Ryan Air External and Internal Environment Analysis - Case Study Example

Case Study: Ryan Air – low fare Case Study: Ryan Air – low fare Ryan Air is recognized as one of the low-fare European Airline. The primary aim of this report is to analyze the strategies of Ryan Air critically and investigate the reasons for its decline in the profit margin and challenges it faced in the industry. The analysis is conducted using strategic analysis and metrics to evaluate its internal and external environment and determine its positioning in the airline industry. Hence, present strategies of the company are analyzed, macro-environment and industry analysis implying strategic theories (PESTLE, Porter five and SWOT) on Ryan Air. In addition, the report provides recommendations for Ryan Air to sustain its position in the industry. Introduction Ryan Air an Irish airline company, established in 1985 by the family Ryan. The company is the European low fare airline company followed business model of Southwest (American Airline company). The company is headquartered in Dublin and has its largest operating based located at London Stansted Airport (Ohiggins, 2009). Ryan Air has emerged to be one of the fastest growing company if measured by its customers and has steadily grown through incorporation intensive sustainability strategies (Ohiggins, 2009). Ryan Air has extensively invested in eco-friendly technologies by purchasing the latest aircrafts and engine technologies to reduce the greenhouse emission (Ohiggins, 2009). The environmental technologies that the company has adopted significantly reduce fuel consumption and carbon dioxide emission (Ohiggins, 2009). The present document will critically analyze the strategies of Ryan Air to determine the causes of the in competitiveness of the company in European Airline industry. In addition, it will also focus on the Ryan Air strategies that has resulted in losses but had higher gain in terms of customers. It illustrates the competitive advantages of Ryan Air and Airline industry trends that have influenced strategies of the company and a cause for its backdrop in the industry. It will also briefly discuss how the change in the industry patterns (external environment) creates obstacles for the companies operating in the industry to retain its competitive advantages in the process of change. The evaluation of the strategies of Ryan Air has been analyzed using strategic tools and theories using the information presented in the case study entitled ‘Ryan Air – the Low Fare Airline’ by Eleanor O’Higgins. Case Overview – Ryan Air Ryan Air is an international airline that was established in 1985, primarily to provide scheduled passenger airline services between Ireland and United Kingdom. The company is based on the low costing business model of the American airline company ‘Southwest Airlines’ that was initially started with a market capital of £1 (Ohiggins, 2009). The company has rapidly improved its positioning in the industry and has gained attention of the customers for its low fares. 2008-2009 The major issue the company faced during 2008-2009, despite rapid growth of the company, it faced severe loss of £20 million. IATA ranked Ryan Air as the world’s largest international airline if measured by the number of passengers and sixth largest worldwide. In 2009, Ryan air faced net loss of €180 million because of surge in the fuel prices and acceleration of deprecation expenses (€51.5 million). Increase of 15 percent in the number of passengers (50.9 million to 58.5 million) and further decline of 8 percent in the fare prices (€40). However, there was increase in the ancillary revenues in 2009 and reduction in the unit cost. In addition, gaming and gambling and in-flight mobile phones were introduced. The operating data of Ryan air (2006-2009) show the following information: During 2008-2008 highlighted aspects that can be observed is the significant increasing in the fuel costs of the company in 2008 the average fuel cost per gallon was 1.67 that rose to 2.35 in 2009. In addition, there was significant increase in the number of employee but decline in productivity is evident from the financials. In 2008, the number of airport the company served was 147 that were cut down to 143 in 2009. The company faced challenges from the change in the external environment and market trends due to which the cost management of the company was highly influenced. Ryan Air’s extensive investment in the eco-friendly technologies and reduction in the fares of the airline can be identified core reason that the company had to undergo severe challenges (Chandra et al., 2013). The ineffective asset allocation/disposals, investment decision and budgeting of the company resulted in the losses of £20million. The (O’Leary’s) new management brought new changes in the company’s strategies to restructure it to sustain its market position. The company looked down to the profitable routes of the company and cut off the loss making routes (Dransfield, 2010). Latterly, the company expanded its operations and opened new routes for the passengers with a further decline in the air fares through decline in the operational costs of the company. In addition, the company induced in various ancillary services by providing beverage, foods and other merchandise sales (Chandra et al., 2013). It allows the company to diversify the means of revenues that eventually reduced the costs of the company and increased its sales volume (Dransfield, 2010). These strategies of the company significantly contribute for the succession of Ryan Air in the industry. It can be determined that the Ryan Air was focused to follow the low