Ryanair Competitive Strategy - Essay Example

RYANAIR COMPETITIVE STRATEGY al Affiliation Ryanair is one of the largest airline companies in the European market that operates internationally. The company has branded itself as a low-cost air travel company that seeks to provide close to free airline services. While the price model has been a winner in the market, the company appears to be losing the market due to increase in competition and changes in the customer needs. This report focuses on the challenges that the company ahs experienced within the industry, and the various issues that have come as a result. The report will focus on the environment within which the company operates, the changes in the competitive landscape and the possible future of the company. A close analysis of other companies that have survive during harsh market periods will help point out possible opportunities that Ryanair mas use to escape the looming threat. The research will end with workable recommendations that will provide strategies for Ryanair to survive within the market. RYANAIR COMPETITIVE STRATEGY Introduction In the 21st century business environment, companies have to stay on the alert in terms of aligning their business strategy with the ever-changing business environment. Particularly, the international airlines market has become sensitive with rapid changes in the economic structure, increase in competition and government regulation (Cento, 2009). Ryanair, one of the low-cost international airline operators in Europe, has faced a number of challenges while operating in the dynamic market. The purpose of this essay is to make an analysis of the competitive ability of the company, point out specific problems and develop strategic adaptations for the company. Marketing Analysis Marketing analysis is concerned with the ability of a company within a specific industry to position itself as a top service provider. Hubbard, Rice, & Beamish (2008, p.69) defined industry as, a group of organizations or business units producing close substitutes. “Market” is a word which use very closely to “Industry.” Perhaps the most frequent word use as a substitute to “industry.” However, “market” defined as a group of consumers with similar needs. (Hubbard, Rice, & Beamish, 2008, p. 97). Evidently, each organization has operates within a particular industry and has a specific target market. Within an industry, organizations compete as a way of appealing to their target customer to purchase their service and products. On the other hand, the customers choose organizations that best suit their needs and purchase from organizations that best satisfy their tastes and preferences. Ryanair is one of the largest European airline companies that target the low economic class by offering low-cost flights to the population. The company was founded in 1985 to capitalize in the opportunity of abroad travels that were increasing at this time. The company serves about 1000 routes has 40 bases and about 200 aircrafts. The company is estimated to serve a population of over 2 million passengers each year, majority being among the middle income and low income earners. The company targets population ranges from 15 to 65 years who prefer low-cost airlines due to their economic positions (Malighetti, Paleari & Redondi, 2009). The company’s vision has been to provide free airlines, which is depicted in their strategy to offer as low prices as possible every year (Montgomery, 2008). Understanding the market is one step towards the development of a competitive strategy. Porter’s Five Forces Model Roy (2009) identifies the porters five forces model as one of the unique tools to evaluate the position of a business organization within the market. The first aspect of the model is concerned with the competition intensity within the market where a company operates. Notably, competition rivalry has increased over years in the airline industry. Since the development of an international network of the airline industry, competition has increased considerably. Companies such as Easyjet, British Airways, Air France and Iberia have become major competitors who have established grounds within the European market. Companies such Air France are launching low-price models to compete with Ryanair in the European market. Therefore, Ryanair is experiencing severe market rivalry both locally and internationally, a factor that undermines its effort to remain profitable within this industry. Threat of new market entrants always spells increased in the height of competition within a market. While some companies have announced intention to enter the European local market, there is evidence that this is a tough decision. Many companies are intending to focus on opening markets as entering in the European market would lead to market saturation and new entrants are likely to incur losses (Dennis, 2007). Secondly, investing in a highly competitive market would be expensive for new market entrants. From an economic stand point, the threat of new market entrants is not a big threat for Ryanair as the market barrier are already a challenge to new investors. As there are many airline companies, the customers have many options to consider while travelling. This gives them an upper hand in terms of bargaining for better prices, more comfort and better services. The result of reduction in supplier bargaining power is increase in price competition strategies. In the last five years, price competition in the airline industry has considerably reduced the revenue for Ryanair (Montgomery, 2008). While Ryanair is a low-cost airline, the availability of other low-cost airline companies reduces their bargaining power. As the bargaining power of consumers increase, there is evidence that Ryanair will face a hard time in the market. The supplier bargaining power is crucial while determining the market challenges. Airbus and Boeing are the two main suppliers within the market. Since the market is duopoly, the supplier bargaining power is bound to be high. Boeing sells the 737 models to Ryanair, and hence has a high price control in the market. Since the 737 models are unique for Boeing, the prices are high and Ryanair is bound to incur high initial costs while purchasing this model. The high cost of Aircrafts has reduced the company’s profits considerably. However, the announcement of entry of Chinese Producer promises to reduce