Ryanair's Strategies of Change - Case Study Example

Introduction Organisations the world over have plans on how they wish to conduct their businesses in the ever increasing competitive business environment. These plans need to be overall in their scope as to make sure that all areas and departments involved in production and delivery of goods and services are well catered for. It is the duty of the management of an organisation to come up with the various strategies that will steer the organisation through the turbulent market and at the same time ensuring stability and competitive edge (Greenberg & Baron 1993). The management of any organisation is left with this daunting task of formulating policies and procedure to be followed in order to achieve the desired results within the time frame set. In this endeavour the management must develop the path or guidelines that clearly stipulate the processes to be followed in the achievement of the said goals and objectives of the firm. There has to be a vision and mission that set to summarise the many goals and objectives that should be collectively achieved by the staff. The vision and mission statements developed by the management should be of paramount importance as investors and other stakeholders set their eyes mostly on how well has the organisation been able to operate toward its mission and vision. This therefore creates an internal challenge for the management and the other members of staff alike to work toward achievement of the said set overall goals objectives of a firm. The management should also come up with policies that aim at giving guidelines on how best to achieve the set targets and offer the resources required. For the purposes of this paper the organisation to concentrate on is Ryanair which is one of the leading low cost airlines in Europe. Since its establishment in 1985, this airline has made great strides in the industry to ensure its market leadership through the various changes that have been made and those that continue to be made. The success accomplished is as a result of the management’s adoption of various strategic management strategies. The airline has been required to ensure change of strategies being adopted as time goes by as the market becomes more and more dynamic. This has therefore called for the airline to come up with strategic management decisions especially in its marketing; the area that this paper will concentrate on more to illustrate the need for change. Company overview Ryanair is an airline that was founded in 1985 and at its start it concentrated it travel from Waterford to London. 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). 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. This phenomenon caused the management to embark on a major restructuring exercise. This saw the airline branded as a low fares one; a stance that saw its tribulations turn round as the number of passengers increased enormously after the first low fares announcements. 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). 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. 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. Change management (Strategic management practices) As earlier highlighted, the biggest of strategies that the airline has used over time is the branding of itself as a low-fare airline. From its inception the airline came into the market as a low fare airline. This is a selling point for many products world over. Michael O’Leary, the CEO of Ryanair has been with the business for over 20 years. He has adopted a business model that has focused on cost reduction for the airline (Knights & Willmott 1992). The big question the paper will give an answer to is what change strategies has O’Leary has been adopting and is adopting in retaining the biggest market share in Europe; a continent with many competitors as well as many willing to invest in the airline business (Gordon, Foxall & Francis 1981). The tickets that Ryanair sells are considered to be the cheapest in the market in on most occasions. The measures that the company has taken are grouped into four categories; the products and services it offers, the pricing strategy, strategies in relation to place and the promotional strategy the company has adopted. In summary the management has been manipulating the elements of the marketing mix to their advantage in gaining the huge market in the European region while at the same time taking good look into the overall business environment. Marketing mix related strategies In regards to the products and services, the company has already established itself as a low-cost airline that has no frills. This has found the airline’s aircrafts having seats that do not tilt backwards, seats without back pockets and has the life jackets put overhead and not under the seat as usual with many airlines’ planes. This will aim at reducing the cost of purchasing the aircraft as well as easing its cleaning. They will also allow for quicker safety checks. The airline also will not be making compensations for mistakes whose fault is customers’. A case in point is lateness to board a flight which in some airlines a refund or some form of compensation is made. In the case of Ryanair, the customer is to purchase another ticket irrespective of the circumstances surrounding the failure to arrive early enough to take off as scheduled. This to a huge extent reduces loss of revenue collected as no refunds are issued or free replacement tickets. The company has come up with other income channels which bring in more revenue thereby increasing its profit margin (Greenberg & Baron 1993). Ryanair is now operating hotels as well as car rental services, bus tickets and phone cards. This will reduce on cost and enlarge the revenue base