costing model similar like Southwest Airlines but the ineffective asset allocation and management decisions of the company was the major cause that has declined profitability and revenues of the company (Ohiggins, 2009). It can be analyzed from the case that the company was focused on low fare model that was not sufficient to meet changing European Market conditions (Kangis & OReilly, 2010). It because the market trends and consumer behavior in European market was mainly considered cheap, unlike Southwest that followed easy Jet that were classy and cheap, instead of being just cheap. It means that the company was focused to offer low fares to its customers, but it did not focus to enhance experiences of its customers. Moreover, the costing and operational efficiency of the company was the main area for Ryan Air that had to be adequately dealt (Ohiggins, 2009). As Micheal highlights ‘Any fool can sell low air fares and lose money. He difficult bit is to sell the lowest airfares and make profits (Ohiggins, 2009)’. The statement clearly indicates the poor strategies of Ryan Air that has resulted in aggressive growth (in terms of customers) but the ineffective costing and efficiency of its staff was one of the other reason that has adversely affected profits of the company. The constant change of the strategies derived by the external environment and effective management decision has allowed the company to sustain its position in the airline industry. Currently, Ryan Air has 950 routes in more than 26 countries across the globe, employing over 4200 people. The company’s profitability has rapidly grown in the last few years (Ohiggins, 2009). The revenues of the company have increased from 231 million to 2741 million within a span of ten years (1998-2008) and rise in the profits of the company from 48million to 480 million (Ohiggins, 2009). Despite the global recession and another economic crisis, that company has maintained its strategic positioning in the airline industry (Ohiggins, 2009). Ryan Air is focused on low fare strategies and expands its operations in other routes across globe. External and Internal Environment Analysis Key Strategies The section of the report critically evaluates key environmental challenges that have influenced the strategies of Ryan Air. In addition, it will provide an overview about the effectiveness of the company to address external and internal challenges (Freeman, 2010). PESTLE analysis is conducted to determine external environment analysis, and SWOT analysis is used to evaluate internal environment of Ryan Air. The information for the analysis is extracted from a given case study (See appendix 1). Based on the analysis conduct the following key strategies of the company have been determined that allowed the company to improve its positioning in the industry. Key strategies of Ryan Air Ryan Air constantly faced losses because of inefficient cost management and increase in the fuel prices. Thus, the organization revised its business model, rather than sticking to low cost model the company differed the application of its business model to low-cost frill cutting model to maintain its standards. The company made use of commonality policy in order to control the costs through staff training and maintaining its costs. Investing more in the environmental friendly aircrafts to deal with the environmental policies and restrictions imposed by the European Union. In addition, these jets allowed the company to reduce its depreciation costs and were more fuel efficient, lowered noise emission and had better performance. The company improved productivity to reduce staff costs by impaling commissions for the in-flight sales revenues for the crew members and providing new flexible roaster patterns for the pilots. In addition, the salaries and wages of the employees were improved with the passage of time with higher incentives. In order to overcome the issues and allegations that the company faced because of the ineffective luggage handling. The company introduced cost cutting check is and luggage handling facilities for its customers it allowed the company to reduce passenger service costs. Hence, the company developed check-in policy to reduce the staff number for the company it eventually improved the experience of the customers flying with Ryan Air. Ryan Air has a large capitalization, thus the company made initiatives to control its charges and revised its route policies. The company focused more one point to point routes that significant cut down the charges and congestions on the other airports. Ryan Air has been accused for portrays false image and claims in its advertisement. Hence, the company revised its marketing strategies through introducing internet based reservation and ticketing services that allow the passengers to make reservations and ticketing services directly though websites. It can be determined that the Ryan Air’s effectively addressed the changes prevailing in European Airline industry. The new management of the organization ensured that the company revised its policies to overcome the losses Ryan Air faced. It should also be noted that the new management of the company ensured that the company was not losing its worth and value in the industry by offering low prices to customers. Ryan Air has a large capital share in the airline industry, and low costing strategy of the company can allow the company to expand its operations in different other countries across Europe and Globe. Moreover, the scope of low-fare airlines in Europe is wide that can provide greater opportunities for the company. The company ensured its major strategies were focused on low costing