Strategic Management: Ryanair's Business Model - Assignment Example

 Table of Contents Q1. 1 Capacity factor 1 SES Initiative 2 EU Emission Trading Scheme 2 Q3. 2 Strategy to Increase productivity 4 Better fleet management 4 Increasing employee efficiency 4 Strategy for generating revenue 5 Revenue from ancillary services 5 Better management of the airline business 6 Reducing passenger service costs 6 Route Optimization 6 Marketing Strategy 7 Sustainability factor for the strategies 7 Recommended changes 8 Reference 9 Q1. The low-cost airline Ryanair provided most of its services to the destinations of Europe. While analyzing the competitive environment of the European aviation sector, a number of factors have to be taken into consideration. Capacity factor It has to be said that the capacity factor is becoming a major concern in the European region as airlines are cutting down on flight frequency because of low demand. The European aviation sector is looking forward to alter the 80:20 rule to 85:15 rule which might hamper the competitive factor of the region. SES Initiative It has to be said that the European aviation sector is significantly trying to increase the competitiveness of the aviation region of Europe through the initiative of Single European Sky (SES). The SES initiative comprises of increasing the capacity of the airspace, improving the safety initiative as well as reducing the carbon emission levels for airlines. The initiative also tries to reduce the costs of air traffic management of the region. EU Emission Trading Scheme It has to be said that the International Air Transport Association is trying to break through the barrier developed by Europe in regards to the regions’ efforts to include international aviation in the European Union Emission Trading scheme. It has to be mentioned that this scheme have the potential to distort the aviation sector in a large portion of the world. Talking on this note, it has to be mentioned that some of the European airlines might face retaliatory action because of their compliance with the barrier (IATA.org, 2012). Q3. Ryanair is one of the world’s most popular and low cost airlines which operate over 1500 flights on a daily basis. It has to be said that the low cost airline connects around 1500 low fare route while providing a linkage of airline traffic in around 28 countries. As of the recent times, the airline boasts of a strong fleet of around 290 pristine Boeing Aircraft and staff strength counting to excess of 8500 (Ryanair.com, n.d). It is highly important to mention that the process of engaging in airline services to various destinations all over the world, while focusing on providing significant amount of cost based benefits to the masses is a very difficult and challenging task. The central theme of the airline is to provide airline services at the lowest cost. The low cost airlines of Europe, ever since its inception in the year 1985, has always focused on generating steady value for the consumers, and has in no way compromised on its intended value based promise. It is important and is of considerable relevance to highlight the fact that one of the core objective of Ryanair’s latest strategy is to position the airline as Europe’s most dominating low fares airline (Strategy, p. 1). It is relevant to mention the fact that for the purpose of maintaining competitive advantage as well as generate edge in the competitive airline industry by using the low cost strategy; the airline has always indulged itself in implementing a series of cleverly drafted strategies. Talking briefly about the strategies, it has to be said that the strategies were all in line with regards to increasing efficiency in fleet operations and management better employee productivity, reduction of service costs, effective route management as well as focusing on the process of increasing the number of customers’ service by the airlines. Also, the airline company in order to gain an upper hand in the market while at the same time trying to attain better fulfilment of the objective of operating at low fares has significantly focused on the process of extracting and generating revenue by providing ancillary options and services. While analyzing the strategies followed and implemented by Ryanair, it can be said that the strategic moves of the low cost airlines can be categorized on the basis of increasing productivity, generation of revenue as well as focus on better management of the airline business. Strategy to Increase productivity Better fleet management It has to be said that for the purpose of attaining the competitive edge in the global aviation market while continuing to provide low cost airline services, the low cost airline carrier has focused simultaneously on the process of increasing the efficiency in regards to fleet management. The airline has always focused on acquiring and maintaining airliners which are easy to maintain and has considerable simplicity in regards to its operational functionality (Enz, 2009, p. 117). The low cost airline Ryanair also focuses tremendously on the process of remodelling of aircraft with regards to implementation of the latest kind of aviation technology in its aircrafts. The low cost airliner for the purpose of better fleet management in regards to increase in demand for capacity also makes necessary and significant changes in the lines of aircraft design. Needless to say, that these subcategorized strategies, can be considered as one that falls in the purview of better fleet management. It has to be said that the enhanced initiatives taken by the airline helps to achieve high efficiencies in regards to fuel and energy consumption apart from attaining a significant reduction in regards to environmental effects that are supposed to happen because of the operating of the airlines. It is highly interesting to mention the fact that the changes in the design of the aircraft have resulted in an increase in carrier capacity without creating the demand of more in-flight attendants. So, it can be said that small changes and initiatives taken by Ryanair in the domain of fleet management has also resulted in a spill over effect in regards to benefits attained in the line of operational efficiency as well. Increasing employee efficiency It has to be said that for the purpose of leveraging advantage in the market by increasing the level of efficiency of the airline carrier, the low cost European carrier Ryanair has always maintained strong focus on the issue of performance based pay. It is important to highlight that because of the airline’s strong focus and implementation of productivity and performance based pay, there is no upper limit or glass ceiling in regards to the earning potential of an employee. This promotes the fact that top performers of the company who are working on multiple divisions of the airline carrier have the opportunity to earn more. This becomes a strong factor of motivation for the employees who focus on increasing their performance for the purpose of generating more financial pay and related benefits from the company. It is of significant importance to highlight the fact that by using the tactic of implementing a