Ryanair Has Earned Its Wings - Case Study Example

Running head: Ryanair’s Strategies Ryanair’s Strategies Name Institution Date Ryanair’s Strategies Why Ryanair has been so successful thus far The airline industry in Europe is highly competitive but Ryanair used unique traits to penetrate the European market as the first step of its successful journey. It established itself as the first European airline that offered a no frills service. This service is one that omits unnecessary elements of luxury so as to cut down on the costs of travel down to an attractive price. This enabled Ryanair to secure itself a larger segment of the European market than other existing airlines as most customers preferred the budgetary option when it came to travelling to various destinations. Ryanair also positioned itself strategically to enable it to attract customers at both separate ends of the routes they travel. This has allowed it to increase its market share as well as expand the recognition that its brand name carries1. The customer service delivered by Ryanair is one of high quality and great performance when compared to other airlines in Europe. It strongly concentrates on the execution of its services and operates from uncongested airports that save on time and improve its efficiency. By this Ryanair has achieves better punctuality, fewer cancellation of flights and fewer losses of bags2. This increases the satisfaction of its customers leading to stronger customer loyalty. The low operational costs that Ryanair enjoys also play a major role in the success of the airline. To enhance such low costs, Ryanair has highly productive workforce that is constantly motivated to perform to better standards. The airline also outsources the tasks relating to aircraft and passenger handling to more expert contractors. By focusing on airports that are cheaper to access, the overall operational cost is also greatly reduced. Is Ryanair strategy sustainable? The strategic positioning of Ryanair in the European market as the airline that provides high quality service at low affordable costs will enable it to run smoothly in the coming years. Even though competitors may adopt this fare reduction strategy, the market share possessed by Ryanair gives it a cutting edge over its competitors. Customer relationships within the Ryanair environment are pleasant but with the growth of the passenger number, Ryanair has to nurture the existing relationships to avoid letting its position in the market slip. The highly esteemed airline also has to keep a close eye on the business environment that surrounds them to keep abreast any changes that may affect them3. Ryanair also has put in place a leadership structure that ensures its personnel are highly motivated and energized. It upholds the principle of having a pleasant working atmosphere in the airline premises. This leadership style was introduced by Michael O’Leary who held a strong vision for the airline and successfully converted this vision into reality. By setting this pace in the realm of leadership, Ryanair will not find it a challenge to continue its trail of success. With its business outlook, leadership and current strategies, there is no reason as to why Ryanair should not flourish. Extensive tools SWOT ANALYSIS Ryanair, like any other business, has unique traits as well as various points of strength. A proper understanding of these factors is vital so that they can be used to propel Ryanair towards its success. The business should also keep an open eye for opportunities that avail themselves in the market so as to be able to utilize them in boosting their profits and helping them keep abreast competition. However, even with perfect knowledge of one’s strengths, the smooth operations of the business may be disrupted by various issues that emerge inside or outside the scope of business operations. Such issues, if neglected, may result to the collapse of the whole value chain that keeps the business going. Identification of the factors that lead to such issues is therefore necessary to cushion the airline from adverse effects. External factors, which are referred to as threats, may lie beyond the control of the business but strategies can be formulated to minimize the impact they can have on the operations of the business. Knowledge of strengths, weaknesses, opportunities and threats enables Ryaniar to overcome its challenges and pave its way towards expanding its boundaries (Refer to Appendix 1.1)4. TOWS Matrix Under the TOWS Matrix analysis, there are four strategies that best utilize these factors by forming optimal combinations. The S-O strategies are strategies that built using Ryanair’s strengths in a bid to utilize the external opportunities that the airline has. W-O strategies are those that are developed to effectively overcome the weaknesses of Ryanair by means of exploiting external opportunities. S-T strategies are formulated by applying the strengths of Ryaniar so as to minimize the external threats that the airline faces. W-T