model. But at the same time, the company improved its services and introduced policies that were disliked by the customer. In other words, Ryan Air controlled its costs through improving its productivity and operations that eventually strengthen its positioning in the industry. In addition, the increase in the trade union pressure due to which Ryan Air had to establish business in the countries and are identified as poor routes that has affected directions and strategies of Ryan Air. Government imposed the law for carbon emission due to which the company had to upgrade and replace its existing aircrafts that had a significant increase in the costs of the company. United Kingdom’s government also imposed high-security measures and restrictions for the airlines that also affected Ryan Air’s transatlantic routes. Recommendation The section critically evaluates the present strategy of Ryan Air and discusses sustainable and competitive advantages of the company to attain a better position in the future.’ For the low-cost companies, it is important that the organization offers low prices to its customers. Hence, it is essential for a company to effectively manage its costs structures (Kumar, 2006). Based on the present strategies of the company it is determined that the strategies of Ryan Air strategic positioning in the airline industry are effective (Kumar, 2006). However, there are certain areas that the company needs to focus on to overcome the drawbacks. From the analysis it is observed that the company has been ineffective to manage its costs structures due to which the company faced severe losses (Kotler & Keller, 2006). In addition, using false claims and portraying the wrong image in public for publicity can damage brand image and customer relations. It casts a negative impact in the minds of the customers that can negative impact customer relation due to which the company can lose its customers (Kotler & Keller, 2006). It is also evident from the case study that employees at Ryan Air have an effective human resource management. The pilots that have been working with Ryan Air have increased their pay after completion of five years and providing flexible roster patterns. In addition, it provides commission to employees on sales onboard. Kangis & O’Reilly (2010) highlights that the employee satisfaction is a key factor for its success in aviation industry in terms of monetary and non-monetary that positively impacts on firm’s performance (Kangis & OReilly, 2010). It can be determined that the employees at Ryan Air have a higher satisfaction level. However, the company is more focused to motivate its employee through monetary means. For a low fare company, it is important that the employee should be focused and satisfied. Therefore, the incorporation of strong leadership can lead a company with better outcomes. It can develop stronger relation with the company and increase productivity. Kumar (2006) states the success of Southwest lays underneath its highly motivated staff and strong leadership (Kumar, 2006). Hence, if Ryan Air strengthens its leadership, it can lead to higher employee satisfaction and productivity. The time efficiency of the Ryan Air is remarked as its competitive advantage among the other low costing airlines. Ryan Air is recognized as the most punctual airline among all other airlines for the routes Dublin and London. Hence, if the company maintains its punctual schedules for the other routes it can allow the company attain greater brand recognition and will develop strong brand image. Ryan Air is also ranked as the second largest airline in United Kingdom and as the fastest growing low-fare airline company across Europe because of its strategies related to technology. The company acquires one of the best environmental friendly aircrafts that have significantly declined its costs and carbon dioxide emission. The technology used in Ryan Air is one of the most efficient among the other low-fare airlines in Europe (Kotler & Keller, 2006). Moreover, Ryan Air is more focused towards online marketing that has allowed the company to expand its distribution channels. Thus, it can be determined that the overall strategies of the Ryan Air are effective; the company needs to improve its cost management strategies and expand its operations in the other regions of Europe (Ferrell, 2009). In addition, the company should be very careful in developing its marketing strategies and should provide authentic information. It will significantly allow the company to develop a stronger relationship with its customers (Kotler & Keller, 2006). Strategic Options The strategic options that can improve future prospects of the company are as follow: Alternative Revenue Generation Method Ryan Air is a low fare airline due to which is more focused to generate revenues from the other means. Hence, the company should be focused to find other sources for generating its revenues onboard. It can be done through in-flight advertisements, on-board shopping, gambling, games, and pay preview televisions, etc (Kangis & OReilly, 2010). In addition, Ryan Air can invest in other online games and other activities that the customers can avail for their entertainment during the flight. It would allow the company to generate higher revenues through other sources that can eventually allow the company to reduce the fare of the airline (Kangis & OReilly, 2010). In addition, the company can also provide other rental services, hotel booking, reservations, travel insurances and by selling other products on websites (Heracleous, 2011). Ryan Air can also provide travel packages to its customers and develop relation with third party