Ryanair Strategic Analysis - Essay Example

?RYANAIR STRATEGIC ANALYSIS Introduction Strategic management is a set of actions that are designed to adequately achieve a particular organizational goal or task. A strategic analysis of RyanAir Limited shows an in-depth analysis of what the company is doing to achieve its strategic plan. RyanAir Limited is an Irish low-cost airline that has its headquarters located in Swords, Ireland, on the grounds of Dublin Airport. Its primary operational bases are in London and Dublin Airports. Its operations are supported by over 290 Boeing 737-800 aircrafts. RyanAir is recognized for its rapid expansion due to deregulation of the aviation industry in 1997 in Europe and the notable success of its model, which is the low-cost business model (Palepu, 2007, p. 350). It was established in 1985, and it is the most successful and oldest low-cost airline in Europe. RyanAir was the first European budget airline having modeled itself after the success of Southwest Airlines, which is a low cost carrier in the US (Johnson, Whittington and Scholes, 2011, p. 47). The Porter’s five Forces at RyanAir Competitive Rivalry According to Johnson, Whittington and Scholes (2011, p. 89), due to deregulation, an increase in rivalry and competition on most routes create an overcapacity of various airlines from different competitors. This ultimately leads to an increase of the buyers’ power. As a result, the airlines ultimately try to counter increasing rivalry by forming various acquisitions and mergers as well as periodical and different strategic alliances. A number of airlines maintain a database of frequent flyer program so that they can increase the number of passengers. Airlines also offer discounts and unique offers to frequent flyers to increase customer loyalty. The recession and the US economic downturn combined with overcapacity among different competitors on the North Atlantic routes have forced carriers to concentrate their rivalry on the European countries. This is a significant threat to RyanAir. However, RyanAir has taken advantage over this challenge and has continued to offer low cost flights through an ambitious strategy aimed at reducing the fares further down. This inevitably gives the airline a competitive edge above its competitors (Albers, S., Auerbach, S., Baum, H., and Delfmann, 2005, p. 166). Threat of Entry of New Firms According to Boesch (2007, p. 124), a regulation was passed in the European countries that removed barriers for different and new competitors in the Airline industry. This led to a fierce completion between newly based competitive airways and existing European based airlines. Landing slots in many European countries were used or reserved by national carriers and this led to scarcity of landing slots to new airlines. Despite the looming threat, the RyanAir has continued to attract more passengers and is opening up more routes to diversify its market share. This is at a time when other competitors are closing shop on some routes. Supplier Power There has always been, a high supplier power in the airline industry since there are only two suppliers of aircrafts, these are Airbus and Boeing. This has led to the high influence of the suppliers playing the dominant role in the industry. The cost of switching from one supplier to another has led to RyanAir retaining pilots and mechanics for usage of other supplier’s products. Fuel price has a direct proportion to the cost of oil and therefore the cost of fuel for RyanAir has been varying because of oil cost fluctuation. Airport charges are also high therefore, being a significant concern for RyanAir (Johnson, Whittington and Scholes, 2011, p. 71). Buyer Power The buyers can be in charge of the acquiring authority and have additional choices to choose better services from the various airlines. RyanAir is fully aware of this major factor. It is the main reason it has come up with numerous promotions and offers for its customers in order to stay afloat and retain its renowned reputation in the airline industry (Warren, 2008, p.36). Threat from Substitute Products There are a number of several substitutes to airline travel, which include the road and rail networks and sea transport. These networks are readily available in Europe, and they include the ferries in sea crossing, the Irish ports and the channel tunnel in the rail transport. Since time is of the essence particularly to the business people, RyanAir established a low cost airline so that it could take advantage over its substitutes because of the cost and time factors, which were humongous (Creaton, 2004, p. 208). RyanAir SWOT Analysis Strength RyanAir main strength is its low fares with no frills super brand. It has fully enhanced its position as the undisputed brand for low fares in Europe especially during these trying times of the current downturn. It now likens itself to consumer brands that are budget conscious such as Aldi, Ikea and McDonald. These brands perform exemplary during adverse times. The airline truly believes that low cost always wins (Daft, 2010, p. 68). RyanAir also thrives on its effective management of costs through its principle of ultra low costs, high ancillaries. RyanAir has been able to reduce its non-fuel expenses by 3% during the last financial year, which reflects its unwavering focus on cost control. There was a 23% growth in its ancillary revenues. This led to an increase of 20% growth in revenues. The future is brighter than before for the airline as it continues to focus on ancillary growth as it reduces its costs (Johnson, Whittington and Scholes, 2011, p. 125). Weaknesses According to Dobruszkes (2006, p. 249), the major weakness for RyanAir is that it is addicted to growth. This means that the airline has to grow at all costs. The fundamental reason the airline can post unit costs reductions is by flying more and more sectors. There is an increase in the cost lines, but for as long as it keeps adding more routes; it does not matter to the airline. The recession is extremely assisting RyanAir by delivering real cost benefits for the