Strategic Management of Ryanair - Essay Example

?Introduction Businesses the world over have been incorporating numerous strategies in order to survive the harsh competitive environment brought about by globalisation (Carol & Julian 2000). This has been more intense in the airline industry where many players are coming up every year with the existing ones becoming more dynamic with these developments. Some of these critical issues include destinations, type of aeroplanes, safety of passengers and cargo and above all, fares charged and quality of service. Customer relations in the airline industry also play an important role. Europe as a continent has one of the most competitive skies in the world and airlines flying in this region find it tough to survive. Ryanair is one airline that has concentrated its services in Europe and looking into its history to date and its strategies, it is easy to deduce that it is one of Europe’s leading airlines especially in the low cost category. Statement of purpose This paper will look into the history of Ryanair and use particular critical incidents in the life of this airline to illustrate the strategic debates through some highlight on Mintzberg’s theory. The paper will also look into the key strategic decisions the company will have to make in order to achieve their strategic aspirations. Lastly, the company’s implementation challenges in the global market will be highlighted. Company’s history Ryanair, a low cost and low fares airline, has done tremendously well as compared to many airlines in Europe especially those that were established around the same time i.e. in the mid 1980s. British Airways, Virgin Atlantic, Aer Lingus and EasyJet have formed the closest rivals to Ryanair for years. It boasts of having yearly customer traffic of over 66.5 million from its humble beginnings of just 5000 passengers back in 1985 (Ryanair 2011). The projected traffic for 2010 was set by the management led by Michael O’Leary at over 70 million. Furthermore, the company has over 25 countries where it has set more than 160 destinations with total flight traffic of 1400 on daily basis (Ryanair 2011). The company now has more than 250 Boeing 737 aircrafts all of which are in good shape owing to their young age and routine maintenance. This development started with the airline’s appreciation of the fact that without sustainable expansion strategies it would be difficult to venture into the European sky and rule. Back in 1985 it had just one route i.e. Waterford to London with a single aircraft to handle it. The management at the time then proposed a purchase of a number of jet aircrafts that were faster and more efficient and therefore could handle more destinations on daily basis. Up until 1990 the company was growing at an impressive rate when all over sudden it started a downward trend (Pearce et al. 2003; Slack et al. 2007; Wheelen and, Hunger 2002). At the time many airlines had emerged in Europe with all sorts of products to offer and this had to some extent escaped the radar of Ryanair’s management. Critical incidents in the life of Ryanair and strategic paradoxes Ryanair’s history was immensely shaped by the losses and underperformance witnessed in the early 1990s. This situation caused the management at the time to change its strategies in dealing with the increasing market competition (Gregory & Marilyn 2004; Belobaba 2009; Hill and Jones 2009). The management first renewed their mission of being the leading low cost airline in Europe by focusing again on the cost of operations and fares charged by their competitors. It also concentrated its operations within secondary airports and plied shorter routes than before. In the turn of the 21st century the company found the need to invest in a newer fleet of aircrafts from Boeing that were to handle bigger capacity in terms of passengers and cargo coupled with longer flying distances. The airline website was another strategic alignment in the mid 1990s that opened a new advertising channel and customer interactive platform (Palmer & Ponsonby 2002; Mayer 2007; Kleymann and Seristo 2004). The Chief Executive of the airline O’Leary has been involved in intense marketing campaigns that have seen the company grow to the giant it is today. He has been at the centre of the company’ growth and many attribute his promotional strategies as key to his leadership. The adverts from his entry in the company have attracted huge debate in the media circles and in the airline industry to be specific. The controversial advertisement campaign has been more in-house and led by O’Leary himself. One such advert relates to the airline’s initiation of passengers’ payment of 1 Pound for toilet facilities on board (Kahawatte 2010; Bilton and Cummings 2010). It was hugely advertised with a great deal of debate and press conferences. O’Leary later said it was not to be and therefore was a cheap publicity