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Ryanair Strategy 2_5 Pages

Ryanair Strategy 2_5 Pages

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12/18/2012

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Identify Ryanair’s current strategy (hint: this can be based on Porter’s three generic strategies) and provision of its justifications (hint: you can use value chain activities for justifying it). Company background Ryanair Holdings operates the first of all founded low cost scheduled passenger airlines in Europe. Starting in 1985 Ryanair followed the example of Southwest Airlines,  introduced the low cost concept in Europe and  became market leader in the low-cost air-line market  by consequently saving costs.  The company is headquartered in Dublin, Ireland,  employs about 4,200 people,  operates with a fleet size of 120 Boeing 737-800,  carries approximately 35 Mn. passengers a year and  had a turnover of 1,692.5 Mn in 2006 with a net profitability of about 10 % ,amounting to 169Mn. The main objective of ryan air is to firmly establish itself as Europe′s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fare service.′ (Ryanair Report 2007) Core business:  “low cost flights”  Ryanair offers low cost passenger flights within Europe.  The airline serves short haul, point-to-point routes between Ireland, the UK and Continental Europe. Business philosophy:  To keep the product as simple as possible.  Passengers travel ticketless without any frills in one class without any seat – it is simple air transportation from A to B.  Ryan Air’s customer is anyone within Europe in the age between 15 and 64, who wants to save money and still be able to travel by air to attractive destinations. STRATEGY OF RYANAIR Ryanair’s objective is to firmly establish itself as Europe’s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fares service. Ryanair aims to offer low fares that generate increased passenger traffic while maintaining a continuous focus on cost-containment and operating efficiencies. Two main categories of strategies can be identified as: 1. Generic (general) strategies, and 2. Competitive strategies. Ryanair Generic strategy The main types of generic strategies that organisations can pursue are: 1. Growth 2. Internationalisation/globalisation 3. Retrenchment involves cutting back to focus on your best lines. i.e. concentrating on what you do best Michael Porter identified three generic strategies 1. Differentiation 2. Focus 3. Low cost

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higher-fare carriers. and retrenchment. Ryanair provides various ancillary services and engages in other activities connected with its core air passenger service. It did not aim to satisfy all segments of the market. Their strategy is shown in their only marketing message: “lowest prices on the market & guarantee of no fuel surcharges”. The airline served a class of flyers who looked for functional and efficient service rather than luxury. including non-flight scheduled services. They will charge for all the other things. Product development is a growth strategy where a business aims to introduce new products into existing markets. Ryanair believes it will have opportunities for continued growth by: (i) initiating additional routes from the U. Enhancement of Operating Results through Ancillary Services. market and its expansion of service to continental Europe. They have offered to acquire AerLingus to expand its business.K. Forward Integration Ryanair has planned its production of products and services. Ryanair’s focus criteria of growth is Building on its success in the Ireland-U.Penetration and (vi) establishing more new bases in continental Europe. Ryanair’s strategy focus on its is growth. in-flight sales and internet-related services. market Development (iv) considering possible acquisitions that may become available in the future. The airline's operational policies supported its strategy of cost focus by producing no frills products and production innovation using ecommerce technologies to minimize its operation costs Eg: Online book through Ryanair’s website. There are targeting a niche market.-horizontal Integration (ii) increasing the frequency of service on its existing routes. stability. car rentals.The current strategy of Ryanair is a strategy of cost focus. Market penetration is a growth strategy where the business focuses on selling existing products into existing markets Market development is a growth strategy where the business seeks to sell its existing products into new markets. or Ireland to other locations in continental Europe that are currently served by higher-cost. Ryanair intends to follow a manageable growth plan targeting specific markets. Only the travel is free. Growth Every organization has three directions growth. Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. Ancilliary services from non-flight scheduled operations. food and merchandise and internet2 .K. product development (iii) starting new domestic routes within EU countries. Also it can be called as a Low fair-no frills strategy. AerLingus (v) connecting airports within its existing route network (“triangulation”). the in-flight sale of beverages. Diversification is a growth strategy where a business markets new products in new markets. Ryanair is interested in the European price sensitive travelers who are aged 15 to 64.

