Environmental Analysis with Specific Focus on Ryanair - Case Study Example

Strategic Management Organisations are structures where humans or employees from different background will do their allocated work under the supervision of a leader, for the benefit of the organisation as well as them. Inside the organisation, the leader and the management team has to provide the employees a best working environment, so that the internal environment is optimized. Then, the organisation should focus on the external environment and the factors in that external environment that are positively and negatively influencing the organisation. That is, with every organisation wanting to expand their reach and make an imprint in various markets, there will be enough external opportunities, strengths, etc for it, to make an impression. At the same time, there will also be threats, competitions, political, hurdles, etc, in the external environment. So, when the organisation has enough and optimal opportunities, in the external environment, it can set targets and formulate various strategies to achieve those targets and thereby beat off the competitors, threats, etc, thereby countering any negativities or challenges. This is what Ryanair is optimally doing, thus elevating itself into the top echelons. That is, although in its external environment there are both opportunities as well as well challenges, Ryanair is able to optimally tap the opportunities and counter challenges. This has been the feature of Ryanair since its inception, enabling it to become one of the world’s successful airlines. Environmental analysis with specific focus on Ryanair In this globalised world, an economic problem in one country will not get restricted to that country, but gets spread to other countries. The economies of most of the countries in the world are directly and indirectly dependent on the U.S.’s economy and with liberalization happening everywhere, the negative effects in USA will be felt everywhere and European countries are no exception to it. The worldwide recession in many economies is having a major negative impact in all sectors, and airline industry is no exception. Airline companies all over the world are fighting for their survival not even their success due to recession and the resultant effects like drop in passengers’ traffic, high operating costs, etc. International Air Transport Association (IATA) in February reported a 4.6 percent decline in world passenger traffic due to decreased customer demand, high cost of fuel, high cost of finance and low access to credit. (iata.org 2009). Different airlines including budget airlines as well have been counting their losses and responding to the prevailing economic condition. These losses are attributed to lower traffic volumes and higher than expected oil prices. Global economic crisis is battering even the biggest of airlines, with airlines like Air France, KLM, Delta Airlines, etc posting sizeable losses last year and has initiated plans to remove 40-50 mainline aircraft from its fleet to eliminate fixed costs. Like these airlines, British Airways also reported net loss in tunes of millions last year, blaming it on the weak pound and the global economic crisis. However in stark contrast to this bleak scenario, Ryanair stood has a signing star because it was able to beat the recession and post good profits. That is, although recession and the resultant oil price are having a negative impact on the European airline industry, it is not the case with Ryanair. As stated by O’Higgins (2007) in the case study, although Ryanair was vulnerable to rising fuel prices, its low-fares policy limited it ability to pass on increased fuel costs to the passengers through increased fares. Coupled with a guarantee that it would not impose any fuel surcharges to its customers, Ryanair remain unaffected by the fuel price. Apart from being unaffected, it is positing good profits in these tough times. The general economic environment remains extremely difficult, as the recession saps consumer confidence, but this is proving to be good for Ryanair’s traffic growth, as more and more passengers switch to Ryanair’s lowest fare lowest cost model. (ryanair.com). This has been the feature of Ryanair because since its inception, because Ryanair has overcome many lean periods caused by factors in the external environment with successful strategies Ryanair is considered as the Europe's largest low-cost carrier and the world’s largest in terms of international passenger numbers. (iata.org). It is headquartered at the Irish capital, Dublin and its biggest operational base is situated at the Stansted Airport in London. Although, it was started as a domestic airline, it has entered the International territory and operates in more than 26 countries. With 37 bases and 950+ low fare routes across 26 countries Ryanair connects to 150 destinations, operating a fleet of 210 new Boeing 737-800 aircrafts. Ryanair currently employs a team of more than 7,000 people and expects to carry approximately 66 million passengers in the current fiscal year. (ryanair.com). It was only in mid 1990’s that, Ryanair changed its focus into the low cost sector and so reoriented its model, after operating as a normal airline for around 10 years. Ryanair was launched in 1985 by Tony Rayon (after whom the airline was originally named), Christy Ryan and Liam Lonergan. It started off by using the 15-seat Embracer Bandeirante turboprop aircraft, mainly flying between Waterford and London Gatwick. (timelines.ws). With good flow of passengers clearly enticed by the low prices, Ryanair started on the correct foot. Thus, Ryanair was able to garner a good share in the London-Dublin sector in the late 1980’s, providing them the resources to operate flights in other sectors as well. However, even after expansion to new territories and also even after optimization of n flight services, Ryanair was not able to achieve expected growth rates, necessitating the need to go for restructuring. “Although the number of passenger continued to increase at first, the airline generally ran at a loss and it was even in need of restructuring in 1991.” (luggageguides.com) As stated by O’Higgins (2007) despite a growth in passenger volumes, by the end of 1990, the company had flown through a great deal of turbulence….accumulating losses of IR£20m. Its