Porters Five Forces to Analyze the Competitive Environment in which Ryanair operates Bargaining Power of Suppliers - Essay Example

Report on Case Study on Ryanair Porters Five Forces to Analyze the Competitive Environment in which Ryanair operates Bargaining Power of Suppliers In the past, Boeing has been the main supplier of Ryanair, however, things are changing since they are looking for rival companies who are also dominant in the air market. Cormac, a Chinese manufacturer is in the list of those attracting Ryanair interest due to the number of seats and the efficiency of their plane and this signal the increasing bargaining power of Ryanair towards its suppliers (Cliff, Ohland & Yang, 2011). The supplier switching costs are also very high due to fluctuating expenses and the pilots also have strong bargaining power due to lack of substitutes for highly qualified pilots. Bargaining power of customers The customers of Ryanair are putting on them a lot of collective pressure so that they can lower the travel expenses and improve on the quality of their airline services. The customers associated with Ryanair are enjoying a higher bargaining power since switching to other airlines with better services is very easy with little or not costs. Threat of substitutes In the case of Ryanair, the substitutes for their transport systems include railways, sea transport, and road transport and any strategy by them poses a threat to Ryanairs profitability. However, Ryanair is still able to operate at a lower cost, leading to lower cost of services that attract more customers. Threats of new entrants The threat of new entrants in this industry is relatively low due to high costs involve in the initial stages of the business set up that many cannot afford. Economics of scale can only be enjoyed by big players like Ryanair and this makes other possible investors to be scared away (O’Cuilleannain, Falle, Sobokta, Kleinert, Chassart, Farrell, 2004). There is also difficulty in gaining access to distribution channels that poses a barrier to new entrants. Competitive rivalry Since the airline industry is highly fragmented, competition is very high leading to low returns. In order to survive, Ryanair is constantly coming up with unique business models in order to outweigh their competitors and make reasonable profits. How the Company has adapted to the PESTLE factors in the U.K. Political and Legal factors Ryanair is luck since it is based in Europe whereby European Union is a complete stable political region that provides a good environment for business to thrive. The integration of the European Union has provided an opportunity for this airline industry to expand its operations very swiftly without hurdles (Muller, 2011). The operations of Ryanair are also affected by the OPEC since its an organization that determines the fuel prices that Ryanair operates on. In the event of financial problems, the EU enacted state aid laws that Ryanair can benefit on to prevent closure of business. EU laws also facilitate airport ownership and this has increased the level of business in the airline industry. Economic factors Demand for airline services is income elastic, the operations of Ryanair are affected by the economy of Europe. Since the GDP of Europe is relatively high, Ryanair is able to reap good profits from their businesses. The cost of fuel has a direct impact on Ryanair profits since it consumes about 39% to 44 % of their expenses and any increase in fuel prices results in dramatic reduction in their profits (Thomas & Kent, 2007). Social factors Since airline industry services depend on passenger’s perception, Ryanair is keen on taking advantage of their perception in order to increase their profits. Ryanair has established good safety measures in their operations to attract more customers so that they feel free to travel with them. Ryanair is also taking advantage of the ever changing demographic patters in Europe to further their business interest. Technological factors The main reason why Ryanair is able to sustain their low air travel costs is that they take advantage of improved technology to purchase low fuel consuming aircrafts. Through technology, they are also able to increase the safety of their passengers and in doing this; they are able to increase their trust. Environmental factors The issues of greenhouse gas emissions are affecting the operations of Ryanair and they are ready to adapt to the EU Emissions Trading Scheme. Due to their increased profits, Ryanair is able to cope with fuel taxes and emission levies introduced to airlines due to environmental protection (Walsh, 2011). The main stakeholders in Ryanair and how the management maintains their support The main stakeholders of Ryanair are Ryan Family, Michael O’Leary, Employees, European Union, Irish Air, Trade Union, Airports, and Travel Agencies (Muller, 2011). The stakeholders are divided according to the level of interest whereby others have low power while others have high power. The management of Ryanair engages the stakeholders in key decision making like the bid for Aer Lingus. Factors that have contributed most to the success of Ryanair Ryanair success is greatly tied to its leadership who has a strong vision and strategies for the company’s success. The CEO of Ryanair took advantage of secondary cities, and airports and successfully adapted to the low cost model that enabled them to attract many passengers (Thomas & Kent, 2007). Another factor that contributed to the success is this company is first mover advantage since it was the first airline in Europe. Through this, they were able to negotiate good rates with business partners thus locking others out. Bibliography Cliff, R., Ohland, C.J. & Yang, D. 2011 Ready to Takeoff: China’s Advancing Aerospace Industry. California: RAND Corporation. Muller, C. 2011 Ryanair case study and strategic analysis: An analysis on the competitiveness and low-cost strategy of Europe’s leading low-cost carrier Ryanair. GRIN O’Cuilleannain, E., Falle, G., Sobokta, F., Kleinert, A., Chassart, H., Farrell, M. 2004. Ryanair Plc. Solvay Business School. Available at: http://solvay.ulb.ac.be/cours/alle/BuspPresRyanair04.pdf Thomas, B & Kent, B. 2007. Ryanair (2005): Successful Low Cost Leadership. Journal of the International Academy for Case Studies. Vol. 13 Issue 4, p71-77. Walsh, C.R. 2011 Airline Industry: Strategies, Operations and Safety. New York: Nova Science Publishers Read More