strategies, in conclusion, are used to wisely evade external threats and reduce internal weaknesses. SO-Ryaniar should explore new roots since she has enough capital to do that. She is likely to succeed in this also due to her well known brand and her ability to invest in intensive advertisement. WO-Though her machines are expensive and her success completely relies on low-cost strategy, Ryaniar can capitalize on new roots and attraction of more customers to generate adequate income. ST-The strong reputation of Ryanair’s brand is of advantage and neutralizes the effect of high inflation. In fact, high inflation rate works to her advantage as consumers seek for cheaper and quality services. In addition, the increased customer loyalty and attraction of more customers will ensure that there is always adequate disposable income WT-Ryaniar can overcome competition by maintaining her low-cost strategy despite high inflation rates by increasing advertisement levels, utilizing online services which are more convenient and improving on customer service to increase the number of clients and hence overall income. PESTLE ANALYSIS Inevitably, the political situation of the country in which Ryanair is located in has a great impact on the operations and regulation of the business. European Union Commission, for instance, has recently become strict with airline companies so as to improve on the quality and standards of air transportation. A new regulation was then passed to decrease the number of airline users who suffer from flight cancellations, delays and denial of boarding amenities. In addition to this, recent bombs that have occurred as a result of terrorism have led to increase in the security concern held by various airline users. Ryanair has to respond appropriately to these political issues for smooth operations. Modern technology is dynamic and the importance it holds in the global market cannot be underscored. Ryanair sees a future with higher passenger levels and it therefore has to focus on improving the efficiency of its online bookings5. As owners of the largest travel website, it has to seek innovative ways of improving the website and overcoming the challenge of maintaining high standards. Ryanair should also use technology innovation to reduce the costs of its operations especially the consumption of fuel, a commodity whose prices fluctuate globally. Ryanair has to put into consideration the state of the economy it trades within. The economy has experienced inconsistent trends due to global issues such as the rapid increase or decrease of fuel prices. Ryanair has to find better ways of managing its operational costs even in the face of such unreliable economic trends. Socio-cultural factors in the surrounding environment of a business may lead to its success or decline. Negative notions passed by influential personalities may make customers hesitate from flying with the European airline. Such notions included criticism against the quality of Ryanair services as well as the leadership style of O’ Leary6. In the long-run however, a large number of customers prefer to travel with the budgetary airline that saves on their travel cost. The legal environment of the country should be one that offers policies that are favourable to the existence of the airline. Unfavourable policies that Ryanair has faced include the EU commission regulations that have forced the airline to tighten its belt in its performance and make appropriate adjustments in its oprations. Another case is that of Irish Airline Pilots’ Association (IALPA). If Ryanair fails to settle is issues with the association, it may suffer from grave consequences. Every business is obligated to operate with its environment in mind. Ryanair planes contribute to the emission of carbon gases and other green house gases that cause irreparable harm to the environment. It should therefore aim at attaining social responsibility and this will require it to formulate ways of reducing pollution of its environment. SPACE MATRIX (Fred 2005) Strategic Position (Internal) Strategic Position (External) A Competitive Advantage (CA) Industry Strength (IS) x i -1 Market share +2.5 Growth potential s -1.5 Customer loyalty +2 Ease of entry into market -1 Supplier and distribution +2 Profit stability X -1.5 Brand and image +2 Technological usage Average -1.25 Average +2.125 Total axis X score: 0.875 Internal Strategic Position External Strategic Position A Financial Strength (FS) Environmental Stability (ES) x i +2.5 ROI -1.5 Price range of competing product s +2.5 Cash Flow -2 Competitive pressure +1.5 Leverage -3 Price elasticity of demand Y +2 Liquidity -2 Risk involved in business Average +2.125 Average -1.75 Total axis Y score: 0.625 SPACE MATRIX (Fred, 2005) FS Conservative Aggressive +3 +2.5 +2 +1.5 +1 +0.5 CA IS -3 -2.5 -2 -1.5 -1 -0.5 +0.5 +1 +1.5 +2 +2.5 +3 -0.5 -1 -1.5 -2 -2.5 -3 Defensive ES Competitive7 The SPACE matrix indicates that Ryaniar has a very competitive advantage with a potential growth. However, Ryaniar should not