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Ryanair – The Low Fares Airline Strategic Analysis / 222621-0004 Strategic Management dr Maria Aluchna Ivan Martinov ? 50170, e-mail: imartinov@gmail. com S. M. Sabbir ? 50185, e-mail: ssmm0002@student. umu. se Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH Table of Contents 1. 2. Introduction …………………………………………………………………………………………………………………………. 3 Strategic Analysis ………………………………………………………………………………………………………………… 2. 1. Microenvironment…………………………………………………………………………………………………………. 4 Porter Five Forces Model ………………………………………………………………………………………… 4 SWOT Analysis …………………………………………………………………………………………………….. 5 2. 1. 1. 2. 1. 2. 2. 2. Macroenvironment ………………………………………………………………………………………………………… PESTEL Analysis ………………………………………………………………………………………………….. 7 2. 2. 1. 2. 3. 2. 4. Strategic Capabilities …………………………………………………………………………………………………….. 9 Stakeholder Analysis …………………………………………………………………………………………………… 10 Stakeholder mapping…………………………………………………………………………………………….. 0 Stakeholder initiatives …………………………………………………………………………………………… 11 2. 4. 1. 2. 4. 2. 3. Strategy Formulation ………………………………………………………………………………………………………….. 12 3. 1. 3. 2. 3. 3. 3. 4. 3. 5. 3. 6. 3. 7. Vision and Mission ……………………………………………………………………………………………………… 12 Business Model …………………………………………………………………………………………………………… 3 Business Level Strategy ……………………………………………………………………………………………….. 16 The Ansoff Matrix ………………………………………………………………………………………………………. 16 The Boston Consulting Group Matrix ……………………………………………………………………………. 17 Global Integration – Local Responsiveness Grid……………………………………………………………… 8 The Balanced Scorecard……………………………………………………………………………………………….. 18 4. Conclusion ………………………………………………………………………………………………………………………… 19 4. 1. Recommendations ……………………………………………………………………………………………………….. 20 5. 6. References …………………………………………………………………………………………………………………………. 2 Appendix …………………………………………………………………………………………………………………………… 23 6. 1. 6. 2. 6. 3. 6. 4. 6. 5. 6. 6. 6. 7. Figure PESTEL Analysis ……………………………………………………………………………………………… 23 Figure Strategic Mapping……………………………………………………………………………………………… 24 Figure Market Positioning ……………………………………………………………………………………………. 4 Figure The Ansoff Matrix …………………………………………………………………………………………….. 25 Figure The Boston Consulting Group Matrix ………………………………………………………………….. 25 Figure Global Integration/Local Responsiveness Grid ……………………………………………………… 26 Figure Balanced Scorecard …………………………………………………………………………………………… 26 2
Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH 1. Introduction Ryanair is the first European Low Cost Carrier (LCC) by utilizing the Southwest LCC model in 1990. It started its business as a small family owned business by Ryan family on 1985. Its first route was between Waterford in the southeast of Ireland to London Gatwick with a 15-seater Bandeirante aircraft. On the following year (i. e. , 1986) it put milestone of European fare war in the air travel industry by promoting a fare of ? 99 return compare with the BA/Aer Lingus lowest return fare of ? 09. On the first full year it carried 82,000 passengers. On 1990, after three years of constant growth, Ryanair faces a loss of ? 20m due to intense competition with British Airways and Aer Lingus. The management decided to change their strategy. They adopted US successful Southwest Airlines low fare model and re-launched its whole management and become the first European low fares airline. After that Ryanair does not look back from its profit. Currently, Ryanair operates more than 1,400 flights per day from 44 bases with 1100+ low fare routes in 27 countries.
It covers 160 destinations. It operates a fleet of 250 new Boeing 737-800s aircraft. Ryanair presently has more than 8,000 people as employee and expects to carry approximately 73. 5 million passengers in the current fiscal year1. According to IATA it has been ranked as No. 1 of international, domestic and total scheduled passenger numbers which was 73,500,000 which nearest competitor Lufthansa with 41,515,0002. Ryanair? s success story backed with its core strategy. It adopts the LCC core strategy by focusing on lowering all kinds of cost.
