Ryan-Air Competitive Advantage - Case Study Example

Running Header: Ryan-air Competitive Advantage Student’s Name: Student’s Number: Lecture’s Name: Course Number: Date of Submission: Introduction Competitive advantage exists when an organization is capable of delivering the same benefits as its competitors although at a cost that is lower i.e. cost advantage. It also means that an organization is able to deliver benefits that are more than those of same products that is competing with. Therefore, competitive advantage enables a company create an excellent value and superior profits for itself. Competitive advantage is a crucial element for-profit organization in the globe. An organization is said to possess a competitive advantage over its rivals when its profits is sustained at a higher average for its industry (Doganis, 2001). However, competitive advantage is also vital for not-for-profit organizations. Competitive advantage sets an organization to its distinct edge. Distinct edge is a core competence of an organization that means an organization does something that others cannot be able to do or does it better when compared to others. Competitive advantage ensures that the organization is able to achieve and maintain a competitive advantage position. The aviation industry in Europe has undergone various changes in the past years due to deregulation and liberalization. This has enabled new airlines to enter and even expand with the airline market in Europe. However, some have tried without success. One of the airline firms that have been able to succeed is Ryanair (Barrett, 2009). It has ensured that is uses all its potential efficiently. The essay will analyze how Ryanair from Ireland is able to achieve and sustain its competitive advantage. It will investigate the Ryan air firm in the current competitive markets. However, has Ryanair managed to be the incumbent firm that has been able to gain a better competitive advantage than others? Competitive advantage Competitive advantage as a theory sought to address comparative advantage criticisms. According to Michael Porter in his 1985 theory, the theory of competitive advantage suggest that firms and organizations must pursue policies that creates goods of high quality in order to sell at high prices in the market (Porter, 1985). Competitive advantage tries to correct for the issue through stressing on the maximum scale economics in goods as well as services garnering premium prices. A firm is said to have a competitive advantage if the value it is implementing hence creating strategy that is not simultaneously implemented by other potential or even current players in the industry. When the strategic management plans are well implemented in a firm, it leads to a superior performance through facilitating the firm having a competitive advantage outdo or outperform other players within the market. Towards gaining a competitive advantage, the strategy of a firm involves manipulating the firm’s resources that it has direct control towards generating competitive advantage. Competitive advantage is also reflected by superior outcomes in performance and production superiority. Companies are able to attain a competitive advantage through innovations. Organizations usually utilize the aspect of innovation towards improving and enhancing their working processes. The organizations also create strategies that enables them attain a competitive advantage position. The organizations are also able to attain advantage through intensive efforts towards improving or reorganizing the value activities. They are two types of competitive advantage as identified by Michael Porter (Porter, 1985). They include cost advantage and differentiation advantage. Cost advantage exists when an organization is able to deliver similar benefits as its competitors but at a cost that is lower. Differentiation advantage on the other hand involves delivering benefits that exceeds those of products they are competing with (Doganis, 2001). Therefore, differentiation and cost advantages are also referred to as positional advantages as they describe the position of an organization within the industry as a leader in differentiation or cost. According to a resource-based view, an organization uses its resources and capabilities towards creating a competitive advantage that leads to creation of superior value. Resources are the organization’s specific assets used to generate a cost or differentiation advantage. Such include patents and trademarks, organization reputation, brand equity, and proprietary know how. Capabilities on the other hand are ability of an organization to use its resources effectively. The resources and capabilities forms the organizations distinctive competencies that enable it achieve efficiency, customer responsiveness, quality, and greater innovations. Strategic management planning Strategic management planning has been in the forefront towards developing a competitive advantage of the organizations. Strategy is an action towards effective competition within the market. It involves ways of responding to the market competitors as well as coping with changes in the competitive economy. Strategic management planning as a way of ensuring a firm gains a better competitive advantage involves allocation of resources as well as other activities that deal with environment towards gaining a competitive advantage. Strategy usually changes with time in order to fit environmental situations for the firm towards maintaining its competitive advantage (Doganis, 2001). Strategic management involves a set of decisions as well as actions utilized towards formulating and executing strategies that can provide a superior competitive advantage for the organization and its environment in an effort to attain the goals of the organization. Ryanair (Ireland) Ryanair started its operations in 1985 when it was flying between Gatwick airport in London and Waterford in the southeast of Ireland. Catlan, Declan, and Shane Ryan were three brothers who were founding shareholders of Ryanair. Currently, Ryanair has rapidly expanded occupying a better position in the airline industry. It has become one of the favourite airlines in Britain. It has rapidly expanded since its establishment and according to 2008 figures; it had 169 Aircrafts, 794routes, 148destinations across European Countries, and 58 Million passengers annually according to European Low Fares Airlines Association 2009 (Barrett, 2009). Ryanair is the second largest flight in terms of market size in Europe with over 5.12million passengers and a market share segment of 7.2percent with Lufthansea having the largest percent