How Can Ryanair Maintain Its Dominance in the European Low-Cost Airline Market - Case Study Example

How Can RyanAir maintain its dominance in the European low-cost airline market? European low-cost airline market Table of Contents Introduction 3 2.Brief Overview of RyanAir 4 3.The Market of Low Cost Airline in Europe 5 4.The Market Trends and Current Strategies of RyanAir 7 4.1.Ansoff Matrix 7 4.2.Generic Strategy 8 5.Sustainable Competitive Strategies for RyanAir 9 5.1.Marketing Mix 9 5.1.1.Product 9 5.1.2.Price 9 5.1.3.Promotion 10 5.1.4.Place 11 5.1.5.People 11 5.1.6.Process 11 5.1.7.Physical Evidence 12 5.2.GAP Model 12 5.3.Red Ocean Strategy 14 6.Conclusion and Recommendation 15 Reference 17 1. Introduction The nature of competitiveness of the global market place has been ha been changed significantly in the post-modern age of business environment. The intensity of the competiveness are increasing continuously and the in order to cope with the fierce competition, the existing firms are trying to gain a sustainable competitive advantage to secure a reliable amount of the revenue. There are a number of reasons that has led to intensify the competition hurting the profitability of the industry. One of the prime factors in this respect is the globalization of international trade and business that has brought several opportunities to the business world along with intensified competition and technological advancement. The technological advancement has been playing a crucial role in shaping the port-modern business world and related activities. The industry players are using the multiple innovative ideas, strategies to ensure an upper hand position in the market over their key rivals. Therefore, due to changing pattern of competition in the international market has also urged to change multiple aspects of an organization and business activities (Root and Visudtibhan, 1992, p.81). This paper will attempt to frame sustainable strategy for the RyanAir, a leading low cost provider air line company of Europe through discussion and analysis. The nature of competition in European airline industry been changes as most of the leading airline service providers are competition with other on the basis of low cost services. However, the fact is that RyanAir already exists as market leader in European low cost airline industry. On the other hand, other major competitors are also aiming increase their market share by offering low cost airline services like RyanAir. In such situation, it becomes more challenging for RyanAir to maintain its dominance in European low cost airline industry. 2. Brief Overview of RyanAir RyanAir is one of the most popular airline companies in the European market. RyanAir was founded by the Ryan family during 1985 with small amount of capital of £1 million recruiting nearly 25 cabin crew. By end of 1985, it experienced a rapid success by serving more than 5000 passengers with 51 staffs. RyanAir realized the major barrier of passenger in availing airline service i.e. high cost, and it decided to serve a higher number of customer by offering lowest cost services. The low cost strategy became a huge success for RyanAir and the number of its passengers increased shockingly within a span of 20 years since its inception. The following figure presents the growth of RyanAir passengers from 1995 to 2007. Figure 1: RyanAir Passenger Growth in Millions (Source: RyanAir-a, n.d.) The primary reason for its rapid success can be interpreted due to three major factors i.e. lowest possible cost of airline service, vast area of coverage and its punctuality of its services. RyanAir ranks top among major airline service providers in terms of punctuality and low cost. The following table shows a comparison of the punctuality with its key rivals. Table 1: Punctuality Rating for Dublin to London Airline Service (Source: RyanAir-a, n.d.) With increasing market share, its financial position keeps strengthening and it has increased its number of fleet to meet its growing market demand. Currently, RyanAir owns nearly 272 Boeing 737-800 aircraft with capacity of 189 passengers each (RyanAir-b, n.d.). 3. The Market of Low Cost Airline in Europe Since last 20 decade, the trends in European airline industry have significantly changes due to increasing demand of airline services and increasing completion among market players. After the entrance of RyanAir, the entire view rearing airline industry changed significantly due to the trend of lost cost service strategy. One of the crucial incidents that also played a significant role in shaping the European airline industry was the deregulation policy in entire Europe during 1990. It became very significant for the low cost service providers like RyanAir and they were able to exploit the entire airline market of Europe by taking over the market share of prevailing market leaders like British Airways (Brophy and St.George, 2003, p.5). This liberation as an outcome of deregulation offered the low cost airline to achieve the growth rate of 25% per year with increasing demand of service. In fact, the role if low cost service crucial in increasing demand of airline services. Generally, in low cost market of Europe, along with the RyanAir, EasyJet also achieved a higher rate of success. The primary strategy for these low cost providers was to increase the frequencies of services focusing on short haul routes which are generally less than 1500 kilometers. In this process, their primary target was to cross the breakeven point by serving more number of customers (ICAO, 2003). These low cost airlines have been able to reduce the cost in possible area to offers low cost services. The breakdown of the cost saving for low cost is presented in the following figure. Figure 2: Breakdown of Cost Saving (Source: Smith, n.d.) Besides, the European airline market is expected to significantly and on the other hand, completion will also intensified by the same ratio. During economic crisis, the airline industry faced a huge loss. However, as per the forecast by The International Air Transport Association, the market is expected to earn $500 million profit in coming year (IATA, 2011). 