From the very beginning of its strategy it is found that Ryanair use all possible steps to reduce the cost of operating in the aviation industry. It gives the strength of lowering the fare and generates high passenger traffic all year round in all situations. In the present study these aspects of Ryanair? s strategy will discussed relating with various issues arises in the aviation industry. 1 2 Adopted from http://www. ryanair. com/en/about http://www. ryanair. com/doc/investor/present/quarter2_2011. pdf 3 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH . Strategic Analysis 2. 1. Microenvironment 2. 1. 1. Porter Five Forces Model Bargaining Power of Suppliers » Boeing is the main supplier of aircraft for Ryanair » Because of all mechanics and pilots would need to be retrained, switching costs from one supplier to the other is high » Cost of air craft fuel is directly related to the cost of oil (Ryanair controls these through hedging). » Regional Airports have less bargaining power as they are heavily dependent on one airline » Large airports, where Ryanair? s competitors operate, have greater bargaining power. Ryanair? strategy is to avoid these airports. Bargaining Power of Customers » Customers are very price sensitive » Switching to another airline is relatively easy and is not generate high costs (all airlines can booked by online) » No loyalty among the customer for a specific airlines New Entrants » New LCC will face barriers to entry in the existing market » The LCC needs high capital of investment and it will take time to see the break-even » Restricted slot availability makes it more complex to find suitable airports » Possibility of immediate price war if following on existing LCC route. Need for low cost base to compete with others » Flight Authorizations needs to enter new airports 4 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH Threat of Substitutes » There is no brand loyalty among the customers » No „close customer relationship? management » There are no switching costs for the customer » There are alternative modes of transportation, e. g. Eurostar, Eurolines, Ferries, Cars etc.
Competitive Rivalry » Highly competitive LCC market » The Southwest airlines strategy can be copied by the competitors easily » Currently, the two major low-cost airlines have avoided direct head-to-head competition by choosing different routes to serve which exhibit low competition » If any company decide to compete on the same basis as Ryanair there will be heavy pressure on prices, margins, and hence on profitability » Services provided by the competitors are almost same. Price is the main factor of differentiation. 2. 1. 2. SWOT Analysis Strength » Brand Name: For last 21 years Ryanair is operating in the LCC industry.
It builds a good brand position for offering lower fare among the customer. » Benefits from low airport charges: Because of Ryanair? s strategy to choose the airport? s with low charge, they have lowered the operating cost. » Online booking: currently, 94% of the booking is done by online website of Ryanair. It reduced the cost of physical establishment for booking as well as agent cost. By 2011, Ryanair is targeted to make it 100% online booking. » First mover advantage: Ryanair is the first who went to the regional airports for commercial purpose.
They can act as a barrier to enter these airports. » All Boeing Air Craft: Ryanair runs its whole fleet service by the air craft produced by Boeing. It reduced the cost of maintenance and training. 5 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH » Better service performance: Ryanair is punctual, have high rate of flight completion, low baggage loss, which create a reliable service provider among the passenger » Updated fleet with low maintenance cost: Ryanair fleet comprise with all Boeing 737-800 model, which require low maintenance cost. High air craft utilization: Ryanair use its air craft for longer times which generate more revenue per air craft than the other air companies. Weakness » Niche marketing: Ryanair is focusing in a specific market of lower cost. For future it will restrict to expand the company on the other segments. » Distance of regional airports: Ryanair is using the regional airports which are most of the time, have long distance from the town or city. It creates some problems for the passenger to get into the city. » Poor service: the service quality of Ryanair? people are most of the time poor. » Reluctant in charge adjust: Ryanair is often very sensitive to change their charges. Opportunity » European Union expansion: Due to EU expansion by 2007 and in the future Ryanair will have lots of opportunity to capture new potential markets as well as air ports. » Possibility to grow: the LCC segment is still in the growth stage. So, Ryanair has more opportunity to grow more. » Low focus on geographic region: Problems with maintaining too much geographic coverage is low for the Ryanair as it is more focused only on European Union. Economic depression: Economic depression forced the passenger to seek only the air travel service with lower cost, which actually creates opportunity for the Ryanair. Threat » Fuel cost: the whole aviation is industry depends on the price oil. Increase of oil price thus reflect on the increase of cost of operation. 6 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH » Low fare competition: Following the Ryanair success in the LCC market, some other competitors are interested in this particular segment. » Air traffic charge: Ryanair is facing the increase in air traffic charge. Customer: Customers are very price sensitive and not loyal. » Regional airport bargaining power: Regional airport got bargaining power as other LCC is competing in this market. » Possibility of huge battle: Ryanair and Easy Jet are trying to avoid head-to-head battle. They avoid each other? s routes. But in the future when market gets mature, there is a possibility to have battle in the existing market. 2. 2. Macroenvironment 2. 2. 1. PESTEL Analysis In order to analyze the Macroenvironment of the low cost airline industry we have applied the PESTLE analysis.