fight to survive in the early 1990s saw the airline successfully restyle itself to become Europe's first low-fares, no-frills carrier, built on the model of Southwest Airlines, the highly successful Texas-based operator. When the need for restructuring arose, Michael O'Leary, then CEO of Ryanair, entered the picture and initiated the process. The beginning was made, when Declan Ryan, son of Tony Ryan, asked O’Leary to visit United States of America and analyze Southwest Airlines’ low cost model. “Ryan recruited O'Leary and gave him the task of traveling to the United States to study the practices of Southwest, the groundbreaking budget carrier based in Texas” (Emling). Although many large airline companies like United Airlines, American Airlines, etc are trying to garner a sizeable market share, Southwest Airlines, a small airline company, with its low cost model was able to dominate the market and reap in rich profits. “…one small company has been able to satisfy its customers completely and achieve a place among the Fortune 500 in a relatively short period of time” (Bunz and Maes). This success story or model achieved by Southwest Airlines was replicated by O’Leary for Ryanair. On returning to Ireland, O'Leary pitched up for this low cost model of Southwest Airlines in front of the Ryanair management team. He had full belief that by adopting this Southwest strategy and importantly even optimizing it further as part of its internal and external environment, Ryanair can make good inroads into the European air sector. “Europe’s experience of low cost scheduled operators began in 1991 when Irish carrier Ryanair transformed itself from a conventional regional airline into a carbon copy of the US low cost pioneer Southwest Airlines” (Rochfort). In the first place, the company presented the lowest cost of fare when compared with its competitors in the airline sector. Apart from that, Ryanair is also a focuser because it concentrated on a narrow but large customer segment who were economical in air travel spendings. The market positioning of the company was to offer no frills service with reduced fares intended to create maximum demand. Nevertheless, the company expanded to places like continental Europe and importantly to other continents. So now, one can say that Ryanair has changed generic strategies to become more of a cost-leader not only in terms of passenger volumes but also operating at the lowest cost in the airline industry. It was continuing to outperform all other airlines, not only in its own European battleground, but also globally. In August 2006, Air Transport World magazine announced that Ryanair was the most profitable airline in the world, on the basis of its operating and net profit margins, on a per-airplane and per-passenger basis. (O’Higgins 2007) Ryanair’s success The person who ‘piloted’ this drive of low cost culture was Michael O’ Leary, who implemented a series of steps or strategies as part of the new fine-tuned organisational processes. That is, after returning from United States, O’ Leary focused on certain aspects of Southwest Airlines’ functioning, which could be incorporated in Ryanair. As part of the low cost model, O’Leary and Ryanair focused on certain strategies which are continuing even now as part of Ryanair’s functioning. The cost cutting strategies, which O’Leary and Ryanair implemented and which are providing good results are quickening the turnaround times for the aircraft, operating mainly from minor regional airports, using only a single type of aircraft, doing away with in-flight entertainment and services, eliminating travel agents in ticket sales, etc. The key strategy carried out by Ryanair which resulted in its success is operating only a single type of aircraft, without going for other companies or brands as well as other models. Ryanair continued its policy of fleet commonality to keep staff training and aircraft maintenance costs as low as possible, using Boeing 737 planes. (O’Higgins 2007).Thus, this strategy eliminated the costs that could arise out of training the pilots and staffs for each type of aircraft. Ryanair initiated this strategy in the mid 1990’s itself and at that time it purchased single type of old or used aircrafts, then switching over to single type of new aircrafts in late 1990’s. Ryanair’s initial strategy for controlling aircraft acquisition costs was to purchase used aircraft of a single type. From 1994 to 1998, Ryanair purchased used Boeing 737-200A aircraft that were, at the date of purchase, between 11 and 17 years old. In the late 1990s, however, there was a significant reduction in the number of such used aircraft available for purchase in the market. (ryanair.com 2002). As mentioned above, this strategy cut down major costs involved in training the staffs, thereby reducing the overall costs and in turn achieving the low cost model. That is, pilots and mechanics were needed to be trained on only one type of flights. “Having a single airplane model in a fleet also lowers inventory, record keeping and maintenance costs, and it minimizes the number of technical manuals, tools and spare parts.” (boeing.com 2002). The other by-product of this strategy of buying only a single type of aircraft is that it was able to negotiate better rates from Boeing, Ryanair’s only supplier. As Ryanair purchased from Boeing all its aircrafts, without going to Airbus, Boeing was also able to give the aircrafts for a lower price, thus aiding Ryanair to cut costs, thereby emerging successful. The other strategy which was implemented by Ryanair as part of its low cost model happened inside the flights. Ryanair cut down costs that incurred in-flight through video based entertainment, multi-national cuisine, etc. That is, as the costs for these in-flight services gets transferred to the cost of the flight tickets, thereby inflating the ticket costs, O’Leary and Ryanair decided to do away the in-flight services. “O'Leary came back with a new vision. He did away with inflight meals” (Emling).Through these efforts, Ryanair was able to bring down maximally the operating costs and thus was able to reduce the air fares. Ryanair as part of its low cost model, lessened it’s reliance on travel agents and other middlemen and instead facilitated ticket sales through phone and its official website. As travel agents and middlemen will demand a percentage