External Environment Analysis

Ryanair is an Irish airline 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 profitable.
To evaluate any organizations External Environment analysis certain factors have to be
assessed. These include those below and also the environmental analysis, competition,
government regulations and external forces.

Political
Political and legal factors encompass actions by local and national administration and
political parties, and by international bodies such as the European Commission, the UN
and the World Trade Organisation. Most of Ryanair’s routes are in Europe where the
political environment is quite stable. Ryanair’s only concern could be the local
governments support for there own national carriers.
Some noticeable political factors are
• Political changes in countries where they have routes to Governments in countries
they fly to may support their own flagship carrier
• Local councils objecting to noise and new runways being built as in past
• Governments looking to increase tourism might welcome
• Ryanair and therefore act in their favour.

Economic
Consumer spending power is a major factor in the prosperity of any industry. In most
developed and a number of developing countries, personal disposable income has been
steadily increasing for the past three decades. Ryanair has been cautious in it’s outlook
for 2007. Few things that could hurt Ryanair (along with the entire Airline industry)
would be a downturn in the European economic, Fuel prices going up, Terrorist attacks
etc.
Social
Consumer tastes ultimately determine where demand is directed. Sometimes these tastes
are manifested in what consumers themselves actually buy. In other cases they are
expressed through voting, lobbying and other political processes, which influence the
decisions of politicians and civil servants. Even though Ryanair is perceived to provide
poor customer service, the cheap fares still make it attractive for the budget conscious
customer. Because of economic growth at the moment it has become normal to fly away
for holidays therefore market has expanded and new opportunities for tourism have
opened in previously unconsidered countries. Business trips, although Ryanair do not
offer luxury they are possibly more attractive because less cost to a company means they
can travel more frequently.

Technological
Many major transformations in the ways firms compete can be traced to technological
change. Sometimes these changes span the boundaries of many industries and trigger
changes in society itself. Ryanair has made use of the internet technology to provide
online booking and checking making their website one of the most heavily used websites.
There is a potential for Ryanair to leverage their website traffic to sell/promote ancillary
products.

Environment
As Ryanair’s fleet is one of the youngest it’s producing less emissions and more
environmentally friendly than other carriers, especially the legacy carriers. This could be
one of the USP’s for Ryanair in the future.
Legal
Ryanair is currently involved in quite a few legal battles with cases filed against it and
cases filed by it. Regardless of whether Ryanair wins or losses the court battles it will still
incur a lot of legal expenses and managements attention could get diverted from running
the business to fighting in courts.
Looking at the PEST analysis, the Key drivers of change for Ryanair are the Economic
and the Legal factors.

Government Regulation
The airline industry in Europe has always been fraught with regulation from both
domestic Governments and the European Union. More recently the E.U. is trying to forge
a bilateral agreement with the US to replace the individual agreements tat have been
already made between some individual states and the US. Also, an area that has received
much publicity lately is the Subject of State Aid. The E.U. has the power to control any
aid given to a business if it encourages discrimination or is contrary to competition unless
the aid has been sanctioned by the E.U. Competition and Antitrust Law also plays a
significant role in determining the boundaries of the industry.

Competition
Liberalization measures and competition policies, competition in the airline industry
exploded, especially in the last ten years. Also, with more of these measures on the
horizon it is likely that competition will continue to grow as new entrants seek to take
advantage. However, even though there have been an abundance of new entrants many
have not lasted. This is mainly due to the reactions of the existing players who ousted
many of them with sustained price competition and other such measures. Also the slot
system in operation in many major airports meant that new players couldn’t get a strong
foothold from the beginning.

External Forces
• SARS
• Gulf War II
• Oil Prices
• Economic Downturns
The airline industry has always been susceptible to changes around it and the last few
years have thrown many obstacles in its path. From the outbreak of Foot and Mouth in
the UK to the SARS epidemic in Asia, from the terrorist attacks of 9/11 to the War in
Iraq, all of which caused a global economic downturn, the industry has had a torrid few
years and most of the major airlines have been running at a loss. Income elasticity of
demand for air transport is high meaning a small decrease in GDP will cause a
disproportionately larger decline in flying. Also with stricter ruling on state aid the major
airlines have well and truly suffered leaving huge gaps of opportunity for the smaller
low-cost airlines.

Innovativeness like this has ensured Ryanair’s sustainability and will carry them forward
into the future. To recommend any major changes would be to predict how the airline
industry will change which ultimately cannot be foreseen. However it has been concluded
that the budget airline will continue enjoying its boom, with many passengers now
enjoying the short breaks away at a low price. Also the advent of new routes will bring
more custom, from both departure points.