This analytical model clearly depicts which environmental factors and trends are favorable for the airline industry and which are not. Focused on political, economic, social, technological, legal and environmental aspects this tool could easily bring great clarity on what is actually going on in the specific industry. Due to the fact that the success of Ryanair is dependent upon a lot of different factors, it is very important to have a closer look at these six dimensions. On the political level there are several important factors directly influencing the airline industry.
On one hand, EU offers a strong and stable political environment, which gives the company security to plan long term strategies and make large strategic investments. On the other hand, however the union follows a severe pro-environmental policy and it fights for global carbon taxation, which will of course substantially increase the costs in the airline industry. At the same time, we should not forget that in the last couple of decades the European Union has expanded significantly. This has brought tremendous business opportunities for companies to expanded their operations and enter new markets more quickly and trouble free.
Ryanair experiences also a lot of pressure from trade unions, because it does not recognize them. Therefore, often the 7 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH company is being criticized on that matter and sometimes even it has to respond to legal allegations. 3 As far as the next dimension is concerned we have to point out that just as the political environment the economic one is also very controversial, offering both supportive and opposing factors for the airline industry. The economic level is not of minor importance.
The collapse of the financial market in 2008 was followed by a severe economic crisis. Unemployment increased substantially especially in countries such as Spain and Greece. People cut down on leisure activities such as travelling and preferred to stay at their homes. Furthermore, fuel prices are very volatile and we have seen recently major price fluctuations. The crude oil prices skyrocketed in 2007, which resulted in higher prices for the end consumer. Maybe the weak US dollar slightly softened the higher fuel prices for european companies, but the higher prices definitely caused strong disturbances on the EU market as well.
Nevertheless, Ryanair kept serving more and more passengers and it seemed as it just did not want to participate in the global recession. 4 The social environment is rather positive due to the following trends. There are changes in demographics and consumer preferences. Although the EU population tends to get older, there is definite tendency towards more frequent short-term trips for weekend city tourism. The increased environmental awareness might make some people travel less, but Ryanair is one of the leading airline companies trying to reduce CO2 emissions as much as possible.
It has already replaced its entire aircraft fleet and the new airplanes are much more fuel efficient and respectively reduce less CO2 emissions in the atmosphere. We evaluate the threat of terrorist attacks to be not very high, because Ryanair serves secondary airports with much less people circulation. Even though those airports have usually lower security levels, we still do not think that they will be an attractive target for any possible tourist attacks. Technology also provides quite good environment for the airline industry.
The new aircrafts produced today are much more fuel efficient, which automatically means less CO2 emissions. The continuous development of Internet has allowed Ryanair and other companies to significantly reduce their costs through standardized online booking processes. Today, there are indeed much quicker trains, however air transport still remains unbeatable as far as speed is concerned. 3 4 http://companies. jrank. org/pages/3619/Ryanair-Holdings-Plc. html http://www. ryanair. com/en/about 8 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH
The last two dimensions legal and environmental we have described as rather negative. This is mostly due to increased climate change and environmental awareness. Therefore, many people and environmental organizations are opposing airline industry. Although it online contributes 1. 6% of the GHG, it is the transport sector with the highest growth in terms of CO2 emissions. 5 At the same time local communities are concerned about noise pollution. Even though new technology has significantly reduced the noise generated by airplanes there is still a room for improvement.
There are new initiatives by EU to implement a strong environmental policy. It is focused on setting legal emission constraints and passengers will have to pay for their CO2 emissions as part of the flight price. Next to that we have to point out that in the recent years Ryanair has other major legal troubles. There were some corporate lawsuits against the company that caused some damage to the image of the company and in the future it definitely has to pay greater attention towards the corporate brand and the society? s perception. All in all, the Macroenvironment is contradictory with having both positive aspects supporting the industry and negative aspects opposing it. The biggest problem by far is the increased environmental awareness on political and social levels, which can easily result in increased prices and jeopardize Ryanair? s business model. However, the improved technology and travel trends compensate to some extent for the above mentioned hostile factors. 2. 3. Strategic Capabilities Ryanair? s strategic capability describes its strength to face the competitiveness in the market. Its strategic capability is based on its resources.
