Focus 1:

Generic strategies

Porter introduced the term Generic Strategy to mean basic types of competitive strategy
that hold across many kinds of business situations.
Competitive strategy is concerned with how a strategic business unit (A strategic business
unit (SBU) supplies goods or services for a distinct domain of activity) achieves competitive
advantage in its domain of activity.
Competitive advantage is about how an SBU creates value for its users both (1) greater
than the costs of supplying them and (2) superior to that of rival SBUs.

Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of
activity.
Cost leader options in terms of quality: (1) parity, (2) proximity
Four key cost drivers that can help deliver cost leadership:
- ! Lower input costs.
- ! Economies of scale.
- ! Experience.
- ! Product design and process design.
A focus strategy targets a narrow segment of domain of an activity and tailors its products
or services to the needs of that specific segment to the exclusion of others.
Two types of focus strategy:
- cost-focus strategy (e.g. Ryanair).
- differentiation focus strategy (e.g. Ecover).
Successful focus strategies depend on at least one of three key factors: (1) Distinct segment
needs, (2) Distinct segment value chains, (3) Viable segment economics
Strategy clock

Strategy clock: low-price zone - low perceived product benefits focusing on price sensitive
market segments a no frills strategy typified by low cost airlines
CASE:

Michael OLeary declared If you want a quiet flight, use another airline. Ryanair is noisy,
full and we are always trying to sell you something.

- first airline to introduce charges for check-in luggage
- It has continued to find ways of charging passengers for services once
considered intrinsic to an airline ticket.
- Passengers were charged extra for checking in at the airport rather than online
(which also incurs a charge), although those with hold luggage did not have the
option of checking in online.
- While avoiding pre-assigned seats, an extra charge procures priority boarding.

Some of Ryanairs revenue generating ideas have provoked controversy and publicity (a
1 charge to use the lavatory, fat tax for overweight passengers)

Michael OLeary said, Any fool can sell low airfares and lose money. The difficult bit is to
sell the lowest airfares and make profits. If you dont make profits, you cant lower your air
fares or reward your people or invest in new aircraft or take on the really big airlines like
BA (British Airways) and Lufthansa.

Certainly, Ryanair had stuck closely to the low-cost/low-fares model. Ever
decreasing costs was its theme

- Ryanair pioneered cost-cutting/yield enhancing measures for passenger check-
in and luggage handling. One was priority boarding and web-based check-in.
- Charging for check-in bags encouraged passengers to travel with fewer, and, if
possible, zero check-in luggage, thus saving on costs and enhancing speed.
- From October 2009 - 100 percent web check-in policy, enabling a reduction in staff
numbers
- 100 percent carry-on luggage

would allow more efficient airport terminals to be developed without
expensive check-in desks, baggage halls, or computerised baggage systems,
and enable Ryanair to make flying even cheaper, easier and much more fun
again

Consistent with the budget airline model, Ryanairs routes were point-to-point only.

It reduced airport charges by avoiding congested main airports

Staff are banned from charging their own mobile phones at work to reduce the
company's electricity bill

Obsessive focus on the bottom line may have dented its public image - it charged a
disabled man 18 (25) to use a wheelchair. In response to protests over the charge,
Ryanair imposed a 50 cent wheelchair levy on every passenger ticket.

Ryanair has responded to such comments, declaring that, in effect, customers vote with
their feet by choosing Ryanair for its four tenets of customer service - low fares, a good
on-time record, few cancellations and few lost bags. If you want anything more go
away, admonishes Michael OLeary

Main agenda to be able to maintain low costs:
using regional & secondary airports
not to charge customers for fuel surcharge
reducing operational & handling charges
effective resource planning + core competencies

Core Competencies:
no service
low cost, competent, regular connections & no frills
punctuality, high frequency & timing of flights
point-to-point (a.k.a. no delays)
rapid boarding

Focus 2:
Environmental analysis
Layers of business environment

PESTEL Maroenvironment





Porters 5 forces



Bargaining power of Suppliers
is likely to be high when:
! Suppliers are concentrated (few of them).
! Suppliers provide a specialist or rare input.
! Switching costs are high (it is disruptive or expensive to change suppliers).
! Suppliers can integrate forwards (e.g. low cost airlines have cut out the use of travel
agents).

