Ryanair the Low-Fares Airline - Assignment Example

?Executive summary The report aims to critically analyse the external factors that affect the operations of business organisations during the contemporary period. It will evaluate Ryanair’s strategic position with regards to its external environment, competitive forces, competitors, opportunities as well as threats. A SWOT analysis will be carried for the airline. The report will also discuss the company’s financial analysis, strategic capabilities, strengths and weaknesses. The findings reveal that Ryanair’s low cost/low fare model has given it a competitive advantage in the budget airline industry. The balance sheet of the company shows that there has been a steady increase in the organisations net profit from 2006. The organisation is regarded as the world’s most profitable airline and this can be attributed to its strategic position in the budget airline industry. However, despite showing positive signs of growth in the industry, it has been recommended that Ryanair should embark on a drive to improve its marketing and communication strategies since it has been receiving negative media coverage. There is need to portray a positive image of and counter the negative publicity given to the airline by the media. It has also been recommended that the airline should strive to improve its industrial relations given that the employees are not fairly treated in this particular case. Employees should be treated as valuable assets in the organisation to ensure its viability. Table of contents 1.0 Introduction------------------------------------------------------------------------3 1.1 Overview of the organisation-------------------------------------------3 2.0 SWOT analysis--------------------------------------------------------------------3 2.1 Strengths-------------------------------------------------------------------4 2.2 Weaknesses----------------------------------------------------------------4 2.3 Opportunities--------------------------------------------------------------5 2.4 Threats---------------------------------------------------------------------5 3.0 Financial analysis of Ryanair----------------------------------------------------7 4.0 Competitive forces-----------------------------------------------------------------7 5.0 Ryanair’s competitors-------------------------------------------------------------9 6.0 Strategic capabilities---------------------------------------------------------------9 7.0 Recommendations-----------------------------------------------------------------9 8.0 Conclusion--------------------------------------------------------------------------10 9.0 Bibliography------------------------------------------------------------------------11 Fig 1SWOT analysis--------------------------------------------------------------------6 Fig 2 Porter’s generic strategy model------------------------------------------------8 1.0 Introduction During the current period, it can be noted that organisations operate in an environment that is characterised by external factors of which in some cases, the companies have little control over them. Against this backdrop, this report seeks to critically evaluate the Rynair’s strategic position with regards to its external environment, competitive forces, competitors, opportunities as well as threats. A SWOT analysis will be carried for the airline. The report will also discuss the company’s financial analysis, strategic capabilities, strengths and weaknesses. Recommendations about the measures that can be made to maintain the company’s success will be given at the end of the report. 1.1 Overview of the organisation Ryanair is a budget airline in Europe and it was modelled after the successful US carrier, Southwest Airlines. Ryanair was founded in 1985 by the Ryan family with the aim of providing scheduled passenger services between Ireland and the United Kingdom (UK). The aim was to provide an alternative to the then state monopoly carrier, Aer Lingus. Since its inception, the company went through a great deal of turbulence which resulted in accumulating loses of IR?20million. However, during the late 1990s, the organisation adopted a strategy to restyle itself as Europe’s first low fare airline under the leadership of Michael O’Leary. 2.0 SWOT Analysis “A SWOT analysis is a useful instrument for helping managers to identify internal strengths and weaknesses of a business and external opportunities and threats facing it,” (Strydom J. p 31). Basically, SWOT stands for strengths (S), weaknesses (W) while on the other hand the external environmental factors are regarded as either opportunities (O) or threats (T). This analysis is very important to the managers as it allows them to focus on key strategic issues based on the notion that an effective strategy fully utilises the strengths and opportunities of a business and strives to minimise the weaknesses and threats. 2.1 Strengths The major strength of Raynair is the use of the low cost/ low fares model. Through this strategy, the airline is positioned in such a way that it can gain a competitive advantage over the other rival competitors. Leveraging on the low fare model is advantageous in that the company can attract as many customers as possible and it can retain them since its fares are affordable. In as far as business is concerned, the concept of pricing plays a major role in appealing to the interests of the customers. As can be noted from the case study, the airline has carefully implemented this strategy to the extent that after meeting its operating costs, it continues to generate enough profits. The essence of business is to make profit and it can be noted that the model of business used by the airline is a major strength given that it is able to sustain its operations. It is regarded as the world’s most profitable airline which is a major strength. The other strength is that safety is taken very seriously by the organisation. 