Those are: Physical resources: Ryanair have more than 250 Boeing 737-800s aircraft in its fleet. It is easy to maintain same category of aircraft, which minimize the cost. On an average the flights can turnaround within 25 minutes, which help to increase maximum utilization of aircraft. Moreover, Ryanair uses regional airports, which gives them the bargaining power over the airport authority. Technological Resources: Ryanair is targeting to make its booking system 100% online, which reduce the cost of maintaining agents for the ticket. 5 6 http://www. eoearth. org/article/Carbon_footprint http://umu. iva-portal. org/smash/get/diva2:140520/FULLTEXT01 9 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH Reputation: Ryanair is reputed and continuously focusing on being punctual and lowering the percentage of losing baggage. Human Resources: Ryanair has trained human resources which is continuously supporting to give the best services to passenger as well as to the company. It has incentives for selling merchandise on board. 2. 4. Stakeholder Analysis 2. 4. 1. Stakeholder mapping Ryanair has many different stakeholders that could influence the company in one way or another.
Some of the most important stakeholders are: shareholders, investors, creditors, the government, customers, employees, competitors, local communities, and NGOs. In order to analyze the stakeholders and their influence in detail we have used the stakeholder mapping framework, which will give us a better overview of the level of interest and influence of the different groups. Under key players we have identified shareholder, investors, creditors and the government as the most interested and influential groups on Ryanair and the airline industry in general.
Obviously, shareholders and investors are partial owners of the company, which gives them some power to influence the company? s decision making. Creditors could become very unfriendly, if they do not receive their monthly payments. The government could easily improve or worsen the business environment for every industry by implementing some new laws and legislations. The groups that Ryanair has to keep informed are customers, employees and competitors. They are very interested in the company, but compared to the key players they have far less influential power.
Employees are less powerful due to the lack of trade unions that the company is a part of. Customers could hardly switch to any other airline, because Ryanair prices are unbeatably low and the low cost passengers are extremely price sensitive. Competitors are also very interested, but they cannot easily influence the company a lot. They could hardly offer much lower prices than Ryanair. Even if they could they could only do it in a very short-term, which makes it pointless in the first place. The other two stakeholder groups NGOs and local communities we have identified as respectively keep satisfied and minimal effort groups.
The first group we have described as 10 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH rather influential, because today non-governmental organizations could really help ruin the image of a company, if they do not agree with the policy and actions performed by that company. We consider this group to be not that actively influenced, because if a company follows a strategy to reduce CO2 emissions and increase fuel efficiency as Ryanair does, then a NGO will not pay much attention to it. Local communities are the least important group according to the stakeholder? mapping framework. First of all unorganized they do not have strong power and second Ryanair generally serves secondary airports which are outside of the big cities where fewer people live. Therefore, we think that local communities do not consider Ryanair in particular as a strong noise pollutant. 7 2. 4. 2. Stakeholder initiatives In order to keep its stakeholders happy Ryanair has undertaken different initiatives. In the last several years, the company has replaced its entire aircraft fleet by spending EUR 17 billion.
Thus, it has achieved much higher fuel efficiency, 45% less CO2 emissions and the average age of its airplanes is 2. 5 years in contrast to 11 years for the average industry. Through these actions the company tries to keep the government, employees and customers satisfied. On one hand the government sees that Ryanair is trying to reduce its impact on the climate change and to comply with the new legal frameworks and the increased carbon emission restrictions. On the other hand, employees and clients feel much safer when travelling in new airplanes.
As a result of all these initiatives the image of the company as far as reliability is concerned is pretty high. Even though they were some problems with a couple of flights, Ryanair has not experienced any incidents with casualties so far. This gives credibility to the company and makes one of the first choices in cheap international travel. Furthermore, the new airplanes fulfill all the new noise requirements. Ryanair has equipped all its aircraft fleet with winglets which will further reduce the noise pollution by 6. 5%.
On the top of that the company has undertaken many operational measure that further drive down the noise pollution. Some examples are absence of night operations, compliance with local noise restrictions and operations mostly secondary airports which are far away from densely populated 7 http://sampleresearchproposals. blogspot. com/2008/07/ryanair-ups-and-downs. html 11 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH areas. All these precautions will guarantee that the local communities will have fewer things to worry about and will not be interested in actively causing troubles for the company.
Given the fact that Ryanair follows a severe low cost strategy and does not offer free meals, drinks or any newspapers, this result in significant waste reduction compared to the traditional airlines. We know how big of a problem is waste in our world today and the resources required to properly manage it are tremendously hight. Thus, non-governmental organizations and even governments will be satisfied with the company? s lower levels of waste, which speaks for a more sustainable business model.