Bargaining power of Buyers ...
! a concentration of buyers
! low switching costs
! a threat of backward integration

Competitive rivalry is likely to be high where there is / are:
! competitors are in balance
! there is slow market growth (product life cycle)
! there are high fixed costs in an industry
! there are high exit barriers
! markets are undifferentiated

Case:
PESTEL

Political environment

Health and safety regulations - strictly important especially after 9/11 attacks -
UK authorities imposed severe security measures at all airports.
(Ryanair had to cancel 279 flights in the days immediately following the incident and
refunded e2.7m in fares to approximately 40,000 passengers. Ryanair is estimated to have
suffered a loss of e1.9m in reduced bookings.)

new EU regulation compensations to passengers to reduce the
inconvenience caused by delays, cancellations and denied boarding by offering a
refund or rerouting and free care for passengers.
(Based on the average distance of its flights for Ryanair, the compensation costs would
likely fall into the e250 category.)

Rising trade-union pressure in Europe - Some countries in Europe have formed a
trade-union among each others it gives the pressure for Ryanair to do business in
these countries.

Economic environment

Fuel price instability - major economic concern for airlines.
Ryanair was vulnerable to rising fuel prices due to its low fare policy Its fuel costs
represented 35% of operating costs.

Airport and handling charges increased by 21% (slower than the expansion in
passenger numbers) due to inflation rate.

Unemployment rate was slashed to 8.7% - a positive indication on the excelling
economy in Europe A stable economy is a base for growth and perhaps one of
the motives for Ryanair to consider the takeover of Aer lingus.

Socio-cultural environment

Increasing travelling lifestyles will affect the business of Ryan Air (e.g.
educational trips, backpack and family trips, business trips)
People use budget airlines for short haul flights because its extremely cheap, saves time
especially for business dealings. This has turned into a social trend.

After the terrorist attacks People looked for alternative ways to travel (train
services, ferry services) safer than air travel bad for budget airlines

People have a very poor opinion on budget airlines stereotyping, fuelled
tension between management and passengers, many customers thought Ryanair
was unethical

Technological environment

Necessary for Ryanair to invest in proper technology and keep its technology up to date
in order to remain competitive
Aircraft maintenance costs are low (Boeing 737 planes.)
Ryanair replaced fleet of old aircraft with new more environmentally- friendly
reducing the average fleet age to 2.4 years.
New aircrafts produce 50% less emissions, 45% less fuel burn and 45% lower noise
emissions per seat

Environmental factor

Governments are concerned about global warming and the green house gas
effect from carbon emissions - Airline industry is responsible for 2.6% of carbon
emissions. Airlines are looking for noise reduction methods to prevent noise
pollution.
The environment is a major concern to companies operating in the aviation
industry - could also have a financial impact due to heavy penalties and
sanctions.
Also the political impact would be considerable due to heavy lobbying by
environmentalists.

Legal environment

Getting illegal subsidies from the airports is a crime in Europe - legal means
follow getting such advantageous port subsidies.
Claims of misleading articles on Airlines will also lead to legal action - UK
authorities denied claims of Ryanair publishing such articles.
Environmental concerns and breaches of restricted emission charges may also
result in legal action.

3.2 Porters five forces model

Threat of New Entrants- Low

DUE TO:
economies of scale
technological innovations
government polices
capital requirements
High competition
It is not easy to enter into the airline industry.

Ryanair has a strong identity in the airline industry and claims to be the number one
for punctuality among other European airlines
It is difficult for new entrants to enter into the industry and to compete with these famous
airlines.
Therefore the amount of companies entering into the airline industry is low.

Bargaining power of suppliers- High

Dealing with suppliers of aircrafts and suppliers of fuel and other essentials, it is hard for
Ryanair to conduct negotiations.

Ryanair is a low budget airline and they have to deal with the giants in the industry
Ryanairs aircraft supplier is Boeing, which is a far larger player in the airline industry.

Therefore it is possible to state that bargaining power of suppliers is high.