the supplier bargaining power. Therefore, the company expects cheaper costs ion future which may help to save their profits. Threat of Substitutes in the airline industry has resulted to decline in the number of customers demanding air travel. Increase in the availability of fast trains in Europe has attracted customers in this direction (Veldhuis, 2005). The safety of such substitutes has made it more preferable for public transport especially after insecurity has faced the airline market. In the local market, more customers have substituted air travels for bus travels, which they consider cheaper during tough economic times (Dobruszkes, 2006). Therefore, air services are restricted for long distances as substitutes take over in short distances. This factor has severely affected Ryanair as their customer shift to alternative means of travel. SWOT Analysis The strength of Ryanair emanates from its ability to provide low cost flights at a time when the demand for this services has increased. The company has managed to increase its customer population over time as the number of middle income earners increase. Secondly, the company has managed to establish a good brand name that makes its public image appealing to the customer. Besides the company has low cost overhead which makes it possible to operate at minimum cost. However, the company’s weaknesses includes provision of low frequency airlines and the subsidization of quality of services (Cento, 2009). These have become turn off for many customers. However, the company has many opportunities including the rise in the demand for low cost flights within the market. Besides, different market are opening up and the company has a good chance to take advantage of these markets before the onset of competition. More importantly, it is crucial for the company to prepare for the arising market threat that may push it out of market. First, the increase in the cost of fuel will reduce the profit margins in the near future. It is also possible to anticipate high cost of airport charges which will further affect the profits of all low cost airlines (Cento, 2009). From this end, the ability of the organization to survive will depend on the ability of leaders to take advantage of their strengths to capture market opportunities and neutralize all threats that may impact negatively on the organization. Porters Generic Model; Developing Competitive Advantage A wide range of authors have focused on the concept of competitive advantage for business organizations. A competitive advantage refers to the various strategic decisions that the management of a company implements in its efforts to acquire a top profile within the market. Porter (1985) is among scholars that have focused on this topic in an effort to shed light on the various option paths that organizations must follow on their way to the top of the market. Cost leadership refers to companies that use low-cost models to compete within their industry of specialization. Therefore, such companies aim at providing the lowest prices within the market to ensure that the customer can afford their services and hence attract a higher number of customers. Such models capitalize in reducing expenditures within the organization to be able to offer such services. A low cost service provider requires commanding prices in every operation to become an effective cost leader. In the airline industry, a number of companies have focused on cost leadership as a means of gaining competitive advantage. South West airline is one of the companies that have used cost leadership to attract high number of customers within the airline industry. The company provides low-class flights which are affordable to frequent travellers. Although their marginal profit is relatively lower, they make huge profits due to high customer flow within the organization. Next, differentiation is another aspect of porter generic model of competition. Porter (1985) refers to differentiation as the strategy through which a firm establishes a unique identity within the industry and this becomes its primary marketing tool. The company focuses on certain business dimensions that depict value for customers and that customers perceive as crucial within the market. Often such business models are high-priced and target the higher economic profile within the society. Air France airline company is one of the companies that have used differentiation as competitive strength within the European market. By ensuring comfort in all classes of their airplanes has worked well in maintaining the customer loyalty. However, differentiation has become a source weakness as prices become an important factor within the industry. For instance, Air France adoption of movie technology and bars within the A380 airbus came with heavy training costs, which did not contribute to revenue increase (AirFrance Press Office, 2014). Ryanair is a company that emphasized on cost leadership as the primary competitive tool within the market. The company vision is to provide free air travel for its passengers, which illustrates the company’s ambition to become the best low-cost flight within the market. In 1995, the company launched the Easyjet flight that was mean to provide cheap services for air travellers (Montgomery, 2008). Secondly, the airline company has subsidized the quality of services within their flights to reduce the expenses required to maintain such high quality services (Reh, 2010). In addition, the company has reduced the in-flight catering services that were previously offered as part of providing comfort and additional services during travel. The formation of point-to-point networks and interconnected airport bases has helped the company to keep their costs as low as possible. One of the strategies of Ryanair that has failed is overfocussing on cost while ignoring the isues of comfort and convenience that are becoming crucial for customers. While cost leadership has worked well for this organization within the past, there is evidence that the company is in the verge of losing the market. The company’s weakness hails from its cost-reduction strategies that have often ignored various aspects of comfort that are becoming crucial for travellers (Montgomery, 2008). First, the subsidization of quality within the organization has become a big challenge for the company (Miller, 1998). The company has used obsolete facilities