Evaluating the Business Environment - Essay Example

Low cost airlines in Europe are quite many but the market leader in this category has for a long time been Ryanair. Since 1985 being the year of its establishment, Ryanair has made huge strides in the airline business to ensure its market leadership for this long. The airline has invested a great deal of resources and time in developing these strategies as the market becomes more and more dynamic with time. This has therefore called for the airline to come up with management decisions that are meant to enable it to cope with the difficult environment that it is facing; the area that this paper will concentrate on more. Statement of purpose This paper aims at identifying, analysing as well as evaluating the business environment that Ryanair operates in. The main focus will be on its macro and macro environment as well as the internal and external environmental factors that help it to overcome market challenges as well as stiff competition from its closest rivals for example British Airways. In doing this various models shall be used e.g. Porter’s 5 forces, SWOT, PEST analysis and McKinseys 7’S. Introduction Ryanair is an airline that was founded in 1985 and at its start it concentrated it travel from Waterford to London (Ryanair 2010). The airline has come a long way since then and today it ranks one of the biggest carriers in Europe. The company’s growth is heavily attributed to the management’s decision from its onset to plough back its earnings in expansion programs that have reaped a great deal of benefits to date. In this regard it emerged to be the big airline it is today (Carol & Julian 2000, pp. 232 - 261). To elaborate further on its growth trend, the airline started operations with only one aircraft which had 15 seats. In 1986 the company added two more aircrafts and by 1987 it already had a jet aircraft that made it possible for the airline to expand on its route. The company grew rapidly from this time but in 1990 it made a massive loss due to heightened competition from British airways and Aer Lingus (Ryanair 2010). By 1992 passenger traffic had grown by 45 percent due to the steady policy of providing good service at low cost; this translated to 945,000 passengers (Charles & Gareth 2009, pp. 84 - 92). The 1990s were the years of steady growth where more and more routes in Europe has been conquered and airlines like British Airways were not in the lead anymore after Ryanair overtook them in this regard. Continental European bases were taken as viable options in the 2000s. This decade saw the airline become fully fledged as a continental airline due to the routes it plied as well as the passenger handling capacity. In 2007, the company’s profits had grown to levels that were beyond the expectations of analysts. By 2008 the passenger base had tremendously grown to be well over 58 million; a feat worthy achieving and admired world over (Ryanair 2010). By this time the aircrafts are modern and able to handle the huge demand which is mainly driven by the culture of low fares. The airline had also through the years contributed to employment creation such that in 2008, the total number of employees was over 6000 (Sascha 2008). Management practices and case study SWOT Analysis Ryanair’s management has tried hard in addressing its strengths, weaknesses, threats as well as the available opportunities. It has gone ahead to take advantage of its huge revenue base in purchasing aircrafts. This has enabled it to have more and more destinations within Europe which has in turn increased its customer base enormously over the years. Strength lies in the landing zones or airports that the airline has specialised in. It has taken the secondary airports as its preference which reduces costs and efficiency as no time is wasted for both the airline and the customers (Palmer & Ponsonby 2002, pp. 260 - 278). The airline has also taken advantage of the low fares to attract customers and this as evidenced earlier has reaped huge benefits to the airline. This latter strategy has enabled the airline to have high customer retention. The company’s weaknesses have been sighted to be revolving around its publicity activities that aim at hurting its reputation and at the same time increasing costs in form of fines and legal fees which could otherwise be used in other income generating ventures (Miriam 2010). As a result and as mentioned earlier the airline has been looking into its adverts more keenly in order to evade such threats in future. The company has been trying to enter into mergers with other airlines e.g. Aer Lingus, tried to establish more and more destinations in Europe and taking advantage of markets left by the competitors. Ryanair has been faced with huge competition which has in many ways diminished its prospects in the market. By the year 2004 there were more than 60 low-cost airlines having been established. This was a move even the big competitors like British airways took in taking the niche of the low-cost air travel. Others included JetBlue and Spirit while British Airways established a subsidiary, Go, to cater for this market. However, in 2002 EasyJet bought Go from British Airways (Palmer & Ponsonby 2002, 309 - 401). These airlines have come to take a huge potion of the market that Ryanair had dominated. Although they do not have absolutely similar operations models, they have hugely focused on reduction of cost. The airline has been able to handle the external environment