Ryanair as One of the Largest Low Cost Airline of UK - Case Study Example

?Travelling Services in UK Travelling industry is one of those sectors that bring major earning for the country and the company. Anyone seeking to get into this business can make large profits as this sector is one of those kinds which can never become outdated. People will always be in need to travel for different purposes to either long or short distances. But the thing that is important to be considered is to be updated with latest technologies and opportunities. Here we are going to focus on the UK travelling services and highlight the facts and figures and other information important to be aware of before going into this business. Talking about the various means of travelling in UK, the prominent ones are trains, ships and airways. All the three have become really advanced and providing great facilities and services to its clients. Now the journey is no more called as the boring time as the companies do their best to make the traveler feel like home and provide the quality time spent during travelling. There are number of companies who have already stepped into this industry as it is profit earning business and that has provoked a tight competition. Therefore any newbie has to struggle hard so that to make its place in this business. Before deciding any particular sector, let’s have a look at the general overview of the three main travelling means. Airways: UK major industry emphasize on the airways. According to the recent facts and figures, 235 million people use this means to travel a year and 2.3 million tonnes of freight is carried out via airways. In the recent years, the number of air travelers has increased because of the fact that the income of people has also increased. Additionally, the time factor is most important thing that is considered today and airways is one of the fastest means of travelling. Aviation business is operated commercially and privately without subsidy. Therefore it is very important to plan out everything in prior and have negotiations with other countries’ aviation sector. Proper strategies and policies are required to be developed that support the department for long term. This business runs in collaboration of different departments like an airport, airlines, regulators and government sectors. In addition to this, they need support of international governments, embassies, customer representatives and trade associations as well. Civil Aviation Authority is the main department that regulates this industry. It keeps the record of safety, economic, airspace policy and consumer protection regulation. CAA is the department who negotiates with the government on issues of aviation, customer interests and also establishes statistical data after collecting information via economic and scientific research. In UK, air traffic management services are being provided by National Air Traffic Services (NATS) that is being regulated by the CAA. There are two main shareholders of NATS; one is the Government and the other Airline group consists of 7 UK airlines. In previous years, most of the people used to travel via trains and ships as because of the low rates. But now after the airlines have started offering low rates, the air travelling has become affordable for the mediocre person as well. But still due to the economic and security conditions there are many people who prefer to travel via means of ship or trains. Secondly, majority people use only trains and buses for the short distance travelling as it cost them much less. Therefore the trains and buses are big substitute threat for the airlines. Opportunities and threats to Airlines Since the last few years, airline business is bearing major losses due to some reasons like first due to the security reasons after 9/11 issue then the recession period made it difficult for the people to afford high rates of the airlines. The International Air Transport Association (IATA) estimated loss of approximately $4.7 billion in 2009. Revenues were predicted to decrease by 12%. According to the facts and figures, Airlines bear loss of $49.1 billion in between 2000 to 2009 which on average makes $5 billion a year. These statistics clearly reflects an airline business as a risky industry. Here we have applied Porter’s 5 forces theory to measure the level of threat so that to make an analysis for the airlines business. Threat of Entry Threat of Rivalry Threat of Buyers Threat of Substitutes Threat of Suppliers Threat of Entry: Before making an entry into the business of airlines, one has to make sure that: It requires high capital investment. Secondly most of the time it becomes difficult to find the suitable airport location due to restricted slot availability. Thirdly, any new airline business has an opportunity for very limited routes to compete on. Threat of Rivalry: UK being a developed country is now already saturated with an airlines business. So it is really difficult for any newbie to make place in this business. There are many airlines in UK who make various offerings so that to facilitate its customers and be competitive. Some of the top players in this business are Lufthansa, Air France, Virgin Express, German Wings, Air Berlin, Easy Jet, Ryanair, Virgin Atlantic, British Airways and Aer Lingus. They are highly competitive in holding their customers as they are well aware of the techniques. Among these airlines most are offering low costs so that to catch as many customers as they can. Threat of Substitutes: There are different factors that may convince people to switch to any other substitute like brand loyalty, current trends and change in technologies. Similarly if the other