Market Leadership Position of Ryanair - Essay Example

Low cost airlines in Europe are quite many but the market leader in this category has been Ryanair for a long time. Since its establishment in 1985, this airline has made great strides in the industry to ensure its market leadership for this long. The success accomplished is as a result of the management’s adoption of various strategic management strategies. The airline has invested its time and resources in developing these strategies as the market becomes more and more dynamic with time. This has therefore called for the airline to come up with strategic management decisions especially in its marketing; the area that this paper will concentrate on more. Statement of purpose This paper aims at analysing, identifying as well as evaluating the strategies that Ryanair pursues in order for it to maintain its market leadership position. The main focus will be on the strategic management practices that the airline’s management has developed and adopted over time to overcome market challenges as well as stiff competition from its closest rivals for example British Airways. Introduction Ryanair is an airline that was founded in 1985 and at its start it concentrated it travel from Waterford to London. The airline has come a long way since then and today it ranks one of the biggest carriers in Europe. The company’s growth is heavily attributed to the management’s decision from its onset to plough back its earnings in expansion programs that have reaped a great deal of benefits to date. In this regard it emerged to be the big airline it is today (Carol & Julian 2000). To elaborate further on its growth trend, the airline started operations with only one aircraft which had 15 seats. In 1986 the company added two more aircrafts and by 1987 it already had a jet aircraft that made it possible for the airline to expand on its route. The company grew rapidly from this time but in 1990 it made a massive loss due to heightened competition from British airways and Aer Lingus. This phenomenon caused the management to embark on a major restructuring exercise. This saw the airline branded as a low fares one; a stance that saw its tribulations turn round as the number of passengers increased enormously after the first low fares announcements. By 1992 passenger traffic had grown by 45 percent due to the steady policy of providing good service at low cost; this translated to 945,000 passengers (Charles & Gareth 2009). The 1990s were the years of steady growth where more and more routes in Europe has been conquered and airlines like British Airways were not in the lead anymore after Ryanair overtook them in this regard. Continental European bases were taken as viable options in the 2000s. This decade saw the airline become fully fledged as a continental airline due to the routes it plied as well as the passenger handling capacity. In 2007, the company’s profits had grown to levels that were beyond the expectations of analysts. By 2008 the passenger base had tremendously grown to be well over 58 million; a feat worthy achieving and admired world over. By this time the aircrafts are modern and able to handle the huge demand which is mainly driven by the culture of low fares. The airline had also through the years contributed to employment creation such that in 2008, the total number of employees was over 6000. Market leadership position Ryanair is now one of the biggest airlines operating in Europe. It has been able to gain a massive market share as a result of its fares being at all time low. In the category of Europe’s airlines that are of low cost, it is well ahead of the rest to claim the first position. This is a position it has held for years and it seems even in the foreseeable future it will still be at the top. However, this position is being threatened by many upcoming airlines aiming to capture its market. In turn Ryanair is making huge steps in capitalising with the low fares as well cutting on cost and introduction of more and better aircrafts so as to be able to caver Europe in a bigger scale. In the year 2000, Aer Lingus shifted its strategy to become a low-cost airline causing a huge star in the low-cost customer base (David 2003). In 2004 alone, 60 low-cost airlines commenced business leading to a more intense competition for Ryanair. Many strategies have been put in place over the years to curb this kind competition as well as market uncertainties that have been emerging. For the purposes of this paper, more emphasis shall be laid on the marketing strategies that Ryanair has adopted to beat the rest to emerge the low-cost airline of choice for millions in the continental Europe. Strategic management practices and case study As earlier highlighted, the biggest of strategies that the airline has used over time is the branding of itself as a low-fare airline. From its inception the airline came into the market as a low fare airline. This is a selling point for many products world over. This has made the airline to be a very successful business for the investors and other stakeholders. On a winder scale the company is what it is today because of how it has been able to work with a unique marketing mix. Michael O’Leary, the CEO of Ryanair has been with the business for over 20 years. He has adopted a business model that has focused on cost reduction for the airline. The big question the paper will give an answer to is how O’Leary has made it this far retaining the biggest market share in Europe; a continent with many competitors as well as many willing to invest in the airline business (Gordon, Foxall & Francis 1981). The tickets that Ryanair sells are considered to be the cheapest in the market in on most occasions. The issue of the low fares has not gone unnoticed by the big carriers and instead have developed their own models of the same so as to keep competition on rather a higher level. This move has made Ryanair to experience intense competition and as a result in 2008/09, it made an annual loss that is considered to be its first. However, it is not in such a bad shape since the budgets are showing that the company still holds the target of doubling its passengers by 2009/2010 (Carol & Julian 2000). The