2.2 Weaknesses The mobile phone services offered by the airline were negatively viewed by the passengers. This was considered as noisy and disturbing to the other passengers who preferred quite flights. The other weakness for the airline is that it has come under fire for its poor industrial relations. For instance, the workers are not allowed to charge their phones at work to reduce the company’s costs on electricity bills. This negatively impacts on the morale of the workers as they will feel that they are not treated as valuable assets to the organisation. This resulted in a lot of legal lawsuits between the airline and the pilots who felt that they were bullied by the company. The other weakness of the company is that their employees are seen as unfriendly and this has negatively impacted on its reputation as the preferred airline. 2.3 Opportunities The major opportunity for the organisation is that it can harness on new information technology for its booking and check-in systems. As noted from the case study, the company’s website is regarded as the largest in the UK and this is a major opportunity for the organisation to reach as many customers as possible. The advent of the internet has revolutionised the way companies and customers do their business through e-commerce. It is fast and efficient this greatly enhances the airline’s opportunities of satisfying the needs of the customers in the market. The company can also embark on a drive to penetrate new routes given that the other low cost airlines entering the market cannot effectively sustain their operations. 2.4 Threats The company faced some criticisms prior to its bid of Aer Lingus for sitting on a €2billion cash pile instead of distributing it to the investors. This was likely to impact negatively on the viability of the organisation as this would be seen as bad practice in business. On the other hand, the other major threat to the company is competition. There are rival competitors like Lufthansa, Air France-KLM and Iberia. Competition is always seen as a threat as the airline will be competing for the same passengers with the other companies in the same industry. In order for the organisation to operate viably, there is every need to put measures in place to fight competition. There has been uncertainty about success of new routes as the company entered into the 2007 fiscal year. The airline has also been threatened by fuel prices which have been unpredictable and constantly fluctuating since 2005. With its low fare policy, the company has not been able to levy the extra costs on the passengers. This is a major threat given that the airline is not able to control the factors that affect the fuel prices as they are determined by world events. Threats of terrorist attacks have posed a challenge to the airline which had to adhere to strict EU regulations. For instance, in 2006, the airline had to cancel 279 flights and had to refund about €2.7million in fares to about 40 000 passengers and the airline recorded a loss of €1,9million in reduced bookings. The check in system was also affected as a result of the tight security measures and this affected the viability of the budget airlines which relied on quick check in system. Passengers were likely to choose other forms of transport such as trains so as to avoid the inconveniences caused by the delays in checking in. Fig 1 SWOT analysis Strengths -use of the low cost model has several benefits. -safety is taken seriously by the airline. -the company is regarded as the world’s most profitable airline. Weaknesses -use of mobile phones is negatively viewed. -poor industrial relations. -employees are unfriendly. Opportunities -harnessing on new information and communication technology is a big advantage. -penetrating new markets is a great opportunity. Threats Competition -rising fuel costs. -threats of terrorism. 3.0 Financial analysis of the organisation In 2006, the airline announced half year profits of €329million for the first half of 2007. The balance sheet of the company also shows that the airline delivered a 12 % increase in net profits despite a 74 % increase in fuel prices. Traffic has also grown 26 % from 27.6 million passengers in 2005 to 38,4 million in 2006 giving a 27 % increase in passenger revenues. The airline designated itself as the world’s airline on the basis of projections of growth of the number of passengers which was expected to reach 42 million in 2007 surpassing even Lufthansa. The financial analysis of the organisation shows a positive growth for the airline. 4.0 Competitive forces There are many successful business organizations in the market that are strategically so viable to such an extent that rival competitors can hardly exceed their performance (Porter 1980). Such stable status can be achieved only when they apply certain strategies that can hardly be imitated by the competitors for long-term survival and stability which is known as competitive advantages. Porter (1980) suggested a framework for competitive advantage through his generic strategies. In order to survive in the long term, Porter (1985) has argued that a firm needs to have sustainable competitive advantages. There are two sources of competitive advantage; cost advantage and differentiation as illustrated in the diagram below. Through his generic strategies, a ‘Cost Leadership’ is where a firm seeks to be low-cost producer in its industry whereas ‘Differentiation’ is when a firm seeks to be unique in its industry through features of its products that are highly valued, and ‘Focus’ where a firm focuses on a segment in