Corporate Strategy of Ryan Air - Assignment Example

 Corporate Strategy of Ryan Air European airline industry has had various developments in the last 3 decades and has seen small airlines flourish an example being Ryanair; an Irish airline. It is important to appreciate that the airline industry is one of the most competitive and it has seen many enter and leave. Due to high competition airlines have tried as much as possible to create a brand name with a differentiated service line. Ryanair developed its brand in the process of being a low cost airline operating in Europe. This report looks into this airline’s environment, strategies and its management. It further looks into the various ways of ensuring strategies are implemented despite certain barriers to it. RYANAIR BUSINESS ENVIRONMENT ANALYSIS Ryanair was established at a time when airlines were closing their doors due to high competition, fluctuations in profits and general market uncertainties. It is true that these factors had affected many airlines but those most hit were big carriers like British airways which in turn offered a market opportunity to Ryanair. During the 2nd half of the 1980s airlines abandoned the ordinary population to venture into bigger markets. These flag carriers went to target budget commuters who were mostly wanted long haul flights. At the onset of the 1990s Ryanair noted these developments and restyled to become the first low cost and low fares airline with no frills in the European skies (Miriam 2010). This model was directly borrowed from the United States’ low fares Southwest Airlines. Ryanair’s strategy was immensely successful owing to the customers’ discontentment with the high fares being charged by big carriers. At this time the Irish economy was growing fast and Ryanair being an Irish airline this worked to its advantage in the home market as this industry is hugely affected by economic swings. In order to specifically consider Ryanair’s business environment PEST analysis will be used. Political factors. Changes in government policies and even those of EU have affected the way airlines operate in the continental Europe. Ryanair’s numerous court cases regarding unfair market practices have worsened this situation. On the other hand, governments which are looking into tourism expansion e.g. Greece have welcomed the airline boosting its ticket sales and route expansion. Governments in the EU seem to favor their flag carriers which affect low fares airlines like Ryanair. Global climatic awareness has resulted in various charges to airlines. Economic. Global economic crisis of 2008 onwards made customers to be more expense conscious thereby opting to use low fares airlines like Ryanair. Fuel prices fluctuations only have worsened the uncertainty situation in the airline industry although Ryanair as a result uses hedging to reduce price shocker. Prospective markets at times have been shut by war e.g. Iraq which was to be a tourist destination. US dollar fluctuation has of late affected Ryanair’s operations especially in setting appropriate exchange rates. EU has of late made rules that aim at making airlines to compensate customers for delays, cancellations, overbooking cases and others. Ryanair being quite strict on refunds and compensations has been adversely affected. Socio-cultural. Tourism in Europe has been on the rise ensuring an expanding market for the airline. Holiday goers have also increased to new destinations more so the East European countries which were previously unconsidered (Charles & Gareth 84 - 92). Business travelling has also increased in Europe and although business people prefer luxurious flights, which are not provided by Ryanair, at low fares they are able to travel frequently than before. The single factor of low fares and related costs mean that a wider consumer base is captured. There is a huge grey population resulting from years of low birth rate in Europe and this is an opportunity for Ryanair in respect to holiday travel. Technological. Video conferencing has been a major setback for the airline industry. People are travelling less as they are able to hold meetings online without necessarily sharing the same material space. VoIP is the other that is to some extent diverting travel prospects. On the other hand online bookings have facilitated cost reduction on agent fees and time saving. The airline’s website has acted as a huge advertising avenue. Due to the airline’s specialization on the purchase and use of Boeing 737 it has been easy to maintain the fleet (Miriam 2010). This aircraft model is also regarded as commercially viable thereby suiting the low cost policy. Trains are posing a huge challenge due to their high speeds and lower fares leading some customers to opting to use them. SUSTAINABILITY OF RYANAIR’S STRATEGY The airline’s strategy has always been centered on being the leading low fares airline in Europe (Carol & Julian 232 - 261). Ryanair has tried to maintain this track by ensuring continuous improvements and expansion of the low-cost service. It believes that with the low fares and low cost of operation it is able to attract a wide customer base throughout Europe. The management focuses more on containing cost at lowest levels possible without compromising on quality of service offered while maximizing on efficiencies. The following are some strategies that have proved to be sustainable and will propel the airline to greater heights. Low fares. Demand for seats is propelled more by the low fares offered. They sell one-way tickets which is a different strategy than the traditional