Current Business Environment - Ryanair Airline - Assignment Example

Name : xxxxxx Tutor : xxxxxxx Title : xxxxxxx Institution : xxxxxxx @2010 The Ryanair Airline Introduction Ryanair is an airline company based in Europe with its headquarters in Dublin. The airline industry in which this company operates has been described by many as a very fascinating and unique industry. This is an industry that had been accorded a lot of government protection through various forms of controls up until the year 1980. The Ryanair Airline Company is one among many companies that plunged in to the airline industry on the deregulation of the controlling polices that created room for a lot of competition. The Ryanair airline was founded by Christy Ryan in the year 1985. At its inception, this airline company owned a fifteen seat aircraft of the Embraer Bandeurante Turboprop model. This airline has rapidly grown since its inception in to one of the largest airline companies in the entire Europe. Its growth has always been characterized by rapid expansion especially on the deregulation of the government control policies alongside its model of being a low cost carrier. At the moment, Ryanair is Europe’s largest carrier with regard to the number of passengers. Ryanair is also the largest airline with reference to passenger numbers on the international arena. This airline has rapidly established itself from what was a minor short haul airline in to a very giant airline company. The deregulation of policies by the European government represented a very ample opportunity for this airline. This came after the airline managed to successfully trade its shares on both the Dublin and the NASDAQ stock exchange between 1992 and 1999. This was at the same time when the airline managed to expand its operations to various destinations including Stockholm and Oslo. The year 1998 saw the airline investing a lot of its revenue in to the purchase of various aircrafts including 45 Boeings of the 737 model. The expansion of the airline has overtime translated in to the increase in the level of its operations alongside the increase in the number of necessary facilities. Analysis of the Current Business Environment Affecting the Airline Industry The aviation industry is very competitive. It is an industry that demands the stake holders to incorporate appropriate business strategies. With reference to the Ryanair airline, a number of aspects are elucidated on the need to have appropriate strategies. The Ryanair airline company is not only the leading airline in Europe but also a leader in air industry innovations. Competition is an aspect that is common to all business set-ups. The Porter’s five forces model of competition describes how a number of forces influence competition (Rigas 2006). Any airline company in the European aviation industry faces the great challenge of competition coupled with the volatile pricing of jet fuel and the dominance of price sensitive customers (Gilligan et al 2003). Generally the European aviation industry is highly threatened by the high bargaining power of various suppliers alongside the threat of various substitutes and new products. This has been further intensified by the open skies policy that has been adopted by the European Union. The concept of deregulation was such a great boost to the level of competition in the European aviation industry. This was more appreciated by a number of low cost carriers like the Ryanair airline company. The concept of open skies fostered by the European Union further increases the magnitude of competition by making it possible for any airline in any of the member states to operate on the domestic market (Doughty 2000). Becoming efficient is an aspect that is highly fostered by the prevailing market in the aviation industry in Europe. The overall outlook of the aviation industry in Europe is measured by rapid growth. It is in fact postulated that the number of flight passengers are bound to double the number in this year (Smith 2004). The Ryanair airline on its part has managed to maintain low costs in an effort to earn a competitive advantage and at the same time attain some efficiency in its service provision (Dennis, Nigel & Smyth et al 2009). The applicability of the Porter’s five forces model of competition has been highly acknowledged by various airline companies in Europe owing to the stiff competition. The Five Forces Model of Competition This is a frame work that analyses the economical impact of the nature of competition in a business set-up. The five forces implicated in this model illustrate the intensity of the competition in a market. These forces basically revolve around the profitability of the business investment and the fact that the competition intensity is not a chance aspect. The influence of these forces on any industry is very instrumental (Porter 2008). The figure below depicts an illustration of the five forces. Derived from Porter M ,2008, On Competition Harvard Business Review Book, Harvard Business Press.: Harvard .pp. 15. The model thus points to five forces of competition that include; the entry of rivals or competitors, the threat implicated by substitutes, the consumers bargaining power, the supplier’s bargaining power and the existing rivalry among the players already established (Porter 2008) . The government is yet to be included