Why Has Ryanair Been So Successful Thus Far - Case Study Example

RYANAIR – CASE STUDY Why has Ryanair been so successful thus far? Ryanair has been a successful airline service provider recognized as one of the best in the world. Ryanair has been an example for many airline companies to follow. Many airline companies appraise their own performance by benchmarking them with that of Ryanair. Initially, Ryanair had to face many obstacles and deteriorations in their operations, such that it had to change five chief executive and bear losses amounting to IR£20 million. Initially the company had to work hard for its survival in the industry but later on in the 90s, it was restructured as a low-fare, no-frills airline by the then newly appointed Michael Leary. This new change in the management and the restructuring started a new success journey for Ryanair that made the company reach new standards within the airline service industry. The basic reason for Ryanair’s success it their ability to cope with their costs and offering their customers such fares that are really lo when compared to other airline service providers. Ryanair’s great tendency to innovate has always led them to reduce their costs and increase the quality of their service. Innovation has always been a main factor that has led Ryanair to open new dimensions in the airline industry. The strategy followed by Ryanair to reduce their costs is to have low emission aircrafts such as Boeing 737; these aircrafts are also fuel efficient hence helping Ryanair to have a better control over their fuel costs even in the era when fuel costs increased drastically. Such better quality and low cost led Ryanair to be pronounced as the most profitable airline in the world by an Air Transport World Magazine. The other thing that has led the company to its success and better quality is the fact that the company bought new fuel efficient aircrafts at regular intervals; all this led them to save the overhauling costs that were to be tolerated if the company was to have old aircrafts. Ryanair had aircrafts having 2.4 years average life as compared to 7 years in 2005. This 65% change although required major investments but in the long term it would help the company to reduce its costs such as overhauling costs or other probable repair costs needed by older aircrafts. Another reason for this success is that Ryanair has used alternative airports for landing their flights, such airports help in reduced landing charges to be paid by the company hence saving them a lot of fortune (Higgins, 2007; Lex 2006). Is Ryanair’s Strategy Sustainable? There are many challenges for the company that can hold up the company from following appropriate strategies such as excess marketing in the future and other costs that might be incurred if newer routes were to be launched by the company, these things would increase the costs for the company leading them to difficulties in maintaining its effective cost leadership strategy. Ryanair seems to be a very good profitable company that has created great value within the eyes of its customers. It has followed different strategies to be at the place where it is currently. According to Porter’s Generic Strategy, the strategy followed by Ryanair is the Cost leadership strategy. This strategy emphasizes upon cost reduction along with value for money. This strategy is sustainable in the long run if the company uses proper measures such as innovating into technological areas. As technology enhances, there is a need to adapt to such changes if these would bring in greater good for a company. Besides this, Ryanair have not surcharged their customers for fuel which are rising day by day. The company has been highly exposed to the risks of the rising fuel prices; the fuel costs for Ryanair have been such that they represent approximately 35% of their operating costs. If these costs continue to rise in the future, Ryanair would face much greater costs than it is facing currently and would eventually have to charge their respective customers for that but currently they are not charging their customers for that costs hence enhancing their company image. The company has been very good at innovating strategies such as online checking in of customers, carry on luggage etc; this strategy has been hugely affected by terrorist and securities issues. Such terrorist issues have already affected Ryanair as the company had to face €1.9 million loss as a result of reduced bookings from customers. Management and employees are another factor that can always help in sustaining any strategy in the long run. In 2006, Ryanair was paying a hefty amount to its cabin crew, the amount paid by the company to its staff members have been comparatively higher than other European airlines. These lucrative wages have kept the company to satisfy its staff (Akan et al, 2006; Tyagi, 2001; Furlong, 2006). Would you recommend any changes to Ryan air approach? If so, what are they? Ryanair has been operating effectively over the years and it has been considered as one of the most profitable airline organization in the world. There are certain changes that may be needed with the company’s operating structure that may help them to gain further profits. One of a change required for the company is to look upon the increasing fuel costs that it has to face over the years. Ryanair should use proper hedging techniques to reduce their fuel costs. Currently the amount that the company is paying in 2006 is approximately $73 per barrel as compared to $50 paid by its better hedged competitors. Proper hedging technique would help the company to reduce its foreign exchange