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Ryan Air Case Study Udeeshan Jonas
The aviation industry of Europe has undergone major changes within the past few years, especially
the low budget airlines which have faced intense competition in the recent past. Ryanair has been
extremely successful in competing within this industry and has become the cost leader, experiencing
continuous cost reductions in its service provision.
Ryanair, founded in 1985 by The Ryan Family, has emerged as one of the most successful and
profitable low cost and low fare airline carriers in Europe. Gaining ground from the Deregulation of
the airline industry in Europe in 1991, it has been able to continuously grow through its low cost
strategy.
At present, the European budget airline industry is going through radical changes in growth in
competing with the co- competitors. This would pose a major threat to Ryanair’s target of doubling
its growth by 2012. Moreover, it has also expanded its service capacity and now faces the situation
of understanding how the environment and demand will turn out to be in the future.
Therefore, an Environmental Analysis has been in place, conducted by the URJ Management
Consultancy to analyze the external environment factors that can affect the performance of our
company. The Airline industry and the internal position of Ryanair have also been critically
evaluated to acquire a valuable insight into the uncertainty of the environment in which the
company has been operating. Analytical tools such as PESTEL, SWOT, VRIO, Porter’s five forces,
Strategic Groups and Value chain analysis have been used for this purpose.
Based on the environmental analysis, this report provides essential recommendations and strategies
that are vital for the management of Ryanair, to adopt a competitive advantage in the future.
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Ryan Air Case Study Udeeshan Jonas
2.0 Introduction
We, the URJ Management Consultancy are specialized in providing Strategic Management
consultation for various sectors in the business world. As per the request of the management of
Ryanair, we have been allocated with the task of conducting a consulting service for future strategic
management of Ryanair. In our project, we critically conduct a strategic analysis on the External
Environment of Ryanair, identifying the issues that could arise in the environment together with the
industry analysis and the current position of the company.
With the expertise that we obtained through the research on the Aviation industry, we would be
able to successfully conduct this proposed report. At the end of the report, we present to the
management of Ryanair, the potential strategies available for them and recommend new initiatives
for the senior management of Ryanair to improve strategy implementation.
3.0 Discussion
RyanAir currently functions in a business environment which is characterized by high uncertainty and
volatility. Therefore, a huge impact is placed upon by the surrounding environment on the
functioning and strategy of Ryan air. Conversely, the strategies and activities carried out by Ryan air
also influence the environment it operates within. The PESTEL model is used to analyze the
environment in which RyanAir is operating.
Political Forces
The formation of EU, has been highly advantageous for Ryanair, because of the reduced barriers
of travelling around the member countries.
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Ryan Air Case Study Udeeshan Jonas
2) Government Intervention
Governments of countries may support their own flagship carriers and neglect opportunities for
Ryanair. The shareholding of the Irish government in one of Ryan air’s main competitor flights,
Aer Lingus is a major threat to Ryanair, since there is a high possibility that the government
would support Aer Lingus in its activities and oppose RyanAir’s acitivities.
From the tragedy of September 11 th 2001, increased security measures have been imposed upon
the airline industry and airports, to ensure the safety of the passengers. The recent incident of
the Nigerian terrorist teenager trying to blow up a US North West Airlines flight has increased
the concern of potential Terrorist threats as well. These incidents together with the increase in
body-checks have reduced the number of passengers travelling within Europe with the fear of
threat to their lives.
Due to the security threat to passengers and the flight, the insurance companies have also
significantly increased their Insurance policy costs.
The government of Ireland is increasing charges of their sub-Airports, which increases Ryanair’s
costs, as it mainly functions through these sub Airports.
The governments of the EU Nations are concerned about boosting tourism in their countries.
Therefore, they might act in favour of airlines such as Ryanair which bring in a large volume of
foreign flyers (Edmondson, 2008)
Economic Forces
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Ryan Air Case Study Udeeshan Jonas
During the last few years, the fuel prices have skyrocketed, making the cost of flight service
provided to passengers to rise. Since, Ryanair functions with their low- fares policy, they
have to bear these costs, since they have limited ability to transfer the fuel cost hike to the
passenger fares.
In this case, Ryanair has to hedge the risks of the local currency depreciating, while hedging
may also be unprofitable if the local currency depreciates.
4) Global Recession
The world financial crisis which struck in 2007 has caused enormous decline in the consumer
spending and their disposable income. This will lead to a high impact on travelers cutting
down their holiday traveling (Thomas, 2004).But, this could also be beneficial to RyanAir,
since the economic downturn can attract passengers who travel in high fare airlines to
RyanAir.