two-way tickets. It operates on a first come lower fare basis where the first 70% of seats are sold at a lower rate than the rest 30%. This raises the rush to book resulting to higher demand. Choice of routes. Secondary and regional airports seem to work best for Ryanair. These airports are close to densely populated areas which offer a close departure and landing zone for these people e.g. Stansted Airport and South Charleroi Airport in London and Brussels respectively. These airports offer less delays and turnaround times are faster. This latter aspect is central to Ryanair’s strategy to maximize aircrafts’ utility hence cost saving (Philip & James 416 - 32). Internet use. Ryanair website has since 2000 hugely boosted booking and reservation services. Ryanair’s website as mentioned earlier is one of the most important and lucrative platforms used for advertising. More than 95% of bookings are now being made through the website (Miriam 2010). Internet avenue has also offered a platform to showcase a variety of ancillary services offered by the airline e.g. car and hotel reservations. Considering that this is purely an IT generation and advancements are to come, the airline has positioned itself well for the future. Ancillary services. As just mentioned the airline has extended its wings to include a number of ancillary services e.g. reservation services for hotels, travel insurance, bus tickets and car rentals among others. These services have boosted the airline’s revenue by offering around 15% of the total revenue (Miriam 2010). These services according to the management have helped the airline to reduce fares further as cost per unit is lowered. There is also a possibility of further differentiation of services. These strategies are by far beneficial to the airline not only today but in the distant future as they are easily compatible with the changing world of aviation industry. RYANAIR STRATEGIC OPTION AND RECOMMENDATIONS FOR THE FUTURE The airline has tried and succeeded in positioning itself in the European market as a pure low cost airline. In so doing it has managed to scoop many No. 1’s in the European airline industry examples being; No. 1 in passenger traffic of more than 66 million No. 1 in consistency in passenger growth of not less than 14% per year No. 1 in fewest baggage lost and punctuality Fig 1 Source Stefanie 2007 Ryanair is quite radical in its strategy of being a low cost airline far from flag carriers like Lufthansa, British Airways and Air France (Sascha 2008). It has however gone ahead of its closest rival, EasyJet as a result of using secondary airports that further cut on cost. Virgin Express is on the side of the low cost but due to its seat allocation polity it finds itself lagging behind. Aer Lingus on the other hand has for some time tried to drift from the differentiation side to the low cost one by flying more short-haul flights. Of all these airlines that form direct competition to it, Ryanair still emerges as pure low cost carrier. Ryanair wishes to grow tremendously in the coming decade and to do so the management intends to have ventured into almost all possible routes. It also aspires to offer the lowest fares possible within the same duration but they have and will be keen in trying not to compromise on Ryanair’s business model. Quality of service is the other key issue in their agenda in order to outdo the flag carriers. Following this strategy to date has seen Ryanair reach to the heights it is and no doubt that with consistency they will find themselves achieving these goals. Considering the model that Ryanair borrowed i.e. from the American market, it is easy to deduce that only 1 or 2 low cost airlines can operate appropriately in a market spanning the size of Europe and considering its dynamics. Southwest Airlines has taken a market share of more than 50% in the United States (Miriam 2010). The European market on the other hand has 88% dominated by EasyJet and Ryanair. The big contrast arises where as a whole, low-cost carriers take only 7% of the European market as compared to 25% of the American low-cost carriers. It is estimated that the European market has dynamics that can only accommodate up to 14% unlike the 25% taken by the American low-cost airlines. Ryanair knows this and is trying to set a pace to capture the biggest share possible within the predicted 14% (Miriam 2010). In order to capture this by 2015 the airline should try to concentrate more on Western Europe routes. It is obvious that the airline industry has become more competitive than ever rendering expansion difficult. As a result Ryanair will face a tougher time to expand than it did in the 1990s and 2000s. For it to achieve its full potential despite the difficult times ahead, the following are the recommended avenues or options to take; Increase route frequency. The low cost carrier market in Europe as seen is half way tapped. It needs to increase flights to accommodate more flexible customers within flexible timelines. Venture into new European routes. The airline needs to do thorough research on the untapped viable routes so as to expand on customer base. It should also look into routes plied by the flag carriers to get some passengers. Continental bases. London as it is seems saturated while other bases are open for development like Hahn and Dublin. Caution is important though since demand is not the same. Central and eastern Europe. Eastern and Central Europe have increased tourism travel and expansion of EU is opening new areas to venture into. North Africa route. Tourism travel is quite