The explosive growth of RyanAir Company

The explosive growth of RyanAir CompanyThe Ryanair Company is undoubtedly integrity of the most remarkable entrepreneurial stories of the past 10 years in atomic number 63. Furthermore that Ryanair has developed a very outspoken communication style, using advertising and media to a great deal to publicize its regeneration in air travel.Ryanair was Europes original starting time-f bes airline and it is close up Europes largest low-fares carrier. In the current year Ryanair testament remove over 35m. passengers on 300 low fare routes across 21 European countries. Ryanair has 15 European bases and a fleet of over 100 brand mod Boeing 737-800 aircraft, with firm orders for a and one hundred twenty-five new aircraft, which will be delivered over the next seven years. These additional aircraft will go away Ryanair to geminate in size to over 70m. passengers p.a. by 2012. Ryanair currently employs a team of 2,700 people, comprising over 25 unlike nationalities. Furthermore Ryana ir continues a rapid growth in cc5. They started the year by launching two new bases at Liverpool John Lennon Airport and at Shannon in the West of Ireland. In February Ryanair announced orders for a further 70 firm aircraft from Boeing as hearty as 70 options. This takes Ryanairs total order with Boeing to 225 firm aircraft and 200 options. These new aircraft, which will be delivered between 2005 and 2012, will allow Ryanair to grow to over 70m. passengers per annum, proving that Ryanair is non practiced Europes original low fares airline, but re primary(prenominal)s Europes biggest low fares airline, as well as the only airline oblation the lowest fares in every European grocery.http//www.grin.comAims and objectiveAim of this report is to evaluate the wedded case study on the topic of Ryanair the low-fares airline by Eleanor OHiggins and critically analysing the current strategy of Ryanair to render achieverful in the European airline industry while airline wrinkle is s truggling in Europe.The objectives of this report are as follows.Undertake an environmental analytic thinking of the European airline industry with implications for the cipher sector and Ryanair in particular.Analyse how Ryanair has been successful in the European calculate airline industry.From the above compendium, critically assess the sustainability of Ryanairs strategy.Research methodologyIn this report secondary research method also know as desk research, is being used. secondary research is the most common research method employed in the industry to daytime. It involves processing data that has already been collected by an other(a) party. With this form, researchers will consult former studies and findings such as reports, press articles and previous market research projects in order to come to a conclusion. The relatively low expense in comparison to primary research is the main advantage of this research, as no new research needs to be commissioned. However, its main d isadvantage is that the data used in the analysis may be out-dated and in that locationfore return inaccurate results.(www.marketresearchworld.net,)Environment AnalysisThe environment is what gives organisations their meaning of survival.(Johnson et al 2008)We ordure distribute the environment into layers as follows.Source (Johnson et al 2008)The Macro-EnvironmentThe macro-environment is the highest level layer. This consists of broad environmental factors that impact to a greater or slighter extent on almost all organisations.(Johnson et al 2008)Macro environment is out of control of any organisation but it could influence the organisations overall activities and bureaus. The al-Qaida and ongoing changes occurring in society create an uncertain environment and have an impact on the function of the whole organization (Tsiakkiros, 2002).To analyse the macro-environment there is a framework which helps to analyse Political, Economical, Socio-Cultural, Technological, Ecological a nd juristic factors called PESTEL. This analysis of is therefore often known as Pest analysis (Johnson, Scholes, 1999).PESTEL analysis of RyanairPoliticalOn whitethorn 1, 2003, it will mark one of the most principal(prenominal) days in recent European history, the true will see the biggest expansion of EU to date when ten states become new members. For Ryanair new markets will open which suits its growth plans.Stansted airport, owned by BAA, is one of the most rapidly festering airports in Europe (www.baa.co.uk/). BAA plans to build a second runway and terminal there, accompanied by necessary coach and road infrastructure, aiming to double passenger capacity within ten years. Stansted is Ryanairs London base and an expansion would change substantial traffic increases thereby facilitating consolidation (Johnson Scholes 2002).The Civil Aviation Authority (CAA) is responsible for setting toll caps on airport chargesat airports designated by the Secretary of State (www.caa.co.uk ). One of these is Stansted, which has hitherto benefited from discounted airport charges and cross-subsidy from the higher(prenominal) charges paid by the airlines at Heathrow and Gatwick airports (Done 