RyanAir Strategic Management - Assignment Example

RyanAir Case Analysis RyanAir Case Analysis Goes Here al Affiliation Goes Here This paper serves as an analysisof the Irish air carrier Ryanair. This air carrier is examined in depth to provide information that could be used to strategize about its future. The airline, its competitors, the niche market it holds, and the potential for growth or struggles are examined as well. Models acceptable to the business world are used to map out Ryanair's current situation. The paper concludes by giving an unbiased clear view of Ryanair's position and potential in the air carrier market. Table of Contents Current Trends in the Airline Industry Specific to the European Union (EU) and Ireland. RyanAir's Development (History). Initial Impressions of Main Issues and Choices. What Types of Environments Has RyanAir Been Able To Succeed. Key Drivers in Macroeconomic: Threats or Opportunities. Nature of Competitive Environment. Organizational Stakeholders. Value Chain Analysis. PESTAL Analysis. Porter's Five Forces Analysis. Major Issues Future Strategy Needs to Address Conclusion: a Balanced View. RyanAir Case Analysis http://www.ryanair.ie Current Trends in the Airline Industry Specific to the European Union (EU) and Ireland. At this time the airline industry is in a state of recovery. After the September 11th (9-11) terrorists' attacks on the world trade centre the airline industry has been trying to draw back its customer base. It has slowly regained its pre 9-11 customer levels. Some airlines are recovering from bankruptcies and lay offs within the industry. The airline industry has regained its consideration as the main way of travel for the tourism and business industries. Economic recovery in other industries such as tourism and conference hosting could benefit the airline industry if the industry responds with a marketing campaign promoting air travel to destinations that are popular for tourism and business industries. Post 9-11 the American airline industries recovery was assisted by special payments (bail-outs) from the U.S. government. This greatly affected European Union (EU) airlines. The lowering of ticket prices by the American carriers also affected the EU airline industry. A trans-Atlantic airline pricing agreement helped keep the EU airlines in business. In addition the EU agreed to allow European governments to provide payouts to their airlines (much as the American government did) to help them recover from the 9-11 related industry slowdown (World Airline News, 1). Although the airline industry may have recovered from its 9-11 reaction to the World Trade Centre attacks it is still affected by the ongoing wars in Afghanistan and Iraq. Security within the industry is much higher than pre 9-11 but there still remains the possible threat of another attack using the airlines as a target or tool of the attack. European Union airlines continue to compete with trans-Atlantic airlines from the United States and other North and South American airlines. Tourists are choosing to visit countries they believe "safe" such as England and Ireland rather than Middle Eastern or South West Asian countries. This is good for EU air carriers who benefit greatly by the increase in business. RyanAir's Development (History). Ryanair is an airline that continues to exploit the low cost air industry by providing some of the lowest fares in the industry. Ryanair is purposely modelled after the American airline South West Airlines and uses the no frills approach to providing air transportation. This means no in flight meals or snacks or such (for free). The airline provides basically a seat (or ride) only. Ryanair is headquartered in Dublin Ireland at the Dublin airport. It's only Irish competitor is Aer Lingus which is Ireland's national airline. Ryanair holds a 25% stake in Aer Lingus and makes no secrets about its interest in acquiring Aer Lingus. Ryanair currently has 232 low cost routes across 24 countries. Its reputation in the European Union is as the EU's first low-cost airlines. Ryanair is listed on the London exchange and the NASDAQ in the United States. The NASDAQ listing offers investment opportunities on the over the counter market (RYAAY) and purchases can be made by buying American Depository Receipts (ADRs). Ryanair has been rated as a strong buy/sell (Yahoo Finance) in the ADR market. Ryanair joined the airline industry in 1985 and began its upward trend of near dominance in the low-cost airline industry. The 1991 Gulf War brought a major downward trend in the air industry. Ryanair quickly recovered by eliminating air routes and cutting back on its fleet of air planes. Despite the Gulf War Ryanair continued its upward trend of attracting customers. This is mainly a result of good management strategies by Ryanair