measures that the company has taken are grouped into four categories; the products and services it offers, the pricing strategy, strategies in relation to place and the promotional strategy the company has adopted. In summary the management has managed to manipulate the elements of the marketing mix to their advantage in gaining the huge market in the European region. In regards to the products and services, the company has already established itself as a low-cost airline that has no frills. This has found the airline’s aircrafts having seats that do not tilt backwards, seats without back pockets and has the life jackets put overhead and not under the seat as usual with many airlines’ planes. This aims at reducing the cost of purchasing the aircraft as well as easing its cleaning. They also allow for quicker safety checks. The airline also does not make compensations for mistakes whose fault is customers. A case in point is lateness to board a flight which in some airlines a refund or some form of compensation is made. In the case of Ryanair, the customer is to purchase another ticket irrespective of the circumstances surrounding the failure to arrive early enough to take off as scheduled. This to a huge extent reduces loss of revenue collected as no refunds are issued or free replacement tickets. The airline also does not offer free foodstuffs and drinks on board as the case with many airlines. The options open to the customers are to take their own with them or buy the food of their choice on board. This means that the cost of offering food for free is fully eliminated and in place of this profit is made on food sold. Customers also take this as a good gesture as one does what they wish and it is according to ones ability to afford the service. The company is known to have other income channels which bring in more revenue thereby increasing its profit margin at the end of the day. Ryanair operated hotels as well as car rental services, bus tickets and phone cards. This has proved to reduce on cost and enlarge the revenue base in that these ancillary revenue accounts to around 16 percent of the total profit (Fred 2010). The argument put forth by the airline to have such measures is to have their customer chose the lowest price for travel depending on how much one is willing to spend. Therefore, in the same aircraft some pay more than others depending on what kind of services they may wish to access from the airline. For example, if one has more luggages, they pay more while those who may wish to eat on board pay for the service thereby inflating their cost of travel. The pricing strategy of the company has been to offer the customers the low fares deal that seems to be the best strategy and that which has made this airline to remain afloat for this long being the market giant. The company boasts to be one of the all time low-fare airline and this has caused quite a stir in the European market. The company takes advantage of the huge customer base and the many destinations it serves to reduce the fares to levels which could be detrimental if adopted by other airlines in Europe (Charles, Hill & Gareth 2007). The airline as mentioned earlier also ancillary income from the subsidiary ventures it engages in. As witnessed earlier around 16 percent of the company’s profits are from these forms of ventures. Therefore, it can comfortably replace this margin with a reduction in air fares. However, this has not been taken well by some of its competitors who feel that Ryanair is taking undue advantage by using the low fares tactic to undercut them. A case in point is when MyTravelLite started plying the Birmingham to Dublin route. This was way back in 2003 when Ryanair reacted to this competition by significantly reducing its fares which eventually forced MyTravelLite to pull out. Another example is that of Go that attempted to compete with Ryanair in Dublin to Glasgow route. It also ended up withdrawing due to fierce competition based on fares charged. The company has also been in the limelight when accusations have been thrown at it for failing to disclose clear information in regards to its fares in its advertisements. The Advertising Standards Authority has been on its case a number of times regarding the above. The company is claimed to advertising fares that are lower than the actual ones thereby making so many to go for it. It has also in another occasion claimed to have its flight from London to Brussels being faster than the same route railway transport mode (Charles, Hill & Gareth 2007). In taking action against this, Ryanair has made moves to have cleared adverts which are more transparent in both its website as well as other forms of advertising. Another strategy the company has developed is that which relates to place. The company has a policy that makes avoid the use of agents who drain commission fees. This has made the airline save money in avoiding this expenditure. The airline in place of agents engages direct marketing tools in order to acquire new customers as well as be able to maintain the existing ones. This improves customer relations which aims at enlarging the customer base as well as cost cutting. It has proved to be a worthwhile strategy for the airline since the customer base has been on a steady rise and its costs reducing relatively. The online booking system has also let to the reduced need to have agents to handle this service. Booking alone saves the company up to 15 percent in fees that could otherwise have gone to booking agents. The company’s base is conveniently located in Stanstead in Essex. This is a convenient airport since the fees charged are significantly lower than those of Heathrow or Gatwick. The airport is also not as busy and this allows the airline’s planes to turn around quickly thereby reducing the fees related to turnaround time. It is also the trend with the airline to use secondary airports which are cheaper to operate in. The airline also engages in keeping planes in the air for long thereby reducing the charges in relation to landing fees and the like. Some of these tactics have attracted the European Union’s attention as the latter regards some to be against the set anti-competition laws. On the