service providers that would eventually improve the company’s positioning in the industry. Employee Training and Development The employees of Ryan Air are one of the major competitiveness of the company. It should coordinate with its diverse skills and integrate its technology to enhance overall productivity of its employee. The company should introduce innovative employee training and development strategies to enhance the skills of its present staff (Scheers, 2001). In addition, the company should introduce talent management programs that would promote young, enthusiastic individuals to become future leaders. Moreover, the company should be focused to time to time keep their pilots and employee updates with a new international flying regulation to ensure that perform their tasks effectively. Customer Services and Airport Agreements In addition, Ryan ire should focus to improve its customer services and agreements with airports. It can be attained if the company delivers strategies in a standardized way and deliver customer (Scheers, 2001) services in a reliable manner. (Kangis & OReilly, 2010) The company should ensure that the information that is provided to its customers should be authentic and reliable (Kangis & OReilly, 2010). It should also be implement in marketing operations of the company (Kumar, 2006). The company should also enhance e-marketing and develop relation with its customers through its official websites, IT supporting components, software’s and range of innovate services would allow the company to develop strong relations with customers and sustain its edge in the industry. Innovative cost cutting method The best strategic option for the Ryan Air for their future success can be innovative cost cutting method. With the help of this option, the company can enhance the quality of the services by keeping the low cost tickets. However, while implementing this innovative cost cutting method some issues can be faced by the company. Firstly, it can be analyzed that people perceive that by offering low cost the airline company is also compromising on the quality of the service. Therefore, it can be said that the company should focus on the quality and its management (OConnell & Williams, 2011). To attract the customers it is necessary that the company make effective quality management process. In order to do this, the company needs to make some changes in the service and the effective quality management will convince the customers for brand loyalty. Although, the issue arises when for the management of the quality of the services the company needs to train their staff to provide best services to the customers (Ukens, 2007). The reason is that for this the company needs to arrange some training sessions for the employees. Moreover, for quality management the company can increase the number of services that they are providing in those low cost fair. It will make customers realize that the company is offering better services with low cost. When the employees will be trained according to the new and better services and technologies then the customers will be attracted. It will help the company to enhance their overall performance. However, it will not allow the company to continue their innovative cost cutting (Yaeger & Sorensen, 2009). As Ryan air does not charge for the complementary meal drink and newspaper, therefore, it will be difficult for the company to continue the cost cutting method. In addition, low employee morale can also create issues in providing better services. Thus, it can be said that the availability of the resources will also create problem in cost cutting method. Although, Rayonier is generating revenues by its cost cutting methods however, further innovative cost cutting methods will not work effectively by maximizing the profits. The process that the company will follow to apply the method will start from the cost cutting from extra baggage transfer charges and by ticket agent fees with high taxation. It can be replaced by the internet sales and by lowering the maintenance cost (Ukens, 2007). The increased use of technology can also be cost effective for the company. The reason is that the innovative technology will reduce the man power in few departments of the company. In addition, it will help to reduce the cost as well as it will help to manage the low cost ticket prices (Yaeger & Sorensen, 2009). The culture of airline industry never supported this strategy but the Ryan Air airline can consider this strategy. The reason behind this is that the strategic option may gain the competitive advantage and the company will keep offering the low cost fairs by generating the revenues. Appendix Political It can be determined that the dominant political factor that has influenced Ryan Air in the airline industry is the increase in the route charges by the government in 2006 (Heracleous, 2011). Due to which decline in airport and handling charges has been observed by 21 percent that was relatively slower than the growth in the number of passengers of Ryan Air. It eventually increases operational costs of Ryan Air, specifically its London’s operation. Trade union pressure to operate in poor routes with lower revenues European law for carbon emission Government direction to increase in security Economical In the case of Ryan Air, it is evident that the inflation in the fuel prices was the major deriving force that has casted adverse impacts on Ryan Air’s profits and revenues (Kangis & OReilly, 2010). There has been an increase of 3 percent in the overall fuel costs of the company since 2005-2006. Social For an airline company, it is important to take adequate measures to