client provides better rates and performance then the customer may turn towards it. For example if the customer has the priority of low rates over the comfort or time then one may switch to the low rate airlines, trains, bus, ferries or ships option. Global environmental awareness and economic down turn also plays an important role in this aspect. Threat of Buyers: In UK, airlines focus on making their customers loyal to them and so for any newbie it very difficult to break the customers of any other airline as the people have a strong trust on any specific airline services. However it is still possible with the high managed marketing strategies. Threat of Suppliers: The major suppliers in this business are Embraer EMB 110 Bandeirante, BAC One- Eleven, Boeing 737-800, Boeing 737- 200, ATR 42 and Hawker Siddeley HS 748. Most of the suppliers bargain away major profits and secondly majority suppliers are even not interested in to deal with small airlines. Other major threats: These days, every other airline is focusing over the low cost that has again made the competition tough. The fluctuating oil prices have also made it difficult to enter or run this business successfully. After the 9/11, the security is also become a major issue so it requires to spend major amount to ensure the safety. Opportunities: The demand of low cost airlines is increasing day by day. There is still a room for the entrants to make place in this business if they consider this aspect. The previous airlines have preset policies and strategies and so they are unable to bring down their rates but the newbie can focus on this and make such strategies so that to offer low rates to its clients. The airlines can increase their profits by focusing on the short routes and options for the customers. They can increase the frequency of the existing routes so that to facilitate the customers as much as possible. Expand the number of air services to maximum places in EU. Marketing Strategies of Different Players in Airlines business The low cost airline businesses in UK are making large profits being in trend. Some of these low cost airlines are easyjet, bmibaby, ryanair and flybe. Now these airlines have become popular all over the globe. The major characteristics of these low cost airlines are: No frills like free drinks or air miles are being offered Simple yield management systems Secondary airports are being used so that to cut the prices Usually 737-300 aircrafts are being used Direct booking via internet or call center Heavy loading and seating As these low cost airlines are more popular so they are making more profits than established carriers like Ryanair makes profit of round about ?3 billion. According to an estimate of 1999 operating margins of the airlines are as follows: British Airways 0.9% Air France 3.5% Lufthansa 5.7% KLM 1.5% United Airlines 11.9% Ryanair 22.7% Southwest 21.8% As the statistics show that the low cost airlines have high operating margins than the established carriers therefore they have more prospects in future as well. Whenever the customers make an analysis of the different companies then the first thing that they notice is the additional services that any particular company offers in comparison with other one. That is the thing on which the decision is made in favor of any specific company. Therefore policies and service marketing planning is very important to be considered. Most of the low cost airlines are offering higher frequencies than the established carriers that make it more appropriate for the business passengers like the easyJet offers better frequencies as compared to the British Airways. The pricing offered by the low cost airlines is much simpler like they offer to get discount for early bookings and the pricing is also made flexible to be changed according to conditions. Other well established carriers like British Airways have also copied this marketing strategy but still they are unable to offer as perfect offering as low cost airlines. Ryanair and easyJet make such offers of half price or discounted rates on early bookings. This lowers down the rates much and thus customers prefer to travel in these low cost airlines. These low cost airlines come out to be the best travelling service in case of long journeys. However if the journey is of only about 3-4 hours then usually people prefer to avail the train services because of the low rates than airlines. The rail industry usually lowers down the rates even more in case of longer distances so that to catch the customers of airlines. Overall rail market share has been decreased a lot after an introduction of the low cost airlines. For getting started with the low cost airline business, it is very important to focus on the financial and marketing planning. There are number of low cost airline companies who failed because of poor planning. Like AB airlines, Duo, Debonair and Now failed and got bankrupt even before going on first flight. Similarly Buzz got failed and was sold to Ryanair at just nominal amount because of the higher costs than other low cost airlines. Debonair made a mistake of operating in the middle ground and offering some frills. Therefore in short we can say that, it is really very important to plan the strategies very intelligently especially in case of the big businesses because though these businesses make larger profits but at the same time the loss is also bigger. Besides the increasing trend of the low cost airlines, the risk is also there is entering into this business because there are many companies who are entering this sector thus it will soon become saturated making it much competitive. Secondly the increasing rates of oil are also a big