stance. According to Mintzberg O’Leary has been acting as a figurehead for the company in almost all its adverts even in the website (Hoffmann 2007). He has also been quite important in information processing whereby he has been acting as the company’s spokesperson and disseminator of information. Since his entry into the company as the CEO he initiated many changes therefore being a critical changer and has been handling turbulent times e.g. the court cases quite well and can be regarded as a disturbance handler and good resource allocator due to the reinvestments he has initiated in the company for purchasing bigger and better aircrafts over time (Gross and Schroder 2007). There was another proposition that the airline was to charge extra for ‘large passengers’ so as to cater for individual customer’s needs. The public went into frenzy over this with competitors ‘taking advantage’ by showing how this was cruel and impossible but it was yet another publicity stance for the airline that came almost for free (Philip & James 2003; Bamber 2009; Haberberg and Rieple 2008). The other notable shenanigans from the airline come from its tendency to compare its services with those of its competitors in not so palatable manner. One was in 2001 when Ryanair’s advert portrayed a statue of a baby urinating and reading, “Pissed off with Sabena’s high fares? Low fares have come to Belgium” (Ryanair 2011; Mayer 2008; Lawton 2007; Hitt et al. 2009). This was intended to directly hit on Sabena airline from Belgium although it ended in a stiff court case that saw Ryanair lose but taking advantage of the publicity to showcase their products. Another advert was where British Airways was regarded as ‘expensive bastards’ but the court case in this regard went that the airline was not that wrong in using the term by saying that it was just an ‘exaggeration of facts’ (Gerry 2008; Daft 2009). Another notable issue lies with the company’s back-to-school advert where ladies posed in rather explicit clothes not fit for such an advert which drew attention of the authorities and was instructed to restructure it or remove it totally. This was not until passenger traffic for back to school had increased thereby benefiting the company in the process (Richard & Colin 2005; Stahl and Grigsby 1997; Smith and Golden 2002). These are some of the most notable incidences that the airline has involved strategies that are a bit unorthodox to achieve a milestone in the competitive ladder. Strategic decisions for the future Ryanair has tried to maintain leadership position in the low fares segment but still there is need to have better decisions in place so as to avoid using unconventional means to advertise the airline and SWOT analysis offers the solution. SWOT analysis Strengths The airline’s key strength lies in the fact that is offers low fares travelling and operates at low cost. However, it has not been aggressive enough to try and capture the market that is already with the chartered airlines. The chartered market can be attracted by having some increased level of product differentiation (David 2003; Cento 2008). Weaknesses Ryanair has for a long time had problems with having a bad image in regards to customer service. It is also important to mention here that in regards to the ‘tangible’ side of their service they are almost excellent i.e. being punctual, completing flights, baggage loss being at all time low etc (Charles, Hill & Gareth 2007). Improvements in this will reap them good results in terms of customer satisfaction and loyalty which is quite rare in the airline industry. Opportunities The airline has a great deal of opportunities to look into for it to have both expanded and sustainable business. Ryanair needs to increase its route frequency by buying more aircrafts and having more employees to handle the traffic (Munck 2004; Delfmann 2005). This includes expansion to Central and Eastern Europe. North Africa is also a region to look into as it is a lucrative tourist destination for Europeans (Nigel, David & George 2003). Threats There is the threat from issues to do with terrorism which should make the management have more screening and relevant security measures in place (Fred 2010; Thomson and Baden-Fuller 2010). The other lies with the EU regulations in regards to the environment and general business operations. Here the airline should embrace the rules without much outcry so as to concentrate on more productive initiatives. Marketing plan Product Ryanair should make sure that even in the distant future it still holds the mantle of the best low cost airline in the market it will be flying (Whittington 2001; Kazmi 2008). It should also increase flight frequency and open many new destinations. Price The low fares strategy is the other that should be maintained so as to keep attracting customers. This will also be coupled with an increase in the free seats offered to boost ticket