deal with social factors. It can be identified that a change in the customer’s behaviors and perception is one of the major factors that has affected Ryan Air (Heracleous, 2011). The customers of the company perceive Ryan Air as low costing company, but at the same time charges for certain services that Ryan Air provided at relatively high prices became a major concern for the company. The consumer complaints about the extra charges of Ryan air on the websites, blogs, and another social forum was one of the major challenges for the company. In addition, the advertisement of the company has been identified misleading as it does not portray accurate message to its customers. Technological Ryan Air was significantly affected the technological decisions the company made. The expansion of the eco-friendly aircrafts and technology reduced the costs of the company and generated higher profits. Ryan Air acquired 737 high-tech Boeing airplanes that improved fuel efficiency, reduction in noise pollution and reduction in greenhouse emission (Heracleous, 2011). Environmental There were certain environmental factors that affected Ryan Air in several aspects. One of the environmental factors that affected Ryan Air was the increasing concern of the individuals and governments towards environmental concerns. The firms operating in the aviation industry had to meet environmental standards imposed by the European Union. In the past, Ryan Air was claimed to contribute towards global warming due to which the company introduced eco-friendly aircrafts. In addition, the use of high-tech and eco-friendly aircrafts allowed the company to reduce noise pollution by 45 percent. Legal In the given case, legal factors that have affected Ryan Air are the allegation of misleading advertisements and increase in the safety measures of passengers and pilots. Ryan Air is accused of misleading its customers through its advertisements. The company portrays low fare company but at the same time it was it had higher prices for the additional services that the competitors provided. SWOT analysis One of the major strengths of Ryan Air was innovative leadership that allowed the company to cope with the challenges in a diverse environment. In addition, Ryan Air is the first low costing company in Europe that acquires one of the best eco-friendly technologies for its aircrafts. Ryan Air has large market share in the airline industry as well as it has strong brand recognition and image. Ryan Air has strong bargaining power with the airline companies that allow the company to contribute towards airport deals. Weaknesses A weakness that can be identified in the given case of Ryan Air is earning publicity through negative means and rumoring about the company that can lead to significant adverse impact on the brand image. Moreover, Ryan Air has been involved in portraying wrong claims in its advertisements that can damage customer relations. The company is strictly cost effective and hires individual at possible lower salaries due to which the level of motivation and understanding among the management and employees is low. Low-level security concerns at Ryan Air are one of the major weaknesses for the company that can lead to severe security issues like hijacking. Opportunities Low costing strategies Potential growth to expand its business in European countries Threats One of the major threats for Ryan Air is its ineffective cost management due to which the company would face severe losses and consequences in the future. Poor pricing strategies and cost management of the company can suppress profitability of the company to a greater extent that can lead to severe financial risks like bankruptcy. The fluctuation in the oil prices and foreign currency can lead the company to face huge losses. References Chandra, H. et al., 2013. Supply Chain Management with Cost Containment and Financial sustainability in a tertiary care hospital. JHHSA, pp.3-21. Debarshi, B., 2011. Management Accounting. New Delhi: Debarshi. Dransfield, R., 2010. Human Resource Management. London: Heinemann. Ferrell, W.P., 2009. Marketing. Mason: Cengage Learning. Freeman, R.E., 2010. Strategic Management: A Stakeholder Approach. Illustrated ed. Cambridge: Cambridge University Press. Heracleous, L., 2011. Strategy and Organization: Realizing Strategic Management. Cambridge: Cambridge University Press. Kangis, P. & OReilly, M.D., 2010. Strategies in a dynamic marketplace: A case study in the airline industry. Journal of Business research, 56(2), pp.105-11. Kotler, A., 2009. Marketing For Hospitality And Tourism. New Delhi: Pearson Education. Kotler, P. & Keller, K.L., 2006. Marketing Management. 12th ed. New Jersey: Prentice Hall. Kumar, N., 2006. Strategies to Fight Low-Cost Rivals. [Online] Available at: http://hbr.org/2006/12/strategies-to-fight-low-cost-rivals/ar/1. OConnell, J.F. & Williams, G., 2011. Air transport in the 21st century : key strategic developments. Farnham: Ashgate. Ohiggins, E., 2009. Ryanair: the low fares airline - future destinations. Case Study. Phillips, J. & Gully, S., 2011. Organziational Behaviour. Mason: Cengage Learning. Porter, E.M., 1985. Competitive Advantage. London: The Free Press. Scheers, J., 2001. Attracting investors to European regional airports. What are the. International airport Review, 5, pp.56-59. Sperry, L., 2013. Effective Leadership. New York: Routledge. Ukens, L.L., 2007. 101 ways to improve customer service : training, tools, tips, and techniques. [Print] San Francisco: J. Wiley & Sons. Yaeger, T.F. & Sorensen, P.F., 2009. Strategic organization development : managing change for success. Charlotte: Information Age Pub. Read More