4. The Market Trends and Current Strategies of RyanAir In order to cope up with the prevailing competitive market scenario, it is very necessary to understand the future and major criterion of European airline industry for the low cost services. Primarily, there are four major factors that are vital for these low cost providers. Firstly, to maximize the sales volume, it is necessary to acquire and maintain high capacity aircrafts. Secondly, the turn-around time must be shortened for higher unitization at possible lowest cost. Thirdly, effective and efficient operational internal process is also crucial for reducing overhead cost. Finally, companies should have better relationship with customers, labor and leasing companies for an upper hand position in bargaining power (Geiger, Schlottke and Schrade, 2009). Many companies have switched to low cost airline business model from traditional airline by cutting down their cost significantly during 2010, and moreover, the number of these low cost providers is expected to rise in coming years (Buescher, 2010, p.39). In such situation, RyanAir has been following to its low cost business model. 4.1. Ansoff Matrix Ansoff matrix is helpful to identify the directional strategy for an industry in term of product and industry situation. The flowing figure depicts a model Ansoff matrix. Figure 3: Ansoff Matrix (Source: Mercer, 1996, p.171) As per the above table, in case of European airline industry, the product and industry are present. Hence, RyanAir keeps following the penetration strategy in the market by offering low cost. 4.2. Generic Strategy Porter’s generic strategies are most celebrated strategies for achieving competitive advantage and for market penetration. Generic strategy matrix is given below. Figure 4: Generic Strategy (Source: Stonehouse and Campbell, 2004, p.175) As discussion in the previous section, Ryan has been following the cost leadership strategy in the market. The RyanAir has successfully incorporated low leadership strategy as it core corporate and business strategy that enabled to in gaining sustainable competitive advantage. 5. Sustainable Competitive Strategies for RyanAir 5.1. Marketing Mix The elements of marketing mix for a service oriented organization like RyanAir includes the elements of product, price, place, promotions, people, process and physical evidence (Chaffey, Chadwick, Johnston & Mayer, 2009, p.215). 5.1.1. Product RyanAir’s recipe for success has been mainly due to the aspect of its product strategy of offering air travel at cheap rates. The no frills strategy used by the airline has generated competitive advantage of the organization (Malighetti, Paleari & Redoni, 2008, p.195). In order to maintain its dominance in the European aviation industry the company would continue with its core product strategy of providing air travel at cheap rates. The company would however provide refreshments on board that could be purchased by the passengers inside the flight. The company would continue with its present product offering so as to maintain a focus strategy. In this regard the company would try to provide improved services to the passengers while retaining it’s no frills strategy in the European market. 5.1.2. Price Pricing implies the price paid by the customer for availing the goods and services of an organization. RyanAir would continue with its strategy of providing cheap air travel to the customers. This strategy would help in generating competitive advantage with the legacy carriers that have higher fares. This strategy also assumes significance in the present economic scenario where the economic recession has reduced the disposable income levels of individuals. A low pricing strategy would make the services of the airline more attractive to the customers that would help RyanAir maintain its dominance over the European skies. 5.1.3. Promotion Promotions are a very critical element in the service mix of an organization. This is because firms normally communicate their message to the prospective targeted customer’s though effective promotions. In this regard RyanAir would enter into tie ups with the travel and tour operators so as to help generate passengers for its flights. In addition to this RyanAir would also harness the internet as a channel for promoting its services. The company would harness the reach of popular social networking sites to reach out to the masses. RyanAir would use sponsorships as a promotional tool to enhance its brand image and generate a favorable positioning in the minds of the customers. Effective Corporate Social Responsibility strategies would also be undertaken that would help project a sociable image of the organization in the minds of the customers. In addition to this the company would also put up advertisements in the print as well as electronic media. Corporate tie ups would also be started so as to grab a market share in the lucrative business travel segment that has of late adopted cost cutting measures to help tide over the period of economic crisis. The low cost strategy of RyanAir would offer a perfectly suitable product for the business organizations. This would help in generating good flow of passengers that would help RyanAir maintain its dominance and sustainability in the European low cost airline market. 