promotional front the company tries to spend as little as possible. The company has also cut on the cost of advertising by its failure to hire an agency to cater for its advertising needs. Generally the adverts they do are basic in nature such that they aim at only informing the public of the low fairs that they offer. The airline also is seen to have much of its advertising controlled by the CEO himself. It is a known fact that as much as agencies bring in efficiency in their areas of appointment, they are a cost that many organisations can do without (Gregory & Marilyn 2004). In-house advertising is the better option and that which Ryanair has adopted. The other key fact to note under Ryanair’s promotion strategy is its use of controversial adverts or publicity moves. Time and again the airline has been in the limelight for having brought forth some measures to cut cost of increase its revenue that have been taken to be impossible or completely off the mark for an airline business. A case in point is when the airline stipulated that it was to introduce a program that aimed at passengers paying to use the toilets on board; this was in 2009. This attracted the attention of the media a great deal. Media attention is the basic aim of the airline’s controversial advertising. The passengers were to pay just a pound to use the private facilities. This move aimed at publicizing the airlines intensions to make the check-list an online affair. Therefore, the toilet announcement was coupled with that of the check-list such that the public were made aware of the more possible check-list that the less likely one pound toilet fee. It is O’Leary himself who later informed the public that this was just a public relations exercise and nothing was to change in respect to attending to ones natural call on board. Another issue raised was that passengers who were large were to be charged more for they took more space in the seats. O’Leary defended this by saying that the move was to cater for a majority of the airline’s customers. The airline has also in many occasions been accused of using undue comparison of its competitors. At some point the airline used an urchin’s statue that was urinating and to say that low fares were going to Belgium (Nigel, David & George 2003). In this advert the comparison was directly made with Sabena’s ‘high fares’; a case that went to court whereby it ruled against Ryanair. The airline was asked to post apology on its website but in turn used this as another avenue for negative comparison against the competitors. Ryanair also termed British Airways as ‘expensive bastards’ in another controversial ad. However, in this case British Airways lost the case in court as the court considered the advert just but an exaggeration of facts. At another occasion a back to school fares advert the airline had a model dressed like a normal school girl. This advert raised eyebrows and instead of making the airline lose, it attracted attention of many. This was another clear situation where free publicity was sought for promotional purposes. Advertising has been such a big issue to the airline and many court cases have been sought by its competitors claiming that the company employs tactics that are far from being ethical. The company on the other hand has been defending its adverts as well as revealing the actual motive of their moves later on after the publicity sought is achieved. However, after having many cases in court the airline has also seen that is has been losing money and has taken various steps to improve in this respect. It has for example improved on the clarity that the adverts hold as well as the information on its website (Richard, Wilson & Colin 2005). It is also possible for passengers to make better informed decisions as far as fares are concerned since tables have been introduced in the company’s website to facilitate easier and better comparison with other airlines. The airline has also taken other measure to cut on its cost and increase its revenue so as to use this revenue for expansion, advertising, improving the services provided etc all that aim at attracting the customer in the long-term. Another example of a strategy or measure is that the pilots are enrolled being young as cadets and take time to become fully fledged pilots for the airline. This saves in recruitment cost in hiring experienced pilots from other airlines as well as using the cadets to co-pilot some of the fleet. This way the piloting total fee is drastically reduced in the long term. The airline’s cabin crew have to cater for their laundry expenses as well as manage the ancillary services the airline offers on board. Passenger safety is also left to them and this aims at doing away with skilled personnel being on stand by for safety alone. The airline is said to be taking advantage of low economic times for the aircraft manufacturers and going ahead to reap huge discounts of up to 50 percent on a single aircraft. A case in point is when there are world instabilities as a result of wars in Afghanistan and Iraq (Richard, Wilson & Colin 2005). The airline has been embarking on a purchase spree of new planes at these times when most other airlines have pulled back from such spending. The airline has also taken into consideration other processes that attract customers as well as save time and money for it. An example is the lack of a check in system whereby all that is required is for a passenger to produce a passport and their reference number. Passengers find this as a convenient and a saving time process. The other unique feature is that the airline has no policy involving one choosing seats on board. The passengers sit as they wish as it is a first come first to be served basis. This in turn saves a great deal of time for the airline and consequently fewer fees are charged by the airports authority on the time taken in a particular airport. The airline also does not use bridges as the passengers either walk to their plane or are ferried by buses in cases of bad weather. Ones luggage is also deposited at the terminal directly; a practice that saves a great deal of time but in case of breakages, the airline does not on many occasions take full responsibility. Ryanair