Ryanair Business Strategy: Internal and External Analysis

Ryanair Business system inner(a) and External adumbrateRyanairCase Analysis Report institutionRyanair, established in 1985, is considered the main instigators of the economic crisis hail airline machineriers, creating a new niche in a grocery store previously reign by former national airlines such as BA. The follow has swelled to a position where in 2005 it has 15 bases and 150 aircraft operating end-to-end europium, carrying thirty million passengers (see depend 1), with a five year direct to emergence this to seventy million (Ryanair 2007).This position has been carry throughd by creating a no-frills(prenominal) approach on price (Pettigrew et al 2002), which gave it a competitive expediency everywhere the established airlines (Porter 2004, p.207 and Kotler et al 2004, p.407), although attempts to extend this to include charging for ice utilize in in-flight drinks (Creaton 2004, p.169) was rescinded after customer complaints.The objective of the line of work i s to become Europes leading low- embody airline and branch for customer service, the last mentivirtuosod position which was first reached in 2002 allowing to independent sources (see appendix A, invention 3). Similarly, the company in like manner seeks to prevail order egression for sh areholders.External AnalysisLiberalisation of the airline industry in the 1970s opened up the industry to new entrants and a new rail line model. Being iodin of the first movers in this new sector (Faulkner and Campbell 2006) Ryanair has taken avail of the access opportunities offered by creating a low Cost model based on the successful Southwest Airline (2007) scheme. This move has been partially responsible for increase in passenger numbers victimisation UK airports in the last terzetto decades (see table 1), with expectations of a threefold increase by 2030.Table 1 Airline passengersYearPassengers (m)1980501990902000180With former easterly bloc countries converting from communistic to democratic political structures this festering is set to continue, providing the headache with further opportunities (see appendix A, date 4). Many of these former Baltic States develop now joined the EU, which also provides Ryanair with the opportunity of expanding its destination ne bothrk.However, the industry growth has also seen new competitors calculate this niche grocery store, including EasyJet, BMI, Virgin express and Aer Lingus. To maintain its competitive advantage the two major players cede sought to unify their position by strategical acquirements. In this stadium Ryanair, with its successful acquisition and integration of the Buzz lo- monetary value carrier, has been more successful that EasyJets experience when acquiring Go. Although the major airlines such as BA prevail responded to threats from Ryanair, to date these discombobulate non proved successful.The creation of this niche industry sector has also led to signifi send wordt changes in the consu mers perception (OConnell, J., and G. Williams 2005). Demands for cheaper fares has increased as prices have fallen, and the consumer perception and lifestyle has changed with regard to types of holidays has expanded rapidly, with weekend breaks and in one case unknown destinations increasing in popularity.Ryanair has also made full lend oneself of the advances in technology and digital processes inside its low- speak to air model. It was one of the first low-cost airlines to recognise the changes in the consumer buying habits resulting from these scientific advances, using this diffusion to improve its services, encourage further consumer change and continue cost decline advantages (Johnson et al 2007, p.481). Evidence of this can be found in the business move to paperless tickets, with more books organism made through the meshing and, more recently, a move towards automated bookingin procedures at the airport, trim back the film for involution of human resources to meet demand increase. At the same time, this technology intent also helps Ryanair to maintain one of its find corporate objectives, which is to return success and value to the shareholders.There are two former(a) external factors that restore upon the business and affect the de boundination of dodge. The first is purlieual issues., which includes the concerns expressed by consumers and governments relating to the impact that air run short growth has upon the local anesthetic communities and infrastructure and the second is the natural milieu, where businesses are now requisite to consider the impact that their operations have upon issues such as temper change.The second issue is in the increase of legislation, particularly from the EU. In this keep Ryanair operations have to comply with regulations in price of fair controversy, which affects mergers and acquisitions and unsporting practices, and targets set by the EU in relation to emission reductions essential to address cl imate change.PL1Internal AnalysisAs Lynch (2006) and Faulkner and Campbell (2005) utter within their respective researches, for organisations such as Ryanair, who have targeted their scheme at a low-price product, it is imperative that, to maintain competitive advantage, who submitted that to master and maintain low price in the market place, the business itself had to be structured in a way that provided a limited cost base throughout all aspects of the