External Analysis of Ryan Air - Essay Example

Introduction Ryanair, an Irish airline, is headquartered in Dublin. Its largest operational base is located at London Stansted Airport and it ranks among one of the competing budget airlines in Europe’s budget airline industry. Its key stakeholders are the Ryan Family, Irish Air and Michael O Leary while its vision is to maintain its position as Europe’s leading low fares airline. Ryanair offers scheduled passenger airline services. These are mainly individuals on business and those travelling on leisure. The features of the transport services offered are: frequent departures, advanced reservations, baggage handling and consistent on-time services. The Ireland-UK market was Ryanair’s initial target market, which it successfully managed to capture. By 2003, however, its route system had expanded to serve 86 destinations on 133 routes across 16 different countries. The heart of Ryanair’s current strategy is based on providing no frills service with low fares designed to stimulate demand, particularly from budget conscious leisure and business travelers who might otherwise have used alternative forms of transportation or who might not have travelled at all. Another strategic position adopted is Ryanair’s point-to-point short haul flights. Ryanair chooses to fly to regional airports rather than the larger national airports due to the favorable cost terms received. This facilitates the passing of low fares and has the added bonus of being less congested therefore aiding in flight punctuality. This offers convenience to clients, especially those constantly undertaking business trips, in terms of time and cost. The possession of both Regional and secondary airports is another current strategy. Airport charges include: Landing fees, loading fees, aircraft parking fees and noise charges. By acquiring regional and secondary airports, Ryanair is able to reduce these fees. This is because these airports are less congested and are anxious to increase their passenger output. External Analysis The external environment refers to the factors that are out of control of the firm. These are factors tat the firm cannot be able to control could be because of market forces among other reasons. The external environment within which a business operates has a great influence on its mode and extent of its operations. The PESTEL framework (Appendix A) categorizes environmental influence into six main types: Political, Economic, Social and Technological, Environmental and Legal (Johnson and Scholes, 2002). Focusing on the Political environment, there has been increased Trade union pressure over time. This is evident with the emerging of the Pilot trade Union. This union has had an effect on Ryanair as it has had to comply with the rules defining the roles and responsibilities of pilots and how airline organizations should treat them. Political stability is an important environmental factor. Ryanair, still being a main carrier between UK and Ireland and mostly using London Stansted as its hub is especially affected by the fact that more terror attacks are predicted by terror experts for Great Britain because of British soldiers based in Iraq and Afghanistan. The expansion of the European Union is another factor that has had an effect on the operations of Ryanair. This is due to the inclusion of other states into this Union, broadening the scope over which Ryanair operates. Ryanair has also been involved in various legal disputes with governments in Europe regarding their business deals with airports and airline regulatory bodies. This has led to the attendance of several court cases. The abolishment of duty-free sales by the European Union in 1999 is one of the legal factors that have affected Ryanair. The company was rocked by allegations of misleading advertisements and this affected the airline adversely. Additionally, a climate protection charge was preferred against the company which falls under Environmental factors affecting the airline. Some social cultural factors may also influence Ryanair’s performance, for example lifestyle changes. There is a trend that people tend to make more journeys for example weekend trips but with a shorter duration of stay. If this trend remains, Ryanair has the best chances to increase its passenger volume. Technological factors that could affect the company include wireless technology expansion. This could enhance introduction of internet sales and gambling. Introduction of satellite television is also an added advantage that could be derived in this business. Increased internet competition is also a technological factor that can improve services so long as the company has advantages over the competitors. When making a SWOT analysis (Appendix B and C), new opportunities and occurring threats have to be considered in order to stay successful in the market. Concerning opportunities the expansion of the European Union may lead to an increase in new destinations and therefore to better company performance of Ryanair. Countries in the Eastern Europe are becoming an attractive destination for tourists and businessmen. It can also be said that there is still a potential to capture market share and that Ryanair will be able to increase its profits. Because of the present economic situation the behaviour of consumers also changes which means that people tend to fly with cheaper airlines instead of the traditional scheduled carriers. Another opportunity to maximize profit is the selling of merchandise which can be realized by the introduction of an extended product range. An increase in the frequency of the still existing routes could also lead to better margins. The purchase of