in that this ancillary revenue will account to around 16 percent of the total profit (Fred 2010). The pricing strategy of the company has been to offer the customers the low fares deal that seems to be the best strategy and that which has made this airline to remain afloat for this long being the market giant. The company is taking advantage of the huge customer base and the many destinations it now serves to reduce the fares to levels which could be detrimental if adopted by other airlines in Europe (Charles, Hill & Gareth 2007). However, this has not been taken well by some of its competitors who feel that Ryanair is taking undue advantage by using the low fares tactic to undercut them. A case in point is when MyTravelLite started plying the Birmingham to Dublin route. This was way back in 2003 when Ryanair reacted to this competition by significantly reducing its fares which eventually forced MyTravelLite to pull out. Another example is that of Go that attempted to compete with Ryanair in Dublin to Glasgow route. It also ended up withdrawing due to fierce competition based on fares charged. The company has also been in the limelight when accusations have been thrown at it for failing to disclose clear information in regards to its fares in its advertisements. The Advertising Standards Authority has been on its case a number of times regarding the above. The company is claimed to be advertising fares that are lower than the actual ones thereby making so many to go for it. It has also in another occasion claimed to have its flight from London to Brussels being faster than the same route railway transport mode (Charles, Hill & Gareth 2007). In taking action against this, Ryanair is making moves to have adverts which are more transparent in both its website as well as other forms of advertising. Another strategy the company has developed is that which relates to place. The company has developed a policy that making it to avoid the use of agents who drain commission fees. This will make the airline save money in avoiding this expenditure. The airline in place of agents will engage direct marketing tools in order to acquire new customers as well as be able to maintain the existing ones. This will improve customer relations enlarging the customer base as well as cost cutting. The online booking system will also be enhanced so as to reduced need to have agents to handle this service. Booking alone will save the company up to 15 percent in fees that could otherwise go to booking agents. It is also the intension of the airline to use more secondary airports which are cheaper to operate in (Rosenbach & Taylor 2006). The airline will also engage in keeping planes in the air for long thereby reducing the charges in relation to landing fees and the like. Some of these tactics have and will attract the European Union’s attention as the latter regards some of these strategies to be against the set anti-competition laws. On the promotional front the company will try to spend as little as possible. The company has also cut on the cost of advertising by its failure to hire an agency to cater for its advertising needs (Lord and Brown 2004). Generally the adverts they do are basic in nature such that they aim at only informing the public of the low fairs that they offer. The airline will have much of its advertising controlled by the CEO himself. It is a known fact that as much as agencies bring in efficiency in their areas of appointment, they are a cost that many organisations can do without (Gregory & Marilyn 2004). In-house advertising is the better option and that which Ryanair has adopting. The other key fact to note under Ryanair’s promotion strategy is its use of controversial adverts or publicity moves which need to continue but taking care to be within the law. Time and again the airline has been in the limelight for having brought forth some measures to cut cost of increase its revenue that have been taken to be impossible or completely off the mark for an airline business. A case in point is when the airline stipulated that it was to introduce a program that aimed at passengers paying to use the toilets on board; this was in 2009. This move aimed at publicizing the airlines intensions to make the check-list an online affair. It is O’Leary himself who later informed the public that this was just a public relations exercise and nothing was to change in respect to attending to ones natural call on board. The airline has been asked to post apologies on its website but in turn it should use this as another avenue for advertising itself further (Nigel, David & George 2003). The company on the other hand has been defending its adverts as well as revealing the actual motive of their moves later on after the publicity sought is achieved. However, after having many cases in court the airline has also seen that is has been losing money and has taken various steps to improve in this respect. It is for example improving on the clarity that the adverts hold as well as the information on its website (Richard, Wilson & Colin 2005). It is also possible for passengers to make better informed decisions as far as fares are concerned since tables have been introduced in the company’s website to facilitate easier and better comparison with other airlines. The airline has also taken other measure to cut on its cost and increase its revenue so as to use this revenue for expansion, advertising, improving the services provided etc all that aim at attracting the customer in the long-term. Another example of a strategy or measure is that the pilots are enrolled being young as cadets and take time to become fully fledged pilots for the airline. This will save on recruitment cost in hiring experienced pilots from other airlines as