as a sixth force in the model but for the Aviation industry in Europe, the role of the government with regard to competition has already been created. The concept of deregulation that was adopted in the year 1997 was of a great impact on the level of competition among various low cost carriers among g which the Ryanair belongs. Rivals/ Competitors With regard to the threat of rivals in a very competitive business set up like the aviation industry, the implicated profitability is almost negligible. Every other airline is bound to strive towards emerging over its rivals. The magnitude of competition is measured as an indicator of the concentration of the industry. With a very high industrial concentration, the share of the market is held by well established large enterprises. With the situation in the European aviation industry the market share is held by very many large enterprises with fragmentation in some regions making it very competitive (Porter 2008). Every airline industry has to put in place measures that would enable it to earn a competitive advantage over the other. Such measures should be such that do not violate the expected standards as was the case of the dirty tricks used by the British airline (Gregory 1996). The Government This has not yet been included in the model but has been identified as being relatively vital especially with regard to the aviation industry. The government in any country is bound to influence the emerging competition through the business regulatory measures put in place. However the impact to which this can affect any aviation company is limited to a certain country. This is because every country has sovereignty over its airspace. A country can thus decide to lock out the operation of certain airlines in favour of others within its airspace. Luckily for the aviation industry in Europe the policy of Open Skies allows any airlines to freely operate on the existing domestic market. This Policy posses the great threat of competition with regard to the bargaining power of suppliers (Swinford 2004). Airline companies have thus to devise mechanisms that would possibly help them to earn a competitive advantage in such a competitive industry. The Entry of Competitors This is a measure of the ease with which a number of rival businesses can enter in to the same market. The possibility of such rivalry is thought to affect the existing competition. It is normal for firms to enter and at times exit the market. However, a number of firms have a few attributes that effectively guard against the entry of rivals. With the emerging profitability in the Aviation industry, it is expected that very many companies are eying available opportunities. According to this force, companies may be exceedingly slow at entering in to a market whose profitability is marred with a lot of uncertainties (Porter 2008). To effectively enter in to the Aviation industry and subsequently prevent the entry of rivals, a number of airlines like the Ryanair airline have chosen to maintain very low pricing. This according to them is a strategy that will enable them to attract more customers in to their carriers. Analysis of Ryanair’s Strategic Capabilities Ryanair airline seems to have effectively incorporated the above model in each of its efforts to earn a competitive advantage. It has made it hard for rivals to enter the industry by adopting the most convenient costs for customers. In an effort to win both the buyers and suppliers bargaining power, the airline offers very low cost services that make it hard for buyers to switch to alternative service providers. This is an aspect that enables the airline to effectively evade the threat of substitutes. This airline faces stiff competition from various other low cost carriers in Europe (Hunt 2008). Ryanair airline has been able to make it hard for its arch rivals to penetrate to similar heights of operation. This has been done by constantly reducing the cost of its air travel in an effort to undercut is many competitors (Done 2008). When MyTravelLife airline attempted to compete with the Ryanair airline along the route from Birmingham to Dublin in the year 2003, Ryanair was quick to launch various competiting flights on routes operated by the MyTravelLife airline. This caused the MyTravelLife airline to pull out. When Go attempted to compete with Ryanair from its Dublin Hub, Ryanair engaged it in to a fierce battle that it managed to emerge victorious forcing Go airline to pull out its operations from Dublin (Fontrell 2004).When EasyJet another low cost carrier attempted to compete with Ryanair on the Gatwick route, Ryanair made it hard for it to advance any further and thus had to pull out of operation on the same route only two weeks after inception (Yilmaz 2008). In an effort to cut down on costs at airports, Ryanair heavily negotiates for airport operations in an effort to be accorded low handling and landing charges. This it does in line with seeking both financial, marketing and promotion assistance. When it comes to renewing the contracts, Ryanair is known for playing the airports against themselves with threats of pulling out operations to other airports (Hoffmann 2007). This is a strategy that has been highly disputed by various airports especially the Cardiff airport. The adoption of harsh airport negotiations is a major weakness