Social Factors
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Ryan Air Case Study Udeeshan Jonas
Unfriendly and complacent staff together with reports of inadequate training and security
measures was reported through the media and web surveys. It made consumers perceive
that Ryanair lacked focus on Business Ethics. Complaints of poor treatment of customers,
administration and wheelchair charges also created a negative image on Ryanair.
3) Travelling Lifestyle
The priority that people provide to leisure and tourism has increased and their preference is
for travel and venture throughout the globe. This lifestyle change has created a major
opportunity for Ryanair (Martin, 2003).
Technological Factors
The main threat for the airline industry has been the evolution of video conferencing. The
necessity for Businessmen to travel around the globe to meet their clients have been
eliminated with the use of video conferencing facilities and VOIP’s which help them
conference with their clients while being at home (Martin, 2003).
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Ryan Air Case Study Udeeshan Jonas
Electronic Trains have become a huge popularity over the years. It can grow upto the level of
becoming an indirect competitor to RyanAir within the European region. Also, faster cars
and road transportation in the future would mean passengers to shift from air travelling.
Ecological Factors
Diseases spreading around the globe, such as the Bird flu, SARS, Swine Flu together with
future diseases that may spread will make passengers avoid travelling to other countries.
Also, natural environment disasters such as the Iceland Volcano eruption which disrupted
flights flying to Europe are a potential threat for airlines (Thomas, 2004).
Legal Factors
1) Anti-competitive Laws
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Ryan Air Case Study Udeeshan Jonas
The laws established for eliminating monopolistic behavior have made Ryanair unable to
acquire competitors such as Aer Lingus, because of the charges against it that it is planning
to eliminate low cost rivals. Also the allegation over Ryanair on competitive and misleading
advertising has been scrutinized over the years.
2) New EU Regulations
New EU Regulations have been brought about on limiting Pilot flying hours and
compensation for inconvenience cause to passengers. The cost of compensation could go
upto €200mn, which could lead to huge profit cuts for Ryanair.
The framework developed by Michael Porter is used to analyze the competitive environment in
which Ryanair is operating. The model of Porter’s Five forces for Ryanair is included in Appendix 1.
Threat of entry analyses the threat that new entrants may enter the industry and diminish the
returns of established companies (Hubbard and Beamish, 2008). Since the Airline industry was
deregulated in 1997, there was a high potential for new Airlines to enter the industry. However, the
low price strategy followed by Ryanair acts as a barrier to entry, making it unaffordable for new
comers to provide services at that price, especially because the costs they would incur would exceed
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Ryan Air Case Study Udeeshan Jonas
the price provided by Ryanair. Also, because the capital investment required is extremely high, most
new entrants do not prefer flying around Europe.
In the case of Ryanair, a strong brand identity built over the years would require any potential new
entrant to outlay massive sunk costs in advertising to compete on a level playing field. Restricted
slots which are available at local airports and the high risks involved with the aviation industry also
act as barriers to entry for new entrants (Botten, 2009). It is reported that around 50 Airlines have
gone bankrupt or acquired over the past few years.
There are only two airplane suppliers throughout the world, namely Boeing and Airbus. The
switching costs for RyanAir between these companies are extremely high. But it cannot be construed
that since there are only two players in the market, the bargaining power of them are high. Ryanair
has been involved in long term dealings and maintains a very healthy relationship with the main
airplane supplier, Boeing.
The sub Airports which provide the landing facility to Ryanair haven’t much of a say, because they
are dependent on the high revenue earned from Ryanair and also they don’t have much alternative
modes of airline income.
Fuel Suppliers
In terms of fuel supply, Ryanair has less control over the suppliers, because the fuel price is
controlled by world trade and the Middle Eastern countries who dominate the fuel market.
There are many determinants to the power possessed by buyers in the airline industry. The
bargaining power of customers seems to be extremely high, as the customers are price sensitive and
quickly react to slight price hikes. Even though the costs of Ryanair escalate, they are left with the
position of maintaining their current low fare, because the price hike cannot be passed on to the
customers.
The switching costs of customers to other flights are very low and the customers are not very brand
loyal to RyanAir, which gives a higher bargaining power to the customers. For low cost carriers, the
switching costs may be found by simply clicking on a rival’s website. The fact that most low cost
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Ryan Air Case Study Udeeshan Jonas
carriers sell their seat via the internet means that any price discrepancies can be found very easily
(Grant, 2008). Since, the services provided by competitors like EasyJet are not much of a difference
to that of Ryanair, allows the customers to easily shift from them.
