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Ryan Air

Ryan Air

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Published by Senthil Kumaran

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Published by: Senthil Kumaran on Nov 19, 2010
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Table of Contents

1. Executive summary««««««««««««««««««««««««... 3 2. Introduction««««««««««««««««««««««««««««. 5 3. Current strategy««««««««««««««««««««««««««...6 4. Environmental analysis«««««««««««««««««««««««..8 4.1. 4.2. The macro-environment The micro-environment

5. Recommendation to the Board«««««««««««««««««««...12 6. Conclusion««««««««««««««««««««««««««««.15 7. References««««««««««««««««««««««««««««.16 8. Appendix««««««««««««««««««««««««««««....17 8.1 Power/Interest Matrix 8.2 Vulnerability Analysis 8.3 Brand Perception 8.4 Segmentation

is the first budget airline in the Europe. flotation on various stock exchanges. The bargain power of suppliers is low and the th reat of new entrants is low.3% of the total operating revenues in the Q106) which yield more profitability to the business. Because of their competitive prices. However. Ryanair may consider implementing the following key recommendations in order to permanently add value to the shareholders¶ wealth: Convincing Michael O¶Leary to stay at the command of company. The volumes then help ed it to earn more ancillary revenues (15. intense. In the wake of this turbulent environment. and make the rivalry among existing competitors. governments and EU regulators regarding different increasing environmental. the train as a substitute is the key driver in the five forces used to assess the micro environment. safety and social concerns. the ancillary revenues started decreasing since the H1 of FY07 (13% in the Q306). launched in 1985. thus increasing the bargaining power of buyers whose switching costs are almost insignificant. low-cost carriers face a high threat of substitute from the train. Its successes earned it the world most profitable and low-fares airline in 2006. This was possible thanks to the determi ned monitoring of its internal costs and to its quest to increase the number of passengers. 2 . to some extent. It has experienced over its existence various challenges (management instability. the management has been opposing to several airport authorities. the pressure from various pilots associations is mounting.1. Within the industry. acquisitions).Executive summary Ryanair. Similarly.

- Reviewing its own security and safety procedures and then communicating on it through various PR campaign to make the difference. conducting some industrial espionage to react quickly to any change in the marketing offers made by some key competitors. and others which serve different routes thanRyanair. some low cost companies which has the same skytrax star rating (2). - Finally. - Working on any technological innovation that could help to lower the costs. together with some low -cost carriers. which will further help to offer products that better match passengers¶ needs and increase the ancillary revenues.- Organizing urgently. - Acquiring. The recommendation could be more specific if some information regarding the organisation¶s capabilities were provided. and help maintaining step ahead competitors. - Conducting various surveys urgently in order to better understand the customer behaviour (which is one of the two key success factors of any organisation). such as the internet check-in system. a task force to lobby governments. by the virtue of the liquidity it holds in its accounts. airport authorities and EU regulators in order to avoid some charges and maintain the costs low. 3 . - Improving its HR policy to make it sustain a competitive advantage in a cost leadership market.

Prior to its admission to the NASDAQ-100 in 2002. Since then until the early 2000s. the ³sleeping´ liquidity. it has experienced some periods of management instability even though it successfully copied the model of Southwest Airlines. Ryanair has been a successful company in a complex environment. over the last years. and finally make recommendations that could help strengthen the position and sustainability of Ryanair. Ryanair was floated on the Dublin and London Stock Exchanges which helped raise the profile of the Irish -based company. Aer Lingus. Being considered as the world¶s most profitable airline and contradictorily the world¶s least favourite airline in 2006. and increasingly feel pressure to maintain its great performance. This bid result edin pressure from some stakeholders blaming Ryanair for not distributing to its shareholders. This report will firstly explain the current strategy of the company. then explore the environment. one of the famous low -carriers in the USA.Introduction Ryanair was founded in 1985 by the Ryan family. in which it holds an important share. 4 . Indeed.2. as an alternative to the then state monopoly carrier AerLingus. it attempted to acquire its long time irish -rival.