that threatens to subject Ryanair to stiff competition in the near future as most of the airports are now reverting to closing it out of its routes as they allocate its place to other airlines like Air One airline that was allocated the Rome Ciampino -Alghero route. Evaluation of Ryanair’s Recent Strategies As at the moment, Ryanair is focusing on becoming an internet based Airline Company. This implies that it would relatively become cheaper to book for its flights via its website than to get to its various call centers. The most recent cost reduction strategy was seen in the one sterling pound flight promotion. This strategy was geared at offering over a million flights at the cost of about ten sterling pounds. With this strategy, it became possible for air travelers to afford a flight to Venice from London at a cost of 9.99 sterling pounds. A competitive advantage was highly fostered since this appeared to be the cheapest alternative in air travel in the European aviation industry. The Ryanair airline is planning to shift from the concept of airport check-ins. This implies that passengers bound for travel with this airline will have to check in via the internet before boarding (Delfmann 2005). With regard to its fleet, this airline has been greatly retrofitted .This has been fostered through the adoption of various winglets that can enhance performance. The airline is rapidly expanding with the hope of operating about 292 aircrafts in the next two years to come. At the moment, the Ryanair greatly associates itself with new aircraft technologies geared at the provision of green and quiet services. By September last year, this airline had a fleet of about 200 aircrafts. The average age of most of its fleet is rated at 2.8 years and the figure below represents a number of aircrafts owned by the Ryanair Company as at the end of 2009. For analysis of the other strategies adopted by Ryanair in an effort to earn an ideal competitive advantage, the appendix provides a tabular representation of the option adopted and the underlying strategy.( appendix, page 12). Evaluation of the Challenges Faced by Ryanair as it Implements Strategic Change The main challenges faced by this airline in an effort to foster low costs revolves around poor airport negotiations and poor customer service that has translated in to a poor public image. Most airports that have entered in to contracts with this airline are out to contract other airlines owing to its harsh negotiations (Schmidt 2008). Customer service is relatively very poor with most of the customers complaining of nasty treatment. This is an aspect that has greatly ruined its public image. Most disabled passengers are poorly treated on this airline resulting in to a lot of criticism especially with regard to the lack of wheel chairs (Hoffmann 2007). In 2006, this airline was criticized for not providing an online means through which it could be conducted like a website or an email. The main focus of the business model adopted by this company is geared at promotion of low costs. Most of the company income is thus earned from ancillary forms of income. This is basically income generated from various sources other than charges on tickets. In line with this low cost model, the airline charges other fees for various alternative services including the use of the check in facilities for passengers who do not check in online. By last year, the check in procedure had been abolished and replaced by online check in. There is a fee of five pounds for every individual check in (Trant 2007). The low cost model adopted by this airline seems to be appropriate in the sense that it greatly fosters a competitive advantage for this airline over its rivals. This is a strategy that has enabled the Ryanair airline to thrive in the European airline industry ever since its inception as a small carrier to now one of the largest carriers in Europe. The management of the airline has shown a lot of commitment towards its survival in the competitive industry. This has been fostered through various strategies including harsh airport negotiations to foster low costs. The top management has also shown a lot of commitment with regard to the adoption of pricing mechanisms that can possibly put off arch rivals in the industry. This is an aspect that has seen this airline beating its various competitors through offering low cost flight services. Conclusion The airline industry in Europe is very competitive owing to fragmentation. Thriving in this industry calls for the need to adopt ideal strategies that earn a company a competitive advantage over its rivals. This explains why the Ryanair airline company reverted to the low cost business model. This airline beats its arch rivals by providing the cheapest flight services in Europe. References Delfmann, W 2005, Strategic Management in the Aviation Industry, Ashgate Publishing, London. Dennis, Nigel &Smyth et al 2009, Comparative Analysis of the Airline industry in North America and Europe. University of Westminster. Vol. 22. No 2052.pp 118-125. Done, K 2008, Ryanair’s Closure of the Valencia Base. Aerospace Correspondence ,The Financial Times. Doughty, K 2000, Business Continuity Planning: Protecting Your Organization's Life, CRC Press., New York. Fottrell, Q 2004, The Rise of Ryanair. 2004-06-06. The Post.IE. Viewed on 7th Jan 2010 Read More