The threat of substitute comes in three main forms to Ryanair which are road, rail and to a lesser
extent, the boat service. But, if there are significant developments in road transportation, speedy
vehicles and electronic trains, high competition could erupt in the Aviation industry.
Rail service would be the greatest threat, as it offers an excellent continental service around the
major cities of Europe that Ryanair fly to. Rail travel has several advantages over air in terms of the
fact that they can be more localized and more accessible but one must endure a longer journey also.
Another, less obvious threat comes in the form of global communications. As technology develops
there may be less of a need to physically meet with people, as business meetings could take place
via video conferencing (Thompson, 2003).The low switching costs for customers between the
alternatives, increase the threat of substitutes.
Currently, high competition prevails within the Aviation industry with almost 50 airline service
providers. Although many of them are focused towards Long Haul flights, there is a specific group of
direct competitors who cater to the same price sensitive customers who demand for short haul
flights for a lower price. These competitors compete based on price, even though RyanAir is the
Price Leader in the industry.
Although there are only few competitors who compete on price similar to Ryanair, there is high
competition when considering the aviation industry as a whole. The high exit barriers that exist in
selling off the planes and equipments for industry players make them continue to compete in the
market.
Price range
AerLingus
EasyJet Norwegian
RyanAir Air Shuttle
FlyBE Air Berlin
Germanwings
LOW
According to the classification of Strategic groups carried out on the players in the European aviation
industry, it is clear that the main direct competitors of Ryanair would be “the low fare- short haul”
flight providers such as Easy Jet, FlyBe, Germanwings and Sterling who cater to the same price
sensitive customer group.
Ryanair need not focus much on the Long Haul-high priced airlines, since they would only pose a
minimal threat to Ryanair. But, RyanAir is a threat to the “Short Haul-high priced Airlines” during
times of economic recession. There is a potential opportunity for RyanAir to move into ‘Long Haul-
low cost flight services’ as well, since there are only a few competitors providing long haul services at
a lower cost. In the future, if competition intensifies within the existing group, RyanAir could decide
whether to stay and compete within the same group or re-position itself as a “long haul-low fare”
airline and shift from the existing short haul market to the long haul market.
It is imperative to note that the growth of auxiliary modes of transportation available such as Trains
and cars which provide short haul services at lower prices can become a potential threat to Ryanair
in the future (Donald, 2005).
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Ryan Air Case Study Udeeshan Jonas
The resource based view of an organization argues that the resources and strategic capabilities that
a company possesses enable the company to gain a competitive advantage (Botten, 2009)
These are the resources and capabilities, an airline company should possess in order to compete in
the industry. Since these are necessities that all players need to own, a competitive advantage could
not be generated from them.
One of the main necessary resources that Ryanair holds are the 103 Boeing 737 aircrafts and the 138
aircrafts ordered for the upcoming six years. The well trained staff, monetary resources, strong
management and brand identity are also the necessary resources that Ryanair holds. The necessary
capabilities that Ryanair possesses in order to compete in the market would be the reliability of the
service, satisfactory customer service, safety and timeliness of service.
The VRIO framework is used to identify whether the resources and capabilities that Ryanair
possesses are strategic Resources and capabilities which lead to competitive advantage (Grant,
2008). Refer Appendix 3 for the VRIO Framework.
According to the VRIO analysis, the strategic resources or the core competencies that lead Ryanair to
a sustainable competitive advantage are the fleet of environmental friendly aero planes, Leadership
of Michael O’ Leary and the effective strategic planning process of the management of Ryanair.
The strategic capabilities of Ryanair would be the continuous cost reduction, the low fare chargeable
capability and the strong relationship with the Airport hubs.
3.3.2 Resource and Capability analysis using Porter’s Value chain Model
The resource and capability analysis conducted through the value chain analysis has been included in
Appendix 4 of this assignment.
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Ryan Air Case Study Udeeshan Jonas
The SWOT analysis provides a situational analysis in terms of how a company is functioning at the
present situation. The SWOT analysis of Ryanair will enable the company to take strategic decisions
which aim to produce a good fit between the company’s resource capability and its external
environment (Thompson, 2001)
4.0 Recommendation
From the environmental analysis carried out on Ryanair, it is clear that the company is functioning in
a highly uncertain environment. Defensive actions have to be planned to threats such as government
intervention and misleading criticisms on the company that could spread around in the community.
Based on the Industry analysis, it could be said that Ryanair has to concentrate well on direct
competitors’ activities and strategies, especially, the indirect competition that could arise from
alternative modes of transportation. As the cost leader, they should take the ‘first mover advantage’
over its competitors. It should watch out for radical price cuts of its direct competitors such as
Easyjet and Aer Lingus.
