Managing Strategic Information - Essay Example

TABLE OF CONTENTS Executive summary …………………………………………………………………..………….2 Introduction………………………………………………………………………………………2 Mission ment………………………………………………………………………...………3 Low fares……………………………………………………………………………….…4 Service commitment…………………………………………………………………..…..4 Punctuality………………………………………………………………………………..4 PEST Analysis……………………………………………………………………………………4 Political……………………………………………………………………………………4 Economic………………………………………………………………………………….4 Social/ cultural factors…………………………………………………………………….4 Technological……………………………………………………………………………...4 Porter’s 5 factors…………………………………………………………………………………5 Threat of new entrants………………………………………………..…………………...5 Threat from rivals……………………………………………………..…………………..5 Threats of substitutes……………………………………………….…………………….5 Threats from suppliers………………………………………………..…………………...5 Threat from buyers…………………………………………………..…………………….5 SWOT Analysis………………………………………………………………..…………………6 Strengths………………………………………………………………..…………………6 Weaknesses………………………………………………………………..………………6 Opportunities………………………………………………………………………………6 Threats……………………………………………………………………………………..6 Financial information summary………………………………………………………………...7 Conclusion and recommendations…………………………………………………...…………7 References……………………………………………………………..…………………………8 Executive summary Ryanair boasts of a high performing record in the European skies since its inception in 1985 (Ryanair 2010). Its travel concentration at the time was Waterford to London while over time it spanned in most cities around Europe and beyond and currently ranking as one of the biggest European carriers. Of important to note is that this is a low cost airline whose fares are some of the lowest in the region’s airline industry. This factor and the ever-in-place expansion program have been some of the notable contributors to its success over the years. It started as a single aircraft company whose capacity was 15 passengers and a year later it added two more (Ryanair 2010). Due to increased competition soon afterwards a huge loss was made in 1990 (Ryanair 2010). Some of the threatening competitors were Aer Lingus and British Airways. This loss acted as a wake up call for the management whereby policies were put in place e.g. intense advertising, low fares and low cost of operations yielded a higher passenger traffic, higher profits and lower costs. Introduction According to Palmer and Ponsonby (2002, pp. 260 – 401) the airline industry the world over has been one marred by intense competition as time passes. In Europe the situation is no better and in fact may be termed as more volatile than in other regions of the world. Miriam (2010) says that Ryanair has operated in this region for more than two decades and has emerged as the market leader in regards to low cost category. This airline’s management has for this time tried to use various strategies that are as dynamic as the industry itself in order to maintain the market leadership position as well as keep on expanding. This paper will look into the goals and objectives that the company has, give an analysis of the airline’s internal and external environment by use of Porter’s 5 forces and PEST analysis. The paper will go further to give its SWOT variables while evaluating the overall company strategy over time by use of relevant financial information spanning half a decade ago. Mission statement Ryanair’s mission statement is for it to maintain itself as the leading airline in Europe through offering lowest fares, service commitment and punctuality. This mission statement has three pillars: Low fares The airline has ensured that its fares are the lowest in the routes that it plies. It has been able to do this by reducing its costs to the minimum e.g. by use of simple advertising, hedging fuel costs, no frills, no travel agents used, in-house marketing, use of secondary airports etc. all these result to lower costs therefore enabling the airline to charge less (Ryanair 2010). Service commitment The company has been making the service as simple as possible while ensuring customer satisfaction. It has done this by offering the fastest service in the European industry, going to more destinations, regular aircraft replacements and increased IT related services e.g. online booking. Punctuality The airline handles it time well by reduction of the turn around time, using less congested secondary airports; no-preferred seat policy saves time and a no check-in system in place. PEST Analysis Under this section political factors, economic, social as well as technological will be surveyed. Political Ryanair has been a victim and many politically instigated policies (Philip and James 2003). The company has faced numerous court cases and allegations that it has been involved in adverse advertising against its rivals. These charges and allegations have all cost the company a great deal of finances and above all its reputation. There is also a huge pressure from the trade union that is hampering productivity and targeted growth. With the expansion of EU the company has had mixed fortunes one being that it has a wider market to venture into although at some point duty free sales were abolished as a result. According to Stefanie (2007) 9/11 and London bombings have also dealt a heavy blow as more security measures have to be in place as a regulation which add to cost of doing business while withdrawing from some routes that are regarded to be less secure e.g. eastern Europe. Economic Fuel prices in this front have been the biggest challenge for the company. Although is has hedged against price increases, trickling down of the fluctuations of the world crude oil prices has been felt. US dollar depreciation is making foreign operations impossible to predict and losses on exchange rates are inevitable. The EU commission came up with a various rulings that are to hurt Ryanair’s business. Some of these are; compensations on canceled flights and on overbooking and refund in cases of delay of passengers (Miriam 2010). Ryanair in particular was not having these policies and they end up draining the revenues received. Social/ cultural factors There is a notable increase in the number of elderly people seeking to travel the world after their retirement. Due to the Ryanair’s simplicity and low fares, it has come to take this population segment referred to as the grey market. In general people’s lifestyles are changing such that more and more people are taking time to go on holidays