including baggage transfer and transit passenger assistance costs.which enables you to charge a higher price if desired.related services. There are two main ways of being competitive. Ryanair achieves this by focusing  strongly on the execution of these services and by operating from uncongested airports. as they had to only learn to operate a single type of plane. The geographic markets that Ryanair is planning to cater is Frequent Point-to-Point Flights on Short-Haul Routes  Frequent Point-to-Point Flights on Short-Haul Routes. 2004.  Personnel Productivity  Low Customer Service Costs  Airport Access Fees  Taking Advantage of the Internet  Commitment to Safety and Quality Maintenance  Enhancement of Operating Results through Ancillary Services Competitive Stage Justification • Ryanair flew a fleet comprising entirely of Boeing 737s. Competitive strategies are concerned with doing things better than rivals.. According to reports by the Association of European Airlines and the airlines’  own published statistics. Ryanair flew an average of approximately 1. while eliminating the necessity to provide “frill” services otherwise expected by customers on longer flights. 1. The key elements of the generic strategy Ryanair plans to follow to position itself uniquely against competitors  Low Fares  Customer Service. Short-haul routes allow Ryanair to offer frequent service.  Frequent Point-to-Point Flights on Short-Haul Routes  Low Operating Costs  Low and standardized Aircraft Equipment Costs. Ryanair distributes accommodation services and travel insurance as well as car rentals through both its website and its traditional telephone reservation offices. Ryanair competitive strategy Competitive strategies are also important. • Flying a standard fleet had the advantage of simplifying the maintenance function of the planes. Point-to-point flying (as opposed to hub-andspoke service) allows Ryanair to offer direct. They should seek to out compete rivals.  Customer Service.2 hours. thus allowing it to offer low fares. Ryanair has achieved better punctuality. To be competitive a firm shouldn't just copy the ideas of rivals. • This focus on standardization was a key feature in keeping the costs of the airline low. • As spares and other aircraft parts could be purchased in bulk. Ryanair provides frequent point-to-point service on short-haul routes to secondary and regional airports in and around major population centers and travel destinations. while at the same time reducing costs on a per unit basis. non-stop routes and avoid the costs of providing through service for connecting passengers. fewer lost bags and fewer  cancellations than all of the rest of its peer grouping in Europe. it resulted in economies of scale.83 round-trips per route per day with an average route length of 491 miles and an average flight duration of approximately 1.  In the fiscal year ended March 31. Ryanair emphasis is on being the low cost producer and is exemplified by 'no frills'. Ryanair’s strategy is to deliver the best customer service performance  in its peer group. 2. Management believes that providing these services through the internet allows Ryanair to increase sales. The airline did not have to stock spares for different types of planes. This is possible when a firm is the market leader and benefits from economies of scale. As part of its non-flight scheduled and internet-related services. • It also reduced training requirements for the pilots and the cabin crew. By selling goods at lower prices than rivals. • Ryanair Low Fares Strategy and Standardized Operational Model • Advantages of using secondary or airports located outside city 3 . By differentiating your product from those of rivals . It focuses on short haul destinations and keeping its planes in the air as frequently as possible in a 24 hour period..

