External and Internal Environment of Ryanair Airlines - Essay Example

Ryanair Airlines Introduction Ryanair Airlines is a European Airline company offering low priced flights for its s. It is an Irish company which has headquarter in Swords. Ryanair Airlines was established in 1985 and currently it has become one of the most successful low cost European airline companies. It has been observed that the company mainly operates flights of short-haul in Ireland, the U.K. and continental Europe (Ryanair, 2014a). The company has recently signed a strategic alliance with Aer Lingus Group plc and owns 29.8% of its shares (Reuters, 2014). According to recent estimates of 2012, Ryanair Airlines have 298 flights that falls under the category of Boeing 737-800 aircraft. The company provides its service to 28 countries in Europe. External Environment External environment can be comprehensively be captured by conducting a PEST analysis. It is a strategic process of analyzing the political, economic, social and environmental forces affecting the operating environment of the organization (Johnson, et al., 2011). Political: The deregulation of the Aviation industry in Europe had helped in the growth of the airline companies since 1997. This had particularly helped Ryanair to develop a network of travel route over entire Europe directly fuelling their growth (Malighetti, Paleari and Redondi, 2009). The government is also creating opportunities for aviation companies to expand operations in the U.S. Economic: The economic environment of Ryanair has been highly profitable as has been observed from the consolidated financial statement of the company. Additionally, the recession of 2008 had increased the preference of the consumers towards availing low cost flights as their disposable income has gone down (Malighetti, Paleari and Redondi, 2009). Another pressing issue for the company is the rising cost of oil in the recent years. Social: The high rates of unemployment in the country have increased the importance of low cost airlines. This has been accompanied by the growth of the need to travel throughout the country for the need of finding a job. Technology: Technological advancements are extremely important for the aviation industry as it is directly related to the reduction of costs. Constructing fuel efficient aircrafts and introduction of technology to allow customers to self-service themselves can contribute to the reduction of operating costs. Internal Environment Factors like the creditworthiness of the company, its reputation and image can be considered as internal factors affecting strategic decision making. Building a good brand image in front of the customers has been found to be an important strategy for low cost carriers as they keep on growing. Ryanair has been particularly careful in creating a good brand image among its fliers in terms of providing good punctuality and service. However, despite best efforts from the part of the company officials it has not been able to secure a desirable image (CAPA, 2015). Another major problem of Ryanair is that it has experienced a very high seasonality in earnings which must be taken care of. Competitive Analysis Ryanair has a number of competitors in the market like Norweigan, Wizzair, Lufthansa, Air Berlin and Easy Jet to name a few. The company has the highest market share in Spain (market share 21%), Italy (market share 22%), Poland (market share 44%) and Ireland (market share 23%) (Ryanair, 2014b). However, the company is still in the second in Germany and France. The following chart shows the financial performance of Ryanair. Figure 1: Revenue of Ryanair (Source: Ryanair, 2014a) It can be seen that the company has experienced a consistent rise in profit over the previous five years. The operating revenues of the company have also gone up over the previous year by 3%. The ancillary revenue of the company has also gone up by 3%. However, the average fares of the company have gone down by 4% (Ryanair, 2014b). Analysis of strategies The introduction of the low cost airlines has revolutionized the aviation industry to a great extent. Researchers have found out that the introduction of no-frills concept have hugely lowered the operating costs of the airline companies (Francis, Fidato and Humphreys, 2003). Factors like the system of online booking, eliminating the system of serving food on the flight, using similar type of carriers and point-to-point network have greatly minimized the cost of airline companies. The actions of Ryanair have shown that the company has hugely relied upon the low-cost model. For instance, the company had purchased homogenous fleet of Boeing flights which were mainly second hand (Kumar, 2006). Additionally, the company has also introduced ancillary services like selling of food and beverages and other refreshments on board. Recently the company has also added insurance and rental car services to maximize services. The works of researchers like Franke (2004 cited in Burnes, 2009) had shown that pricing techniques has been one of the most commonly used techniques that are used by airline companies to attract higher demand. The low cost airlines have been found to be using a single class price policy to maximize the level of their profits. Others have shown that the growth of low-cost airlines basically depends on the balance between three main factors namely the price of the tickets, costs of operation and load costs. Researchers have also found out that it is imperative for companies to comprehend the demand situation before they can set the prices (Schefczyk, 1993). Ryanair has charged low prices from its customers in order to attract maximum demand in the depressed economy. As the date for the flight approaches, the company charges higher price for the flight in order to maximize the product. The research conducted by Smith (2000 cited in Carnall, 2007) has shown that the airline companies hugely rely on the internet in order to improve the costs of operation. Future Recommendation Though Ryanair have been experiencing a steady rise over the past five years the company is currently plagued by reduction in net margin. The earnings per share of the company are also plummeting. In order to improve its current position the company can take a number of small steps: Firstly, it is recommended that the company improve its tarnished image in the recent past. This can be done by improving the quality of service. Secondly, the company can compensate the seasonality in profits by venturing outside Europe. It can take the opportunity provided by the government to venture into the U.S. Finally, increase the intensity of existing operations to enhance current profit. Reference List Burnes, B., 2009. Management Change: A strategic approach to organisational dynamics. Prentice Hall-Financial Times. CAPA, 2015. Ryanair SWOT: low costs remain the key strength, even as customer service enhancements take root. [online] Available at: [Accessed 11 January 2015]. Carnall, C.A., 2007. Managing change in organizations. India: Pearson Education. Francis, G., Fidato, A. and Humphreys, I., 2003. Airport–airline interaction: the impact of low-cost carriers on two European airports. Journal of Air Transport Management, 9(4), pp.267-273. Johnson, G., Whittington, R., Scholes, K. and Pyle, S., 2011. Exploring strategy: text & cases. Harlow: Financial Times Prentice Hall. Kumar, N., 2006. Strategies to fight low-cost rivals. Harvard Business Review, 84(12), pp.104-12. Malighetti, P., Paleari, S. and Redondi, R., 2009. Pricing strategies of low-cost airlines: The Ryanair case study. Journal of Air Transport Management, 15(4), pp.195-203. Reuters, 2014. Ryanair Holdings PLC. [online] Available at: [Accessed 11 January 2015]. Ryanair, 2014a. Annual report. [pdf] Ryanair. Available at: [Accessed 11 January 2015]. Ryanair, 2014b. Full year results 2013. [pdf] Ryanair. Available at: [Accessed 11 January 2015]. Schefczyk, M., 1993. Operational performance of airlines: an extension of traditional measurement paradigms. Strategic Management Journal, 14(4), pp.301-317. Read More