The competitive advantage it offers and seeks to maintain is the possible lowest price within its segment. students. it makes a high level of profit by increasing the volume of passengers (high turnover of flights by avoid ing busy airports which could cause some delays). 5 . In turn. It only flies short-distance and does business in the low-cost carriers segment. those customers provide it the base to earn substantial ancillary revenues (high margin) as illustrated in below graphs. and low-profile business people. On the other hand. Banning employees to charge their mobile phones at work illustrates this very well. All those measures have probably yielded a reduction by 5% of the average staff cost and 7%of the airport costs per passengerto enable Ryanair to offer a competitive price. as a low-cost carrier. customers are required to check -in via website. it is permanently scrutinizing its internal costs. In addition. To outperform its competitors. it keeps a close eye on the various charges that could be increased or caused by relevant authorities and EU regulators. reallocating them to other relevant tasks. thus lowering the number of staff available during the checking -in process and undoubtedly. and it monitors the labour costs by probably hiring more expatriate pilots. This segment covers low-income passengers.3. on the one hand. Ryanair does not aim to offer a particular experience.Current strategy Ryanair exclusively operates in European market. tourists. Furthermore.

it B i . t tf it . fi i i l . i l f fli t i t t i . i t i / t t tt i / l it it . t t . t . %t t % ll. . i .0 20. mln according to previous year. i t . % FY of 06 FY of 05 It i i t ifi % i i ll t . . l l i it t i i t. ti t t i . i t t t li . i t % f µt f . t ti l i. i t i t t tl .40. i li ¶. . i E t i i i t f J t.0 No of Increase passengers. i 6 . l i i . . ll E i ll t. i i .t l % i l . it tt . % ft tt i i A l.t i t ill t t l f i i f %.0 0. ti i t .0 100 50 0 FY of 05 FY of 06 FY of H107 Operating revenues (%) Ancillary revenues (%) 30. . f l i . l tit it fli t t t t t l t it it t t t .0 10. Si il l .

cancellations and denied boarding is likely to cause an increase to the costs for Ryan and others.The macro-environment FACTORS DESCRIPTION AND INFLUENCES  EUregulation in 2005 on reducing inconvenience caused to air passengers due to delays..Environmental analysis: The PESTEL framework ( ohnson et al. therefore reducing the v olume of passengers which is an important determinant for the budget airliners And caused Ryanair1. 4. For the H1of FY07. This action. At this step it is necessary to audit thoroughly the environment to bett er understand its influence on the industry and the organisation. has decreased to 13. 4. They are pressuring for hiring of pilots based in the UK.08%.) w hich probably hire a great deal of expatriate pilotswith low cost .  Various anti-terrorist security measures taken for transatlantic routes at airports also applied to short -haul passengers resulting in POLITICAL cancellation of flights. even though the profit for that period of the year increased substantially compared with 2005 and 2006.1. the ancillary revenues which provides high margin. while their performance appears to be more than satisfying. 7 .9 million euros estimated loss in 2006. easy et.etc.  Increasing power of some pressure groups such as the British Airline Pilots Association. there is however a fact to worry about. will raise the costs for the UK airliners (Ryanair.2008) will help at this stage to assess the macro environment and its various influences. if successful.. while they are competing against trains which are close substitutes.Finally. Aer Lingus.

 People¶s concern for disable persons in society. This can help airliners in general. Customers will start thinking about travelling by trains as well. ENVIRONMENTAL  Environmental concerns regarding the carbon emissions could result with environmental taxes for airline industry which will directly affect Ryanair and its peers.  People¶s concern for safety measures. Security is generally the first concern for SOCIAL passengers. ECONOMIC  Increasing costs of insurance could bring about an increase in the prices offered by budget airliners. This can entail an increase in the costs by providing for free some specific facilities to better fit them. budget carriers. Increasing fuel costs put an extra pressure on the cost structures of all of the airliners in the industry. TECHNOLOGICAL  New larger seat capacity aircrafts with fuel efficient engines. 8 .  Availability of in-flight mobile phone service. to save some money.  Increasing calls for taxing aviation fuel and making the aviation to become part of emissions trading scheme which could cost up to 9 Euros per return ticket in Europe. and this could have a knock -on effect on the industry. and particularly. This is useful to increase the ancillary revenues. This is a specific matter for Ryanair who charged a passenger for using a wheelchair. which is further expressed by some under-cover investigation.  New aircrafts with less emissions and lower noise pollution. They should not be discriminated in terms of pricing. The consequences will subsequently be positive for the whole industry. Ryanair has been targeted by some journalists and suspected for poor training policies and security procedures.

