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Executive summary:
Somebody has said that good thing in life comes in small packages. Ryanair did not think
of charging high prices but made it as low as possible which brought him a tremendous
profit. To accomplish competitive positioning and sustain the advantage over it, the firm’s
resources and capabilities are deployed excessively. Ryanair objective been so far is to
establish itself as a lowest fair scheduled passenger airline. So they focused on the
operating cost efficiencies which led them “the way”. Despite the adverse economic,
political and legal circumstances like rise in fuel prices, E.U. regulations to restrict pilots
flying hours, Levied arrear charges of the public airport Charleroi, greenhouse emission
etc. they continued on their promises and kept their positioning strong and less affected.
And that is where their capability reflected “hard to imitate” resources which was
possessed by them.
management skills, so these are capabilities and resources which complemented firm with
its right strategy. Now certain environment, socio- cultural and technological favored
them as well. Like for example increasing passengers due to changing in life style, less
competition (because no one wanted to take risk of no-frills low cost services) fueled
their success. Not much differentiation between services, Price is the main differentiating
factor. Their frequent point-to-point flights, choice of the different Routes, low-fares
which was consistence, low operating cost(airplane maintenance Cost, staff expenses,
customers servicing cost, airport excess fees, maximizing the use of internet) and with the
help of auxiliary revenue they positioned themselves as the pure low cost airlines. But the
main cause of demise of a firm is not that comes from outside i.e. threats but the
weakness is always there main cause for failure. The carelessness of a firm could also
come under weakness where the firms always look at the positive effect of the action and
simply ignores the negative part of it. The strategy of generating auxiliary revenue was
executed wrongly, where without thinking from the passenger’s point of view they took
on and on. That was the loop hole being left by them. But then to pay extra attention on
these internal weaknesses, can be easily overcome, and this is where internal analysis
plays a dominant role. Talking about the threats and other external forces in the industry,
where all the firms get affected, do not bring the much difference. First know the
positives and negatives of the firm and then position it to compete against the
competitors.
Introduction:
Now, Ryan air is competing in the fairly recent development of the European budget
airline industry. They are one of the key players within the market and perhaps the most
operates on 794 different routes daily serving by more than 1050 flights in a day. It has
totally 169 aircrafts running for different routes with 5986 number of employees working
in it(). It is planning to invest some €17bn to replace its all old aircrafts with the new
Boeing 737 – 800 to run the flights environment friendly. Moreover it has reduced the
Ryanair the low fare airlines set up in 1985 with just a share capital of $1 and staff of 25
starts off their first flight from Ireland to London. And then in 1986 they sought out the
permission from the regulatory authority to compete against British airways and air
lingus and started off the lowest fare war. So the concentrate is after deciding over the
corporate strategy i.e. the attractiveness of the industry to go in, the next option to go
further is to think of a business strategy where a decision has to made on the selection of
target market taking into consideration the firms internal scarce resources and
To accomplish competitive positioning and sustain the advantage over it, the firm’s
resources and capabilities are deployed excessively. Target competitive position has to be
customization and responsiveness etc, which will justify firms appeal to its target market.
Like for example low cost control has to blessed with low cost control strategy, or
management skills, so these are capabilities and resources which provides firm with its
right strategy. Anyways “the firm may look akin but in different species” this is what the
External analysis:
of profitability and thus adumbrate the industry’s attractiveness. New entrants bring
competition to the industry, and risk for the fall of market share and profitability, so they
are to be speculated sincerely. Does the barrier is high or the entrants could face high
Entry barrier:
As there was the requirement for huge capital investment and then the disbursement of
the capital investment and the profit leveraged on it was very slow and steady. Then
coming to the restricted slots being given to the airlines was much difficult to actually
find suitable airports and required a lot of initial knowledge and survey. As there was a
need for the low cost base which was pretty tough to actually realize and found out the
ways to get these bases which would be low cost, there was also high risk indulged with
the flights as it was a pure services driven sector then the risk like for example the no
inventoried factor or fluctuations in demand and supply was much o be thought at before
going for the investment in this sector. But in case of Ryanair the flight authorizations
and also because of the pioneer in this low cost segment favored it a lot.