business, in order to keep a profitable result.Porter (2004) suggests that this cost reduction process has to be communicated throughout the value chain (see appendix B, figure 6). Michael OLeary, and the Ryanair management team up have strived to achieve this position through a number of measures. engagement of resourcesRyanair makes good use of its resources. For example, all of the aircraft are of one design, the Boeing 737-800 series. This has several positives. Firstly, the company receives a discount from Boeing. Secondly , It reduces costs in terms of maintenance and training. In the latter case, unlike EasyJet, which has to train pilot and cabin crew to escape on a number of different aircraft designs, Ryanairs staff single have to familiarise themselves with the one.Similarly, the turnaround of aircraft at destinations is quick and efficient, thus reduction unit cost.Human resourcespatronage the number of routes operated and the logistical problems of running a business of the magnitude of Ryanair, the company operates with a minimalist attitude towards organise office, admin, aircraft and maintenance crews and administration staff. At the end of the 2005 financial year the business diligent around 2,800 personnel, a figure which has changed very little over a five-year period.All of the Ryanair employees are expected to multitask. For example, cabin crew are required to clean cabins and remove rubbish between flights.TechnologyAs mentioned earlier, Ryanair computerises as many services as po ssible. With Internet booking, paperless tickets, automated booking-in processes and many former(a) parts of the operations being streamlined in this manner, this ensures that doing and some opposite costs remain low.DestinationsAnother imp0ortant aspect of the Ryanair cost reduction scheme is the concentration of its destinations into subsidiary rather than primary airports. Landing fees and other charges at these airports is substantially lower than the main airports and, even with the sweetners paid by Ryanair, the unit costs per passenger of flight into these destinations remains cheaper.Travel data formattingFinally, the product itself has been simplified. There is only one class on a Ryanair flight and no pre-booking of seats. Furthermore, virtually everything but the seat costs. This includes drinks, meals and the other sell products available on board, with even free levels of baggage is limited.The success of this strategy can be evidenced when comparing the met profi t margin of Ryanair with other carriers. The following data, taken from the various organisations websites and financial statements army the differnce (see table 2 below) Table 2 Net profit percentages partyPercentageRyanair17.81%EasyJet7.98%British Airways7.28%Diagnosis of current challengesHowever, like all businesses, Ryanair is not immune from challenges as it moves into the futurity. From the analysis of the business operations it is apparent that these challenges and threats leave alone come from five main areas (appendix A, figure 4).CompetitionAs mentioned earlier, with the appear democracies within Europe, together with the localityal and global harmonisation of competition rules, Ryanair is plausibly to find increased competition developing from these areas within the next hardly a(prenominal) years to a decade. With the increased market place and, as can be seen from the share of the market that low cost airlines have (see figure 2), thither is ample scope for new competition.The discussions about the open skies understanding between the EU and US (Milmo and Gow 2007), if these come to fruition, go away also drive a threat as it creates a potential for US airlines to enter the industry sector. These actions could adversely affect the business continued financial success.integration and growthThere has already been some consolidation within the sector. It is likely that this will continue for the foreseeable future, and this could pose a threat to Ryanairs dominant position. Furthermore, the corporations own growth pattern could impact negatively upon profitability. Despite growth attracting economies of scale, it can involve additional costs that threaten power (Creaton 2004, p.250).Political interventionThere are three main aspects of political intervention that are like to affect Ryanair in respect of its future development within Europe. The first of these relates to the EUs competition laws, which is an area where Ryanair has come int o conflict with the commissioners in terms of remunerations being made to secondary airports and other similar issues (BBC News 2004). The second is the threat by the EU to reduce or eliminate the subsidies given to the sector, worth an estimated 6 cardinal annually (Bized 2004). This includes stem, this VAT, Landing and Fuel tax benefits. The removal of these benefits will have a significant impact upon profitability. The three issue is the EU purport to force budget airlines to pay compensation for cancellations, which is not done at present. environsal issuesOne of the major issues is the environment. Following the EU adoption of the IPCC1 report recommendations, focus has been concentrated upon setting emissions targets for airline industry player, with stringent targets being set (see table 3).Future strategic optionsAll researches promote the need for corporations to ensure corporate strategy addresses future