making air travel a mode of choice and with Ryanair offering lowest fares in the industry it only stands to benefit. With the globalizations trend, business travel has increased which creates an opportunity for Ryanair to tap. Technological Ryanair operates relatively short routes within the European region. This phenomenon has been hampering its prospects in a way with the emergence of high speed trains and fuel efficient cars. Internet has increase competition within the industry from advertisement to individual airline’s website features and information (Carol & Julian 2000, 232 - 261). Ryanair in its website has tries to give as much data on its progress and market leadership as possible luring many people to opt to use it. Online booking has also made bookings faster and cheaper for passengers and airlines are using such avenues to try to bring as much efficiency as possible. Other technological advancements that are definitely affecting Ryanair’s operations include; Internet gambling and sales, satellite television and expansion of wireless technology. Porter’s 5 factors These factors help in analyzing profitability potential that the market poses and how attractive it is. Threat of new entrants Ryanair operates in a highly lucrative segment of low-cost and low-fares. In this regard many companies have emerged to have a share some of which are subsidiaries of the big carriers like British Airways according to Stefanie (2007). This threat has been crashed by advertising strategies that attract attention towards Ryanair and provision of cheapest air travel services. Threat from rivals Due to the flooding of airlines in Europe there has been a huge lack of product and service differentiation. This duplication has made Ryanair to incorporate its low fares policy in its logo meaning that it is to remain as such for a long time in future. Threats of substitutes As earlier mentioned high speed trains and fast moving and fuel efficient automobiles are increasingly becoming a choice to travel between cities that Ryanair operates (Miriam 2010). The airline management has come up with promotional campaigns directly targeting the various inefficiencies inherent with these alternatives while highlighting Ryanair’s efficiencies. Threats from suppliers The suppliers of reliable aircrafts are few and Ryanair has specialized with Boeing which means that the supplier power is considerably high. This means that there are no alternatives related to cheaper aircraft maintenance or handling fees other than those of Boeing. Threat from buyers The airline industry in general has a customer base that is quite volatile in making choices based on market trends and events. Customer satisfaction and safety are therefore on paramount importance for Ryanair to maintain so as not to direct customers to competitors. SWOT Analysis Any business has its strengths, threats, weaknesses and opportunities to exploit (Palmer & Ponsonby 2002, pp. 260 – 401). Strengths The leading strength is the low cost attribute of Ryanair. It also has a considerably strong public image. It has a route network that is unmatched and it is a fast mover. It also boasts of a workforce of more than 6000 and passenger traffic of more than 66 million with a wide range of ancillary services that bring to the company more than 15 percent of its profits (Ryanair 2010). Weaknesses Michael O’Leary as the chief executive is depended on quite highly and his departure may dent the company’s prospects according to Stefanie (2007). Ryanair has a poor relationship with its competitors in terms of advertising and business courtesy. The company workforce also complains of poor relations with the management due to the centralization of managing its affairs. Opportunities The company with the expansion of the EU still has a big market to exploit. The company has been exploring the option of offering free flights to regular customers which will enhance its position as a low fares market leader. It also needs to take advantage of the ELFAA expansion and has room for further cutting on costs (Miriam 2010). Threats The European air space has increasingly become competitive while many new entrants rein the skies. Ryanair has been receiving heavy criticism of unfair business practices and its continuous criticism of EU commissioners. Substitutes e.g. trains are also acting to reduce its market share as time goes by while trade unionism is expanding to the management’s discomfort. Financial information summary Profit Margins % Company Industry S&P 500 Gross Margin 25.8 27.2 39.6 Pre-Tax Margin 10.0 6.9 16.4 Net Profit Margin 8.9 6.0 12.0 5Yr Gross Margin (5-Year Avg.) 27.6 25.3 38.4 5Yr PreTax Margin (5-Year Avg.) 11.1 7.5 15.8 5Yr Net Profit Margin (5-Year Avg.) 10.1 6.0 11.2 Table 1: Money central 2010 The above financial data is in US dollars and it shows that the company has been better than its counterparts as its pretax margins are all above the industry average (Money central 2010). This means that apart from the high taxes that company seems to be facing its strategies are operating well in its favor. Conclusion and recommendations The airline industry is highly competitive and for an airline to remain competitive it needs to have unique strategies in place after a good evaluation of its environment. This is what Ryanair has done and has achieved a feat that none other has reached especially considering it offers the lowest fares in the European skies. With the short analysis of its financial statements it is clear that strategies relating to tax cuts need to be incorporated so as to avoid the huge revenue losses to taxation. It also needs to expand to haul markets e.g. transatlantic routes since this way its low fares strategies will definitely lead to growth in revenue and economies of scale will boost profitability a great as well as efficiency in operations. References Carol, HA & Julian, WV 2000, Strategic marketing management: Meeting the global marketing challenge, Houghton Mifflin, pp. 232 – 261. Miriam, M 2010, An analysis of Ryanair’s corporate strategy, GRIN Verlag. Money central, Ryanair holdings: Profit margins %, 20 September, 2010, . Palmer, A and Ponsonby, S 2002, Journal of Marketing Management, pp. 260 – 401. Philip, S & James, CC 2003, Strategic Management, Kogan Page Publishers. Ryanair, Ryanair: The story so far, 20 September, 2010, . Stefanie, H 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. GRIN Verlag. Read More