5.1.4. Place RyanAir would continue with its present strategy of serving the European markets. However the firm would try to increase the number of hubs in the continent. This would enable the firm to start a hub and spoke system that would help generate greater connectivity for the passengers. The turnaround time would also be made more efficient so as to ensure better fleet management. RyanAir would try to add some new destinations in Europe that have considerable potential. Smaller aircrafts would be used to service smaller locations that would help bring in passengers from smaller towns to the hubs from where they would get an array of options so as to generate better connectivity in Europe. The company would also remove the non profitable locations from its air map so as to maintain sustainability in operations. 5.1.5. People People involve the employees of the organization who would actually deliver the services to the customers (Kapoor, Paul & Halder, 2011, p.322). In addition to better compensation packages an effective training and development would also be included in the company’s strategic framework. This training would serve to inculcate the best practices of customer relationship management among the employees of the organization that would help in improving customer satisfaction thereby generating customer loyalty that can help RyanAir maintain its position in the market. 5.1.6. Process Process involves the manner in which the service would be delivered to the customers. Efficiency in process would perhaps help in generating the most effective competitive advantage for the organization to help in maintaining sustainability in a tough competitive market like Europe. Efficiency in process would include introduction of web check in, baggage handling, secure payment gateway for online reservations etc. An efficient customer service cell would also be set up that would help solve the grievances of the customers in the best possible manner to ensure complete satisfaction of the customers. In addition to this strategies would also be included to ensure that flights depart and arrive on time so as to help generate operational efficiency that would help in cost savings as well as generation of customer satisfaction. 5.1.7. Physical Evidence Physical evidence includes the ambience and other tangible aspects of a service offering. RyanAir would try to provide better ambiance inside the aircrafts so as to make it more comfortable for the passengers. The website would also be made more attractive so as to attract more customers. Passenger lounges would be improved that would help in generating greater customer satisfaction which is the ultimate key for maintaining sustainability and dominance in the market. 5.2. GAP Model In has been already discussed in the previous sections, that along with the low cost, the quality of air travel services provided by the low cost companies must be acceptable by the customer. Generally, it becomes very difficult to offer high quality and wide range of services along with low cost service as better quality service costs higher. Therefore, it is necessary for RyanAir to measure and maintain is services through gap analysis model. Four major services gaps are discussed below. Management Perception Gap: currently, RyanAir’s service is suffering due to gap between consumer perception and consumer expectation as management primarily focuses on sales rather than customer relationship maintenance. Management must properly perceive customer expectation and try to fulfill at an acceptable level. In this respect, RyanAir must focus on two major areas i.e. availing proper grievances for customer complaints and better management of customers’ belongings during air travel. There two services are primary services that customer expected to receive from their brand airline travel and RyanAir must meet these expectations maintaining its brand image in the mind of customers. Quality Specification Gap: In order to meet the customers’ expected services, it also becomes very necessary to maintain to design and maintain a proper benchmark for the services to be delivered to customers. RyanAir must determine performance standards that should reflect the management perception regarding services offerings. In the process, it also needs to restructure its physical settings and internal structure. In this process, the dilemma is that for such services standards, RyanAir may have to incur cost which will affect its low cost strategy. However, RyanAir must develop and restructure its internal process and manpower for bringing efficiency, so that, the chance of customer complains reduce at significant level. Service Delivery Gap: this gap indicates the gap between the delivered services and promise made by company to customers. RyanAir must attempt to offer the actual service that it has promised for. Generally, this gap occurs due to lack of efficiency in management and staff delivering the services. For fulfilling this gap, RyanAir should develop a customer focused organization culture and necessary training to staffs. Developing customer focused organization culture does not require any investment but for training purposes it may need to incur certain cost that can be capitalized without hurting the profitability. Market Communication Gap: while delivering services to customers, it is necessary to maintain two way communication model in for its internal and external parties. For communicating with its customers, RyanAir use multiple tools and media through it promises regarding its services and cost. RyanAir is also blamed for misguiding advertisements to attract customers but it charges hidden different from the original cost of ticket. This creates dissatisfaction among customers. RyanAir is the market leader in low cost and unnecessary misguiding information may cause reduction in its brand loyal customers. Hence, RyanAir should provide actual information to its customers for gaining their trust (Kazi, 2010, p.3-4). 