Bargaining power of buyers.-High

New consumers are growing because of their interest to fly from one destination to another
using a low budget airline - considering the time and the speed most of the consumers
choose air travel

Ryanair introduced web-based check in and priority boarding - Ryanair does have to keep
their prices competitive in relation to the industry level

Threat of Substitutes- High/ Medium

Substitutes for air travel such as travel by train, or by using ferry services or boat services

If it is a Family trip consumers might choose train or ferry because its safer
Also if they want to travel to more destinations

BUT for business dealings people use air travel because its less time consuming and low
price - trains in continental Europe are very expensive

There is a very real threat of substitutes for Ryanair

Competitive Rivalry- High

Due to deregulation and increase in rivalry and because of increasing competition on more
routes the power of buyers increases.
These airlines introduce various prices, flyer programmes, discounts, perks to grab the
attention of the consumers and to increase customer loyalty
Airlines try to counter increasing rivalry by formulating different strategic alliances even
by merging with other airlines (e.g. with Air France- KLM).

Ryanair had launched a bid for its Irish rival, Aer Lingus so by combining purchasing power
to reduce its operating costs and to form lower fares.




TAKEN FROM THE CASE:

industry was structurally sick and in intensive care - plunging demand in the
global economic recession and uncertainty about oil prices

Ryanair refuses to recognise trade unions and negotiates with Employee
Representative

Ryanair continued to protest at charges and conditions at some airports,
especially Stansted and Dublin, two of its main hubs.

continued understaffing of security at Stansted which led to repeated passenger
and flight delays management of Stansted security is inept, and BAA has again
proven that it is incapable of providing adequate or appropriate security services at
Stansted

10 tourist tax being levied in Ireland & a 40 percent price increase at Dublin
Airport

Ryanair acted against Dublin and various UK airports by cutting its capacity and
shifting its aircraft to countries, such as Spain, with cheaper airports and lower
or non-existent passenger taxes

Ryanairs reliance on travel agents has been eliminated (after the introduction
of its Internet-based reservations and ticketing service, enabling passengers to
make reservations and purchase tickets directly through the website,

The global recession in 2008 created unfavorable economic conditions such as high
unemployment rates and constrained credit markets, with reduced spending
by leisure and business passengers alike. This constrained Ryanairs scope to
raise fares putting downward pressure on yields. Continued recession could
restrict the companys passenger volume growth.

Fuel. Jet fuel prices are subject to wide fluctuations, increases in demand and
disruptions in supply, factors which Ryanair can neither predict nor control.
The situation is compounded by exchange rate uncertainties, although declines
of the US dollar against the euro and sterling worked in Ryanairs favour, as
fuel prices are denominated in dollars. Ryanairs declaration of no fuel
surcharges ever, and its reliance on low fares limit its capacity to pass on increased
fuel costs.
Airport charges and government taxes. Ryanair is especially sensitive to
airports which raise charges, like Stansted and Dublin. Indirectly, it is also
vulnerable to extra taxes and charges, such as a 10 tourist tax imposed by the
Irish government.
Passenger compensation. On 17 February 2005, a new EU regulation (EU 261)
came into effect, providing for standardized and immediate assistance for air
passengers at EU airports for delays, cancellations and denied boarding. It was
initially expected that the compensation costs would amount to a sector-wide bill of
200 million annually.

Volcanic Ash Repercussions and Further Threats - However, the situation with
respect to compensation was highlighted dramatically with the eruption of
Iceland's Eyjafjallajokull volcano, causing volcanic ash that closed airspace in
Europe for six days in April 2010, with further sporadic disruptions in May.
These closures resulted in the cancellation of 9,490 Ryanair flights for 1.5 million
passengers.

2010, Ryanair was obliged to cancel flights to and from Spain during wildcat
strikes by Spanish air traffic controllers in August, and then in December when
unusually severe winter weather forced the closure of a number of airports
for several days. Again, this entailed not only lost revenue, but issues of
compensation.

Growth and Reducing Yields - Growth plans by Ryanair entailed investment in new
aircraft and routes. If growth in passenger traffic did not keep pace with its
planned fleet expansion, overcapacity could result.