relax in knowing this but should rather seek other factors that can enhance her competitive strategy to enable her develop and penetrate into new markets. This means that she should pursue very aggressive strategies especially due to the high possibility of her competitors adopting her strategy. PORTERS SIX FORCES Bargaining Power of Buyer: Low Ryanair utilizes a low cost strategy to capture her market and ensure high rates of customer retention. The fact that she offers her services at the lowest prices reduces the bargaining power of buyers. In addition, her brand is well known since the company has been in the market for quite a long time. This has made her customers remain loyal in purchasing the services offered by Ryanair. As a result, customers have a very low bargaining power8. Bargaining Power of Suppliers: High The suppliers are very few with Boeing being the main supplier. This increases their bargaining power especially because they all offer similar products. The suppliers are only two and moving from one supplier to the next is very costly for Ryanair9. Threats of New Entrants: Low Ryanair faces a very low threat from new entrants since the airline business is capital intensive. This means for one to start the business, a huge amount of money as well as skill human power is required. Only the minority few can engage in such a business. In addition, Ryanair’s well known brand has already secured a competitive advantage ensuring that even if a new company entered the market, it would be hard to pull out such customers from Ryanair10. A new entrant would also require extra capital to be able to compete with Ryanair on the price basis. Threats of Substitutes: High Since Ryanair competes on the basis of low priced services, her competitors may engage on the same. This will have impact on customers who opt for Ryanair services on the basis of price. Such a step may work very well for the competitors since Ryanair does not offer differentiated services. Ryanair should therefore keenly monitor the action taken by her competitors11. In addition, there are a large number of available European airlines. Bargaining power of Stakeholders: High The EU regulation has established tight compensation rules that Ryanair must adhere to. This gives customers who are the most important stakeholders in determining the success of Ryanair as a leading provider of Airline services12. In addition, Ryanair must ensure that her services and strategies meet her corporate responsibility which includes protection of environment. Competitive Rivalry: High Since Ryanair offers similar services as her competitors, the competitors may lower their prices resulting to increased competition. For instance, lowering of price by Aer Lingus would increase competition on the Irish routes13. Though Ryanair still has the advantage of a well known brand and customer loyalty, she must seek to offer differentiated services or a unique competitive strategy to overrule all these risks. PRICING Ryanair has invested a lot of resources in her business. Her low price strategy has attracted more customers while at the same time ensuring retention her customers. The fact that Ryanair has a large capital ensures that despite the low cost of services, her profit margins remain high14. This strategy would ensure that customers still get the services even during hard times such as during inflation and low exchange rates. This is attributed to the fact that Ryanair’s products are affordable and her ability to offer the services to a wide range of customers. Increased purchasing power by the consumers attributed to affordability of the services will give Ryanair a competitive edge. In addition, rising inflation rates has resulted to increased price sensitivity where customer compare services or products quality and the price they are being sold at before settling on any service provider15. Majority of such customers are likely to select Ryanair on the basis of her low price and brand image. Results The new management that stepped in the early1990 changed the strategy of Ryanair from one of a Full-service airline to that of a no frills service. The no frills strategy entailed lowering the travel costs to a budgetary price and it aimed at establishing Ryanair as the largest no frills airline in Europe. The low cost strategy is one which is suitable with the recession faced globally. TOWS Matrix enables Ryanair to strengthen its brand, improve service quality, retain Boeing as their plane supplier and widen its market16. Porter Analysis shows that consumers have minimal power while stakeholders, suppliers, competitors, and the threat of a substitute product have high power and influence. PESTEL Analysis interprets that Ryanair has to protect the environment in which it operates in as well as adhere to EU regulations. It also has to maintain its frequently used website and look for technological innovations to reduce on its costs. SPACE Matrix recommends Ryanair to play an aggressive role in the European airline