Ryanair marketing strategies - Essay Example

Table of Contents Executive Summary 3 Introduction 3 2.Mission and Strategy 4 3.Strategic Analysis 5 I.PESTLE Analysis 5 a)Political 5 b)Economic 6 c)Social 7 d)Technology 7 e)Legal 8 f)Environment 8 4.Marketing Mix 9 a)Price 9 b)Product 9 c)Place/Distribution 9 d)Promotion 10 5.Porter’s Five Forces Competitive Analysis 10 a)Buyers 10 b)Suppliers 11 c)Entry and Exit to the market 11 d)Substitute Products 12 e)Rivalry 12 6.Conclusion 12 Bibliography 14 Ryanair Executive Summary This paper seeks to provide a comprehensive analysis of Ryanair marketing strategies, an airline company that began operations in 1985 with only a single fifteen-seat plane plying between London Gatwick and Dublin and waterfall in Ireland. The airline has grown substantially over the years to become the top low-budget airline in Europe. The company did not achieve the success outright, but rather through efficient and effective marketing strategies, including a complete overhaul of its management at one point. 1. Introduction Ryanair began its operations in 1985 with a single 15-seater plane, primarily a conventional airline from Dublin and Waterford in the Ireland Republic to London. During the initial years of operations, the airline faced significant financial challenges, which led to losses in the company. After an analysis of its marketing strategies, the company decided to re-launch in 1990/1991 as a “no frills”, low cost air carrier, replicating the business model of American Southwest Airline (Mennen, 2010:10). Since then, price has been the integral marketing strategy of the company, promoting and maintaining its growth in the European low-cost airline industry. These changes were the ideas of Michael O’Leary, initially the financial controller of the company. O’Leary, now the chief executive officer at the company, persuaded Tony Ryan (owner) to redress financial issues affecting the company at the time (Daft, 2009:69). He developed a marketing strategy based on American Southwest Airlines, introducing the concept of low-cost, “no frills” in the airline. These changes stemmed the losses of the company, as well as turning the venture into a huge success. According to statistics, the company posted a profit after tax of 303million dollars in 2006, a 13% increase from that recorded in 2005. Currently, the airline operates in more than 146 routes to 84 different destinations in 16 countries, carrying more than 15 million passengers annually. Further, the airline plans to become the largest airliner in Europe in a few years. By any standards, one can consider the company as successful, primarily based on its growth in the market as well as its profitability. 2. Mission and Strategy The objective of Ryanair is to be the largest and leading low-cost airline in Europe through continuous expansions and improvements in its low-cost services. The primary objective that are in place to achieve this include, low-cost fare, industry-leading customer service, strong commitment to quality and safety maintenance, flight services on short-haul routes, leveraging the internet, and low operating costs that address personnel productivity, aircraft and equipment, airport access fees and customer service costs. The principal policy of Ryanair is to offer the lowest flight fares available from any carrier (Gugenheimer, 2006:67). For instance, the company often matches the prices of a competitor if they lower their prices. Consequently, one may consider this anomaly given that the company has a strong commitment to provide quality customer service, but these two strategic elements are complementary insofar as the company is concerned. Ryanair strategically uses small regional airports for its flight operations, keeping the operations costs low as well as providing a less congested traffic alternative for its customers travelling, thus less delays. Additionally, the frequent, short-haul flights do not require provision of complex services such as food and drinks, as they are rather short compared to other longer flights. The key success factor of the operations of Ryanair resides in its capability to slash costs to a minimum whenever possible. For instance, the company has strict rules regarding power usage within the company’s premises by employees, especially charging mobiles phones (Daft, 2009:71). Moreover, the company charges the airline crew for uniforms, a distinctive feature that is rare in the industry. The company predominantly uses online booking for its flight, enabling it to keep operation costs low by removing the costs of agents. It also allows bookings by telephone, though these are kept at a minimum of about 4% compared to 96% of online bookings. In addition, the company acknowledges the importance of quality and safety of its airplanes, clarifying any doubts on the quality of operations despite being a low-cost carrier. 3. Strategic Analysis I. PESTLE Analysis This strategic analysis tool analyzes the political, economical, social, technological, legal, and environmental factors to examine the strengths and weaknesses of the strategies applied by the company. a) Political Ryanair operates in a number across a number of EU member countries, thus European politics are important for its operations. The 1997 deregulation of aviation provided opportunities for airlines across the EU region to compete on an even platform. Some other 10 Eastern Europe countries joined the EU, further opening up the airline market (Hill and Jones, 2008:157). Nonetheless, some European legislation has had detrimental impacts on Ryanair, as discussed later under “Legal” Ryanair had a levy dispute with Cornwall County Council, precisely a five-dollar levy for all passengers the airline flew into New Quay airport. The levy was to assist in the expansion of the airport, but O’Leary opposed the levy saying it was unfair considering the revenues that Ryanair would bring to the Cornwall, and subsequently withdrawing a number of flights. In response, Cornwall offered the slots to other competing airlines (Boesch, 2005:13). The reaction of the company or the strategy behind its move is still not clear: the levy might have had some effect on the demand, but the move seems to be a tactic to coerce Cornwall to capitulate. The latter is an assumption from a