popular in this region making it a niche to look into. There is also a great deal of traffic by North Africans living in Europe moving to and from Europe. Customer service. The airline has bad publicity that it needs to do away with in regards to customer service. It should maximize in its strong points of fewest baggage loss and punctuality. Online 100%. The trend is to have all bookings done online. Call centers that are costly to run and agents will be totally eliminated. OVERCOMING BARRIERS TO IMPLEMENTATION As much as plans are made to direct a company to glory many fail to materialize at the implementation stage (Charles & Gareth 160 - 175). Ryanair is not an exception to this and it needs to devise ways to ensure smooth and sure implementation. One of the major battles ahead is with the bad publicity that the airline has received over the years. Although this publicity has proved at times to be quite beneficial and a free marketing tool, in most cases the company has been hurt financially more so in lost court cases (Palmer & Ponsonby 260 - 278). It takes the name of a small bully with bad marketing tactics. The unfairness in business practices needs also to be dealt with by being transparent in its advertising and to avoid abuse directly or indirectly of its competitors. Competition is the other big hurdle to face and it needs to crush it by offering the best quality service, lower fares, reducing operational costs and by expanding to new routes. There is risk of economic swings which may delay its growth prospects and which are best dealt with by preparing for it by having huge backup of retained earnings to invest in times of deficits. There is also the need to renew and expand the fleet due to the possible increase in passenger traffic as routes expand. Last but not the least it to ensure that the over 7000 employees are offered the required incentives to ensure excellence in quality delivery (Miriam 2010). Through micro-strategies to address these key issues the company will be able to cope with the harsh conditions ahead. THE STRATEGIC LEADERSHIP OF MICHAEL O'LEARY O’Leary is a corporate figure that many CEOs and general corporate employees admire. This admiration is based on both his personality and achievements. According to Miriam (2010) he is labeled as fiery, aggressive and hostile to almost all the stakeholders of Ryanair business including employees and customers. He is outspoken and as a result has ended up damaging his and company’s reputation while at the same time taking it to great heights in the airline industry with achievements in revenue generation and high passenger traffic (Stefanie 2007). His strategic management practices started a new course after the infamous trip to the US in 1991 to study the operations of Southwest Airlines; a low cost carrier in the US. He adopted the three key strategies almost immediately from this airline; use of secondary airports, flying short-haul trips and standardizing aircraft model. This was a huge experiment to make with a barely mature airline in a highly volatile industry. He however succeeded in applying all the three strategies with remarkable success to date. In his approach he singles out certain airlines as key competitors e.g. Aer Lingus and British Airways (Miriam 2010). He has engaged even in war of words just to gain cheap publicity to reduce on advertising cost. He has steered the company through harsh competition and strict rules for workers to follow. This sort of leadership is hard to come by and it is doubtful that someone will perfectly fit in his shoes after he leaves after 5 years as he alleges. CONCLUSION Ryanair strategies seem to be working well to their advantage since Michael O’Leary joined They are however supposed to be more careful with the environment as many giants have already slept long enough and adaptation to changes is crucial to their survival. The market is full of potential to be tapped and it should be the onus of O’Leary and his team to use their simple airline outfit to beat the rest. This team as a matter of fact has tried to steer the airline to glory since 1985 with all the possible strategies they could come up with without being apologetic. These strategies have revolved around offering low fares and operating at low cost, internet and controversial advertising and a wide range of ancillary services among others. Being the Europe’s biggest carrier is the airline’s vision and this will only be possible if the management headed by O’Leary formulates sound strategies and ensures their implementation. Works cited Carol, H Anderson & Julian, W Vincze. Strategic marketing management: Meeting the global marketing challenge. Houghton Mifflin. 2000. 232 – 261. Print. Charles Hill and Gareth Jones. Strategic Management Theory: An Integrated Approach. Cengage Learning. 2009. Print. Charles, Hill W. L. and Gareth, Jones R. Strategic Management: An Integrated Approach, Cengage Learning. 2007. Print. Miriam, Mennen. An Analysis of Ryanair’s Corporate Strategy. GRIN Verlag. 2010. Print. Palmer, A and Ponsonby, S. Journal of Marketing Management. 2002. 260 – 401. Print. Philip, Sadler & James, Craig C. Strategic Management. Kogan Page Publishers. 2003. Print. Ryanair, History of Ryanair. Web. 2010. 20 Nov. 2010. Sascha, Mayer. Ryanair and its Low Cost Flights in Europe: Marketing Plan. GRIN Verlag. 2008. Print. Stefanie, Hoffmann. The Low-cost Airline Ryanair: A Critical Evaluation of the Ryanair Phenomenon and Its Future Prospects with Taking the European Airline Industry into Consideration. GRIN Verlag. 2007. Print. Read More