For its shareholders, investors and creditors, the company releases regular financial reports, which provide all the necessary information for interested stakeholders to see how the company is performing. Two times per year Ryanair also releases profit reports, which further gives more clarity on the current situation. At the same time, the company is involved in different CSR campaigns. For instance, this year they released 10 000 copies of the Girls of Ryanair Charity Calendar, which they will sell for $10 each and the revenue will be donated to some charity organizations.
The company also offers free flights to people who are recognizable donators or even to A-level students to stimulate them to get better grades. 8 3. Strategy Formulation 3. 1. Vision and Mission Ryanair doesn? t have any formal mission and vision statement. According to Ryanair report 19979 Ryanair? s mission statement is: “Ryanair will become Europe’s most profitable lowest cost airline by rolling out our proven `low-fare-no-frills’ service in all markets in which we operate, to the benefit of our passengers, people, and shareholders. ” 8 9 http://www. ryanair. om/en/about/ryanair-and-the-environment Mayer, 2007, pp. 01 12 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH According to Michael O? Leary, the CEO of Ryanair, their vision is to simply continue as the largest low cost leader in the European airlines industry and to carry 50 million passengers by 200910. 3. 2. Business Model In 1990, after having depression on the revenue, Ryanair decided to change the overall business strategy by adopting Southwest Airline Model. Southwest airline is the first to rival in LCC industry. It was introduced in the USA in 1971.
The original Southwest lower-cost model comprised of11: Low fares; High frequency flights; Point-to-point service; No free meals or drinks on board; No seat assignments; Short flights; Flights to secondary airports Ryanair’s adaptation of Southwest LCC Model: Low fares: Ryanair use low fare to create demand, attracting the customers who seeking low fares for their leisure and frequent business flyers who are using other method of travel. Ryanair decide its fare based on the demand on a particular flights and times remaining before the time of departure.
Most of the seats are sold with the minimum fare assigned by the authority. In September 2003, Ryanair launched a fare promotion offering a total of two million seats on certain routes for “free” (excluding government taxes and passenger service charges) for travel during the period between September 2003 and December 17, 2003. Ryanair used these kinds of campaigns to strengthen the image of low fare. 10 11 Box & Byus, 2005, pp. 11 General review, 2006, pp. 18 13 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH Short and Frequent of flights: The average flight time has been 1. hours with an average route cover 746 kilometers in 2003 and the average turnaround time is 25 minutes12. Ryanair? s flew an average of approximately 1. 94 round trips daily per route. The choice of only flying short-haul routes allows Ryanair to offer frequent service, while eliminating the necessity to provide “frill” services otherwise expected by customers on longer flights. Point-to-point service: Ryanair provides frequent point-to-point service on short-haul routes to regional and secondary airports in and around major population centers and travel destinations.
Point-to-point flying (as opposed to hub-and-spoke service used by the other traditional carriers) allows Ryanair to decrease the costs of providing through service for connecting passengers, including baggage transfer and transit passenger assistance costs. This is one of the major differences between Ryanair and traditional carriers. No free meals and drinks: Ryanair doesn? t provide any kinds of free products on board. It provides a wide range of revenue generating products which includes on board merchandise, drinks, foods. Flights to secondary airports: This is one of most important strategy of Ryanair as LCC Company.
Ryanair focused on the secondary airports which has convenience access to the cities (e. g. , Katowice airport for Krakow city) and regional airport (e. g. Brussels-South Charleroi airport). This strategy gives competitive access and handling costs as well as provide high rate of on-time departures, less terminal delays and quick turnaround times (it is much quicker to land, unload and reload passengers as well as luggage and take off again at smaller less crowded airports then at a major airport such as London-Heathrow which has to accommodate many air craft at the same time). Low Operating Costs13.
Low operating cost is the main strength of Ryanair for attracting the passengers with low fare. For major area have been controlled by Ryanair achieve these competitive advantage. These are: (i) aircraft equipment costs; (ii) personnel expenses; (iii) customer service costs; and (iv) airport access and handling costs: 12 13 Same as above Ryanair Annual Report 2009 14 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH (i) Aircraft Equipment Costs: Ryanair’s first strategy for controlling aircraft purchase costs was to get used aircraft of a single type, which was no longer became viable.