executives. Table 2 Ryanair's Passenger Growth in Millions. www.ryanair.ie Initial Impressions of Main Issues and Choices. Initial impressions show an organisation that is continuing to show strong growth. Ryanair's desire to either become a major stakeholder or by out Aer Lingus would make this low cost airline one of the largest providing regional services in the European Union. Ryanair obtained another 16% of interest in Aer Lingus bringing its holdings to 25% (Google Finance) in November 2006. Major competitors in Ryanair's industry environment include British Airways, Air France, Aer Arann and Aer Lingus. Aer Lingus remains a competitor because Ryanair does not hold the majority of interest in Aer Lingus. Main issues for Ryanair include maintaining its hold on market share and continue to attract new business in the low cost air fare industry. Takeover of Aer Lingus would greatly benefit Ryanair. It would give it majority share of flights in and out of Ireland and would make it an even bigger competitor against British Airways, Air France, and Aer Arann. What Types of Environments Has Ryanair Been Able To Succeed. Ryanair has a good hold on the low cost air fare market in the European Union. Its specialty is no frills air service to countries within the European Union. Ryanair stays competitive by using a marketing strategy first introduced by the American carrier South West Airlines. This carrier also offers no frills air service mostly in the western United States. Ryanair's focus on passenger traffic has left it out of the competition in the cargo air carrier market. The airline has the most problems drawing traffic from transatlantic flights because most passengers on those flights stay with the carrier that brought them to Europe such as Air France and British Airways for their local transfers. Key Drivers in Macroeconomic: Threats or Opportunities. A SWOT analysis is used to examine the threats or opportunities to Ryanair. A SWOT analysis looks at an organisation's Strengths Weaknesses Opportunities and Threats and gives a good idea of how a business is doing in its industry. Strengths: Ryanair's leadership has made good choices while managing the airline. One good choice is the use of one type airplane for all its routes ("100 new Boeing 737-800 aircrafts" (Google Finance)). This means training for one type of aircraft for mechanics, pilots, and attendants. Spare parts are negotiated from one company only (Boeing). Any cost saving measure that Ryanair can find it uses. Ryanair has a strong hold on its niche market. There is competition from other carriers but Ryanair is clearly the leader in EU low cost air travel market. Ryanair doesn't try to hide the fact that it would like to take over Aer Lingus. In October 2006 is acquired a 16% holding of Aer Lingus and followed up in November 2006 by acquiring more holdings bringing their total interests to 25%. Weaknesses: Ryanair is not taking advantage of the air cargo market potential within the European Union. The airline could quickly edge out its competitors if it moved into the air cargo carrier market. If Ryanair acquired Aer Lingus (who already has a toe hold on the cargo carrier market), Ryanair could quickly dominate that market. In 2005 (Ryanair.com) Ryanair announced that it would honor its guarantee against adding a fuel surcharge fee to its ticket price. This lowers profits for the airline but draws and sustains a good customer base. The move from call centre ticketing to online ticketing opens Ryanair up to the threats of virus's targeting its websites. With the changeover to online ticketing and drawdown (layoffs) in employees at its call centre, Ryanair opens itself up to problems with overloading the call centre if the ticketing website goes down. Opportunities: Ryanair has established itself in the low cost air fare industry and continues to grow despite world events (9-11, wars in Afghanistan and Iraq). The airline has positioned itself to take over Aer Lingus. The European Commission needs to approve the take over but has not done so. An answer from the European Commission is due in May of 2007 and the commission may require that Ryanair sell off some of its routes to complete he deal (Boyle). If the Aer Lingus acquisition goes through then Ryanair has a great opportunity to exploit the air cargo carrier market. Aer Lingus already functions in that market and has Airbus airplanes dedicated to air cargo carrier routes. Threats: Ryanair has a strong hold on the passenger carrier market within the European Union. A "no" decision by the European Commission in May to the take over of Aer Lingus would slow Ryanair's growth, and take away it's possible entry into the air cargo carrier market. A "no" decision would leave in place Ryanair's only real competitor in Ireland (Aer Lingus, Ireland's