18/12/03). CAAs new requirements command airport financing without cross-subsidisation on a stand-alone basis. Consequently discounts will be removed and charges possibly increased. Ryanair has protested as it will hassle its equal (Done 20/10/03).EconomicalOpec aims to keep oil prices within the agreed band of US$22-US$28/bbl (www.opec.org). However, with crude oil now standing at close to $33 a barrel (www.bbc.co.uk) near a 13-year high, Opec considers increasing its mastermind. With a tight US gasoline market, low inventories and an mass in fighting in Iraq, oil prices look likely to remain high or turn up Ryanair faces persistently high or rising fuel prices.SocioculturalHoliday home ownership in Europe is increasingly common for Britons. During Christmas sales boomed and analysts believe it will continue as customers are further by the highest employment innovations in 28 years, low interest rates (Insley 18/01/04) and other flourishing borrowing conditions. Ryanair services regional airports, opening up the European countryside to buyers, and this trend means an increase in the possible customer base (Insley 08/02/04).The over-55s now represent approximately one third of most EU-countries populations, and the figure is increasing. Because of offend healthcare and financial planning, a significant proportionof senior citizens are able to foil in high levels of leisure-orientated consumption (Brassington Pettitt 2003). Analysts recommend developing specific merchandising strategies for this market highlighting its growing importance (Lohmann Danielsson 2001). Ryanair here has an opportunity to increase its market share.TechnologicalNew technology will allow mobile phone and broadband use on-board. Carriers, including Ryanair, can thus increas e ancillary services by offering on-line shopping, TV screenings and mobile phone usage against a fee. Furthermore, the satellite link could push operating efficiency by being used to oversee planes, giving early warnings of problems to ground crews, thereby enhancing safety and minimising grounding (Economist 01/03/03 Economist 01/04/04).EnvironmentalA recent White Paper emphasised the environmental importance of including aviation within the global emissions-trading scheme (Newman 03/12/03), aimed at providing financial incentives for companies to cut greenhouse-gas emissions and to revenue aviation fuel across EU. Presently an increase in air passenger tax is planned, which manifold the 5 and 20 economy passengers currently grant for short- and long-haul flights. This will raise Ryanairs prices, possibly deterring the most price-sensitive customers.LegalRyanair uses mainly secondary airports which enables negotiation of favourable deals with the owners. At Charleroi Ryanair was given 50% off get fees incontrovertible contributions to local amenities, training and marketing costs against guarantee of a certain level of business for 15 years (FT 10/11/03). However, unfair competition was claimed and the European Commission (EC) decided that discounts on landing fees and ground-handling services are illegal, and ordered Ryanair to pay back 3m. Ryanair fears that high-fare airlines and expensive hub-airports will lobby the EC into investigating other deals, using Charleroi as precedent (Done 29/01/04).Porters Five force analysisThe PESTEL factors are chief(prenominal) in a relative way as they usually affect all firms in the industry (Bowman Asch 1987). Hence, organisations should also examine their more immediate environment/industry, the group of firms producing intersections that are close substitutes for each other (Porter 1980). This analysis examines five belligerent forces potential entrants buyers substitutes suppliers and industry competito rs, which determine level of industry competition and profitability. Applying this to the budget airline industry enables identification of opportunities and holy terrors to Ryanair in its business environment (Johnson Scholes 2002).Threat of new entrantsHigh start-up costs needed for aircrafts, reservation systems and promotion, negates threat to some extent (Gilbert et.al 2001).The over-crowded market means there are besides many budget aircraft playing Europes skies for as well little money (Clark 07/02/04).As Europes skies are congested there is a lack of slots (Hanlon 1989) forcing new entrants into secondary airports and less profitable routes.Due to incumbents cost advantages, such as economies of outdo and experience curve results, price wars can be launched against newcomers.However, the market is expanding which pulls in new entrants and reduces the effect of entry barriers (Johnson Scholes 2002).Bargaining power of buyersPrice dominated short-haul market with little or no reaping differentiation. Buyers thus face low switching costs (Porter 1980)As price is more important to passengers than increase (Gilbert et.al 2001) there is low customer loyalty.Procurement managers are now influential in the travel patterns of their business travellers.Threat of substitute products or servicesVideoconferencing for business companies has not had the impact expected and is no threat (Gilbert et.el 2001).Other modes of