In 1998, Ryanair declared that it would add new Boeing 737-800 “next generation” aircraft in Ryanair fleet. The 737-800s is the latest generation of Boeing’s 737 aircraft and have common basic attributes with Ryanair’s existing fleet. This strategy of limiting its fleet primarily to three variants of a single type of aircraft from a single manufacturer enables Ryanair to lowering the costs related with staff training, maintenance and the purchase and storage of spare parts, as well as enhance greater flexibility in the scheduling of crews and equipment.
Management of Ryanair believes that the terms of the Boeing contracts are very favorable for Ryanair? s strategy. (ii) Personnel Expenses: Ryanair efforts to control its labor costs by constantly improving the productivity of its already highly-productive employee. Remuneration for employees focuses by productivity-based pay incentives, which includes commission for selling onboard merchandise for flight attendants and salary based on the number of hours or sectors flown by pilots and cabin crew staff. Moreover, there is remuneration for participation in Ryanair’s stock option programs14. iii) Customer Service Costs: Ryanair use agreements with competitive terms between third party contractors at some airports. To maintain aircraft, passengers, ticketing, and other services Ryanair believes third parties are more cost effective and efficient. Ryanair tries to obtain competitive offer for such services by making multi-year contracts at prices that are fixed or subject only to change linked to inflation. Using its own reservations centre and internet booking service reduced the cost of commission for travel agents. 14 http://www. ryanair. com/doc/investor/Strategy. pdf 15
Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH (iv) Airport Access Fees: Ryanair is interested on those airports who offers competitive airport service charge which leads lowering the airport cost. It is possible because constant increase of high traffic of passengers on the service of airport allows taking the bargaining position over the airport authority. It allows Ryanair to make a favorable agreement with the airports. 3. 3. Business Level Strategy Ryanair? s business level strategy comprise with its core competencies of offering the best service with minimal value compare to other competitors.
It gives the strength of competitive advantage in the LCC industry. Ryanair follows Michael Porter? s three major strategies to gain competitive advantage. Those are: Cost Leadership: Gain cost leadership by maximum utilization of air craft, avoid free meals on board, overall online booking, give less space of supplier in bargaining, maintaining same air craft model in the fleet, search for low charged airports, encourage employees for sales commission. Differentiation: Ryanair make their differentiating strategy by lowering passengers cost to travel by plane, compare to other competitors.
Focus: Focused on the segment of the passengers who are seeking low cost for travel in leisure and frequent flyers who just want to travel fast but with good rates (e. g. , businessmen). Positioning: Ryanair exclusively follows the Southwest LCC model. It makes Ryanair to successfully position itself in the pure low cost segment. Compromising the services cost of maintenance Ryanair focused in this Low Cost Carrier segment15. 3. 4. The Ansoff Matrix According to the Ansoff matrix, Ryanair operates on two of the quadrants characterized with existing products. The company focuses on both market penetration and market development.
On one hand, the company tries to increase the number of passengers and flights within existing 15 Market Positioning strategy of Aviation industry in the appendix 16 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH destinations as well as offering additional routes from and to these countries. On the other hand, the company continuously tries to enter new market and offer their services there. For example, recently Ryanair started serving the new EU members Bulgaria and Romania, where there is far larger potential. The company only serves one airport in each country and both markets could be easily further developed.
Those countries offer incredible nature and many leisure opportunities, which come on much lower prices compared to Western and Central Europe. The low cost airline offers also flights to North Africa and Marocco in particular, which is also an interesting destination for Europeans rich in history and culture. Ryanair is currently looking at Turkey as the next possible destinations with great potential. If the company manages to get its hand on the Turkish market, it will most probably steal some market share from the typical charter airlines for the summer. Other countries of interest for the near future could be
Egypt and Tunis, which both are desired tourism destination and have also a lot to offer. 16 3. 5. The Boston Consulting Group Matrix Another analytical tool that we have used to analyze Ryanair? s strategy formulation is the Boston Consulting Group Matrix. Following theoretical framework provided we have allocated several destinations in their respective quadrants according to their market share and market growth. As cash cows we have identified well visited European big cities and capitals that attract continuously a great amount of visitors throughout the year.
Examples of cash cows are London, Paris, Barcelona, Madrid, Milan, Rome, etc. Under the stars category we have put hot new destinations such as Croatia with its booming tourism on the Adriatic coast. Croatia? s relatively cheaper prices compared to Spain, France and Italy makes it a desired destination especially for young people who enjoy having fun. We believe that Turkey will also fall in this quadrant once Ryanair enters the market. The country is popular for its amazing culture, historical heritage and wonderful beaches and it is visited by a great number of people every year.