has also tried hard in addressing its strengths, weaknesses, threats as well as the available opportunities. It has gone ahead to take advantage of its huge revenue base in purchasing aircrafts. This has enabled it to have more and more destinations within Europe which has in turn increased its customer base enormously over the years. Strength lies in the landing zones or airports that the airline has specialised in. It has taken the secondary airports as its preference which reduces costs and efficiency as no time is wasted for both the airline and the customers (Palmer & Ponsonby 2002). The airline has also taken advantage of the low fares to attract customers and this as evidenced earlier has reaped huge benefits to the airline. This latter strategy has enabled the airline to have high customer retention. The company’s weaknesses have been sighted to be revolving around its publicity activities that aim at hurting its reputation and at the same time increasing costs in form of fines and legal fees which could otherwise be used in other income generating ventures. As a result and as mentioned earlier the airline has been looking into its adverts more keenly in order to evade such threats in future. The company has been trying to enter into mergers with other airlines e.g. Aer Lingus, tried to establish more and more destinations in Europe and taking advantage of markets left by the competitors. Ryanair has been faced with huge competition which has in many ways diminished its prospects in the market. By the year 2004 there were more than 60 low-cost airlines having been established. This was a move even the big competitors like British airways took in taking the niche of the low-cost air travel. Others included JetBlue and Spirit while British Airways established a subsidiary, Go, to cater for this market. However, in 2002 EasyJet bought Go from British Airways (Palmer & Ponsonby 2002). These airlines have come to take a huge potion of the market that Ryanair had dominated. Although they do not have absolutely similar operations models, they have hugely focused on reduction of cost. Due to the huge nature of the airline’s span of control, some measures that need to be taken take effect at times that are not quite opportune. The airline has been able to handle the external environment to its business quite well. As noticed in the earlier analysis and evaluation of the political events like the wars in the Middle East have, the company has taken time to seize this opportunity by purchasing a huge fleet of aircrafts. The airline’s customer relations strategy has also been well looked into although its relations with the competitors has not been the best. Ryanair has not been left behind in technology since the launch of the largest booking website in Europe in January 2000. On the economic front the company has been seen to cope well. A recent example is that during the ending global economic crisis, the company reacted by axing routes travelled and reducing fares further by about 20 percent. However, the airline in 2009 went ahead to open more than 30 Spanish routes despite the crisis’ effect of reduced tourism. The management aims at being at the top of the rest after the crisis are over since it would have established itself well in the low season caused by the crisis (Philip & James 2003). The airline is also well positioned as a low-cost and low fares carrier since during this period many have been opting to spend less on travelling. At one point O’Leary commented on September 2009 that Ryanair together with EasyJet will be the only ones flying in Europe in ten years time as discount carriers. This is a feat that is well within reach if the management puts its act together and considering the airlines’ past record and history. The airline has also reacted to the increased fuel prices by cutting further on its cost of operation. Conclusion When taking a clear look into the above cases as well as strategies that Ryanair has put in place, it becomes clear that the company has tried in coming up as the airline of choice for many Europeans and others travelling all around Europe. The airline’s CEO has seen it through all its growth stages and seems confident than ever that the airline will in the near and the distant future be the biggest low-cost airline in Europe. Since its establishment way back in 1985 by the Ryan family with just 1 pound, it has grown consistently for all these years to become what it is today. This has been facilitated mostly by the marketing strategies that its management has adopted over the years and those that suited the circumstances at the time (Whittington 2001). The biggest of all was the first strategy of having the airline branded since inception as a low cost airline offering air travel services at the lowest possible fares i.e. on most occasions. The strategy caught the attention of many and with no time, the airline emerged the leader in Europe to date. The company also established cost reduction measures that were based on reducing the impact of its threats in the industry as well as improving on its weaknesses. It has also been seen to seize many opportunities so as to maximise profits at the same time cutting on cost. An example was buying many planes at the time when its competitors were not interested and opening up more routes in the continental Europe. This has seen steady growth in customer base and consequently increased revenue. Revenue sources for the company have also been of a diversified nature since the company also relies on ancillary income from ventures for example in car rentals. References Carol, HA & Julian, WV 2000, Strategic marketing management: Meeting the global marketing challenge, Houghton Mifflin. Charles, H & Gareth, J 2009, Strategic management theory: An integrated approach, Cengage Learning. Charles, WL, Hill & Gareth, RJ 2007, Strategic management: An integrated approach, Cengage Learning. David, F 2003, Strategic management, Prentice Hall. Gordon, R, Foxall, T & Francis, 1981, Strategic marketing management. Gregory, GD & Marilyn, LT 2004, Strategic management: Creating competitive advantages, McGraw Hill Book Co. 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