Industrial Relations - Ryanair came under fire for refusing to recognize unions
and allegedly providing poor working conditions (mobile phones
The British Airline Pilots Association (BALPA) was constantly attempting to
organize Ryanair pilots in the UK and legal action was pending in this regard
in 2011.
In July 2006, the Irish High Court ruled that Ryanair had bullied pilots to
accept new contracts,

Environmental Concerns - Aviation fuel has been exempt from carbon taxes, but
the EU has established an
Emissions Trading Scheme to encompass the aviation industry commencing in
2012.
Ryanair was predicted to be the 4th most adversely affected airline in the world
with a shortfall 2.8 tonnes in CO2 allowances, equivalent to 40 million in extra
costs.

Sundry Legal Actions - Ryanair has been in litigation with the EU about alleged
receipt of state aid at certain airports. An EU ruling in 2004 held that Ryanair had
received illegal state aid from publicly owned Charleroi Airport,
Nonetheless, the EU launched further investigations into allegations of illegal aid,
purportedly subsidizing Ryanair at publicly owned airports.
Other legal challenges were launched against Ryanair by competitors.
Ryanair was vigorously opposing French government attempts to protect Air
France-KLM by forcing EasyJet and Ryanair to move their French-based staff
from British employment contracts to more expensive French ones.

Customer Services and Perceptions - Ryanair features on many consumer
complaint interactive websites, and some blogs have been established specifically
to disparage the airline.

Other Risks and Challenges - As listed in its own report, Ryanair faced other risks,
some particular to itself and some generic to the industry:
o risks associated with growth in uncertain highly competitive markets,
such as downward pressure on fares and margins;
o prices and availability of new aircraft;

Some industry analysts considered the economic recession could offer an
opportunity for budget carriers, as passengers who continued to travel were
expected to trade down.


Focus 3:
Competitor analysis/Strategic groups
Strategic Groups
Organizations within an industry with similar strategic characteristics, following similar
strategies or competing on similar bases
to understand who are the most direct competitors of an organization
to establish the different bases of competitive rivalry within and between the
strategic groups
to assess if an organisation
could move from one group to another
to identify opportunities (strategic space) and threats



Critical success factors
Those factors particularly valued by a group of customers and where the
organisation must excel to outperform competition or which provide a significant cost
advantage




A strategy canvas compares competitors according to their performance on key success
factors in order to develop strategies based on creating new market
* Skytrax star rating from 1 to 5 not all airlines rated
# Number of airports served; Sources: European Low Fares Airlines Association (ELFAA), Company reports
KSF RyanAir EasyJet Air Berlin Norwegian
Airlines
Wizz Air Aer Lingus
Price (comp
to RA on
same
destinations,
different
airports,
same booking
dates,
departure
times & 1
luggage)
Leader Slightly
higher
than RA
Comp to
RA:
32.27
more
expensive
Comp to RA:
171.33
more
expensive
Comp to
RA:
204.02
more
expensive
Has
copied RA
model to
be as low
cost and
no frills as
possible
Higher
fares
Comp to
RA: 58
cheaper or
26.02
more
expensive
Passengers
(m)
57.7
(26%)
44.6 28.6 9.1 5.9
Rating* 2 3 4 3 3
Airports# 140 110 126 85 58
Punctuality
performance
(rank 2009)
19th 24th 9th 28th 22nd
Destinations 114 134 93 50 73
Aircraft fleet 181 152 46 26 35
Brand &
Reputation
Known
brand,
bad
reputation
Well
known,
EasyGroup
The best
low cost
carrier in
Europe
Market
Leader of
the
Year 2009
Known
brand,
bad
reputation
Considered
better
value for
money than
RA
Service No No, but
more
relaxed on
cost-
cutting
than RA
in-flight
meals and
drinks,
newspapers,
assigned
seating;
topbonus
program
No
charged
luggage
check in &
on-board
snacks and
meals and
seat
selection
No
(theyve
adopted
RAs
model)
Yes offers
a more
practical
and
appropriate
service,
faster
check-in
times,
assigns
seats,
No lounges,
food or
drinks
Routes Point-to-
point,
secondary
More
centrally
located
Guaranteed
connections
via its hubs
Secondary
airports,
longer
Operating
short- and
long-haul
& regional
airports
airports average
stage
lengths
services, fly
to main
airports