well as using the cadets to co-pilot some of the fleet. This way the piloting total fee will be drastically reduced in the long term. The airline’s cabin crew have to cater for their laundry expenses as well as manage the ancillary services the airline offers on board. Passenger safety is also left to them and this will aim at doing away with skilled personnel being on stand by for safety alone. The airline is said to be taking advantage of low economic times for the aircraft manufacturers and going ahead to reap huge discounts of up to 50 percent on a single aircraft. A case in point is when there are world instabilities as a result of wars in Afghanistan and Iraq (Richard, Wilson & Colin 2005). The airline has been embarking on a purchase spree of new planes when most other airlines have pulled back from such spending. The airline has also taken into consideration other processes that attract customers as well as save time and money for it. An example is the lack of a check in system whereby all that is required is for a passenger to produce a passport and their reference number. Passengers are finding this as a convenient and a saving time process. The other unique feature is that the passengers sit as they wish as it is a first come first to be served basis (Beerel 2009). This in turn is saving a great deal of time for the airline and consequently fewer fees are being charged by the airports authority on the time taken in a particular airport. The airline is not using bridges as the passengers either are walking to their plane or ferried by buses in cases of bad weather. Ones luggage is also deposited at the terminal directly; a practice that is saving a great deal of time but in case of breakages, the airline is not on some occasions to take full responsibility. SWOT related strategies Ryanair has also needs to try harder 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. Strength lies in the landing zones or airports that the airline has specialised in. It has taken the secondary airports as its preference which will reduce costs and efficiency as no time will be wasted for both the airline and the customers (Palmer & Ponsonby 2002). The airline has also taking advantage of the low fares to attract customers and this as evidenced earlier has been reaping huge benefits to the airline. This latter strategy will enable 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 (Meek 1988). As a result and as mentioned earlier the airline is now 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). 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. Due to the huge nature of the airline’s span of control, some measures that need to be taken take effect at times that are not quite opportune therefore the management need to focus more on the emerging markets. PEST related strategies 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 the opportunities by purchasing huge fleets 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. Ryanair has not been left behind in technology since the launch of the largest booking website in Europe in January 2000 which it has been developing since. On the economic front the company has been seen to cope well (Anderson et al 2001). A recent example is that during the ending global economic crisis, the company reacted by axing routes travelled and reducing fares further by about 20 percent. However, the airline in 2009 went ahead to open more than 30 Spanish routes despite the crisis’ effect of reduced tourism. The management aims at being at the top of the rest after the crisis are over since it would have established itself well in the low season caused by the crisis (Philip & James 2003). 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. This is a feat that is well within reach if the management puts its act together considering the airlines’ past record and history. The airline is also reacting to the increased fuel prices by cutting further on its cost of operation. Conclusion When taking a clear look into the above cases as well as strategies that Ryanair is putting in place, it becomes clear that the company has tried in coming up as the airline of choice for many Europeans and others travelling all around Europe. The airline’s CEO has seen it through all its growth stages and seems confident than ever that the airline will in the near and the distant future be the biggest low-cost airline in Europe. Since its establishment way back in 1985 by the Ryan family with just 1 pound, it has grown consistently for all these years to become what it is today. This has been facilitated mostly by the strategies of change that its management has been adopting and those that suit the circumstances at the time (Paton & McCalman 2008; Whittington 2001). The biggest of all was the first strategy of having the airline branded since inception as a low cost airline offering air travel services at the lowest possible fares i.e. on most occasions. The strategy caught the attention of many and with no time, the airline emerged the leader in Europe to date. The company has also established cost reduction measures that are based on reducing the impact of its threats in the industry as well as improving on its weaknesses. It has also been seen to seize many opportunities so as to maximise profits at the same time cutting on cost. An example is the strategy of buying many planes at the time when its competitors are not interested and opening up more routes in the continental Europe. This will see steady growth in customer base and consequently increased revenue. Revenue sources for the company have also been of a diversified nature since the company also relies on ancillary income from ventures for example in car rentals. 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