5.3. Red Ocean Strategy The present market scenario in the European aviation industry resembles that of a red ocean where there are a large number of firms (sharks) trying to grab a section of the market. The high intensity of competition has led to price war that has resulted in firms trying to dislodge their competitors. This largely resembles a scenario in the ocean where there are as large numbers of hungry sharks trying to compete with each other for food. The war between the sharks analogous to business organizations leads to a bloodbath that makes the color of the ocean red in appearance (Kim & Mauborgne, 2004, p.76-81). Ryan air is placed in a similar business environment that is characterized by cut throat competition. RyanAir can adopt strategies that seek to provide greater value to the customers and generate a trade-off between cost and value. The company should also continue with its low cost strategy so as to maintain a focus strategy. The company must also try to leverage the customer’s demand for low cost services to beat the competition by enhancing on quality of service provided so as to generate a favorable positioning for the brand in the minds of the customer. The only way to succeed in a typical red ocean environment is to formulate customer driven strategies that seek to satisfy the demands of the customers and provides them with maximum satisfaction. This would not only help in improving the brand value but would also generate long term sustainable competitive advantage for the organization in the long run in the turbulent business environment. 6. Conclusion and Recommendation The emergence of the low cost airline industry as an outcome of deregulation of European airline industry is most crucial incident that has changed the entire face of airline industry. RyanAir is dominating in European low cost airline industry. Low cost strategy in airline industry has been proved to be very effective in increasing market share and earnings. As an effect, many companies have now started to follow low cost strategy that develops a potential threat for RyanAir’s market share. This paper has presented a plausible set strategy for maintaining its dominance in low cost airline industry of Europe through discussions and analyses. In this respect, this paper has focused on three major areas for RyanAir. Firstly, RyanAir has successfully reduced its operational and other cost to offer low cost services and it needs to keep following the similar strategy. Secondly, it should aim to acquire high capacity and fuel efficient aircraft for high volume of services. Thirdly, its entire process and services should be customer centric so that it can be able to offer acceptable quality of services at minimal cost. Therefore, RyanAir’s focus should be on maintaining a tradeoff between low and value creation for customers. Reference Brophy, S. and St.George, D. (2003). How Ryanair has exploited the Economic Theory behind Airline Contestability and Deregulation. [Pdf]. Available at: http://www.tcd.ie/Economics/SER/archive/2003/Ryanair.pdf. [Accessed on June 9, 2011]. Buescher, W, H. (2010). European Full-Service and Low-Cost Airlines: Performance and Recovery from the Global Financial Crisis- A Comparative Analysis. [Pdf]. http://www.willbuescher.com/thesis.pdf. [Accessed on June 9, 2011]. Chaffey, D., Chadwick, F.E., Johnston, K. & Mayer, R. (2009). Internet Marketing: Strategy, Implementation And Practice, 3/E. Pearson Education India. Geiger, J., Schlottke, M. and Schrade, M. (November 08, 2009). Low-Cost Carriers in Europe. [Pdf]. Available at: http://www.sloede.com/wp-content/uploads/2009/11/Low-cost-carriers-in-Europe-an-industry-analysis_final.pdf. [Accessed on June 9, 2011]. IATA. (June 6, 2011). Airline Industry 2011 Profit Outlook Slashed to $4 Billion. [Online]. Available at: http://www.iata.org/pressroom/pr/Pages/2011-06-06-01.aspx. [Accessed on June 9, 2011]. ICAO. (February 2003). The impact of low cost carriers in Europe. [Pdf]. Available at: http://www.icao.int/icao/en/atb/ecp/CaseStudies/Europe_LowCost_En.pdf. [Accessed on June 9, 2011]. Kapoor, R., Paul, J. & Halder, B. (2011). Service Marketing: Concepts & Practices. Tata McGraw-Hill Education. Kazi, M Y. (2010). RYANAIR: Analyzing the Marketing Strategy and the Service Management. [Pdf]. Available at: http://www.mkazi.net/RYANAIR-Analysing-Marketing-Strategy-Service-Management.pdf. [Accessed on June 9, 2011]. Kim, K.C. & Mauborgne, R. (2004). Blue Ocean Strategy. [Pdf]. Available at: http://isites.harvard.edu/fs/docs/icb.topic551036.files/blue%20ocean%20strategy.pdf [Accessed on June 09, 2011]. Malighetti, P., Paleari, S., & Redoni, R. (2008). Pricing strategies of low-cost airlines: The Ryanair case study. [Pdf]. Available at: http://www.esi2.us.es/GT/explotacion/articulos%20demanda/Pricing%20strategies%20of%20low-cost%20airlines-%20The%20Ryanair%20case%20study.pdf [Accessed on June 9, 2011]. Journal of Air Transport Management 15 (2009) 195–203. Mercer, D. (1996). Marketing. 2nd ed.Wiley-Blackwell. Root, F. R. and Visudtibhan, K. (1992). International strategic management: challenges and opportunities. Taylor & Francis. RyanAir-a. (No Date). History of Ryanair. Available at: http://www.ryanair.com/en/about. [Accessed on June 9, 2011]. RyanAir-b. (No date). Ryanair Fleet. Available at: http://www.ryanair.com/en/about/fleet. [Accessed on June 9, 2011]. Smith, S. (No date). The strategies and effects of low-cost airlines. [Ppt]. Available at: http://www.icea.co.uk/archive/low%20cost%20strategy%20040405.ppt. [Accessed on June 9, 2011]. Stonehouse, G. and Campbell, D. (2004). Global and transnational business: strategy and management. 2nd ed. John Wiley and Sons. Read More