market. Ryanair’s strategy is therefore one that is not only suitable but successful in the face of harsh competition. From the Porters six force analysis, it is evident that Ryanair must adjust her competition strategy if she is to retain her competitive advantage. Though the threat of new entrants is low, the threat of competitive rivalry and substitutes is quite high. The situation is worsened by the high bargaining power of suppliers and stakeholders. However, the low bargaining power of customers gives her a competitive edge17. The low pricing strategy applied is very efficient and sustainable for Ryanair. However, Ryanair must clearly understand the threat posed by her competitors lowering their price. C. Recommendation for Ryanair The low price strategy utilized by Ryanair has continuous worked for the company. This means that despite making other changes, Ryanair should maintain this particular strategy to attract more customers and secure a high market advantage. The company however must make some changes to her strategy to ensure that her strategy is financially viable and sustainable18. For instance, the reduction of Cargo reduced the turnaround time by five minutes thus resulting to attraction of more customers who required a service provide that would ensure their punctuality. The advent of new roots will attract more customers and expand Ryanair’s market. Ryanair can opt to offer incentives to customers by offering drink vouchers. Since customers are the best marketers, the word would spread fast attracting more customers in the nest flight. Alternatively, Ryanair may form alliances with hotel groups who would in return offer a complete package. In addition, she can make contracts with such groups such that they offer services in her Airlines at a discounted price. This would attract more customers as they perceive an opportunity to save on the travel cost19. This would tackle the risk of Ryanair being substituted for other competitors who may lower their prices as indicated in the porters six analysis. From the SWOT analysis, it is evident that Ryanair must work on developing new strategies to ensure that her prices remain low despite the economic recession which is likely to reduce her disposable income. Investing into larger planes will cut down on the operation costs such as the cleaning cost thus reducing the overall expenditure20. In addition, Ryanair should invest in intensive advertisement by taking advantage of the social cites such as facebook to increase her publicity and attract more customer. Increased number of customers will mean increased profit rates which translated to high sustainability of the low-cost strategy. Lastly, Ryanair can consider increasing her investment in online services. From the PESTLE analysis, it is evident that technological development has resulted to most customers preferring online services to save on time21. Increasing investment in online services will ultimately mean a reduction in Ryanair’s workforce since clients can fill in booking details without any assistance. This will translate to reduced operational costs. Paying attention to the technological changes would also result to high customer satisfaction and retention rate. A combination of these strategies would ensure that Ryanair maintains her competitive advantage while retaining her low cost competitive strategy. D-Introduction of overhaul flights Ryanair consider introducing overhaul flights so as to increase their market share and be in a position to offer their services to a wider population. From the SWOT, PESTLE and porters six analysis, it is evident that the low-cost strategy is working for Ryanair22. To ensure that the risk of losing her customers to her competitors who may lower their prices, Ryanair should consider the option of introducing overhaul flight. The higher the number of customers, the higher the profits and the more cost effective the low-cost strategy is. Ryanair should therefore consider introducing flights to other destinations to secure a competitive advantage23. There are opportunities for Ryanair to explore new markets as explained in the SWOT analysis. This would be made possible through collaboration with hotel groups who would be of great advantage in marketing Ryanair. Since the company’s brand image is well built as a reliable and efficient service provider, entering new markets would be easier. In addition, the economic down town would work to the benefit of Ryanair as individuals utilizing traditional carrier opt for her services due to lowered prices. In addition, Ryanair must maintain her planes in the best condition to ensure continued provision of efficient services for the customers. Improved flight experiences by customers will not only attract more customers but increase customer loyalty as well24. With more competitors seeking to compete on the basis of price, introducing flight overhauls would work to the advantage of Ryanair. As a result, Ryanair should introduce overhaul. Did the Aer Lingus bid make strategic