risk along with any adverse fluctuations in fuel costs for the company. The company should try and improve their attitude towards their staff, some rumors have suggested that Ryanair have forced up their pilots to renew their contracts with Ryanair as the fees that they have kept up on retraining the contract is quiet higher leading the pilots to sign in the their contracts unwillingly. Ryanair should evade such retraining costs as these would badly affect their reputation in the years to come, besides the reputation issue, the pilot contracted again might not be highly motivated to work in again with the company. The training pilots at the company too are working free of cost at the company, the company should provide these trainee pilots with some remuneration on incentive for them to work on with Ryanair and this would enhance the company’s image. There is a high staff turnover rate at the company which is an alarming issue for the company, such turnover should be reduced to help motivate the staff as there had been news where Ryanair’s staff had been accused of mistreating their customers. Staff at the company has not been kept under proper working conditions and this was broadcasted by Channel 4 which showed that the company’s training staff was working in poor hygiene and working condition that affected the staff morale of the company. The documentary showed Ryanair’s cabin crew sleeping while on job. Such working condition should be improved by the company to reduce and eventually eliminate the negative reputation that the company currently faces. Should Ryan air continue to pursue the Aer Lingus bid? The takeover of Aer Lingus would have few advantages along with some disadvantages; it would be feasible to weigh both the positives and the negatives of the takeover deal to evaluate the costs and the benefits of the takeover. The main advantage of acquiring Aer Lingus is that Ryanair would enjoy sort of a monopoly as it would take over its major competitor in the airline industry of Europe. The problem with the Aer Lingus deal is that Aer Lingus uses aircrafts with a higher aircraft age. This increased aircraft age would affect the cost to increase for Ryanair as Aer Lingus’s aircrafts would need ongoing service and other overhauling costs. This would increase the costs for Ryanair as a company but these increased costs would be compensated by the excess customers grabbed (Aer Lingus customers). Other benefits of acquiring Aer Lingus would be the combination of the purchasing power of both the companies merging together, this way the company may be able to influence their suppliers in a more enhance manner leading them to save huge costs for both the companies. Both companies working together would increase efficiencies of the company that can be further taken down and given on to the customers of Aer Lingus in the form of reduced fare. The negative effect of taking over Aer Lingus is that the company is usually involved in long haul routes which as a consequence might increase the costs of Ryanair as well. Both these companies have been seen as bitter rivals in the airline industry, hence it would be difficult for the management of both the companies to work together in a friendly manner, many of the intellectual property i.e. the staff with their experienced knowledge might not want to work with their rival. Besides such issue there might be other financial aspects that might be given consideration. On an overall the takeover of the Aer Lingus seems unfavorable for Ryanair as the benefits of the take over are far outweighed by the costs (Oliver, 2006). Evaluate the strategic leadership of Michael O’ Leary The style followed by Michael O’Leary seems to be an aggressive style of leadership. Although under his leadership the company reached many high standards there are other issues that need some consideration such as the Legal actions brought up against the companies by its pilot, etc. For investors, the leadership of Michael O’Leary has worked out very well and his leadership has led the investors to get better returns for the company. Although many commentators have criticized his way of leadership and his aggressive strategies, he has proved to world that his strategies were the most needed one for Ryanair otherwise it would have not been at the place where it is now. When Leary took up the Ryanair job, the company was not doing well but his spectacular leadership strategies led Ryanair out off the turbulence into the world where it had lead the European airline industry for almost a decade (Montgomery, 2008; Groom, 2004; Higgins, 2007). BIBLIOGRAPHY Akan, Obasi, Richard S. Allen, Marilyn M. Helms, and Samuel A. Spralls III. 2006. "Critical tactics for implementing Porters generic strategies". Journal of Business Strategy. 27 (1): 43-53 B.Groom, “Leaders of the new Europe: business stars chart a course for the profits of the future”, Financial Times, 20 April (2004) Case Study Ryanair – the low-fares ailine by Eleanor O’Higgins, 2007 "Commentary: Ryanair". 2003. BUSINESS WEEK -NEW YORK- INTERNATIONAL EDITION THEN EUROPEAN EDITION-. 21. E. Oliver, “Ryanair’s profits rise 38% as Aer Lingus bid falters”, Irish Times, 7 November (2006), p. 21. Financial Times, 9 September (2006), p. 16. Lex, “Ryanair”, Financial Times, 2 August (2006), p. 14. Montgomery CA. 2008. "Putting leadership back into strategy". Harvard Business Review. 86 (1): 54-60. S. Furlong, Ryanair as a Consumer Growth Company: Inside the 21st Century European Travel Phenomenon, Davy Research, March 2006. Tyagi, R. K. 2001. "Cost leadership and pricing".ECONOMICS LETTERS. 72 (2): 189-193.. Read More