transport are no tenable threats generally.However, Eurostar has been winning customers from airlines since its opening and many short-haul flights could be eliminated aft(prenominal) 2007, when the fast line to the channel tunnel is completed (Wright 01/12/03).Bargaining power of suppliersThe price of fuel is directly related to the cost of oil which is determined by Opec and out of control of the industry (www.opec.org). calculate airlines have work-hard cultures to keep costs down (Gilbert et.el 2001) meaning a scarce number of multi-ski lled employees which can negociate away a significant fraction of potential profits (Porter 1980).However, carriers tend to experience economies of scale which gives buying power. Consequently, airlines are able to negotiate favourable deals with most of their suppliers (Johnson Scholes 2002).Rivalry among existing firmsAlready very competitory industry.Numerous new entrants intensify competition, although several newcomers have struggled to establish themselves and failed, Debonair and AB Airlines for example.The over-crowded market, and commodity character of the product, means that airlines are battling to fill planes. Aggressive pricing, efficient distribution and innovative communication mixes are stag competitive measures.However, carriers vary somewhat in segmentation by targeting different markets (narrow versus wide customer base) and offering divergent routes (regional towns versus main cities) which reduces rivalry somewhat (Gilbert et.al 2001).Nevertheless, competiti on is intensified as conventional carriers adopts many strategies of the no-frills(prenominal) carriers and continues to cut costs (Done 29/01/04). With low fares but a higher level of service (more frills and main airport servicing) they are a big threat.Mergers, acquisitions and alliances are increasingly used for consolidation and competition. EasyJet bought Go, bmibaby partnered with Germanwings (Economist 01/03/03 Hotten 13/03/04). Ryanair acquired roll but paid too much and was forced to close it to boost its productivity.SWOT Analysis key Strengths and WeaknessesStrengthsWeaknessesCost-consciousness at every levelIsolation of airportsAbility to drive down costsPoor appraisal in route selection and acquisitionFast turnaround timesTargets very narrow marketCross-utilisation of employeesPoor brand imageWebsiteNegotiation skillsAbility to achieve growth habit of secondary airports anchor Opportunities and ThreatsOpportunitiesThreatsThe EU expansionThe European Court of Justic e rulingThe Stansted expansionThe Stansted expansionEUs ageing populationThe global emissions-trading schemeMergers, acquisitions and alliancesLow customer loyaltyANALYSIS OF STRATEGIC CAPABILITYA strategical analysis also includes investigation of the strategic capability, the ability to perform at the level required for success (Johnson Scholes 2002). Firms must understand what customers want and adopt product/service features accordingly. To succeed companies need Critical achievement Factors (CSF), features especially evaluated by customers and used to outperform competition unique resources, hard to emulate and generates competitive advantage summation competences to meet the CSF, leading to competitive advantage. A number of tools exist to analyse strategic capability. Applying some of them to Ryanair facilitates identification of the organisations key strengths and weaknesses.Value Chain analysisThis is a systematic way of studying theactivities undertaken by a firm (Tho mpson 1997) and a means of identifying how competitive advantage is, or can be, created and sustained. The value strand consists of primary and support activities that together produce the profit margin. When the most critical of these are performed better or more cheaply, competitive advantage is created. The activities are related by linkages within the value chain (Porter 1985), meaning that how one is performed affects the performance or cost of another, and key linkages generate competitive advantage. Value activities should be benchmarked, compared against those of organisations both inside and outside the industry, to learn and improve on best practice (Laverick Brown 1992). original activitiesInbound logisticsDependency on suppliers to deliver fuel as well as food, drinks and duty-paid products to be exchange on-board (Gilbert et.al 2001).These need to be stored, handled and controlled upon deliveryLow-cost deals are negotiated against promise of large and growing volumes of business (Felsted 04/11/03).OperationsUse of standard model plane, Boeing 737, means that Ryanair is able to obtain spares and maintenance services on favourable terms, limits costs of staff training and offer flexibility in scheduling aircraft and crew assignments (Johnson Scholes 2002).A relatively young fleet reduces maintenance, spare and fuel costs.Fast turnarounds (core competence), 25 minutes, is the most important cost advantage as it enables high aircraft utilisation (Felsted 04/11/03). More frequent departures (two more a day than competitors) with few planes increases revenue (key linkage). However, Southwest excels with 15 minute turnarounds as its