The Internal Situation of Ryan Air - Essay Example

The environment of Ryan Air in the 2008 case could be summarized as follows (Case Study The PESTEL analysis Political New aviation regulations in EU for the protection of the customers could be restricting to the company Security measures and restrictions because of terrorism threat wreak havoc to the streamlined operations Expansion of EU could both be a boon and a bane Relationship climate with local government might jeopardize business transactions within the locality Trade union issues Economical The soaring prices of fuel Unstable currency conversion which affects spare parts and fuel cost Subsidies by government to competitors which provide undue advantage Expanding market especially of the budget sector Availability of alternative transportation such as trains and cars Socio-Cultural Public’s perception (company’s image) – ranking high in the low cost category but poor in customer service CEO O’Leary’s reputation and publicity antics Customer’s needs and preferences Customer loyalty Industry relations which include antagonism with competitors and local governments Media publicity stunts and accusations by detractors could sway customer’s opinion and choice Technological Rapid technological breakthroughs which offer either innovation or obsolescence Innovations with internet utilization which could provide added value and/or service Rising internet competition Environmental Greenhouse gases from carbon emissions and all its implications on the industry Legal Offensive advertising and publicity stunts which attracts public outcry Deceptive advertising Unethical issues such as wheelchair charges Illegal aid issues Internal Analysis The internal situation of Ryan Air based on the TOWS analysis highlights its leadership in the low cost strategy which was the result of its cost reductions schemes. The additional revenue from various ancillary services was also a plus. However, the reliance of the organisation on its CEO provides one of its worst weaknesses. Michael O’Leary’s dynamic but often unpredictable move resulted to the other weak points of the company as well which includes its issues with customer relations and satisfactions as well as the hostile relationship with its competitors as others within the industry. This antagonism caused criticism from the industry tarnished the image of the organisation (Using TOWS Matrix, 2009; Case Study). TOWS Matrix THREATS Strict regulations Fuel price increases Instability of dollar currency New entrant Negative Publicity Substitute transportation Limited geographical area OPPORTUNITIES Budget segment expansion EU expansion Additional routes and destinations WEAKNESSES Trade Union Issues Absence of Customer Relations Hostile Industry Relationships O’Leary’s control STRENGTHS Low cost leadership Captured Market First mover Ancillary revenues Established Destinations The threat of substitute transportation and the entry of other competitors who could deliver better the gaps that Ryan Air left behind, along with its failure to rectify its weak spots and problematic areas could propel the company to face some serious problems in the future. But then again, the continuous expansion of EU and the burgeoning of the budget sector seeking low cost services provided excellent opportunities for further expansion and rapid growth. Porter’s Five Forces Using Porter’s Five Forces, the rivalry within the industry is very high. This is characterized by the number of competitors servicing the same market within EU with easyJet, AirBerlin, Aer Lingus, FlyBe among others not to mention the long haul carriers (Appendix). On the other hand, both the threat of potential entrants and the threat of substitutes are within the medium range. Barrier to entry is high because of the low cost strategy but switching cost of the customers is low. Terrorism threat which required stricter rules in airport which resulted to additional inconveniences could drive customers to switch to trains while the rising popularity of low fuel consumption cars posed as substitute threats to airlines with short haul service (Case Study). The bargaining power of buyers is on the medium scale as switching cost is low. Because of the size of the market, customers could also easily choose which type of service to avail depending on needs and preferences. At the other end, the bargaining power of suppliers’ ranges from medium to high depending on given scenario. It is especially high with regard to fuel suppliers as petroleum prices are dictated by the world market (Hunger and Wheelen, 1996). Competitive Positioning Ryan Air’s competitive positioning was based on capturing a segment of the market, focusing on it with a strong strategic direction and never letting go of its foothold on its captured market. In its case, it decided to focus solely on flying short haul to cities and areas which are not normally serviced by long haul airlines. It was able to capture its market and offer it with an unfaltering strategy – the cost reduction. Succeeding in cost focus strategy is possible if the organization has control over bases for cost leadership. Otherwise, the variables that could not be controlled by the company might be the cause of the organizations future troubles (Hunger and Wheelen, 1996). In Ryan Air’s case, this includes the unstable prices of fuel and the fluctuation of the currency. Because of its strict