of market share of 7.8percent and 5.53million passengers. Ryanair Strategies to competitive advantage Low cost airlines have been the trend currently in the entire globe within the airline industry. Many airlines have adopted this strategy in ensuring they become successful in the increasing competitive advantage. The low cost airlines have got an advantage over the premium airlines because of the fact that they never get their costs to such a point that they can make a profit at fares that are low in larger markets. Strategic management planning is one of the major aspects that have enabled the airlines to become successful in their operations. Strategy is an effective long-term plan that enables an organization attains its goals as well as be able to remain at a competitive advantage within the industry. Strategy can be either resource based view- ‘inside out’ or positioning view/market based view-‘outside in’. The strategy that enabled Ryanair attains a competitive advantage and competitive position can be viewed in two perspectives (Barrett, 2009). Ryanair has succeeded due to its strategic management plans that enables it get into a competitive advantage edge compared to its competitors. This can be attributed to Ryanair’s ‘idea’ that Chief Executive Michael O’Leary adapted from the Southwest Airlines model of business to the European environment. The model by Ryanair of low-budget airline passes it cost to its consumers directly towards maximizing profits. This has made it to become a profitable route for success. Ryanair has adopted an integrated business strategy that combines positioning view and resource based view. This adds value to Ryanair to assist it attain some significant results within the cheap-flight industry by leveraging its competitive position and competitive advantage. Ryanair’s main competencies are its variety of destinations as well as routes it serves within the continental Europe. Its rapid increasing flights and enough capacity is also increasing its competitive advantage. Ryanair serves various destinations and routes that increases it market share becoming one of its key competencies towards sustaining a competitive advantage. Ryanair also benefits and increases its streamlined operations where it operates 8flights as compared to British Airways that operates 8flights (Doganis, 2001). These rapid amounts of flight gives a core competence for Ryanair as they can be able to maximize the number of customers they serve everyday by utilization of its capacity that its competitors found hard to imitate hence providing them with more competitive advantage. Ryanair exploits capacities as a way of ensuring they have a sufficient capacity to serve their expanded routes and increased passengers’ capacity hence maximizing their profits creating a strong core competence in order for them to stay at a better position within the cheap-flight industry. Resource based competitive advantage of Ryanair This presents a competition perspective portraying the resource’s value and capability as derived from the market forces dynamic interplay. Resource allocation as well as development of capability by Ryanair towards responding to external pressures and constraints has become a source of its competitive advantage. Resources are usually intangible or tangible resources used by a firm in choosing and implanting its strategies while capabilities are skills used by a firm in bringing a firm towards its efficient use of resources (Sinha, 2001). Some of the capabilities Ryanair utilizes various capabilities lowest airfare rates, simple processes, large brand awareness, clear offer focusing on specific market, innovative cost cutting strategies, and quick turnaround time. The resource of Ryanair include physical resources including secondary airports, headquarter, and aircraft fleet. Some of human resources in Ryanair include its extensive workforce consisting of more than 3400employees. Financial resources of this airline comes from the Ryan family, investors, creditors, and shareholders. Ryanair’s Sustainable competitive advantage Ryanair is the current lowest cost airline within Europe region. Ryanair tries to sustain its cost leadership despite the presence of other airlines in Europe that are less costly. One of the major sources of competitive advantage of the Ryanair is its capability to drive its cost down in an effort to sustain low fares while ensuring its profit remains high. The Ryanair’s strength and competitive advantage is found on its commitment to deep-seated management and its commitment to take into consideration managerial challenges as well as marketing trends such as IT solutions, expansion and competition. This is usually done through: Fleet Commonality The fleet of the airline is made of Boeing 737 which is most used aircrafts around the world. Fleet commonality enables the firm be able to reduce its costs in getting maintenance and spare services and materials. In 2003, it ordered extra 100new Boeing 737-800 as a way of facilitating its rapid expansion within Europe markets. Contracting out of services Apart from Dublin Airport where the organization maintains its services and support, Ryanair also outsources some of its services including ticketing, aircraft handling, baggage handling, as well as other functions to the third parties. Ryanair is capable of getting competitive rates as well as multi-year contracts at a rate that is fixed in terms of prices hence limiting its exposure to increases in costs. The out sourcing also limits direct exposure of Ryanair’s employees’ relations responsibilities and possible disputes (Sinha, 2001). Airport changes and route policy Due to various charges that several congested main airports charges including passenger loading fees, landing fees, aircraft parking fees, and noise surcharges, Ryanair tries to avoid such airports and instead opting for secondary as well as secondary and regional airport that are interested in increasing the throughput of passengers. Staff costs and productivity A firm implements a performance related pay structure as a way of controlling compensation costs of employees. Despite the fact that firm provides lower cost of labour, employees are able to earn extra payments or remuneration based on their performance. Marketing costs As a way of reducing the cost of marketing, Ryanair reduces its commission rate to travel agents. The main tools of advertisement for the firm includes radio, television, as well as it website. (www.ryanair.com). Focused customer segment Ryanair has also become more focused and concentrating on a narrow segment of customers. This includes business people