challenges (Lynch (2006) and Faulkner and Campbell (2006)). In Ryanairs case, it is suggested there are three strategic options that could be adopted (see appendix C, figure 7).Low price low added valueThe aim of this strategy is to achieve the lowest price by a process of continually cut the additional elements that attach to the service. For example, in terms of the budget airlines, from the consumers viewpoint this has meant reducing the facilities offered in-flight, such as changes to the quality of seating, increasing the seating capacity on the aircraft and reducing choice of services that involve human resources, such as hot meals, snacks and drinks. For the business is requires a continual drive to continue cost reduction throughout the value chain.Low priceThe intention of the low price strategy per se it to achieve reduction in the cost of fares, whilst retaining the consumers perception of the value of the product. To implement this strategy means that the business will need to seek cost reductions in areas other than those that di rectly impact upon the quality of the in-=flight service provided. This could be achieved by the further use of technology to automate in additional areas of the operational processes.Focused noteA strategy if focused preeminence is intended to set the business product apart from that of its competitors. Price can be used in the differentiation process, but in this case it needs to be inclusive with other elements that make the product unique.Evaluation of strategic optionsFollowing an rating of these strategic options, using the criteria recommended by Rumselt (see appendix D, figure 8), the following is an outline of the results that this produced.Option 1 Low price love value addedThis strategic option is consistence with the policy that Ryanair has followed in the past and is in award with the previous intentions of the business strategy, which has been to reduce price at the cost of services, in other words achieving a no frills situation. However, it would seem that Ryan air would find it hard-fought to further reduce the level of service provided to its customers and it is unlikely that this approach would reassure its market position.Option 2 Low priceLow price, as with option one, is in line with the business existing strategy. However, from the analysis of the interior(a) situation at Ryanair, it would seem that there are limited options in terms of reducing existing resources, particularly if the business wishes to maintained a sustained growth programme and market share.Furthermore, it is not in accord with external trends, which indicates that consumers are becoming more discerning and the political field of force more concerned with the consumers rights and environmental costs.Option 3 Focused differentiationFocused differential, which could still include low price, would also be reconciled with the Ryanair strategy. The differential of low price, no frills has been the core differential upon which the business has promoted itself pre viously. However, with other competitors entering the market place, that differential needs to be extended to other areas.In summary therefore, it is felt that the focused differentiation option would be most appropriate for the business future and will assist it to retain and improve its competitive advantage.Overview of selected strategyThe core elements of the proposed focused differentiation strategy being proposed will be threefold. emancipate flightsAn aggressive strategy aimed at achieving free flights to be pursued. This can be achieved by seeking third party turnover to replace the ticket cost. For example, the business could introduce sponsoring, where travel and venue destinations, such as holiday locations, theme parks and local tourist boards pay for flights. Similarly, in-flight facilities could be introduced, such as Internet shopping, sport and pay to view telephone. Furthermore, other services such as car rental and insurances could be used to cover the lost ticket revenue. desegregationThe business should be looking to make acquisitions, particularly with organisations within the east European countries that have recently joined the EU. This enables the business to achieve market growth and maintain its dominant position. It also reduces the future competition.Aircraft fleet waver replacement is an area that Ryanair has concentrated upon in the past. In the future, in addition to discounts, this should be linked to conditions that ensure the fleet includes the latest environmentally warm specifications, with aircraft being regularly upgraded as part of the purchase options.Implementation intentTo enable the selected strategy to be implemented, several courses of action need to be undertaken.Short termMoves towards a free-flight position can be commenced within the immediate future, with the management and marketing departments of Ryanair discussing this concept with potential sponsor from the commercial leisure world, as well as tourism b oards within the region and in specific destinations.Medium TermIn the medium term two actions required for the strategy can be undertaken. The first of these is the delaying refits that will be required to aircraft to include the various new technological facilities that have been recommended. The second action would be to assess the potential market players to ascertain which, if any, would