performance based pay, the low cost airline carrier was highly successful in attaining increase in productivity while reducing employee related cost at the same time (Doganis, 2006, p. 169) Strategy for generating revenue Revenue from ancillary services It is a factor of high interest to mention that the low cost carrier Ryanair for the purpose of maintaining profitability in the airline market while commuting the air traffic to various global locations has implemented a series of highly innovative strategies. The low cost carrier has realized the fact that the passenger traffic of an airline is often captive audience while they are on board in any specific flight. The carrier has focused on generating revenue by capitalizing on this unique opportunity of business. It is of significant relevance to mention that since the airline provides low cost airline services to the global passengers, the focus of generating revenue for the airliner is through the sales gained from onboard advertisements, products as well as services (Michaels, n.d.). The low cost airline operates a range of onboard airline services, which comprises of selling of in-flight beverage, food, merchandize, travel insurance and even accommodation (Kotler and Armstrong, 2008, p.285) This significantly results in high revenue generation possibility from every airline passenger and thus provides the low cost carrier to build on its revenue generating opportunity. It also has to be mentioned that by implementing charge on check in luggage, the airliner also focused on charging the passengers on the amount of luggage they carry and thereby generating revenues out of it. Better management of the airline business Reducing passenger service costs It has to be said that the low cost airline carrier for the purpose of maintaining profitability while continuing to commute passenger through low airfares has implemented the strategy to minimize the cost of servicing the passengers. The airliner has implemented the policy of website bookings for the processes of check in as well as priority boarding (Palepu and Healy, 2007, p. 353). This provides two way benefits for the airliner as well as the passenger. While the online based processes required the passenger to pay for extra charges which are added to the airline’s revenue, yet it eliminated the need on the part of the passenger to pay higher charges during the process of physical procedures. The airlines by implementing the web based process is also capitalizing on generating significant revenue while eradicating staff allocation dedicated to handle the physical check in procedures for the passengers (Airscoop, 2011, p. 9). Route Optimization It has to be said that the low cost airlines for the purpose of maintaining profitability also continuously focuses on optimization of routes. It has to be said that as a process of the route optimization, the airline focuses on operating multiple point to point flights for short routes. Also, the airline while connecting various busy destinations in numerous locations around the world focused on the process of diverting its flight to secondary airport locations which are less costly as well as less congested in terms of air traffic (Thomson & Fuller, 2010, p. 180 - 181). This cleverly drafted management strategy helped the carrier to attain significant advantage in regards to low incurrence of costs related to airport charges as well as fuel. Marketing Strategy Marketing strategy which is highly important for communicating the value of the airline services to the customers are conducted in a very impactful manner by Ryanair. For the publicizing of the online booking process, the airlines advertised using traditional promotional forums like newspaper advertisements, television and radio ads. For gaining publicity among the masses, the airliner focused on free publicity as well as word of mouth publicity. The airline also employed a series of controversial publicity stunts and campaigns which helped in generating fuel to the media hype for the airline. On the ground of marketing analysis, it has to be highlighted that the publicity campaign are somewhat unethical in nature (Amason, 2010, p. 200) Sustainability factor for the strategies The airline employs a large number of strategies for the purpose of gaining advantage in the market. Talking on the line sustainability factor of the strategies employed by Ryanair, it has to be said that the strategies concerned with attaining an increase in productivity as well as revenue generation can be said to be sustainable in nature. However, while analyzing the strategy related to increasing efficiency of aviation management, it has to be said that there are significant threats associated with it. Rivals low cost carriers who are providing direct flights to various primary airports rather than secondary airports will gain edge in the marketplace. Also, talking in regards to payment of fees for website booking, the customers might turn to other competitor airlines who do not levy any kind of online booking charge on the consumers Recommended changes It can be said that Ryanair’s efforts of better aviation management through effective reduction of passenger service costs needs to be altered to some extent. Talking in regards to changes that need to be inculcated, it can be said that the low cost airline needs to take away the online booking charge that is being levied on the customer at present. It can be said that this will help the airline to promote a fairer and more transparent image in the aviation market. Also, a significant change has to be made in regards to the marketing strategy employed by the airlines. It needs to be said that the airline needs to concentrate on designing ethical marketing strategies as it has better appeal to the consumers. Reference IATA.org, 2012. Building a More Competitive European Aviation Sector - Avoiding Unintended Consequences of Legislation [Online] Available at: http://www.iata.org/pressroom/pr/Pages/2012-02-07-01.aspx [Accessed 14 Mar 2013] Amason, A., 2010. Strategic Management: From Theory to Practice. New York: Routledge. Thomson, N. and Fuller, C.B., 2010. Basic Strategy in Context: European text and cases. UK: John Wiley & Sons. Airscoop, 2011. Ryanair’s Business Model. [Pdf] Available at: http://www.air-scoop.com/pdf/Ryanair-business-model_Air-Scoop_2011.pdf [Accessed 14 Mar 2013] Ryanair.com, n.d. Strategy. [Pdf] Available at: http://www.ryanair.com/doc/investor/Strategy.pdf [Accessed 14 Mar 2013] Palepu, K.G. and Healy, P.M., 2007. Business Analysis and Valuation: Ifrs Edition - Text Only. London: Thomson Learning. Kotler, P. And Armstrong, G., 2008. Principles of Marketing, 12 ed. India: Pearson Education. Doganis, R., 2006. The Airline Business. Second Ed. New York: Routledge. Ryanair.com, n.d. About Us. [Online] Available at: http://www.ryanair.com/en/about [Accessed 14 Mar 2013] Enz, C.A., 2009. Hospitality Strategic Management: Concepts and Cases. UK: John Wiley & sons. Michaels, n.d. Ryanair to target advertising on boarding passes. [Online] Available at: http://www.ink-global.com/21-february-2011-wall-street-journal-ryanair-to-target-ads-on-boarding-passes/ Read More