of the ticket sales, it will in turn inflate the flight ticket prices. To avoid even a small percentage of inflation and keep the costs at lower levels, Ryanair vended tickets only through phone and website. “Estimates were that these tactics could save an average of more than €1 per passenger. One such measure was web-based check-in from March 2006” (O’Higgins 2007). Key issues for the sustainability of the Ryanair’s success One of the key decisions taken as part of incorporating low cost model in its ground operations is operate flights from minor regional airports, however that lead to few sustainability issues. That is, by operating flights from minor regional airports, Ryanair expected to get low landing and handling charges. This minimized the operating costs of the flights sizeably. As all major and established international airports in Europe as well as around the world charge a comparatively high fee, Ryanair by operating from minor but at the same time prominent airports was able to cut costs, offering low prices to the customer. Ryanair reduced airport charges by avoiding congested main airports, choosing secondary and regional airport destinations, anxious to increase passenger throughput. Most of these airports are significantly further from the city centres they serve than the main airports. For example, Ryanair uses Frankfurt Hahn, 123 kilometres from Frankfurt; Torp 100 kilometres from Oslo; and Charleroi, 60 kilometres from Brussels. (O’Higgins 2007). The other advantage, Ryanair got because of incorporating this strategy is quick turnaround times. That is, as it operated from minor airports, which does not have that much heavy traffic and volume, Ryanair was able to quicken the turnaround time of flights landing and taking off. “They fly not from main airports, but from small airports at the fringes of the important city. This is important because this means that RyanAir becomes an exclusive airline at these airports. This helps it schedule landing and takeoff priorities better, faster turnaround time.” (Aggarwal 2009). This process of quickening turnaround times was also imposed on the Ryanair’s employees and thus it was incorporated into their functioning, thereby optimizing their productivity and resulting in good profits for Ryanair. Ryanair staffs particularly baggage handlers and crews were trained to quicken the turnaround time to just 20 to 25 minutes, by doing quick unloading, reloading and importantly by preparing plans for departure. From the employees’ perspective, given that the cabin crew are paid by sector flown, and not time worked, it is in their interest to be as efficient as possible. However, when low-cost model was initiated in the ground operations of Ryanair’s functioning, it had sustainability issues, with quality being the main factor for consideration. That is, in order to quicken the turnaround times, it has been said that all Ryanair staff are unfairly pushed to do it quickly and are even forced to cut corners. Because of these faults, there have been some minor accidents and also critics are taking pot shots. “We and others have researched Ryanair and seen just how pressured the schedules are, how tight the turnaround times, and how there appears to be a corporate culture that does not make safety its first and overriding priority,” (Marowsky, qtd. in itfglobal.org 2007). Also, because of the rushing of the loading process, the baggage handling process and other processes, the quality of the service also gets affected. So, to address this issue and sustain the success, quality concepts like six sigma, or in other words total quality management can be optimally used. As part of TQM, EFQM excellence model, which is followed by majority of the European organizations, can be incorporated to improve the quality up to the set standards. If that culture has to be reoriented according to organisational change, the leader has to tune it. That is, “It is clear that the implementation of a TQM initiative such as the EFQM Excellence Model involves a culture change, and the cultural realities of an organisation need to be understood…implementation should be employed in which the implementation approach is tailored for the organisation” (Davies, 2007, p.384). This change could positively impact the sustainability factors. With the incorporation of these quality aspects, Ryanair can quick turnaround times with good safety and quality. Conclusion Ryanair has changed itself from being a full service conventional airline to be the first European low cost, no frills carrier. By the end of 1990 in spite of growth in passenger volume, the company struggled to remain profitable and this when Michael O’Leary came into the picture. He decided to adopt the low-cost model on the lines of successful Southwest Airlines. With low cost model, Leary went for minor regional airports to operate its flights, reduced cost further by having a quick turnaround time, by using only single type of aircraft, avoiding in-flight services, etc. All these aspects got incorporated and functioned aptly to make it a success. Ryanair after initial hiccups in its business started to stabilize, thanks to the careful strategy selection and adoption of a niche business model which is essential especially for the airline industry. The strategic options of the company are also given detailed elaboration including the incorporation of the quality concepts, which in the modern epoch is imperative. The successful implementation of the low cost strategy by Ryanair, created a brand model. A model which gained acceptance and it became the choice of many airline companies all over the world. From this analysis, it is clear that Ryanair placed itself between a cost leader and a niche player. Now many other airlines openly say that they follow the business model of Ryanair such as Tiger Airways. Such is the effectiveness of the choice of strategy of Ryanair. Ryanair is in a position to control all its change processes with regards to their operations and services in order to fulfil customer requirements in the cost effective manner. Ryanair is a classic case of a company which found extremely difficult to find its strategy correct. But, in due course of time the company managed to learn and adopt a business model that is optimally profitable. 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