to its business quite well. As noticed in the earlier analysis and evaluation of the political events like the wars in the Middle East have, the company has taken time to seize this opportunity by purchasing a huge fleet of aircrafts. The airline’s customer relations strategy has also been well looked into although its relations with the competitors has not been the best (Philip & James 416 - 32). The airline is also well positioned as a low-cost and low fares carrier since during this period many have been opting to spend less on travelling. At one point O’Leary commented on September 2009 that Ryanair together with EasyJet will be the only ones flying in Europe in ten years time as discount carriers. The airline has also reacted to the increased fuel prices by cutting further on its cost of operation. McKinseys 7’S Strategy – the airline has been seen to incorporate many strategies but the notable of all is that of being a low cost airline. In the low cost category it has been the market leader since its inception and has dealt a blow to all competitors by further reducing on cost. Structure – the airline for many years has been using a structure where all the departments from procurement to operations report directly to the CEO. This with time has proved detrimental and the various departments are now free to make decisions but with less consultations and bureaucracy as before. The CEO Michael O’Leary is now concentrating on more fundamental issues related to market strategies and planning which is leaving him room to excellently operate in this capacity. Systems – as highlighted earlier the company’s structure has been changing little by little and so are the systems. The lower level managers are currently having more authority especially in respect to procurement and decisions regarding the routes they manage as well as departments. Ryanair has also been ahead in IT where all its bookings are done online and much more as the CEO said is on the way in terms of IT and even new aircrafts. Style/ Culture – the management culture for example for Ryanair is to ensure that the CEO is vocal in steering the airline to the next level by acting as an example and a profound leader. The workers are treated like members of one family and communication channel within the workforce is efficiently open where low cadre workers can air their grievances easily to the mid-level management. Staff – the human resource function of this airline has been quite efficient for years. The company has some of the highly qualified staff in the airline business and it ensures this by conducting rigorous selection and recruitment processes. It also conducts regular training sessions to its staff. Shared values – Ryanair employees believe in excellence within the target market as the leading low cost airline flying the European skies. This has gone a long way to create a sense of prestige and affiliation to the company which has in turn become quite helpful in instilling a sense of belonging and hard work among them. Skills – the company’s staff as illustrated earlier are highly skilled. This is as a result of the selection of some of the best brains to handle the various tasks and regular training courses that they undertake at the expense of the company. PEST Analysis This is the analysis that will deal with the environment under which Ryanair operates in respect to the political and legal factors, economic, technological as well as the social factors. These factors are to a great extent out of the company’s control and in turn referred to as the macro-environmental factors (Gregory & Marilyn 2004). This form of analysis is quite important for Ryanair since the airline industry is known to be affected a great deal by these factors. The airline has had to face the uncertainties that have gripped the fuel industry whereby the prices of oil are on the seesaw mode. For the airline, fuel cost accounts for the largest share in the total expenses budget. This therefore indicates that during the skyrocketing of these prices the airline stands to spend hugely thereby risking to lower its profit margin. The fluctuations of fuel prices have been crippling the transport sector for a decade now and the situation does not seem to be getting better soon (Stefanie 2007). The airline has however managed to manoeuvre and make profits and expend in its operations despite these obstacles mainly because of its low cost airline policy. On the other hand, US dollar value fluctuations have been on the increase and certainty is no longer in the market environment. When the US dollar depreciates, those customers from the US find it expensive to travel thereby cutting on their orders. This reduces the expected revenues a great deal from this market (Charles & Gareth 2007). In the world today people’s lifestyles are changing and so are their choices and preferences. People nowadays have been travelling a great deal and this has exposed Ryanair to good business. There are more people nowadays travelling for business, education and holiday. The number of the passengers has thus been increasing gradually for the airline as illustrated earlier. The airline as a result has strategically positioned itself well by vigorously advertising its services so as to target those people making visits to their relatives and friends. The 1990s have brought the airline industry to a new level in terms of security. The 9/11 made headlines and safety measures with many airlines of the world were beefed up