or travellers in Irish and UK who are unable to afford major airlines. Reduced Turnover times Ryanair reduces the turnover time by employing more and efficient employees who are able to look after the needs of the customers all the time. Employees are given enough time to rest in order to be able to deliver accordingly. Other factors that have enabled Ryanair achieve its competitive advantage include one class travel, ticketless boarding, unallocated seats, point-point flying, in-house marketing, no refund policy, corporate partnerships, hedge fuel risk, highly and successful ancillary service offering. Others include advertising on airplanes, yield management, uniform fleet, high productivity, high service levels, general reduction of costs, and airsickness bags are distributed upon request (Forsyth, 2002). Porter’s Five Forces In analysing competitive advantage in terms of external analysis or porter’s five forces, several aspects are taken into consideration. Such include the possibility or threat of new entrants which is high for Ryanair, bargaining power of suppliers which is low for the firms due to its trend of using Boeing airplanes. Bargaining power of buyers is also low due to its low cost charges. The rivalry among the existing firms is also very high due to increasing technologies while the threat of substitute products being medium due to its capability to maintain low cost among other factors (Porter, 1985). Threat of Entry This analyses the threat that new firms can get into the aviation industry and diminish the established firm’s returns. However, in case of Ryanair, a strong brand identity that it has developed over a long period of time since deregulation means that any new threats likely to enter the market need to outlay significant amounts of money in terms of sunk cost in advertising so as to compete on a playing field stage. Competitive Rivalry Customer always benefit when competition increases making the cost increase among the firms. This has made the Ryanair gain a better competitive advantage due to their policy of bundling low prices and low frills making it possible for them to compete for the customer aware and sensitive to prices. Short haul flights have increased its demand around the Europe expanding with time (Doganis, 2001). Therefore, it is crucial for the Ryanair as it was among the first airliners to take an action. The cost effectiveness and its speed towards taking a mover advantage have enabled Ryanair and Easyjet gain a significant advantage. Bargaining Power of suppliers The airline suppliers are limited to purchase of aircraft and fuel supply. Ryanair has a good relationship with its suppliers especially Boeing. However, fuel price is not controllable by the suppliers but by the Middle Eastern countries and the world trade. Bargaining power of Buyers Buyer’s power is usually determined by several determinants in the airline industry. Such include elasticity of demand, brand identity, services quality, and product standardization. Therefore, buyer power in airline within Europe is significantly strong due to small switching costs. Switching costs can be found just by clicking on website of the rival industry (Forsyth, 2002). As almost all carriers sell their seat through the internet, price differences can be traced easily. Therefore, Ryanair requires to have their prices competitive and in level to industry. The threat of substitutes In airline industry, threat comes in three forms that include road, rail, and boat services. However, Ryanair offers faster journeys and cheaper ones towards ensuring the substitutes does not affect its services or put it away but rather maintain it in a competitive edge compared to its competitors. Ryanair possesses the technology that is sophisticated and able to cater for the increasing fastest changing global marketing management trends. It uses technology as its core competence towards supporting its marketing and management operations. Its IT system supports its services procurement such as ticketing and booking in e-marketing or online services. Its website was launched in January 2000 and it became one of the sites that were busy in the country getting over 14million visits per month (Forsyth, 2002). Its online bookings have increased to 94percent making it one of the most preferred airline in Europe. This has put it into a better competitive advantage edge within the airline sector. Future strategies In an effort to maintain its high competitive advantage in future, Ryanair has plans to cut down its cost by ensuring there are no window blinds, no reclining seats, leather seats, carry-on luggage, and Velcro headrests (Forsyth, 2002). In its efforts to enhance its revenue, it plans to put satellite television, internet on board, and rented in-flight entertainment. Conclusion In conclusion, Ryanair has adopted the low-cost airlines towards utilizing the strategy of cost-leadership in ensuring it creates a competitive position. It also strengthens its key competences as well as capacities towards increasing its performance in achieving significance achievement. Ryanair has remained at its competitive advantage within flight industry with optimistic future for expansion due to its core competence and competitive advantage. The rapid increase of customers and operations expansion at Ryanair has been due to no-frills and low-cost strategy. Low cost airline business model, which has greatly restructured the aviation industry in Europe, has been as major aspect behind the rapid growth of Ryanair. This has resulted to an increase in the number of staffs and passengers; the passengers are almost 35million. Its pioneered cost reduction methods have also contributed greatly towards its success to a better competitive advantage. This has also been attributed by creative alternative revenue generation as well as free flight goal in its next evolution phase. It is vital for the firms to ensure that is adopt strategies and policies that enable them have a better position and competitive advantage. This is towards making sure that it is ahead of others in terms of delivering quality services to the customers. References Barrett, S. (2009). Journal of Air Transport Management, Vol.6, pp.13-27. Doganis, R. (2001). The Airline Business in the Twenty-First Century. Routledge: London. Proctor, T. (2000). Strategic Marketing: An Introduction. Routledge: London. Porter, M. (1985). Competitive Advantage. The Free Press: New York. Forsyth, P. (2002). Air Transport. Edward Elgar Publishing Ltd: London. Publishing Ltd, Michigan. Sinha, D. (2001). Deregulation and Liberalisation of the Airline Industry. Ashgate Read More