provide the business with a strategic fit for expansion of its market reach within the region.Long termContracts with Boeing need to be re-negotiated to ensure that environment related conditions are included as an inhering part of the purchase process for replacement aircraft.ConclusionThere is no doubt that Ryanair faces a number of key challenges in the future. To ensure that the business can successfully deal with the changes these challenges present, it is important that the future strategy is sufficiently robust to be able ensure that the business retains its competitive advantage and p rofitability levels. The aggressive strategies recommended within this analysis study are intentional to achieve this objective. The Free-flight with added services, albeit being paid for, will maintain the unique and place service that the Ryanair brand has become known for.BibliographyBBC News (2004). Ryanair faces new payment probe. Retrieved 17 May 2007 from http//news.bbc.co.uk/1/hi/business/3458423.stmBized (2004). Low loyal Fares An End to Cheap, No Frills? Retrieved 27 July 2007 from http//www.bized.co.uk/current/leisure/2003_4/010304.htmBrassington Frances and Pettitt, Stephen (2006). Principles of Marketing, 4th edition, Pearson commandment Ltd. London, UKChannel 4 News (2007). If you care about the environment, you should fly Easyjet. actually? Retrieved 16 May 2007 from http//www.channel4.com/news/articles/society/environment/factcheck+how+green+is+easyjet/509642Creaton, Siobhan (2004). Ryanair How a Small Irish Airline Conquered Europe. Aurum Press Ltd. London, UK. De Groote, P.D (2005). The Success Story of European Low-Cost Carriers in a Changing Airworld. GaWC Research Bulletin 174. Retrieved 27 July 2007 from http//www.lboro.ac.uk/gawc/rb/rb174.htmlDoganis, Rigas (2000). The Airline Business in the 21st Century. Routledge. London, UK.Faulkner, David and Campbell, Andrew (2006). The Oxford Book of dodge A Strategy Overview and Competitive Strategy. New ed. Oxford University Press. Oxford, UK.Haslam, Chris and Ungoed-Thomas, Jon (2007). Ryanair denies baggage scam. The Times. London, UK.Johnson, Gerry., Scholes, Kevan and Whittington, Richard (2007). Exploring incorporated Strategy. FT Prentice Hall, Harlow, UK.Kotler, Philip. Wong, Veronica., Saunders John A and Armstrong, Gary (2004). Principles of Marketing, 4th European edition, Pearson rearing Ltd. London, UK.OConnell, J., and G. Williams (2005). Passengers Perceptions of Low Cost Airlines and Full Service Carriers. Journal of Air guide Management, 11 259-272.Porter, Michael E (2004) . Competitive Strategy Techniques for Analysing Industries and Competitors. The Free Press. New ed. The Free Press. New York, US.Press association (2007). Budget airline offers low cost New York flights. Retrieved 17 May 2007 from http//www.which.co.uk/reports_and_campaigns/travel_and_leisure/reports/holiday_advice/Flights/zoom_flights_news_article_557_112479.jspReport (2007). The Environmental Effects of cultured Aircraft in Flight. Royal Commission of Environmental Pollution. Retrieved 29 July 2007 from http//www.rcep.org.uk/avreport.htmRyanair (2007). About us. Retrieved 14 May 2007 from http//www.ryanair.comSouthwest Airlines (2007). About SWA. Retrieved 28 July 2007 from http//www.southwest.com/about_swa/airborne.htmlStragler, Joos (1999). Current issues arising with airline alliances. Retrieved 17 May 2007 from http//ec.europa.eu/comm/competition/speeches/text/sp1999678_en.html appurtenance A external environmentFigure 4 Pestel analysisPoliticalAirline liberalisation mention of democracy in EUOpen skies policyEconomicInternal financial performanceDisposable incomeAbolishing of international tariffsCompetitionAcquisition heartyConsumer attitudesBrand imageLifestyle and travel changesTechnologicalAutomatic booking in systemsOnline activitychange in consumer buying habitsEnvironmentInvestor added valueEU and international environment concernsLegal issuesEuropean legislationEnvironment regulationsCompetition rulesFigure 5 Opportunities and ThreatsOpportunitiesThreatsGrowth of networkIncreased competitionGrowth of passenger numbersIndustry consolidationMaintenance of cost reductionsPolitical interventionContinuing price reductions (free?)Environmental issuesExpand cooperation between Low cost carriersFurther acquisitionsAppendix B Internal environmentFigure 6 Value Chain fountain Porter (2004)Appendix C strategic optionsFigure 7 The strategy clockSource www.marketing teacher.com Appendix D evaluation criteriaFigure 8 Rumelts evaluation criteria unity ar the external strategies consistent with (supported by) the various internal aspects of the organization? You mustiness examine all the various functional and internal management strategies employed by the organization and compare them with the external business strategy.ConsonanceAre the strategies in agreement with the various external trends (and sets of trends) in the environment? To suffice this questions, you need to look at all the major trends that impact the selected strategy both positively and negatively.FeasibilityIs the strategy reasonable in terms of the organizations resources?Money and capitalManagement, professional, and technical resourcesTime spanAdvantageDoes the strategy create and/or maintain a competitive advantage?ResourcesSkills powerSource Johnson et al (2007, p.593)1Footnotes1 Intergovernmental Panel on Climate ChangePL11