to prevent the occurrence of such an incident. The London terrorist attach is another occurrence that saw reduced numbers of passengers willing to travel causing the airline industry to take stern measures in curbing insecurity that targets it (Stefanie 2007). Global insecurity and mostly in form of terrorism activities have been on the rise and strategies need to be put in place that aim at preventing the airline from falling victim of an attack. Checks at the airport and for the luggage have been intensified and through scrutiny of passenger identity is being done. However, Ryanair has seen its revenue base grow regardless of these dangers. Technologically the Ryanair has been advancing as time goes by as the environment dictates that for an airline to remain competitive, measures to adopt the latest technology have to be enforced. It is the year 2000 that the airline launched its web site (Ryanair 2010). It has developed the site for years now and currently 100 percent of bookings are being done online as a result (Sascha 2008). The airline has also been embarking on purchasing of new planes that offer better facilities in terms of air safety, comfort and cost effectiveness. Porter’s Model This model aims at analysing the profitability of a market and thus its attractiveness. The five forces under this model influence the way a company meets its customers’ needs and eventually how it makes profit. The airline industry has been seen to make less and less revenue as the market forces and the business environment becomes harsh on it. However, Ryanair has seen its revenues grow and in most cases exceed the industry average. The airline has been capitalising on its uniqueness as a low cost airline to remain afloat and this is after analysing its Porter’s five forces. First the airline has faced the threat of new entrants in the airline industry especially in 2003 (Miriam 2010). Ryanair has been tackling this threat by using promotional strategies that attract attention to its service as well as reducing fares and increasing on the routes plied; this is a practice it shall carry on even in future. The other factor is the threat is receives from its rivals. High rivalry is experienced in this European market and while the general growth rate has been low. The other problem with the industry that Ryanair operates is its lack of product differentiation causing many airlines to provide the same services. Ryanair has tried to reduce on its costs and attract as many customers to its low fares slogan in order to handle this challenge. Threats in relation to substitutes are on the rise with the increased use of trains. However, Ryanair has used promotional strategies especially against the time the train takes and flying time that their planes take. The threat emanating from the suppliers is seen to be high in this low cost flight industry since the suppliers are few and mostly Boeing and Airbus (Sascha 2008). The last threat under this model is that of the buyers. Service industry has a very sensitive customer base that calls for Ryanair to always ensure customer satisfaction as failure to this will lead to an easy switch to the competitors offering services of the required standard. Conclusion and recommendations When taking a clear look into the above cases as well as strategies that Ryanair has put in place, it becomes clear that the company has tried in coming up as the low-cost airline of choice for many in Europe. The company also established cost reduction measures based on reducing the impact of its threats in the industry as well as improving on its weaknesses. In overall the Ryanair has made huge strides in making sure that it emerges at the top despite the challenges faced. With all this progress the airline needs to change a few approaches to the market in order to gain more and to ensure a sustainable business. The management need to be more careful with their advertisements as they have seen them airline lose a great deal of finances in legal fees after being sued by competitors. Their website needs to carry information that is not misleading to the customers in regards to fares as the case has been in the past. The airline needs to diversify and move further into other continents so as to become a global airline with a wider market base thereby more revenue generation. However, this latter move needs good strategies as competition is stiffer on a global scale and the cost of operation will increase dramatically. References Carol, HA & Julian, WV 2000, Strategic marketing management: Meeting the global marketing challenge, Houghton Mifflin, pp. 232 – 261. Charles, H and Gareth J 2009, Strategic management theory: An integrated approach. Cengage Learning. Charles, WL and Gareth, JR 2007, Strategic management: An integrated approach, Cengage Learning. Gregory, GD & Marilyn, LT 2004, Strategic management: Creating competitive advantages, McGraw Hill Book Co. Miriam, M 2010, An analysis of ryanair’s corporate strategy, GRIN Verlag. Palmer, A and Ponsonby, S 2002, Journal of Marketing Management, pp. 260 – 401. Philip, S & James, CC 2003, Strategic management, Kogan Page Publishers. Ryanair 2010, History of Ryanair, viewed 10 August, 2010, . Sascha, M 2008, Ryanair and its low cost flights in Europe: Marketing plan, GRIN Verlag. Stefanie, H 2007, The low-cost airline Ryanair: A critical evaluation of the Ryanair phenomenon and its future prospects with taking the European airline industry into consideration. GRIN Verlag. Read More