and just care about the functionality of the plane. the budget airliners can more likely place their planes order with various companies such as Boeing. it is almost certain that they do not as k the supplier for any particular design or service. Unfair airport rights favouring airlines over others. FlyBe and other companies whichappear to operate only in specific routes within Europe. In addition. This will reduce LEGAL the competitiveness of some carriers such as Ryanair. this segment is competitive and includes other players such as Air Berlin/Nikki. FORCES Bargaining power of suppliers ASSESSMENT JUSTIFICATION Indeed. 4. as they are mostly offering Low low-cost flights. five forces.  EU regulations imposing a ceiling on pilot flying hours to prevent dangerous fatigue. Therefore. Ryanair could not force pilots to fly more than a precise number of hours per week. 9 . the bargaining power of buyers is high (high volume). Conversely. to the suppliers. the key players of the low -costs carriers are Ryanairand Easy et which both dominate their segment. Bombardier and the Brazilian airplane manufacturer. To some extent. Airbus.2-The micro environment As indicated earlier. To better understand the structure and address the issues of this industrywe will apply Porter¶s (1998).

Secondly. Then. the passengers can decide to travel by train because its price is as cheap High as the plane price. they are not trying to differentiate each other in terms of quality for example. the customers have the choice of flying with one of the low cost companies serv ing their Threat of substitutes routes. an increase in the existing charges and/or any new cost due to enhanced regulations will induce passengers to choose the train . existing competitors Rivalry among It is quite high because companies are competing High essentially on the price. Threat of new entrants It can be appraised as low to average .Within the industry. the Low experience and economy of scale held by the existing companies represents an advantage that a new company cannot easily acquire over a short term period. 10 . with a negligible switching cost. thus making it difficult to enter. because it requires a great deal of capital to enter the airline industry. at the expense of lowcost airline. Buyers have the possibility to switch easily. Bargaining power of buyers Mainly due to the existence of a substitute service High which is the train and the low level of the switching costs. Outside the industry.

The largest travel website in Eu rope and the fifth most recognized brand on Google plays an important role in e business.Considering long-haul routes in the future and becoming an international low-cost airliner. .Very high margins on ancillary revenues which contributes substantially to the profitability.The rate of ³repeat´ business is higher meaning that the passengers re-using it and this proves that it keeps its attractiveness WEAKNESSES . 11 . This is to be thought about carefully in terms of strategy. positioned it as the Europe leading budget airline. increasing the insurance costs.Any terrorist attack will cause harm to the surcharges forever puts extra pressure industry.Web-based check in process that shortens the check-in and registration process . opportunities and threats for the organisation.Recommendation Before making the various recommendations and based on the environment.Increase in share prices results in shareholder satisfaction. . . . . Ryanair has a comfortable level of liquidity available. STRENGTHS .Lower fare pricesenabl edit to compete with its competitors.5. OPPORTUNITIES .Environment-friendly and the youngest fleet of any major airline in Europe.Room for increasing its market share by acquiring further low profile airc rafts. .High number of passengers carried. it is worth to expose the strengths. weaknesses.The fact that O¶Leary guaranteed no fuel THREATS .

. especially if it does not hedge on time.Refusing to recognize unions may result travel by train may make clients opt to travel by trains.Increasing route charges and fuel prices from the cities. 2. .Various conflicts with different airports will force Ryanair to put pressure on other parts of the cost structures.Unfriendly staff.on the company.Any improvement in the quality of the authorities. . thus decreasing the passenger turnover and lowering their revenues. . Organizing urgently. should stay at the command of company. Michael O¶Leary. the following actions are strongly recommended in terms of priority: 1. 12 . airport destinations which are mostly far . possible emissions in some employees undermining their work. helping to find extra sources of income for the company. Because. and inducing passengers to travel by trains.New tight regulations may make their work criticizing them and lower reputation in terms of security. . delays and poor legroom trading scheme will similarly lower the company¶s revenues. not putting in the extra-effort which is at the discretion of the employee. organizations and legal ca ses could lower the reputation of company . a task force to lobby relevant authorities in order to avoid some charges and maintain the costs low.Aviation fuel taxation. difficult and decrease income Building on all the previous points.Using some secondary and regional raising security issues. This action calls for collaboration between competitors so as to benefit the industry.Pressure from the British Airline Pilots¶ could have a negative impact on the ³repeat business´ which will decrease the income of the company . together with some peers. They will face the µdanger¶ that represents the train as a close substitute. O¶Leary should initiate that action because he is pu tting some energy in opposing to the bespoke stakeholders. .TV programs and Newspaper articles Association which can force them to take some costly actions . he seems to be a creative person.