its industry using a low cost approach or a focus segment of differentiation. Porter argues that for a company to ensure long-term profitability, it needs to be clear in its strategic positions and try to exclusively pursue one of them. Thus, in this model A Cost Leadership is where a firm seeks to be the low-cost producer in the industry. The low cost/ low fare model is a competitive advantage for the airline. Fig 2. Porter’s Generic strategy model Competitive Advantage Source: http://www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html University of Cambridge- Institute of Manufacturing. In this particular case, the airline has a policy of maintaining the costs as low as possible. Through replacing its old fleet with new, environmentally friendly aircraft which produced 50 per cent less emissions, 45% less fuel burn and 45 % lower noise emissions per seat, the airline has managed to gain a competitive advantage since the costs of operating are lowered. The modification programme adopted by the company has resulted in 2 % reduction in fleet fuel consumption which is a great saving against the backdrop of rising fuel costs. The cost saving for passenger check in also greatly improved the efficiency of the airline. The airline charges some money for excess luggage as a way of discouraging passengers to carry heavy loads of goods. This has increased efficiency in the checking system. 5.0 Ryanair’s competitors The budget airline industry in Europe has been growing substantially. The low cost carriers had 18 % of the market for all European flights in three months which ended 30 September compared to 15 % a year earlier. According to the case study, there were 19 actors in the low cost airline industry in 2006. On top of that, the airline is also competing against international airlines such as British Airways (BA), Lufthansa and other established companies in the industry. Thus, the attractiveness of the budget sector is signified by the high number of entrants in the industry though some of them have gone bankrupt. 6.0 Strategic capabilities The airline is strategically positioned such that it can manage to gain a competitive advantage by leveraging on the low cost/ low fare model. The organisation replaces the old fleet with new environment friendly aircraft which is cheap to maintain. The airline also charges some money for excess luggage as a way of discouraging passengers to carry heavy loads of goods and this is a great strategic capability as it has increased efficiency in the checking system. The other strategy is that the airline avoids congested airports as a way of improving efficiency. 7.0 Recommendations Industrial relations specifically deal with the way people relate in an organisation (Schultz 2005). The airline has poor record of industrial relations hence it is recommended that it should improve in this vital area. Human resources are valuable assets in any organisation as they determine its success or failure. It is also recommended that the organisation should step up its marketing and communication strategies to counter negative media publicity. The airline has been receiving negative publicity in the media and it is recommended that it should embark on public relations campaign in a bid to portray a positive image to the customers. 8.0 Conclusion Over and above, it can be noted that the external factors in the market affect the way organisations operate. A critical analysis of the case study of Ryanair shows that the organisation’s strategies give it a competitive advantage despite the fact that it operates in an environment it has little control over. It is viewed as the world’s most profitable airline and this can be attributed to the low cost/low fare initiative. 9.0 Bibliography Bates B. et al (2005), Business Management, fresh perspectives, Pearson, CT. Berry T. & Wilson D. (2001), On Target: The Book of Marketing plans. How to develop and implement a successful marketing Plan. Palo Alto Software Inc, NY. Burgess S.M. (1998), The New Marketing, Zebra Press,CT. Cant M.C. (2000), Marketing Management, 4th Edition Juta and Co Ltd, SA. Carrell, R. et al (1995), Human Resources Management: Global Strategies for managing a diverse workforce, 5th Edition, Prentice Hall, NY. Competitive advantage, University of Cambridge- Institute of Manufacturing, Viewed on 21 February 2011from:. Ehlers T. & Lazenby K. (2007). Strategic management. 2nd Edition, Van Schaik, Pretoria. Kleynhans R. et al (2007), Human Resource Management: fresh perspectives, Prentice Hall, CT. Kotler P. (1999), Kotler on Marketing: How to create, win and dominate Markets, Free Press, London. Kotler, P. (1998). Marketing Management: Analysis, Planning, Implementation and control. Prentice Hall, New Jersey. Lamb, C.W. et al (2000), Marketing, Oxford University Press, CT. McCarthy J.E & Perreault W. D. (1996), Basic Marketing: A Global Managerial Approach, 12th Edition, Irwin McGraw-Hill, NY. Michael R. et al, (1973), Marketing Communication and the Hierarchy of Effects, Viewed on 21 February 2011 from: Porter M.E. (1985), Competitive Advantage; Creating and Sustaining Superior Performance, The Free Press, New York. Randall G. (1994), Trade Marketing Strategies: The Partnership between manufacturers, brands and retailers, Butterworth-Heinemann, London. Robinson W (1997), Strategic Management and Information Systems, 2nd Edition, Prentice Hall, London. Schultz H. (2005), Organisational behaviour, Van Schaik publishers, Pretoria. Susan EJ & Randal S (2000), Managing Human Resources: A Partnership Perspective, South Western College Publishing. Smith P.R. (1999), Great Answers to Tough Marketing Questions, Kogan Page, London. University of Cambridge (ND), Institute of Manufacturing, Viewed 21 February 2010 from: Read More