National Carrier). The continued increase in fuel costs challenges Ryanair's commitment to not adding fuel surcharges to ticket prices. Ryanair clearly takes a loss in profits from this decision and needs to replace the lost profits by adding something to the mix that would increase profits (such as advertising profits from in-flight magazines). Nature of Competitive Environment. The competitive environment that Ryanair operates in provides air travel to passengers within the European Union. Airlines compete for passengers and cargo. Most passengers in this environment are travelling for business or holiday. Tourism plays a big part in the air industry as most tourists opt for air travel rather than auto or train. The London to Paris Chunnel route (train) does take passengers away from the low cost air carrier routes but not enough to be a big worry to the industry. Ryanair competes with Aer Lingus, Air Arann, British Airways, and Air France for most of the inter-region air passenger business. Ryanair effectively maintains its market share by using the South West Airlines model of no frills air travel and promising not to add fuel surcharges to passenger tickets. Ryanair uses unique advertising campaigns to draw attention to itself and its desire to have a larger market share. For example, Ryanair used an unconventional publicity method to attack EasyJet. They went to the Luton airport, EasyJet's home base, dressed in battle gear claiming they were going to battle for EasyJet's passengers. Ryanair got good publicity from the stunt. Competition in the low cost air passenger is tough. Ryanair has its share of problems with staying in compliance in the industry. They have been accused of violating EU rules when it comes to compensation to passengers. They have refused to refund fees when passenger cancel their travel. This rule: "Regulation (EC) No 261/2004 of the European Parliament and of the Council of 11 February 2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing Regulation (EEC) No 295/91 (Text with EEA relevance) - Commission Statement" Organizational Stakeholders. Management at Ryanair consists of David Bonderman as Chairman of the Board, Michael O'Leary as Chief Executive Officer and Director, and Jim Callaghan as Head of Regulatory Affairs and Company Secretary. The company functions under the name of Ryanair Holdings PLC and "The Company's wholly owned subsidiaries are Ryanair Limited, Darley Investments Limited and Ryanair.com Limited." (Google Finance). Stock price (NASDAQ ADR) closed at $44.85 (28/02/07). This is kind of high for this industry but this company has a strong hold on its niche market. This company has seen passenger growth from inception and market trends indicate that this airline will continue to grow (Google Finance). Value Chain Analysis. Chain value analysis can best be described as activities that take place in the business and can indicate the strength of the business. For Ryanair this can be divided up into two categories. The first category consists of primary activities such as delivering passengers from once place to another. As stated earlier Ryanair has 232 routes servicing 24 countries within the European Union. They use company pilots and attendants and as a no frills airline provide little else except delivery of passengers. Because Ryanair only uses Boeing 737-800 aircraft pilots and attendants can fly any route assigned. The secondary category consists of support services that can be done by the airline or out-sourced. Currently Ryanair has support personnel to service their aircraft. Any Ryanair mechanic can service any Ryanair aircraft because the company currently only uses one type of aircraft. Everything done by Ryanair is designed to be cost-cutting. Ryanair has succeeded in differentiating itself from other EU carriers by using cost cutting measures that pass on the savings to the customer thus maintaining a large share of the market. PESTAL Analysis. A way to look at outside factors that could affect Ryanair is to conduct a PESTAL analysis. PESTEL stands for Political, Economic, Social, Technical, Environment, and Legislative. The political implications for Ryanair are many. Because the air carrier operates within the European Union it needs to stay in compliance with EU rules and rulings such as the ruling they are waiting to receive in May (acquisition/takeover of Aer Lingus). The impact of having and keeping the headquarters in Dublin Ireland must be considered. Ryanair's employee base makes an economic impact on the Dublin community. Acquisition of Aer Lingus (also located in Dublin) would make Ryanair one of the largest employers in Dublin. Ryanair's commitment to the community needs examination. The airline provides tax income to the community as well as bis regulated by the community. The