From the Internal Analysis, it is recommended that RyanAir builds on its brand image and the
strategic capability of low cost provision furthermore, together with the use of Technological
advancement and continuously improve without harnessing the quality of the service.
5.0 Conclusion
As per the request of the management of Ryanair, URJ Management Consultancy was able to
successfully conduct the external, industry and internal environment analysis of Ryanair. The report
identified the factors in the external environment that affect the performance of Ryanair, such as the
Political, Environmental, Social and Technological elements which were potential factors in the
success of the company.
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Ryan Air Case Study Udeeshan Jonas
The industry analysis on the competitive position of Ryanair also gave valuable insight into the
competitors’ activities and strategies. In the report, we analyzed the internal factors of our client on
aspects such as Strengths, Resources and capabilities and identified how value for customers was
created through the chain of activities carried out at Ryanair. Finally, based on our analysis, we
provided possible recommendations on what Ryanair has to execute towards strategic management
in the future.
6.0 References
Edmondson, A.C. (2008). ‘The Competitive Imperative of Learning’, Harvard Business Review, July-
August.
Martin, P.R. (2003). The Wall Street Journal: Essential Guide to Business and Style Usage, Wall Street
Journal Books.
Hubbard, G., Rice, J., & Beamish, P. (2008). Strategic Management: Thinking, Analysis, And Action,
3rd ed. NSW: Pearson Education Australia.
Thomas, D.A. (2004). ‘Diversity as Strategy’, Harvard Business Review, September: p 23.
Ryanair and the environment. [n.d.]. Ryanair. Retrieved April 22, 2010, from
http://www.ryanair.com/en/about/ryanair-and-the-environment
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Ryan Air Case Study Udeeshan Jonas
Thompson, A. & Strickland, A. (2001). Strategic Management. Twelwth Edition. Australia: McGraw
Hill.
Grant, R.M. (2008). Contemporary Strategy Analysis. 6 th Edition. Australia: Blackwell Publishing.
7.0 Appendices
Threat of New
Entrants
Medium
Industry Competitors
Bargaining power Bargaining power
of Suppliers Rivalry among of customers
existing firms
LOW LOW
High
Threat of
Substitutes
Medium
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Ryan Air Case Study Udeeshan Jonas
Ryanair
EasyJet
5% Air Berlin
FlyBE
Germanwings
5% Others
12% 26%
The letters V, R, I, O specify four questions that need to be asked about a resource or capability, in
order to determine the competitive potential of those resources.
1. The Question of Value: Does a resource enable a firm to exploit an environmental opportunity
or add value to the service provided? If it does not add value, it leads to competitive
disadvantage.
2. The Question of Rarity: Is a resource currently controlled only by a few competing players?
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Ryan Air Case Study Udeeshan Jonas
3. The Question of Imitability: Are the valuable and rare resources of Ryanair, hard and costly to
imitate?
4. The Question of Organization: Are the company’s other policies and procedures organized to
support the exploitation of its valuable, rare, and hard-to-imitate resources?”
(Thompson, 2001)
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Ryan Air Case Study Udeeshan Jonas
Leary Advantage
Brand Image Competitive
Yes No --- Yes Normal (Average)
Parity
Capabilities of Ryanair
Valuable Costly to Organized Competitive Economic
Rare?
? Imitate? Properly? Implications Implications
Low Fares & Continuous Sustained
Yes Yes Yes Yes Above Normal
cost reduction Advantage
Strong relationship with Sustained Above Normal
Yes Yes Yes Yes
its hubs Advantage
Reliable on-time service Competitive
Yes No --- Yes Normal(Average)
Parity
A few of the resources of Ryanair are analyzed through the VRIO framework to identify the strategic
resources or the core competencies which will lead Ryanair to sustainable competitive advantage:
The Value chain of Ryanair analyses the activities, functions and business processes that add value to
its customers. These are the linked set of activities performed internally within the organization
(Thompson, 2001).
The primary activities of Ryanair could be categorized into Inbound Logistics, Operations, Outbound
Logistics, Marketing & Sales and Service. The secondary activities consist of procurement,
infrastructure, HRM and technological development. Ryanair follows the Cost Leadership value chain
of Michael Porter, through which it attempts to reduce costs in each of its primary and secondary
activities, in order to facilitate its low cost model and provide a low fare service to the passengers.
The way in which it achieves this is specified in the diagram (Thompson, 2001).
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