Southwest Airlines have approximately 50% of the market share in the states. Increase the Frequency of Existing Routes The European low cost carrier (LCC) market is by no means exhausted. within the European Airline Industry as a whole the low-cost carriers only represent 7% of total market share. is very low.• • • Lower Wage bills Ryanair. The position Ryanair plans to hold in the future Ryanair’s CEO. As has been seen in the past in the United States there is only room for one or two major players in the low-cost airline industry.000 passengers per year. Michael O'Leary. So to that end we would intend to carry on applying all of these strategies for the foreseeable future. to outperform every other carrier on all fronts including quality of service. Experts predict that the maximum potential market share in Europe is limited to about 14%11 in the next 5-10 years but that is only if Ryanair continue to limit service to Western Europe. At the moment Ryanair have an average of 3. Objectives and Long Term Vision To have the largest amount of routes and the lowest fares of any European Airline without compromising our business model. Open New Routes in Europe There are many viable routes still un-served by low-cost carriers. has a vision of a world where the fare could drop to nothing as local communities would subsidize the airline to bring a steady traffic of business people and tourists to their region. Therefore Ryanair has achieved a sustainable competitive advantage Vision: Ryanair’s CEO.  Fleet of 200 airplanes in 2012. has a vision of a world where the fare could drop to nothing as local communities would subsidize the airline to bring a steady traffic of business people and tourists to their region.88 flights per day per route. In Europe 88% of the market is dominated by the two major players. and shareholders (Ryanair Report. which is a continuous lower fare. compared to Easyjet and traditional carriers.  To quadruple its annual profit up to €1. This means that Ryanair are loosing out on business passengers who need more flexible timetables. Research must be carried out to find viable routes before the competition. If Ryanair were to increase the frequency on some of their routes they could effectively steal some of the passengers from the traditional carrier’s thus increasing market share. Easyjet and Ryanair.  To double the annual passenger transportation to 80 million by2012. However.com and Online booking of tickets Paid-for extras – Sources of additional revenue Ryanair has maintained its competitive advantage over its competitors. Ryanair′s main objective: To firmly establish itself as Europe′s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fare service. 2.230 billion in 2012. The options Ryanair have are as follows: 1. Mission statement: Ryanair will become Europe′s most profitable lowest cost airline by rolling out the proven `lowfare-no-frills′ service in all markets in which we operate. Main Goal: To firmly establish itself as low fares . Michael O'Leary. As well 4 . Ryanair also aspires to uphold a high level of growth We feel that Ryanair’s strategy up to date has been the key factor in its huge success.  To eliminate the rest of our costly call centers  To base the distribution only on online booking. 1997). by offering a highly differentiated product. Ryanair’s success to date has been partly due to the fast pace at which the industry has been developing and since this market will not grow as fast in the future Ryanair must seek other ways to expand in order to sustain their top performance. This figure.  Goals and objectives for 6 years till 2012. far less than the 25% of their American counterparts. people. scheduled passenger airline through continued improvements and expanded offerings. In order to do this several options must be taken into account.  To raise the market share within the low cost sector up to 40%. to the benefit of our passengers. In order for a route to be viable there must be at least 32.′ (Ryanair Report 2007).

Ryanair can also open routes where the competition is a more expensive traditional carrier thus attracting customers with the cheaper. There is still plenty of opportunity in this area. Other low-cost airlines have set up there already.U. we believe that the Company can continue to lower its cost base as it grows albeit at a lower pace. Customer Service Overhaul Ryanair has had a remarkable track record for its ‘tangible’ customer service (punctuality. while maintaining its strict rules and regulations. Continue to find ways of reducing costs Although Ryanair has the lowest cost base of any of its competitors.I. 7. Hahn. an increase of 33% on the previous year’s figures. Develop Its Smaller Continental Operating Bases With the low-cost market from London saturated. 6. but not all routes have been exhausted. must make an adjustment in this area. SN Airlines currently dominates the traffic from Brussels to North Africa but they are neither a low-cost airline nor a traditional carrier. In 2002. Our aim is to seek out and start negotiations with potential airports in these countries. Brussels. By offering truly lowcost flights to these destinations Ryanair could easily capture this market share. Ryanair 100% online Ryanair will continue to use the internet as its primary point of sale. flight completion etc) however the perception of the ‘softer’ side of its customer service has not always been good with much bad press. Ryanair must look to their other operating bases to expand their network. Aggressively seek to take market share from the Charter Market The Charter market represents a huge 25% of overall European traffic. 5 . Expand into Central/Eastern Europe Eastern Europe is fast becoming a hotspot for tourists and business travellers alike due to the continuing expansion of the E. Ryanair has already begun to provide small packages for its destinations and we aim to bolster this side of the business. Ryanair however doesn’t serve any of these popular destinations. no-frills option. such as Sky Europe. 5. this is a market that must not be overlooked. With the increasing popularity of the Internet and the decreasing popularity of Travel Agents. Expand into North Africa Routes to North Africa are also very popular for both tourists and North Africans who have immigrated to Europe. etc… can all be developed. holidays instead of package tours. With this in mind Ryanair. Dublin. 3. Ryanair must aggressively attack this market by heavily promoting D.Y. Although there is not the same demand outside of London there is still sufficient demand to make a sizable profit 4.as opening routes to un-served destinations. Over the next 5 years the aim is to have 100% of bookings via the internet so as to eliminate the costly call centres. 9. 33% of routes were served by only one low-cost carrier. 8.

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