Although Morocco is relatively popular destination, its exact demand is difficult to be assessed and therefore we have identified it as a question mark. Under this category will also fall other North African countries such as Tunis and Egypt once the company starts offering flights to those destinations. It is true that these North African countries are amazing places to visit, offering such places as the Pyramids, but at the same time they are also famous for lower quality of services, terrorist 16 http://ivythesis. typepad. com/term_paper_topics/2008/07/ryan-airs-ansof. tml 17 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH attacks and other less attractive features. This dubious nature of the destinations makes it hard to estimate exactly how many people would like to book a flight to North Africa and how often. 17 3. 6. Global Integration – Local Responsiveness Grid Trying to identify Ryanair? s business model and specifically their degrees of standardization and customization we have used the global integration/local responsiveness grid, which shows which strategy the company actually follows.
Our analysis revealed that although the company offers more of standardized services in terms of prices and airplanes equipment, Ryanair has also turned into a multicultural company with workers from all over Europe. Furthermore, the company is able to exploit experience curve effects and to learn from previous markets expansions. Therefore, we believe that the low cost carrier actually combines aspects from both global and multi-domestic strategies, which results in a transnational strategy; a strategy that focuses on high global integration and high local responsiveness. 8 3. 7. The Balanced Scorecard One analytical tool for proper management and control is the Balanced Scorecard. We have applied it to Ryanair to see how this measurement tool helps companies to monitor the company? s performance based on desired strategy and previously identified specific measures and initiatives. For every different strategic dimension of finance, customers, internal process and learning/growth we have identified proper measures, targets and initiatives that have to be constantly monitored.
In order to monitor the financial aspect of the business, Ryanair has to pay close attention to profit margins, revenue growth, cash flow and costs. Some specific targets could be an annual increase of 10% in market value and another 10% increase in seat revenue per year. Ryanair has to offer additional routes, more frequent flights and continue reducing costs, if it wants to achieve the desired goals. As far as the internal processes are concerned we recommend that the company monitors market share, customer satisfaction, on time arrivals and numbers of passengers.
Examples of the actual goals could be as follows: no more than 0. 5% missed bags, an annual passenger increase of 10% 17 18 http://medlibrary. org/medwiki/Ryanair_destinations http://www. ucd. ie/quinn/aboutus/newsevents/title,44634,en. html 18 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH and at least 95% of on time arrivals. Some ways to do that is develop sophisticated customer loyalty and quality management programs. The internal processes of the company are also of vital importance and their optimizations are crucial for the success of the business.
Two significant performance characteristics are onground time and on-time departures. Ryanair should try to keep on-time departures above 95% and on-ground time no more than five hours. A cycle time optimization program could substantially help the company to achieve the desired targets. To keep educating and improving its employees Ryanair has to think of some measures to observe the learning and growth dimension. A good example could be to offer various training courses and to monitor the employees? attendance with deserved target of at least 70% of its employees taking at least one course per year. 9 4. Conclusion After applying several different analytical frameworks to analyze Ryanair? s strategy on various levels we have found out that the company is being successful mostly as a result of the deregulation of the Airline industry, the European Union expansion and the its severe low cost strategy. Since its foundation in 1985 the company has transformed itself into the low cost airline with the highest number of international passengers in Europe; in 2010 Ryanair served approximately 73. 5 million passenger whereas Lufthansa served 41. 5 million and Easy Jet 34. 6 million.
Clearly, the company outperforms its direct rival and all the other airlines. Copying Soutwest Airlines business model gave Ryanair the opportunity to gain competitive advantage over its competitors and move ahead of them. The low cost carrier has been indeed criticized a lot; however, it is an outstanding business organization that delivers its clients what they need – the opportunity to travel abroad on a very low price. The reason why Ryanair is being so successful is because it manages to offer prices on average at least 12% cheaper than the next low cost competitor – Easy Jet.
Today the company has 44 bases, serving over 160 airports, 27 countries, 1200 routes, 1500 daily departures, and 254 relatively new Boeing 737-800. With 93% on time arrivals Ryanair is outperforming every other European Airline in this category 19 http://www. accaglobal. com/students/acca/exams/p5/technical_articles/2950518 19 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH including well established Airlines such as Lufthansa, Air France and British Airways. There is no doubt that the company is on the right track and it could accomplish a lot.