similar incident with Bergerac airport, which was successful in negotiating for lower access prices. Ryanair also faces the problem of tax policies. In the past, the company enjoyed small taxes for their provision of cheap air travel, though they currently face challenges as the UK Chancellor seem to target business that make huge profits. Furthermore, the concern for managing the ever-increasing air traffic control and capacity of airports as well as environmental impacts may lead to the introduction of taxes as the most appropriate solution (Boesch, 2005:14). Therefore, there is probability of tax policies implementation from local councils through to national governments in all regions that Ryanair operates, thus the need to device new strategies that make economic sense as pulling out in efforts to influence a policy change may result to less profit. b) Economic The operations of Ryanair are based in Europe with headquarters in Eire, though many of its operations do not suffer from exchange rates. However, the price of oil is a central problem with most airlines. Ryanair addresses the issue of abrupt increases in price through hedging, which typically involves an advance agreement on the prices, though this involves some costs (Mennen, 2010:65). In general, this works like insurance. The company also invests in cash reserves to counter the problem of abrupt increases in oil prices that may have profound effects on profits. Other airlines often add some surcharges to prices of tickets, but Ryanair policies primarily relies on shortness of the duration of these high prices. c) Social The significant social changes result from the entry of new members into the EU created employment opportunities for migrant workers, expanding the Ryanair’s market of operation. This is because many less affluent Eastern countries migrants may increasingly migrate to the West, and may embrace the idea of travelling back home regularly on cheap flight fares, thus creating a market for the company (Creaton, 2004:187). This is similar to the “Ryanair generation” that migrated from Ireland to the UK in the 1990s, enabling them to increase the frequency of visiting their countries of origin annually. d) Technology Ryanair policy of online booking and transaction enables the company to maintain low operational costs by eliminating additional costs from agents. However, the policy will be less attractive in the expansion plans to Eastern European markets as credit cards and the internet are less developed and penetrating than in the Western side of Europe. Nonetheless, this may change over time. Moreover, Ryanair stands to benefit from aircraft technology. Currently, the company continues to order and use Boeing 737-800 aircrafts, a policy that may suggest the perpetuation of its current pattern of operation, although it is replacing 737-200 planes with the 737-900s smaller passenger capacity planes that have a greater capacity and range than the 737-800s (Creaton, 2004:146). The technical advantage of the company is the fact that the pilots have qualifications to fly all the plane variants. Introducing other aircrafts such as the Boeing 767 or 757 series would require further training of the company’s pilots in order to gain the necessary ratings, resulting to significantly high costs of training. Subject to several legal limits, it is simple and effective to operate a roaster-based pilot system by restricting the plane fleet to a single type or series (Gugenheimer, 2006:46). However, if Boeing halted the 737 series production, Ryanair would face major issues in trying to introduce another alternative. Nonetheless, the 737-900 series began in 2000, and may typically run for several decades before production ceases, thus a relatively small risk for the company. e) Legal The most significant legal challenge Ryanair and other low-cost carriers are EU legislations that require airlines to provide accommodation, food, and compensation to passengers who experience heavy delays and cancelled flights. This is because the compensation costs are not proportional to the outlay of customers’ tickets. Moreover, the fact that the company employees staff from numerous countries in the EU makes legal issues complex, especially concerning jurisdictional laws (Hill and Jones, 2008:158). Another significant challenge that Ryanair faces is subsidies from EU Commission, for instance the case of Charleroi in Belgium. However, the company enjoys all round legislation due to its international operation. f) Environment The most significant environmental challenge that Ryanair faces is greenhouse emissions. Statistics indicates that the aviation industry contributes about 7% of UK emissions, with a projection of about 25% by 2030. Despite the fact that the company uses underutilized airports in place of “hub” structure common with many airlines was an adoption from the success of Southwest airline rather than a direct concern for environmental conservation. Another issue is noise, though the 737-800s assist in this sector (Hoffmann, 2005:36). In general, adopting environmentally friendly policies will contradict its central objective. This is because the company’s central focus is reducing costs, and any attempts to incorporate environmental concerns may lead to additional operation costs. 4. Marketing Mix a) Price The main factor that led to the worldwide recognition of Ryanair as a leading brand is its low pricing. Additionally, the company offers different pricing based on the prevailing market condition, including discounts for off-peak travelers and bookings made in advance (Hagele, 2006:42). Furthermore, online bookings receive discounts. b) Product The airline provides point-to-point flight services, applying the “no frills” concept. Moreover, the company owns a fleet of cabs/vehicles for hire as well as hotel and Bed and Breakfast (B&B) facilities, all incorporated into their website (Creaton, 2004:55). This proves very efficient for the passengers in terms of “all-in-one” concept. c) Place/Distribution The products and services of Ryanair are accessible from any corner of the society. This is because the company capitalizes on the internet booking system, covering more than 95% of its booking operations (Marketing Teacher). The company also allows passengers to make flight bookings using the telephone reservation system. d) Promotion The company constantly highlights its leading position in offering the cheapest flight charges in Europe, particularly with its advertising strap line: “Cheap Flights - Low Cost Airline, Lowest European Fares”, a slogan in its website (Ryanair). The company also advocates for in-house creative marketing. Moreover, the company uses“no bullshit”, attention-catching, and humorous approach to campaigns, such as the current running promotion that guarantees lowest fare or compensation of double the difference. 