typically characterized by focusing on the core business by cutting down on ancillary plans. And some examples of Competitive strategies are : a. Lowering the prices. This is useful if the company is the market leader and can benefit from the advantages of producing large volumes of output such that the lower costs can be covered by more output. And the competitors are unable to match the lowered prices. b. Differentiation - that is position the company as providing something different from the other rivals. For e.g. The aviation industry. It is divided into two main segments --The low cost airlines such as Ryanair who offer low prices and fly on short routes without providing any special services and the high priced airlines such as British Airways that concentrate on differentiation. They offer better services to passengers such as more legroom, in flight entertainment, and more individualized attention. (Grassley, 2002) CURRENT STRATEGY OF RYANAIR As per the official website of Ryanair, its main objective or mission is to become the Europe's leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fares service. (Ryanair Website). They are looking to increase their customer base by increasing their cost-effectiveness and operational efficiencies. The key elements of Ryanair's strategy are: Low Fares, Good Customer service, Frequent flights, Low operating costs, Internet advantage, Safety and Quality maintenance, Enhanced ancillary services. Basically, Ryanair is trying to achieve economies of scale by trying to increase its number of flights and keeping its planes in the air as frequently as possible in a 24 hour period. Its competitive advantage lies in its ability to keep low fares and provide frequent flights for point-to-point short distance routes. Ryanair sells seats on a one-way basis, thereby eliminating the minimum stay requirements. They offer fares based on the demand for particular flights and the period remaining to the date of departure of the flight. Higher fares are charged on flights with higher levels of demand for bookings made nearer to the date of departure. This has proved to be a good strategy since Ryanair's competitors generally do not operate a one-way pricing policy. Moreover, they offer fare promotion schemes to attract passengers who may alternately use other modes of transport. They are operating from secondary and uncongested airports to avoid delays and irritation to its fliers. Secondary and regional airports are able to provide higher rates of on time departures, faster turnaround times (the time an aircraft spends at a gate loading and unloading passengers), fewer terminal delays and more competitive airport access and handling costs. They are operating at cost containing strategies by lowering aircraft equipment costs, improving personnel productivity and outsourcing high cost services such as heavy maintenance and distribution setups etc. In 2002, Ryanair carried about 7500 passengers per employee which translated to ten times more productivity than other high-fare competitors. Moreover their pilots work up to 800 hours a year as compared to high-fare pilots who work around 300 hours a year. They have also contained costs of aircraft equipment by purchasing used aircrafts earlier and then by purchasing single types of aircrafts. This reduces the training required by the employees and maintenance and storage of spare parts. Moreover, since there are no specialists for different aircrafts (they are all similar), this gives them greater leverage to schedule crews and equipment depending on the demand. Ryanair also provides various ancillary services which are connected to its core air passenger service. Ryanair provides accommodation, travel and car rentals through its website and telephone reservation offices. This helps to provide an all consuming service which attracts consumers on business and leisure trips. FUTURE STRATEGIC DIRECTION Future direction of Ryanair's strategy should be focused on consolidation and growth alternatively. The growth process should include : internal development, mergers and acquisition and strategic alliance.(Johnson, scholes and Whittington, 564) It should try to find out more markets or market segments by initiating additional routes from the U.K. or Ireland to other locations in continental Europe that are not served by low-fare carriers till now. The frequency of point-to-point flights should be further increased to provide more suitable times and options to its consumers. They should try to start new domestic routes within EU countries. They can consider acquisitions and alliances for capturing some of the markets. They should also focus on improving their intra-airport transport facilities or look for some spots on primary airports for customers who prefer central points of arrival and departure. Let us evaluate the abovementioned strategic options. Rumelt (1998) identified four key criteria against which strategic options need to be evaluated. They are: Consistency, Consonance, Advantage and Feasibility. Similarly, Suitability, Feasibility and Acceptability are the three broad tests to be used for evaluating strategic options as per Johnson and Scholes (2005). They are both almost similar in their approaches. Let us evaluate our recommended strategy for Ryanair based on this second criteria, The suitability of a particular strategy is assessed by considering the logic or rationale on which it is based such that it maintains or creates the competitive advantage of the organization. It should also be checked on the basis of its relationship with the external environment , its capability to enhance the existing resources or its consistency with the mission statement of the firm. For Ryanair, our recommended strategy is of growth via increasing routes and frequency of flights, by mergers or acquisitions and by forming alliances with other airlines or airports. In our opinion, this strategy is definitely SUITABLE because by following this, the competitive advantage can be maintained. If ryanair moves into segments where there are no low cost airline operating, then obviously, it has a differentiated product to showcase in that segment. Added attractions are its low costs and high frequencies. Similarly, by increasing its frequency of flights, it will maintain its economies of scale and can cope with the pressures of keeping fares down. The acquisitions or mergers are consistent with its mission of being the Europe's leading low cost airlines as it will open doors for its entry in hitherto unexplored markets. The second test that is The acceptability of a strategy involves consideration of the anticipated rewards or results relative to the goals of the organization. It is worthwhile to look at the attractiveness of the strategy in terms of financial returns within the expected timeframe and the risks involve in pursuing the strategy should also be considered. Again for Ryanair, the recommended strategy looks quite ACCEPTABLE.. The new areas are definitely going to provide good returns since there will be no competition from other low cost airlines. The mergers and acquisitions will bring in their competencies as well as expertise which will be profitable for the company. The alliances will help in starting operations with less timeframes in the new sectors without undue delays associated with setting up of new operations the frequency can also be increased without much problems since Ryanair already uses secondary airports which do not have space or congestion constraints. And Finally, For checking the Feasibility of strategic options the resources and capabilities to successfully implement the strategy are evaluated and analyzed By identifying the gaps between the current resources and capabilities and the required resources, one can easily assess the feasibility of pursuing the particular option. For Ryanair, resources and capabilities are already existent within their current framework. They have the trained pilots and any increase in manpower can easily be managed because their fleet is of single type and Boeings are generally used by most of the airlines. So, getting trained pilots will not be difficult. And since it is a no frill airlines, there is not much requirement for in flight services. In terms of handling of airport tranfers or baggage transfers - Ryanair has already outsourced these functions and thus does not need to build any infrastructure for these. Thus looking at these factors, we can safely say that our recommended strategy is FEASIBLE.. Thus our recommended strategy of growth seems to satisfy all the three criteria of Jonson and Scholes tests. And it should be the direction that Ryanair should look towards in the coming future. REFERENCES: Grassley, T., 2002, The Ryanair Success Story. Price as Brand. Irish Examiner, 2006-11-28 Johnson, G. & K Scholes, 2002, Exploring Corporate Strategy, Pearson co. Johnson, G. & K Scholes, & Whittington 2005, Exploring Corporate Strategy, 7 ed. Pearson Publishing Porter, M., 1985, Competitive Advantages, New York, free Press Rumelt, R., 1998, "The Evaluation of Business Strategy" in B De Wit & R Meyer, Strategy - Process, Content, Context, 2nd ed. International Thompson Publishing 1998 Ryanair strategy, Retreived from: www.ryanair.com Read More