cost reduction strategy, the future movement of these variables will spell the future viability of the company. Even if part of the company’s profit comes from ancillary revenues; its core competency is still the short haul flights. Organizational culture A strong organisational culture homogenises the behaviour of individuals within the organization which cast a powerful influence in strategic directions of the company. It also becomes the foundation of the competitive positioning of the organization which could spell its survival and success. (Hunger and Wheelen, 1996; Sorensen, 2002). The cultural web of Ryan Air is dominated by the strong leadership of its CEO, Michael O’Leary. The power and the general direction of the strategic advantage as well as the public’s perception of Ryan Air as a company had been centred on him. The power structure is directed to the top which makes the organizational structure less powerful at the bottom. On one end, this could be the reason for the success of Ryan Air but on the other end, it could be the cause of its downfall (Th Cultural Web,2009, Case Study). His vast power in the organization’s culture shaped the company’s vision and its strategic positioning. Because of his tight control over the entire company and its systems, Ryan Air was able to sustain its cost focus strategy and pushed it towards the successful run that it was enjoying. However, the assumption with the way O’Leary handled the company as well as his actions and behaviour became the trademark of Ryan Air. His behaviour and his handling of industry relationships reflected on the company in a way that his personal detractors involved the company when they waged war with him. This was reflected on how the media tried to damage the image of the company through the stories they told (Case Study). The main factor in the cultural paradigm of Ryan Air is centred on its leader and his leadership style. It could be argued that to remove the antagonism towards the company, O’Leary must be removed primarily from Ryan Air. However, because the direction of the company had been dictated by his powerful command, removing him could totally change the present strategic direction of the company and alter its positioning and competitive edge. Corporate Control on Aer Lingus If Ryan Air acquired Aer Lingus, the best control it could wield as a corporate parent would be as synergy managers. Through the successful integration the competencies and resources of both companies, a better, more comprehensive and properly streamlined operations could result which could provide further competitive advantage for the merged companies. The main focus of Ryan Air is cost reduction but in its narrow-minded vision for this strategic direction, it failed to address some important issues in its operations which could be vital for the survival of the company in the long run. One example of this is the customer relations aspect of the company. The case study stated that because of its single minded focus at frugality, it failed to deliver satisfaction to its customers to the point that it failed in most areas and was perceived as the worst airline. Southwest airlines, which was the model of Ryan Air was on the best five. The threat that a company like Southwest would enter in the same market and deliver customer satisfaction to would spell disaster for Ryan Air. Should Aer Lingus has the competency to deliver this aspect better than Ryan Air, the latter could profit from this adjustment. On the other hand, Ryan Air for its part must also implement the same cost control procedures that it employs in Aer Lingus. It had been the trademark competitive advantage by Ryan Air and employing the same control on the acquired company will pattern the success factors of the former in the latters operation. Bibliography Critical success factors, 2009. Mindtools Ltd. [Online] (Updated 2009). Available at: http://www.mindtools.com/pages/article/newLDR_80.htm. Accessed 13 Dec 2009. Johnson, Scholes & Whittington, 2008. Exploring corporate strategy, 8th ed. Instructor’s manual. Hunger, J.D. & Wheelen, T.L., 1996. Strategic Management, 5th ed. Addison-Wesley Publishing Company. Morse, S., 1996. Management skills in marketing. Singapore. Pfeiffer and company. O’Higgins, E., 2007. Ryanair : the low fares airline. Case Study. University College Dublin. Schein, E.H., 1997. Organizational culture and leadership. [Online] (Oct 1997). Available at: http://www.tnellen.com/ted/tc/schein.html. Accessed 13 Dec 2009. Sorensen, J.B.,2002. The strength of corporate culture and the reliability of firm performance. Administrative Science Quarterly. [Online] (March 2002). Available at: http://findarticles.com/p/articles/mi_m4035/is_1_47/ai_87918557/pg_2/?tag=content;col1. Accessed 13 Dec 2009. Stewart, D., 2003. easyJet and Ryanair – what went right. [Online] (Updated 2009). Available at: http://www.docstoc.com/docs/3754976/easyJet-and-Ryanair-What-Went-Right-Presented-by-David-Stewart. Accessed 13 Dec 2009. The cultural web, 2009. Mindtools Ltd. [Online] (Updated 2009). Available at: http://www.mindtools.com/pages/article/newSTR_90.htm. Accessed 13 Dec 2009. Thompson, J.L., 2008. Strategic management: awareness and change., 4th ed. Thomson Business Press Using the TOWS matrix, 2009. Mindtools Ltd. [Online] (Updated 2009). Available at: http://www.mindtools.com/pages/article/newSTR_89.htm. Accessed 13 Dec 2009. Read More