sales. Place Online reservations should be made quite cheap as compared to other booking means (Boesch 2007). This will increase efficiency and profitability by cutting on time-wasting related cost. Promotion There is a perception that the airline offers low quality service because of the low fares it charges. This will hugely change when it purchases newer aircrafts to be in line with competitors like BA and Virgin Atlantic (Afuah 2009; Mayer 2008; Saloner et al. 2001). They can even change the employees’ uniform and other upgrading initiatives as long as fares do not increase as a result. Implementation challenges in the global market It may seem easy to state the strategies that the airline may adopt in future but the global market place is harder to crack (Peng 2008). For this reason the airline will face various challenges as it continues to expand and better its services. Porter’s 5 forces will offer this in brief explanation. Porter’s 5 forces Suppliers’ bargaining power There is a problem as the company expands more so in regards to purchasing of new aircrafts. Due to the limited options of the aircraft manufacturing companies, it has no choice but to stick with Boeing otherwise switching costs to Airbus can be enormous (Warren 2009). Operating in regional airports is less flexible for the airline and these airports in many countries are limited. This may hamper growth in case the airline has more flights and bigger fleet in future. Consumers’ bargaining power Changes in the economy have immediate and direct effect on the airline industry. A case in point is the recent global economic crisis which resulted in consumers the world over to cut on spending (Cassia et al. 2006; Delfmann 2005; Betz 2002). Customers in the airline business as mentioned earlier are not loyal and frequently switch thereby holding airlines hostage through cheaper and quality services which is not a healthy mix for a business. New entrants Looking into the aforementioned future strategies it will not be easy for Ryanair to implement them as a result of their capital intensive nature. Aircraft purchases alone require years of financial preparation (Charles & Gareth 2009; Finkelstein et al. 2007). However, other companies are doing it making competition stiff. Although its truthfulness is not known, the claim by O’Leary that the airline is to introduce standing rooms in aircrafts will act as a competitive advantage before others copy it (Haq 2010; Harvey 2008; Luffman et al. 1996). As illustrated earlier he makes certain comments for publicity and this may be one of them. Threat of substitutes There are many substitutes for Ryanair services mostly due to the fact that they have numerous short-haul flights. Trains, fast cars and ferries act as good substitutes (Mobley et al. 2009). This is made worse by the fact that customers are not loyal to airlines. Competitive rivalry Copying of other airlines’ ideas is the trend in the industry since product differentiation is not easy to come by (Bamber et al. 2009; Fojt 2006). At the moment low cost category airlines in Europe i.e. EasyJet and Ryanair have diverging strategies on routes ventured into therefore lowering this threat significantly. However, strategies may change and they reach convergence and Ryanair needs to be ready to act when this time comes. Due to the effort of trying to offer the lowest fares Ryanair at times is pushed to the edge when others lower theirs and this is a threat to implementation of its low fares strategy now and in future. Conclusion Ryanair has a strong historical background rich in necessary obstacles and successes necessary in shaping a company’s future. The airline industry is not an easy one to crack and reliable strategies need to be devised in order to attain some competitive edge and maintain it. Ryanair has invested heavily in updating its fleet over the years and have used unconventional promotional campaigns to attract low cost publicity. This strategy has been central to Michael O’Leary’s strategy to boost ticket sales and popularity. Ryanair however needs to come up with better strategies to ensure sustainability of its market leadership position one of them been centred on route expansion. This will not be easy due to various hindrances posed by market forces like buyer and supplier bargaining power over the airline’s operations. However, with consistency in good strategic formulation and implementation the airline will surely retain its good market position in Europe and beyond in case at one point it will venture beyond Europe. References Afuah, A 2009, Strategic innovation: New game strategies for competitive advantage, Taylor & Francis. Bamber, G et al. 2009, Up in the air: How airlines can improve performance by engaging their employees, Cornell University Press. Belobaba, P 2009, The global airline industry, John Wiley and Sons. 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