activities complement each other in ways that create real economic value (Porter 1996).Point-to-point flights mean no interlinking with other carriers. Ryanair can offer direct non-stop journeys, avoiding the cost of providing through servicefor connecting passengersand delayscaused by late arrival of connecting flights ( Johnson Sholes 2002).Outbound logisticsUse of isolated secondary airports often requires further transport arrangements for customers. Also, some destinations are so geographically put off that they cant support regular services (Pratley 05/02/04), as evident on some intra-Scandinavian routes for example (Done 04/11/03). This limits the level of market share Ryanair can achieve. EasyJet does the opposite and flies to big cities, but then has to pay higher landing charges which is reflected in their higher prices (Bowley 21/07/03).However, using regional airports saves costs as charges are set about, facilities cheaper and Ryanair can negotiate favourable deals. It also enables fast turnaround times, and more on-time departures as the airports are less congested (Johnson Scholes 2002). 95% of Ryanairs flights are punctual compared to 88% for EasyJet (www.ryanair.com).Marketing and SalesHeavy spending on advertising and promotions to expand its market is reduced as most advertisin g takes place on the website. at that place promotion is also used to sell excess capacity, such as two-for-one offers, which creates market awareness. Direct marketing is used occasionally with the customer database (Gilbert et.al 2001), and enables relationship marketing which produce customer retention equalling increased productivity (Ali-Knight Wild 2001).Ryanair considers branding virtually irrelevant as it believes that price is most important to customers. This is reflected in its not always so good image in the press. Southwest, contributes a large part of its success to its well established brand values (Gilbert et.al 2001), and EasyJet has won awards for its brand (Brand Strategy 2001).Over 90% of bookings are do directly, either on the website or through reservations centres. The website saves on staff costs, agents commission, and computer reservation charges, while significantly contributing to growth (Johnson Scholes 2002). Furthermore, direct booking gives great er control over sales of ancillary services, important revenue contributors, and eliminates need for tickets which reduces check-in times.Travel agencies are used on a small scale as necessary when opening new routes in unknown markets.ServiceVirtually no frills lower costs considerably, enable fast turnarounds and very low ticket prices (Gilbert et.al 2001).A very basic product is offered and Ryanair now plans to remove the last frills (Gow 16/02/04). The question is how much customers are willing to forgo forrader switching to competitors. Will it be possible to sustain the necessary load factor with an even narrower target market? Southwest is more successful than Ryanair but has not stripped away all frills (Porter 1996).The low service damages the brand which leads to reduced business. For example, Ryanair was taken to court for charging disabled passengers 18 for wheelchair usage (Tait 03/12/03), and is known for transferring passengers to later or alternative flights without notice if original flight is not full overflowing (Johnson Scholes 2002).Support activitiesProcurementPurchasing power enables negotiation of favourable deals (core competence) with suppliers. However, these demand large and growing volumes ground on passenger numbers (Felsted 04/11/03) which is becoming difficult to sustain as Ryanair expanded too quickly. Although growth is slowed down new planes has been ordered aiming to double the fleet by 2009.Buys mostly during recession when prices are downGood buyer-supplier relationships ensure reliability and low-cost procurement of services (many functions are contracted out). recourse is guaranteed as contracted work is supervised and planned by Ryanair staff (Johnson Scholes 2002).Technology developmentRyanair uses its website to monitor bookings to see how full planes are minute by minute. If numbers fall prices can be weakened immediately to attract buyers thus increasing the load factor. However, they dont hesitate to raise p rices if demand is buoyant (Bowley 21/07/03) which leads to effective yield management.CONCLUSIONThe aim of this report was to carry out a strategy analysis of Ryanair, Europes largest low-cost no-frills airline. From this it became evident that the organisation operates in a complex environment with fast ever-changing influences that affect its business both beneficially and unfavourably. It also enabled identification of some of the sources of Ryanairs competitive advantage core competencies, unique resources, key linkages and the superior cost performance compared to its closest competitor. However, it also became clear that the organisation still has a lot to learn from best practice. In general Ryanairs strategies match its task environment although it fails to pass over certain crucial issues. If these are not dealt with they could lead to future problems and reductions in profits.