sense? The Aer Lingus bid makes strategic sense especially due to its timing. Ryanair made the bid at a time when most Airlines are struggling to keep up with the recession and reduced customer purchasing power. This timing would ensure that Ryanair, by operating the two entities separately, attains customer loyalty in Aer Lingus as well attracts more customers. This means that the idea of making the bid was well thought of and analyzed. As Aer Lingus prices go down, other competitors struggling to keep up with the recession would be threatened or even opt to move to other markets. This would give a competitive edge to both Ryanair and Air Lingus. In addition, the fact that Ryanair promised to lower prices would result to more customers selecting either Ryanair or Air Lingus as a preferred service provider. Applying a low-cost strategy in Air Lingus means increased customer base translating to higher profits25. This would mean increased returns for Ryanair’s investment. By itself, Air Lingus does not have enough capital to make such an investment. On the other hand, Ryanair has the necessary cash reserves to make the suggested investment. This means that the bid made by Ryanair made strategic sense and was to the benefit of both companies. Bidding for a new carrier Ryanair and Aer Lingus both have a strong and stable market presence in the western half of Europe. It makes more sense for Ryan to bid for a carrier that is situated in another part of europo such as Wizzair, an airline well established in Eastern Europe. Another carrier that will be suitable to take over is Vueling Airlines as it is situated in Barcelona, a city in which Ryanair will enjoy a reasonable market share26. The option of Ryanair taking over Wizzair or Vueling Airlines will significantly leverage Ryanair in future agreements with Boeing or Airbus. Ryanair will also achieve the goal of expanding its operations throughout Europe, having a wider market as opposed to concentrating its market in Dublin Airport. Such takeovers, as opposed with one with Aer Lingus, will also reduce the concerns that EU Commission has in regard to takeovers. Taking over wizzair And Vueling Airline will also reduce Market over-laps, allowing Ryanair to explore new routes all across Europe. If such a decision is taken up by the management of Ryanair, the airlines will also enjoy a stronger brand and large recognition not only in Europe but all across the world as Europe’s largest airline. This will consequently heighten the level of profits earned by Ryanair and it can then work towards achieving wider realms of its operation. Strategic leadership of Michael O’Leary Michael O’Leary led a new management team in embarking on a new strategy for Ryanair. The strategy involved a complete restructure of the airline’s existing structures to one that entailed a no frills service and minimum cost of travelling with the airlines. When O’Leary stepped into leadership, he strongly held the vision to model Ryanair into the biggest budgetary airlines in Europe. He not only very well communicated this vision but also converted this vision into a reality. O’Leary also introduced a friendly working environment into the operations of the airline. Such an environment is one that warm and friendly, motivating his workforce and filling them with incredible energy27. This enhanced high productivity of his employees and majorly improved on customer relations that saw an increase to the number of return customers. O’Leary’s leadership style is one that is task orientated, focusing on tasks like cutting on costs, aircraft acquisition, improving service quality as well as route development. The style also focuses on the satisfaction of the customers and staff28. This leadership style has been subjected to a lot of criticism. Critics claim that he is outspoken, irritating and arrogant. This may be because he gets personally involved with any publicized events that concern Ryanair and will not keep silent about what does not please him. He also aggravates people who hold the ability to affect the airline’s profits negatively. These weaknesses are however not big enough to render his leadership style ineffective. Instead, O’Leary has led Ryanair to great heights, proving that the airline operates under successful leadership. References Davey, Jenny, ‘Ryanair has earned its wings – investors should set autopilot’, The Times, 6 January, 2006. Fred R. David (2011). Strategic management: concepts and cases. 