new aircrafts will enable the company to increase its fleet size and therefore, Ryanair will be able to expand on existing routes and the company will be able to open new routes. Possible threats have to be carefully analyzed in order to avoid possible dangers. A successful business like Ryanair attracts competition. Since there are so many low-fare airlines, it may become more and more difficult to differentiate the brand from its competitors. Therefore, Ryanair has to cultivate its marketing strategy and its company logo. A decline of the European air travel market would also decrease the demand for the company’s services. Another possible threat is the dependence on the oil market because fuel costs play an important role in the airline industry. In most cases, higher oil prices lead to higher ticket prices. The decision of the European Court concerning the Charleroi case may also turn out to the disadvantage of Ryanair. This would make expansion more difficult and future costs may rise. Like mentioned above, consumers are very price intensive which could lead to profit losses. Furthermore, airlines are powerless concerning an introduction of other taxes or environmental charges. This would of course reduce the growth potential of Ryanair. With regard to the evaluation of strengths and weaknesses of Ryanair the strengths are preponderate. When making a SWOT analysis, Ryanair has to be realistic about the strengths and weaknesses of the company. Furthermore it should be distinguished between the current position of Ryanair and where it could be in the future. In order to stay successful, Ryanair has to find out who the company’s competitors are and it has to develop or to strengthen its competitive advantage. “What business strategy is all about; what distinguishes it from all other kinds of business planning – is in a word, competitive advantage. Without competitors there would be no need for strategy, for the sole purpose of strategic planning is to enable the company to gain, as effectively as possible, a sustainable edge over its competitors.” Keniche Ohnae(2008). Michael Porter, professor at the Harvard Business School, stated that competitive advantage depends on different factors like the availability of resources, the size and sophistication of the market or the type of strategic networks. In Ryanair’s case, the 5 forces of Porter provide a useful framework for analyzing the competition in the European airline industry (Appendix B). The threat of new entrants was limited but has happened recently hence the competition for the limited routes is bound to have an effect on Ryanair. The major threat is posed by the industry competitors. This is cause of increased competition as well as low cost affiliates and alliances by the flag carriers like Air France and KLM Merger. The threat of substitute products is limited. This is where could be customers choose to drive over the holiday or the use of high speed train over flying. Internal Analysis The internal analysis of the company deals with the issues that can be dealt with or that the company has control over. Employee relations are one of the issues that could be addressed by the company. Better working conditions for the workers and remuneration could be considered to improve the services rendered. Motivation is a very vital factor for the success of the company. Human resource training should also be incorporated to ensure better quality services. The management of the company is also an issue that could be reviewed. The reliance on Michael O Leary to make the decisions of the company alone should be addressed. Decision making should be devolved as the decisions made affect many and the company as a whole. Decisions should not be made by one person as they could be set to serve the personal interests of a few or the concerned individual. Customer relations should also be taken into consideration and improved. Problems Identified Ryanair has various problems as revealed by the analysis. The company has only achieved a 7% penetration of the European market. Ryanair could review the business model to be more competitive. The company also suffers the problem of poor employee relations. This goes hand in hand with uncharacteristic management expansion which increases expenses. Antagonistic relationships with competitors also are a problem encountered by the company. Regarding passenger satisfaction, Ryanair has to improve its customer relationship management. Passengers who arrive late at the boarding gate are not accepted for travel in contrast to other airlines which means they have to buy a new ticket which is of course more expensive than the first one. Another problem is the frequent cancellation of flights and schedule changes. The limited entertainment is not customer-friendly as most passengers prefer airlines with the highest limit of luggage one could carry. Disabled people have also made bad experiences with the airline. The airline was found guilty of discriminating a passenger. The result was that Ryanair had to pay compensation to the affected passenger. The royal nation institute for the blind also received a number of complaints against the low-fare airline from people with disabilities. Ryanair`s most serious weakness is the outrageous treatment of its staff. The airline is famous for its bad working conditions such us working 11 – 12 hours without a break, poor wages and the fact that the cabin crew has to pay for the water during the flight. Ryanair staff is said to be overworked and under trained and therefore a threat of safety of all passengers. Recommendations Ryanair could secure the short haul market through targeting the business travelers and