Nevertheless, the airline industry is very cut-throat business where companies without the right strategy could get easily acquired by larger corporations. Therefore, we have come up with some recommendations how the company can further expand its business and achieve additional growth. 4. 1. Recommendations Our analysis has revealed that the main reason Ryanair has grown tremendously in the last couple of decades is mostly due to the expansion of EU, deregulation of European markets and the severe low cost strategy followed by the company.
It is interesting how it seems as if the company was not impacted by the recent global crisis; the company continued increasing its number of passengers and offering new and new destinations. However in order to keep being successful and further improving its leading position on the market, we have prepared some recommendations for the company to implement. Ryanair has to keep increasing the number of flights offered to existing destinations. There is still a lot of room for improvement and the company can definitely obtain new destination cities within existing markets.
Next, Ryanair has to continue exploiting new markets in Eastern Europe, Turkey and North Africa. The company successfully entered the new European members Bulgaria and Romania and started operating on both markets. However, they only serve one city per country. The company has to better exploit both destinations, which are generally cheaper destinations in Europe and have a lot to offer for less money. At the same time, Ryanair has to continue looking at Turkey and figuring out a way to enter the country.
The western part of the country is very interesting with an incredible history, which makes it a desired destination for many Europeans. The market in North Africa could also be developed further; countries such as Tunis and Egypt are generally desired tourism destinations and are rich in history and culture. Charter flights are one of the best ways for going on a holiday. However, Ryanair is trying to challenge this model by offering cost-effective opportunities for people to organize their own holidays and avoid the appalling mass tourism model offered on the market today.
The company provides people the flexibility to customize their holiday on a very reasonable price; in only a 20 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH couple of weeks people could visit 3, 4 major cities in Europe paying a price unbeatable by any other company offering travel services. Thus the company tries to steal market from the charter airline business, which for the moment captures around 25% of the entire air industry. Ryanair has to pay much more attention to the company„s image.
Often there are corporate lawsuits against the company as a result of bad marketing campaigns or some personal lawsuits towards the company? s CEO O? Leary. He is a genius but at the same time an arrogant person, who often gets into public confrontations, which damage the corporate image. Ryanair has to be more concerned how the society and all its stakeholders perceive the company and what they think of it. Ryanair has already reduced significantly its cost as a result of a severe reduction policy.
The company has saved a lot by efficient optimization of its uniform fleet, administration, crew costs, sales expenses, food and beverages offering, higher flight time, sales commissions, secondary airports, ground handling, seat density. Cost reduction per passenger amounts to 59% in comparison to traditional airlines. Nevertheless, Ryanair has to keep searching for ways to further reduce its costs, because this is a perfect way to continue outperforming its competitors. Last but not least, the company has to try to make all its bookings done online.
This will enable Ryanair to further drive costs down as it will get rid of expensive call services that it currently provides. Getting the best use of the Internet and online bookings will allow the company to make its booking process completely automated and much more efficient. 21 Assignment | 222621-0004 Strategic Management | Fall Semester 2010 | SGH 5. References About Us. (2011). Retrieved January Wednesday, 2011, from Ryanair: http://www. ryanair. com/en/about Air, R. (2011). Passenger Charter. Retrieved January 2011, from Ryanair: http://www. ryanair. com/en/about/passenger-charter Air, R. 2011). Presentation for the Investor 2011. Retrieved January 2011, from Ryanair: http://www. ryanair. com/doc/investor/present/quarter2_2011. pdf Box, T. M. , & Byus, K. (2005). Ryanair (2005): Successful Low Cost Leadership. Allied Academies International Conference (pp. 9-13). Las Vegas: International Academy for case studies. Helterlin, G. , & Ramalho, N. (2007, June). How did the deregulation of air transportation in Europe foster entrepreneurial behavior and innovation in the European airline industry over the last twenty years? : Case studies: SAS Airline & Ryanair.
Umea, Vasterbotten, Sweden. Mayer, S. (2007). Ryanair and its low cost flights in europe. Queensland, Australia: University of the Sunshine Coast. Morgan, G. (2005, August). Performance Measure to Support Competitive Advantage. Retrieved January 2011, from ACCA-the global body of professional accountant: http://www. accaglobal. com/students/acca/exams/p5/technical_articles/2950518 O’Culleanain, E. S. , & et, a. (2004). Seminar on Business Plan: Ryanair. Brussels: Solvay Business School. Review. (2006). Easyjet and Ryanair flying high on the Southwest model: Charting the ups and downs of low-cost