for a long time in an effort to minimize the cost of production. For instance, while the economy class in Air France A380 airbus costs the same as that provided by Ryanair, the quality of service is much higher. Therefore, the company has failed due to its poor cost-minimization strategies. In addition, the company’s use of secondary airports has become a major failure for the organization. The company label secondary airports as close to town while such airports are miles away from the actual town. For instance, the Frankfurt flights are far away from the town and hence customers have to use extra expenses to reach their destinations (Montgomery, 2008). While this is a cost minimization procedure, it has become a turn off the company which has suppressed its customer population. Since competing air travel companies can provide transport closer to towns, customers prefer them than Ryanair. From this angle, the company is expected to face a wide range of challenges as its competitors become more reliable (Dennis, 2007). Strategic Recommendations From the competitive analysis, there is evidence that the airlines company’s bargaining power has considerably decreased and customer have a higher privilege in selecting the types of services and the cost for the services they need (Armstrong, 2010). Therefore, it is crucial that Ryanair focuses on a customer-based marketing model to win customer loyalty and regain its market position. Evidently, the customers want low costs and high quality of services while travelling. To achieve this, Ryanair should consider using large air flights with lower consumption to replace their obsolete and poor maintained airbuses. Companies such as Air France have reduced fuel consumption by 20% by adopting the A380 airbus for their flights. At the same time, the quality offered by modern flights will be more attractive for the customers, hence winning their loyalty. Secondly, the company must focus on streamlining cost leadership by using efficient leadership models. Since customers cost is becoming an important aspect in the industry, there is need to focus on cost minimization procedures that are do not affect the quality of services. The company has marketing approaches must take advantage of the modern platforms that are more cost-efficient. For instance, internet marketing has become cheaper than media advertisement and has a better ability to target their customers. Customers in the airline market are demanding for convenient services that are available on demand and one that take them closest to their destinations. From this perspective, it is essential for the company to shift their focus on secondary airports to primary airports that are close to the town regions (Fletcher, 2003). This will ensure that the customers do not meet extra costs while accessing town locations. Lastly, the company needs to focus on time conveniency to ensure that the customers can book flights when they demand them. As noted, low frequency of flight has become a turn off for customers who intend to initiate travel within a short time. Increasing the frequency of travel will help the company to win customers that prefer time conveniency during their travel. Conclusion In conclusion, Ryanair Company needs to rebrand its marketing strategies if it has to survive in the market. As the airline operators lose their power to the customers, customer based models of product marketing become more crucial for the companies. The company needs to offer low cost flights without sacrificing the quality of their services. To achieve this, the organization must focus on reducing its fuel consumption cost and maintenance cost. Replacing their old models of airlines will help them to reduce the cost of consumption without sacrificing quality. In addition, they must be able to provide more convenient services in terms of access to town as well time. Using technology to reduce advertisement cost would be essential in the modern time when internet market has become more efficient. Bibliography AirFrance Press Office, 2014, Air France the First European carrier to Offer Flights on the A380. Available at:< http://corporate.airfrance.com/fileadmin/dossiers /images/flotte/A380/dossierA380_en_complet.pdf> Armstrong, 2010, Customer-Driven Marketing Strategy: Creating Value for Target Customers." Principles of Marketing. By Philip Kotler. Thirteenth ed. Pearson. Armstrong, G, 2010, "Advertising. and Public Relations." Principles of Marketing. By Philip Kotler. Thirteenth ed. Pearson. Armstrong, G, 2010, Company and Marketing Strategy: Partnering to Build Customer Relationships. Principles of Marketing. By Philip Kotler. Thirteenth ed. Pearson. Cento, A, 2009. The airline industry: Challenges in the 21st century. Heidelberg: Physica-Verl. Cavendish, C, 2006, A policy that pretends we can all fly on the cheap is a policy that wont fly, The Times. Dennis, N, 2007. End of the free lunch? The responses of traditional European airlines to the low-cost carrier threat. Journal of Air Transport Management, 13(5), 311-321. Dobruszkes, F, 2006, An analysis of European low-cost airlines and their networks. Journal of Transport Geography, 14(4), 249-264. Fletcher, J, 2003, Strategic management Study guide and plan Edith Cowan University Perth Australia. Hubbard, G. Rice, J. & Beamish, P, 2008, Strategic management Thinking analysis action 3rd edition Pearson education Australia Malighetti, P., Paleari, S., & Redondi, R. 2009, Pricing strategies of low-cost airlines: The Ryanair case study. Journal of Air Transport Management, 15(4), 195-203. Miller A, 1998, Strategic Management, McGraw Hill, 3rd Edition. New York. Study Guide: Strategic Management Montgomery, C. A. 2008, Putting leadership back into strategy. harvard business review, 86(1), 54. Porter, M. 1985,Competitive Advantage: Creating and Sustaining Superior Performance. California : Free Press University of California. 490-557 Reh, J, 2010, Paretos Principle - The 80-20 Rule." About Management - Business Management - People Management - and More. About.com Guide. Web. 21 Nov. Roy, D, 2009, Strategic foresight and Porters five forces: Towards a synthesis. München: GRIN. Veldhuis, J, 2005, Impacts of the Air France–KLM merger for airlines, airports and air transport users. Journal of air transport Management, 11(1), 9-18. Appendix 1: Ryanair Swot Analysis Appendix 2: Ryanair Customer Service Read More