differentiating the services offered. This includes service guarantees and in-flight service. Corporate alliances may also prove helpful to achieve this objective. The company could also secure the long haul, market. This could be done by costs reduction so as to capture and sustain the market share. Alternatively, the company could restructure the Business Model. It could become a low cost airline thereby attracting a larger market share and eventually increasing profits. This helps in building competitive advantage. Another recommendation is that the company could generate revenue through other means to supplement the sources of profits. Ryanair could engage in ancillary services for example car rental, travel insurance, accommodation among others. Other service includes in-flight services that capture the audience. This includes introduction of for example on-line shopping, on-line gambling, pay-per-view television, foods and beverages and finally forging alliances. Examples of alliances are selling flights to companies or offering once off payment or commissions as sales %. The key to successful management is only to keep the costs under control but have and eye on the labor. This is so because labor is the interface between the company and the customer and one of the most important factors in tourism, a service branch. The company should therefore improve the conditions and wages of its workers to ensure better services. Conclusion When the airlines were first deregulated it was believed that they faced various strategic pressures, Lynch (2000). These included: airline closures, major profit falls and new competitive pressures. Although these aspects affected long-standing airlines, they created a gap in the airline market, which Ryanair took full advantage of. Part of its success was therefore being ‘established at a time not only of a period of prolonged growth in its home market but also when discontent with high fares and limited or non-existent competition was increasing’; Haberberg and Rieple (2001). Some of Ryanair’s growth and profits was also attributed to the Irish economy. Being an Irish airline, it took advantage of being based in Europe’s fastest growing economy at that time. The company should therefore utilize the opportunities that have been highlighted in the paper to ensure it achieves aggressive growth and development. Ryanair could also consider redefining the business model to a more unique model. Innovative cost reductions could see the company soaring to new heights considering the strategy used. Ryanair could furthermore consolidate growth and expansion of the market shoe. The next phase of evolution which consists of free flights as motivation to capture a larger market share should also be considered. Finally the company should create alternative means of revenue generation to supplement the existing sources of income and hence more profits. Bibliography Adrian H., Alison Rieple (2001). The strategic Management of Organizations: London: Prentice Hall. Botten, N., McManus, J. (1999). Competitive Strategies for Service Organizations, London: Macmillan Press Limited. Charles W. L. Hill (2000). International Business: Competing IN the Global Market Place. Irwin: McGraw-Hill. Christine, E., Nigel, W. (2006). Financial Services Marketing: An International Guide to Principles and Practice. London: Butterworth-Heinemann. Holloway, S. (2002). Airlines: Managing to Make Money, Hants: Ash gate Publishing Limited. Johnson Keniche Ohnae (2008). Viewed at: http://www.quotationspage.com/quote/8183.html on 5th March, 2008. APPENDIX A EXTERNAL PEST ANALYSIS Political - legal Economic Increased Trade-union Pressure Pilot Trade Union EU Expansion EU Abolishment of Duty-free Sales Allegations of Misleading Advertising “Climate Protection Charge” Fuel Price Increases Depreciation of US dollars EU Commission Rulings: I. Illegal Subsidies from Airports II. Overbooked Passenger Compensation III. Cancelled Flight Compensation IV. Reimbursement of Delayed Passengers Socio-cultural Technological Grey Market Increase Europe: Cars & High-speed Trains Increasing travelling lifestyles Increasing business travelling Wireless Technology Expansion I. Internet sales/gambling II. Satellite television Increased internet competition APPENDIX B STRENGTHS AND WEAKNESSES Strengths Weaknesses Low Cost Leader Innovative Cost Reductions First-mover Advantage Established Market Share Substantial Growth High Load Factor Strong Public Image Established Routes/Network Range of Ancillary Services Poor Employee Relations Volatile Customer Relations Antagonistic Relationship with Competitors Uncharacteristic Management Expansion Dependence on Michael O’Leary APPENDIX C OPPORTUNITIES AND STRENGTHS Opportunities Threats Further Growth Advanced Cost Reduction Offering Free Flights EU Expansion Expansion of ELFAA Increased Competition: New Entrants Alliances/Mergers Between Competitors Industry Criticism Antagonistic Attitude of EU Commissioners Non Expansion Into New EU States Trade Unionism Substitute Transportation: Cars, Trains APPENDIX D PORTER”S MODEL APPENDIX E FUTURE RECCOMENDATIONS Revenue Generation: Ancillary Services: Car Rental, Travel Insurance, Accommodation, etc. In-flight Services (Captive Audience): On-line Shopping On-line Gambling Pay-per-View Television Food & Beverages Alliances Sell Specific Flights to Companies Once Off Payment OR Commission as Sales % APPENDIX F CONCLUSION Aggressive Growth & Development Redefined the European Aviation Industry Unique Business Model Innovative Cost Reductions Consolidate Growth & Expansion Enter the Next Phase of Evolution: Free Flights Create Alternative Means of Revenue Generation Read More