such as the internet check-in system. Indeed. by the virtue of the liquidity it holds in its accounts. it could be worth conducting some industrial espionage to re act quickly to any change in the offers made by close competitors such as Easy et. It should always have a step ahead over the competitors who will duplicate its innovation in order to maintain its competitive advantage which is the price. Because the ancillary revenues have been decreasing over the H1 of FY07 knowing their contribution to the bottom line . some low -cost companies which has the same skytrax star rating.3. 13 . and help earn more ancillary revenues. 5. 7. Reviewing its own security and safety procedures and then communicating on it through various PRcampaign which will help enhance its reputation and differentiate slightly from the other low -cost competitors in Europe as they face criticisms with regard to their security level. understanding what the competition is doing is the second key factors of any successful organisation. This will definitely increase the number of passengers. which is one the two key success factors. Aer Lingus for example. 6. A better understanding of thei r wants and needs will help Ryanair to offer the specific products on the plane resulting in more purchases. Acquiring. as well. Working on any technological innovation that could help lower the costs. Ryanair needs to review and improve its human resources policy in order to raise the staff morale as this is generally viewed as the core asset that helps to make a difference for any company operating in a competitive market. it is. 8. 4. Finally. and others which serve routes different than Ryanair does. urgent to conduct various surveys in order to better understand the customer behaviour.

its audit should be conducted on a regular basis. It needs to keep on thinking ahead of its competitors in order to maintain its advantage.Conclusion: Overall. because of the turbulent nature of this environment. will certainly help Ryanair to mitigate its current weaknesses and reduce its exposure to some major threats. auditing particularly the macro and micro-environment. such as Ryanair.6. and if more information had been given regarding the organisation¶s capabilities. which led to the SWOT analysis and finally made some valuable recommendations to the board based on ourperspective. this report has analyzed the low -cost carriers¶ environment. if successfully implemented. A market leader. This recommendationcould have been more specificif some statistics on the consumer behaviour were provided in order to better understand their profiles and attitudes. should not rest on its laurels. Finally. Those recommendations. 14 .

Porter.. 2. M. (1998) Competitive Strategy: Techniques for Analyzing Industries and Competitors. D. Ford. J. Module hand book. Birmingham Business School 4. New York: The Oxford University Press Inc. West. (2010) Strategic Marketing (2 nd edition). Potter. & Ibrahim. 3. New York: Free Press.London: Pe son Educ tion Limited.    ©¨   £¢ ¡ ¦ §¢ ¥¦ ¦¥    £ £  £¢ ¡ ¢ ¡   ¤¡ 15 .7-References 1 J h s G Sch es K & Wh R 010 Exploring Corporate th Strategy:Text& Cases(8 e tion). N.(2010) Strategic Analysis of Business I. E.

-Researchers: Oxford University for example. -BOEING -Stock exchanges (NASDAQ. including the Ryan Family.2-Vulnerability Analysis High -Advertising Standards Authority -Media (Financial Times. -British Airline Pilots Association Irish Airlines Pilot Association (IALPA). Safety issues . -Passengers -'UK and Irish Aviation Authorities.) -EU Regulators -Airport Authorities (British.8-APPENDIX 8. Air Tranetc.1-Power/Interest Matrix Level of Interest Low High -Competitors (Easyjet. Guardian. Pollution (carbon emissions) Oil prices Legal actions 16 .. AerLingus) -Employees Representation Committee and Ryanair Employees. Airport charges. LSE) Level of Power Low 8. FlyBe. EU regulations on compensation to passengers. Channel 4. Dublin) -UK Minister for climate change. (1) Defenceless (2) Endangered (3) Vulnerable (4) Prepared Terrorist attacks. -Michael O¶Leary. -Governments for security reasons.. -Public on environmental issues. -Investors.

-Fly Be (3) -SkyEurope (2) -Easyjet (3) -Air Berlin (4) Short-haul 17 .4-Segmentation Geographical coverage Domestic Europe Long-haul N/A N/A Distance -Ryanair (2) -DbaWindjet -Fly Me (intraScandinavia) -Fly Be -Bmybaby (2) -Easy et (65%) -Ryanair -Easy et (3).8.3-Brand Perception Brand perception Competitive advantage Geographical spread Low / Functional Cost leadership / Acquisition International / Narrowed down to Europe 8.

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