risk for the airlines. These two contradictory issues will make it difficult for the airlines to reduce or increase the rates. It is a better idea to introduce these low cost services outside UK where there are more growth chances. Ryanair Ryanair is one of the largest low cost Airline of UK. It was founded in 1985 and in start they only had 2 aircrafts that could carry 82,000 passengers. Later on it was transformed into low cost airline and then it made rapid expansions. According to the 2008 information, it has 169 aircrafts, fly on 794 routes, move across 26 European countries at 148 destinations and carry 58 million passengers in a year. Ryanair focuses mainly upon competitive advantage and position by offering low rates and considering the marketing strategies and resources of the company. According to the Porters Five forces, Ryanair is facing high threat of new entrants, high threat of industry rivals, medium threat of substitute products and low threat of buyers and suppliers bargaining power. Now let’s make an analysis of PEST external forces that are political, economical, social and technological. Political Since the political conditions are stable in Europe and outside it that is Middle East OPEC, so there is low impact of political force over the Ryanair airline. Economical Again inside the Europe, there are stable economical conditions and stable consumers too, so there is a low impact on Ryanair airline. However the economic conditions are not stable in underdeveloped countries. Social Due to fluctuating demands and consumer demographics, there is a high impact of social forces. Technological As the technology changes rapidly so it always has strong impact over any industry. There are new supply chain software programs and new technology in aircrafts being introduced so Ryanair too faces high impact of technology. Ryanair emphasize mainly upon lowering down the costs by getting low cost trainings, limited crew and controlling management in efficient manner. The complete HRM infrastructure is based on internet and thus reducing the costs. Again Ryanair uses the technique of outsourcing in management to reduce their costs and get reliable services. No frills lower down their costs to great extent. They use secondary airports to ensure the fast services and cut down the costs. Offer simple yield management and bookings that facilitates the customers. There are number of point to point services being offered without any delay thus increases the frequency of routes. Competitive Advantages of Ryanair: Corporate partnerships Reduced turnaround times No frills In house Marketing Point to point flying Ticketless boarding Online bookings One class travel No refund policy Offer high class ancillary services Fleet of own Latest Aircarfts Bargaining power Outsourcing services Airplanes advertisement Yield management General cost reductions Wonderful services Uniform fleet Limited airport transportation Charge higher for the overweight luggage Airsickness bags only provided on request No seatback pockets No pillows or blankets In addition to these, recently Ryanair has started up an online poll to receive the views of the people, if they are in favor of the choice to get 50% discount or free travelling for vertical seating in case of short flights of about 1 hour. This is surely going to be a great offer for the travelers. In 2008, IATA ranked Ryanair as the top low cost airline considering the international, domestic and total passengers carried. During the last period of recession, Ryanair held its position very efficiently and the CEO Michael O’Leary states that: “Ryanair’s ability to grow both traffic and profits during the half year is a testament to the strength of Ryanair’s lowest fare model, and our relentless cost discipline. However these results are heavily distorted by a 42% fall in fuel costs, which has masked a significant 17% decline in average fares.  We expect average fares to decline by up to 20% during Quarters 3 and 4, which will result in both these quarters being loss making.  Despite this our full year guidance remains unchanged and will be substantially profitable, at a time when many of our competitors are losing money, consolidating or going bust.  Recent weeks have seen the demise of SkyEurope and Seagle Air in Slovakia, and MyAir in Italy, and we expect further casualties this winter.  Ryanair is the only major European airline to grow traffic and profits strongly.  We are winning substantial market share from the big three high fare flag carrier groups led by Air France, BA and Lufthansa and we expect this trend to continue” (Jehanzeb, 2011) The above saying by the CEO reveals that the Ryanair has great management policies as despite being the fluctuating oil rates and economic conditions, it maintained its position and controlled their expenses. They kept their customers attached to them by offering low rates and standard services. Future Plans In order to increase the revenues and cutting the costs, Ryanair is planning to introduce: Satellite Television In flight entertainment for rent and Internet on board Then to cut the costs, Ryanair is going to eliminate the window blinds, reclining and leather seats, introduce Velcro headrests and carry-on luggage. These policies and strategic planning shows that the Ryanair is not going to face the loss in future too if it kept on focusing on reducing the costs keeping the standard maintained and generating the revenues via efficient means. References Reuters: Premium air travel growth dropping economy up-IATA. June 20, 2011 Mohammad Taghi Abedian, 2009: Analysis Of Ryanair’s Competitive Advantage. 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