13th Ed, (Pearson: Prentice Hall, 2011). Johnson, G., Scholes. K. and Whittington, R. “Exploring strategy: text and cases, 9th Ed” Ryanair: The Low airfares airline- future destinations? Ed. Elanor O’Higgins 2010. (Pearson: Prentice Hall, 2011), 618-629. Appendices Factor How the factor applies to Ryanair Strengths Marketing-strong branding and wide-spread recognition, price strategy that is aggressive Reputation as the largest budget airline Low costing as a result of airport operator agreement and deals such as outsourcing handling of equipment and personnel. High level of publicity because of O’Leary and the controversial issues that surround him. Weaknessses Cash is tied up in the expensive purchase of new equipment such as planes Whole company is based on the low-cost airline market in Europe Refusal to step down in issues like those that concern EU Commission Warnings on shock profits may have consumed cash reserves as well as weakened the fiscal structure Opportunities Possibility of operating along new routes Purchase of new planes that amount to larger capacity Increased advertisement on planes and website will lead to more revenue received Decline in economy will increase passengers as Ryanair is a cheaper option. Threats Strong competitors such as Easyjet, BMI baby and ThomsonFly Economic recession will reduce the level of disposable income EU Commission has power to put restrictions on Ryanair if they fail to adhere to state-aid rules . TOW Internal Strengths Large Capital Well known brand Wide advertisement coverage Internal Weaknesses Expensive machines Complete reliance on low-cost strategy External Opportunities New roots to adventure into Upgrading and increasing advertisement SO Explore new roots since she has enough capital to do that, well known brand Collaborate with stakeholders to intensify advertisement WO Capitalize on new roots to increase market share Invest in attraction of more customers to generate adequate income. External Threats High inflation rates Lowered disposable income Loss of market share to competitors ST Neutralize the effect of inflation and fuel price fluctuations through the attraction of more customers Take advantage of the inflation by maintaining her low-cost strategy as consumers seek for cheaper and quality services. Increase disposable income though investing in services that enhance customer loyalty and attraction of more customers WT Overcome competition by maintaining a low-cost strategy despite high inflation Prevent loss of market share to competitors by increasing advertisement levels, utilizing online services which are more convenient and improving on customer service. IFAS EFAS Strengths Weaknesses 1. Large Capital 2. Well known brand 3. High publicity 4. Good reputation 5. Low costing 1. Expensive machines thus reducing disposable income 2. Complete reliance on low-cost strategy 3. weakened the fiscal structure Opportunity S-O strategies W-O strategies 1. New roots to adventure into 2. Upgrading and increasing advertisement 3. Purchase of new planes with a larger capacity 4. Increasing revenues through intensifying advertisement to attract of more customers 1. Ryanair is in a position to invest in adventuring new roots due to her large capital and high publicity (S1 and S3, O1) 2. Increasing revenues through upgraded advertisement through online services especially due to her large capital and low costing driven by outsourcing (S1 and S5, O2 and O4) 3. Increasing profits through investing in new planes with a larger capacity to enhance low costing (S5,O3) 1. Ryanair ca increase her revenues by intensifying advertisement thereby neutralizing the effect of purchasing expensive machines( W1,O4) 2. strengthen the fiscal structure though increasing capacity to carry more customers and reducing operational cost through purchasing new planes and adventuring into new roots (W3,O3, O1) 3. strengthening the low-cost strategy by lowering operational cost through increased advertisement and use of planes with a larger capacity (W2,O2 and O3) Threat S-T strategies W-T strategies 1. High inflation rates and economic recession 2. Lowered disposable income 3. Loss of market share to competitors due to strong competition 4. Restrictions from EU commission 1. Adhere to EU rules and maintain the low-cost strategy and the good reputation to prevent loss of clients to competitors (S4 and S5,T3and T4) 2. Continuously increase the publicity of her well known brand by utilizing her large capital to increase disposable income thereby counteracting the effect of high inflation rate (S1, S2 and S3, T1 and T2 ) 1. Take advantage of inflation rate to attract more customers who are seeking to save a coin through her low-cost strategy thus strengthening the fiscal structure(W2 andW3, T1andT3) 2. Outsource to lower cost of machines thus saving disposable income and adhere to EU restrictions to avoid fines (W1 ,T2, T4) IFAS Internal factors Weight Rating Weighted score Comment Strength Large Capital 0.6 1 0.6 Large capital reserves Well known brand 0.14 4 0.42 There has been a high publicity though out the year Good reputation 0.24 3 0.28 Has continuously offered timely flights to customers Low price 0.3 2 1.2 Voted in as most preferred fares Weaknesses Expensive machines thus reducing disposable income 0.06 1 0.06 No option for cheaper machines Complete reliance on low cost strategy 0.110 2 0.23 High reliance on low-cost strategy to acquire competitive advantage weakened the fiscal structure 0.14 3 0.42 Warnings on shock profits have weakened the fiscal structure. TOTAL 1.59 3.21 Read More