5. Porter’s Five Forces Competitive Analysis In order to understand precisely the position of the company in the low-cost airline industry, it is imperative to carry out an analysis of Porter’s Five Forces. a) Buyers The company offers its products to huge number of individual consumers. In individual consumer markets, there are no powerful individual buyers, which enable the company to dictate its terms and conditions. Thus, customer’s purchasing decisions depend entirely on prices rather than features, minimizing the likelihood of the failure to provide acceptable products. Moreover, the company’s records in flight completion and punctuality are ahead of those of competitors, an indication that the company meets the requirements of its customers (Creaton, 2004:87). The fact that the company focuses on utilizing small airports that are less congested minimizes the likelihood of delays. Nonetheless, Ryanair may fail to meet the needs of minority passenger groups. Indeed, the company was under criticism for charging disabled customers extra fees for wheelchair transfers. The company emphasizes on cost-minimization strategies, thus introduction of features for minority groups will reduce profits because their model relies on standards products. b) Suppliers Regardless of location or scope of operation, all airlines fall victim to changes in the prices of oil. The approach towards these changes determines the competitive advantages gained. These approaches include adding levies to tickets or hedging (Hagele, 2006:64). The other significant suppliers for Ryanair are airports. The company enjoys significant advantage over its competitor as regional airports often offer subsidies to airlines due to the economic advantages that flight passengers bring to the local area. These subsidies are not present in major airports that lower access charges. c) Entry and Exit to the market Entry to the airline market largely depends on the availability of funds to initiate operations as well as some significant backing from investors. Nonetheless, operations grow gradually, through either buying or leasing small aircrafts. Ryanair began its operations with a 15-seater aircraft (Boesch, 2005:3). However, it is extremely difficult for beginners to attain firmly some hold on competitive routes, a challenge that Ryanair met from Aer Lingus and British Airways during its initial start of operations. Ryanair has significantly grown to the capability of pushing out competitors, as was the case with Buzz. Exits from particular routes can be quick, as evidenced by Buzz and other competitors. Exit barriers include signed agreements with airports operators, although some have withdrawal options for unprofitable services. d) Substitute Products The low-cost price of flights offered by Ryanair does not have an obvious substitute that may function for price-sensitive customer over long distances, often involving sea crossing, at similar low costs. Alternatives such as train and coach operations are well established already, but they do not enjoy the low-cost airline commercial success. e) Rivalry Ryanair enjoys a strong position in the low-cost flight industry. The differences between their strategic policies and those of competitors allow them to enjoy competitive advantages, especially operations in regional airports of Europe (Boesch, 2005:7). Consequently, this provides them with a superior product at a lower cost, resulting to huge economical benefits from their operations. The challenges of distance from main city is an instance of Porter’s trade-offs, vital in competition. 6. Conclusion The discourse above highlights the strategies employed by Ryanair and the difference from those of the competitors. The competitive advantage of the company lies directly or indirectly with these differences. Moreover, Ryanair’s CEO O’Leary matches Porter’s description of a charismatic leader. However, the close association of O’Leary and the success strategy of the company may mean that departure of the CEO will significantly affect the performance of the company. This potential weakness, however, is relatively low, as O’Leary seems still young and enjoying his time at the company. The only significant challenge is the company’s attitude towards its employees (Creaton, 2004:197). The fact that the airline industry is expanding, especially in low-cost markets, may lead to inadequate staffing. This would have significant problems such as rise in cancellation rates and consequent compensation costs. In general, Ryanair has a clear strategy that differentiates it from competitors, enabling it to meet the requirements of customers efficiently and effectively. The company also has relatively few weaknesses commercially. Bibliography Boesch, F. (2005). The Ryan Air Model: Success and Impact on the European Aviation Market. Munich: Grin Verlag. Creaton, S. (2004). Ryanair: How a Small Irish Airline Conquered Europe. London: Aurum Press. Daft, R. (2009). Organization Theory and Organization. Mason, OH: South-Western Cengage Learning. Mennen, M. (2010). An Analysis of Ryanair’s Corporate Strategy. Munich: Grin Verlag. Gugenheimer, P. (2006). Ryanair, the Low Cost Fares Airline. Munich: Grin Verlag Hagele, K. (2006). Marketing Plan for Ryanair. Munich: Grin Verlag. Hill, C., and Jones, G. (2008). Strategic management Theory: An Integrated Approach. Mason, OH: South-Western Cengage Learning. Hoffmann, J. (2005). Ryan Air: Environmental Analysis, Discussion of Core Competencies and Strategy Proposal. Munich: Grin Verlag. Marketing Teacher. Ryanair’s Marketing Mix. Retrieved on March 14, 2012, from http://www.marketingteacher.com/case-study/ryanair-case-study.html Ryanair. Ryanair. Retrieved on March 14, 2012, from http://www.ryanair.com/en Read More