airline would need to consider what it would need to do to help the Dublin community continue to provide employees with the proper level of training to be taken on by the airline. Ryanair would need to take this commitment a bit farther as well to other communities where it maintains a large employee presence. Acquisition of Aer Lingus would add approximately 3000 more employees to Ryanair's 3400. An environmental impact statement provided by Dublin authorities would probably provide Ryanair with more regulations to follow to stay in compliance and be a good neighbour. Porter's Five Forces Analysis. Porter's five forces model offers the airline the opportunity to look around at what is going on outside its own business. Porter's five forces are: the threat of entry, bargaining power of suppliers, bargaining power of buyers, development of substitute products or services, and rivalry among competitors (Porter, 1980). This model helps provide guidance to the air carrier about what it should be looking at in the industry. Questions such as: What are my competitors doing How is our relationship with our suppliers compared to other carriers The most important question Ryanair might ask is how is our strategy of one model airplane only affecting our market share Compared to the other airlines strategies, how are we doing The best way to win a war is to know your enemy. In the airfare war Ryanair is currently winning. Major Issues Future Strategy Needs to Address Ryanair needs to continue its strategy of no frills air travel and needs to fight off the thoughts that might change their strategy of "one model airplane". Their current strategy might have to change some if it acquires Aer Lingus whose fleet consists mainly of Airbus model planes with various models of smaller planes. Current Aer Lingus employees would need to be integrated into Ryanair. Ryanair needs to decide what to do with the fleet once acquired. Aer Lingus also holds a good market share of air cargo carrier routes. Ryanair will need to decide if acquiring Aer Lingus means movement into that sector of the market for Ryanair. Conclusion: a Balanced View. It is hard to give a balanced view of Ryanair because with its strategies it has become the leader in the low-cost air fare war. Ryanair has great potential in the air carrier market within the European Union. Because its home is within the EU it may have to comply with European Commission rulings that do not favour Ryanair. Acquisition of Aer Lingus would be a great victory for this company. Competitive intelligence and good strategies will help keep this carrier in the lead in the industry. It is clear that those who think and strategize for Ryanair have made some good choices and some not so good choices. Its decision to list on the NASDAQ was wise and may bring more capital into Ryanair for further growth. Their stock price (ADR) is high but still marketable. Its decision to not adopt the "Air Passenger Service Agreement" has caused some publicity problems for the carrier. Ryanair strategist's decision to acquire Aer Lingus may bring big changes because Ryanair will (maybe temporarily) have to move away from its "one model airplane" strategy that has worked so well. Aer Lingus acquisition may add (for the first time) transatlantic air cargo routes to Ryanair. It will be interesting to see what decision the airline makes about those routes. The adoption South West Airlines no frills service model and the decision to not add fuel surcharges to ticket fees has made the airline very successful. References American Psychological Association (2001). Publication manual of the American Psychological Association (5th ed.). Washington, DC: American Psychological Association. Boyle, Catherine. Ryanair to make bigger bid for rival Aer Lingus. 21/02/2007. The Business. London England. Retrieved 28/02/2007. http://www.thebusinessonline.com/Document.aspxid=FF21E0BF-5F54-441C-A1D1-A52268972049 Improvement Network United Kingdom. PESTEL analysis. Retrieved 02/17/07 http://www.improvementnetwork.gov.uk/imp/aio/1033478 Johnson, Gerry, Scholes, Kevan & Whittington, Richard. (2005). Exploring corporate strategy. 7th ed. Harlow, England ; New York : Financial Times Prentice Hall. Porter, Michael. Porters Five Forces Model. Competitive Strategy: Techniques for analyzing Industries and Competitors. The Free Press 1980. Retrieved 28/02/07. http://www.sba.pdx.edu/faculty/hpettit/five_forces.pdf World Airline News. European Union Seeks Trans-Atlantic Pricing Agreement. October 12, 2001. Retrieved 02/28/2007. Finance Google. Ryanair. Retrieved 02/16/07 http://finance.google.com/financeq=RYAAY EurLex. Official Journal L 046 , 17/02/2004 P. 0001 - 0008 Retrieved 28/02/07 < http://europa.eu.int/eur-lex/lex/LexUriServ/LexUriServ.douri=CELEX:32004R0261:EN:HTML> Read More