The substitute:
As the customers were not brand loyal and also there was no switching cost for the
customers if in case they are moving to the other airline, these factors made the industry
much riskier for the existing players and also much attractive for the new entrants. Other
modes of transports like Eurostar, Ferries, Cars, TGV etc were there which were not very
much relevant to say were the close substitute to the low cost airline primarily because
the people want to travel by the low cost airline would be saving time and also being
benefitted in a lot more way which was not possible to get through other means of
transports. Also the relationship management with customers was also very lenient
then as the customers are price sensitive they had a huge inclination towards the low cost
airline, but again some factors like less loyalty and very minor switching cost made the
customers more powerful in certain respects, as per the case they welcomed this “NO
FRILLS LOW COST” airline which shows that still there was no monopoly and certain
Supplier’s power:
The supplier’s power was high since there were only 2 imperative suppliers of planes,
Boeing and Airbus, which led to high context of supplier and were playing dominant role
in the industry. Also switching cost from one supplier to other was high which led to
retrained mechanics and pilots for the usage of other supplier’s product. Boeing is
Ryanair main supplier. Also price of the fuel used in aviation industry is directly
proportionate to the cost of the oil, so the cost of production was varying vastly due to
fluctuations in the oil cost. The main air port charges were also very high because even
they were the dominant players in the supply chain, but the nearby air ports had have the
comparatively lesser bargaining power where the Ryanair chose to operate rather than
Competition:
For the low cost airline like Ryanair the competition was low but in the overall airlines
sector the competition was intense. Market was emerging and also gap existed in the
supply and demand line. However if some other company would had decided to compete
on the same basis as Ryanair did then there would have been a heavy pressure on prices
margins and hence on profitability. There was not much difference in the services they
were providing hence the only competition was on the price differentiation also there is
high exit barrier in the aircraft industry since high cost of capital and after losing on the
competitive battle no one can abnegate. That was the risk involved in the industry to inter
in.
Political & Legal
• In the different countries the government may support their own flagship carriers and
demoralizing other countries carriers.
• All the local councils which were much concerned about the noise and new runways
which was being built in the past was a great check to the airlines industry.
• The concerns and the efforts being put by the government to look after the tourism
industry might also trigger the industry. ()
• The abolishment of the free duty on sale by the EU. (Liberalization).
• Accusation of Misleading Advertising.
• Establishment “Climate Protection Charge”. ()
• The internet which was caused to face legal charges was simply the misuse of the
facilities.
• Pilots and cabin crew across Europe.
• IATA intrusion in Slot instruction for carriers and routes.
Economical
• The fuel price fluctuations were the most key factor for ELFA industry.
• The EU integrations had widened the opportunities for LFAs.
• Plummet in GDP and surge in the unemployment rate in January 2008 as compare to
January 2007.
• The airline industry is in the growth rate of the life cycle.
• To maintain the common interest rate throughout the EU, the interest and inflation rate
plunged and is low.
Socio-cultural
Technological
Environmental
Terrorist attack has the huge impact on the aviation and hotel industry.The 9/11 and 26/11 attacks
in US and Mumbai had effected the industry to its root level hence this is the one of the key
drivers for these industry.
Other Key Drivers of Change,
• Oil and fuel pricing fluctuations are the cost driven factors for Ryanair.
• Eco friendly organization leads to the trade of carbon emission.
• Transformation in technology through the help of internet world increased demand for
Ryanair since the bookings and cheek-ins were made easy.
• The policies of the Government regarding taxation and environmental charges caused
Ryanair to protest since that had a effect on its cost structure.
• On the name of social responsibility there was the intervention from the European
Commission.
• Shift in population and increase in literacy rate showed the upward trend in the bookings
and top line.
Strategic Drift
The gap between the external environment trend line and the progress of the organization is
known as strategic drift. The lack of the organization to cope with the external environmental
change and get fit itself in it creates strategic drift. So to get the gap bridged the organization
adopts different strategies in the flux phase. Similarly Ryan Air also applied different strategies
like; in 1990s they were giving all the facilities in low fare charges as compared to other
competitors to recover their loss. They started giving online booking facilities, Online Check – in
facilities, entertainment packages in Flight and in 2006 Ryan Air came up with different
packages like; Hotel Booking, Car Rental, Sight Seen, etc... This is how it bridged the gap and
continues with Transformable change.
Internal analysis:
Resources
There are two kinds of resources, tangible and intangible again moving further it can be
categories as financial resources, human resources, physical resources, intellectual capitol.