airline through the combination of lower interest rates, a weaker dollar, lower unit costs and lower airport costs. RyanAir has been instrumental in turning its business model weaknesses into strengths. The airline has transformed various adaptations including online check-in and airport desks elimination in order to cut costs. It has also been able to manage various key costs, which include staff, fleet and fuel costs (Hoffmann, 2007, p. 208). Opportunities According to Lawton (1999, p. 59), the current global economic recession has been a monumental advantage for RyanAir by providing a perfect operating condition. The recession has led to passengers becoming more price conscious. They have evidently made the momentous switch to RyanAir due to its unbeatable customer service and low fares over the competitors. The airline has an ambitious plan to reduce its fares by 15-20% in average fares this year. RyanAir is strongly relying on its smaller rival’s inability to withstand the recession magnitude. The resulting capacity rationalization would undoubtedly lead to yield stabilization for RyanAir. The airline has continuously made substantial growth while recording particularly impressive profits in the airline industry. It is the only airline in Europe, which has forecasted profits during this period of the recession (Lawton, 1999, p. 158). RyanAir is on the offensive for cheaper aircraft deal in order to cover its demanding requirement for between 200-300 aircrafts for between 2013 and 2016. The airline is taking advantage of the collapsing aircraft order books for Airbus and Boeing. Due to the decreasing demand for aircrafts, the two principal plane manufacturers will have to give in to pressure by RyanAir for cheaper aircraft (Johnson, Whittington and Scholes, 2011, p. 193). Threats The pursuit of Aer Lingus by RyanAir is seen as being misguided by grandeur delusions. This has significantly cost RyanAir though its interference has led to Aer Lingus being leaderless and adrift. RyanAir has continued to inject large prodigious amounts of money for Aer Lingus to be operational despite making losses. The focus has now shifted to Lufthansa, which is a German carrier. Effective integration of Lufthansa, Austrian Airlines and Brussels Airlines, would pose a considerable threat to RyanAir’s dominance especially as the European conditions improve economically. Evidently, the prospects for organic growth by RyanAir are arguably better (Warren, 2008, p.38). Surging and escalating world oil prices are also a substantial threat to RyanAir since they could hamper it from stemming losses. RyanAir on the long term faces a massive conundrum in respect to fuel costs. This is its fundamental cost line, and it is unable to control it since it has no powers over the world oil prices. The biggest threat to RyanAir is the oil price issue (Hill and Jones, 2010, p. 157). In conclusion, RyanAir strategy is to establish itself in Europe as a leading low fare airline. It was to achieve this by expanding and improving its offers to its low fare services. The results of this strategy were to increase passenger numbers while cutting and maintaining operating efficiencies and costs. The management of RyanAir has done an exemplary job in cutting various costs by controlling and reducing the basic expenses, which include the customer service cost, personal productivity, aircraft equipment cost, airport access and handling cost (Graham, B and Shaw, 2008, p. 39). RyanAir has been able to develop new routes in Europe therefore tapping in many passengers. RyanAir also offers cards to its customers, which also provides facilities to its customers as well. The RyanAir credit card is an air mile reward program that is outstanding in the airline industry. The card is a visa rewards credit card has an exceptional twist on the loyalty scheme. Its online booking system has enabled faster and prompt booking of scheduled flights. These are among the paramount factors that have made RyanAir be what it is today in the airline industry. The airline landmark decision of allowing passengers up to 10,000 to travel with their equipment for skiing free of charge has led to an upsurge of passengers to the airline. However, the major threat to RyanAir has remained to be the paramount issue of managing costs and specifically the world oil prices. The airline has previously managed these costs by setting a hedge against the oil prices has worked though it is not dependable for a long period. Effective management of these costs will enable the airline to grow and expand even further. References Albers, S., Auerbach, S., Baum, H., and Delfmann, W 2005, Strategic management in the aviation industry, Aldershot [u.a.], Ashgate Boesch, F 2007, The Ryan Air Model - Success and Impact on the European Aviation Market, Mu?nchen, GRIN Verlag Creaton, S 2004, RyanAir: How a small Irish airline conquered Europe, London, Aurum Daft, R. L 2010, Organization theory and design, Mason, Ohio, South-Western Cengage Learning Dobruszkes, F 2006, An Analysis of European Low-cost Airlines and their Networks, Journal of Transport Geography, 14:249-64 Graham, B and Shaw, J 2008, Low-cost airlines in Europe: reconciling liberalization and sustainability, Geoforum 39, 1439-1451 Hill, C. W. L and Jones, G. R 2010, Strategic management theory: an integrated approach. Boston, MA, Houghton Mifflin Hoffmann, S 2007, The low-cost airline RyanAir A critical evaluation of the RyanAir phenomenon and its future prospects with taking the European airline industry into consideration. Mu?nchen, GRIN Verlag Johnson, G, Whittington, R and Scholes, W 2011, Exploring Corporate Strategy Text and Cases, Harlow: Prentice Hall Lawton, T. C 1999, The Limits of Price Leadership: Need-based Positioning Strategy and the Long-term Competitiveness of Europe’s Low Fare Airlines, Long Range Planning, Vol. 32, No.6. p. 573-586 Palepu, K. G 2007, Business analysis and valuation: IFRS edition, text and cases. London, Thomson Learning Warren, K 2008, Strategic management dynamics. Chichester, West Sussex, England, J. Wiley & Sons Read More