Physical Resources
The physical resource which Ryanair possess is the 196 Boeing aircrafts. The huge amount of
money was being spent by them on their physical resources for the maintenance. They need to
keep the resources proper and running to make sure that these will not harm their low cost
structure. They also have the youngest fleet in whole Europe with a highly fuel efficient
capacity. ()
Financial Resources
In the low cost structured airline Ryanair was the highest profit making airline.. It was working
with the 18% net margin which was around 300% more than any other airlines operating in the
same industry (). Its EPS was increased by 20% to €31.81 with increase in bottom line by 22%
to €480.9 in 2008 as compared to 2007. The cash balance of Ryan air at the end of the year
2008 was €2169.9mn. ()
Human resources
Initially the number of employees in Ryanair was 25 only. But gradually the Ryanair started
growing and became the market leader in the low cost airline industry of Europe which had 6000
thousand employees working in it and all of them are entrenched with cost cutting concept. ().
The employees were very much passionate about the works they do and also wanted help
Ryanair to retain at the no.1 position. Apart from this the top level management is working with
Ryanair for minimum 10 years. Hence they know the strategically right things to do because of
the knowledge gained in the company, also know about the internal and external strength of the
company. So this is the very unique and valuable resource of Ryanair.
Intellectual capital
The highest % of a pie of ELFA is still being shared by the Ryanair airline and its all because of
the senior management team of the company who has enormous experience in the same industry.
Mr. Michael O'Leary Joined Ryanair as a director in November 1988 and was appointed Chief
Executive Officer on January 1, 1994. Captain Ray Conway was appointed as Chief Pilot in June
2002, having joined Ryanair in 1987. He worked in Irish Air Corps for 14 years taking care
Training and Transport Squadron. ()
The start of the value chain is with the inbound logistics as a low cost fuel supply and low cost
aircraft supply also embraces the airport authority contracts. The relationship with the suppliers
was very warm and friendly and was also doing outsourcing for its check in work through the
websites for its passengers. The landing and take-off schedule were very much punctual and was
being operated in a very fine ways.The cargo services being provided by them were also too
good. The extra services and the entertainment facilities inside the aircraft were also attached and
that was the point of difference attracting passengers. The free publicity and the low cost
promotion was able to create a unique image in the mind of the consumers and also handled in a
cheaper way which led the company being firm at its position.
Activity map:
Overall looking at the big organization, every organization use to draw 3 to 4 different activity
maps and then selects one out of that which fetches the high profit margins and also will be
cheap in its structure will be best suitable. But as Ryan Air is operating in a industry where they
have to be the Cost Centric to draw their activity map rather than focusing on Profit
maximization. But even though they are operating on lesser cost they are able to mange to
maximize the revenues through its vast target market.
Benchmarking
If we talk about the Benchmarking method for Ryan Air then we can say that for European Low
Fare Airline Industry in which Ryan Air is performing as a Market Leader, the organization itself
can be set as a Benchmark for it. All the Aircrafts are having high load capacity, operating on
high profit margin, maximum number of employees, low fare charges, carrier (Cargo) services,
online booking & check – in facilities, customer convention packages are different criteria’s of
setting a benchmark and all these are already embed with Ryan Air. So Ryan Air itself is a
Benchmark for the Industry.
SWOT Analysis:
Strength:
Weakness:
• Total dependence on the CEO Michel o’ Leary.
• Employee relation was very poor.
• Customer relationship was volatile.
• Competitor’s relationship was aggressive.
• More roaring flights.
• Tied up cash with the purchase of new aircraft.
• Poor employee relations.
Opportunity:
• New routes were possible to found out.
• EU expansion.
• International airlines collaborated.
• Online selling of tickets i.e. Forward integration.
• New promotional plans.
• Expansion of ELFAA.
Threats:
• Economic crunch.
• Entry of new players in the industry.
• Fluctuations in fuel prices.
• Mergers and acquisitions happening at a faster rate.
• Evolution of trade union in the industry.
• Substitute transportation like car and high speed train.
Resource Competen
s ces
Threshold
Capabiliti Threshold Threshold
Resources Competence
es
Well Low
Experienced Maintenance
Management Cost
Organizational Knowledge:
Mr. Michael O’Leary can be known as a Knowledge Guru as far as Ryan Air is concern. He has
so many things in his head which he implies as a CEO and his experience in this Industry is
giving the competitive advantage to Ryan Air over others in this industry. There are other senior
managers and pilots also working in Ryan Air under O’Leary and because of that only Ryan Air
is still Market Leader in the Industry.
Referencing: