Strategy and Choice

MN6003

Assignment 2

Case study:
Ryanair: the low fares airline- `always getting better`?

Vladimir Losenkov
Student ID: 16024402
Content page

Introduction
Analysis
 Genetic strategies
 Bowman`s strategies Clock
 Porters Five Forces
 Strategic group mapping
 Cultural Web
 SWOT analysis
 Recommendations to the Ryanair approach
 Appendix (Choice Matrix)

Conclusion
References
Introduction

This report is carried out to analyse, evaluate and justify selection of a strategic course of actions
that was used by Ryanair to become successful in the aviation sectors. According to Johnson strategy
is the “direction and scope of an organisation over the long term, which achieves advantages in a
changing environment through its configuration of resources and competences with aim of fulfilling
stakeholder expectations”. Therefore, to analyse how Ryanair created success and growth in
formation of its future the report will be conducted with tools such as Porter`s Generic strategy,
Bowman`s Strategic Clock, Porters Five Forces theory, cultural web and SWOT analysis.

Analysis

Generic strategies

According to Michal Porter (1980) there are three generic strategies which are;

 cost leadership

 differentiated

 focus

figure 1 (Johnson,2011)

These strategies are aimed to describe how a company pursues competitive advantage
across its chosen market scope.

Cost Leadership

According to Campbell (2002) cost leadership is the strategy with low cost operations that
could gain competitive advantage over the others by offering affordable and cheap deals for
their services or products, which is being used by Ryanair as main principle to achieve the
best operating margin in industry. All the operational elements of Ryanair conducted
towards reducing cost and improving efficiency. The low-price strategy of Ryanair boosts the
market demand for its services and individuals who never flew before/ been on holiday.

According to O`Higgins, Ryanair uses a one- way pricing method to operate which reduces
the minimum stay requirements and makes the company a market leader for cost in Europe
comparing to its competitors. It’s a big advantage for any travellers who are only required
to get from A to B.

Differentiation

According to O`Higgins, Ryanair has distinguished its services from the competitors services.
Ryanair was able to achieve better punctuality and fewer cancellation, low number of
injures and no plane crashes. Additionally, Ryanair was able to avoid huge landing and gate
charges by changing them flights from major airports to secondary airports. With this
change Ryanair was able to avoid the congestions at the primary airports which improved
the benchmark of arrivals, take offs on time and turn - around time for the planes.

According to O`Higgins, Ryanair is able to maintain its lower costs focusing mainly on lower
costs in comparison to their competitors like Aer Lingus or EasyJet. Therefore, these airlines
differentiated to Ryan Air.

Focus

To attract their customers and become a popular airline among European citizens, Ryanair
focus on low cost to get people from point to point. Therefore, one of the focuses is to make
customers select pure low budget airline over its competitors. According to O`Higgins,
Ryanair suggest extremely low cost with high quality catering service to their customers who
need to get to the secondary airports. This helps them to focus mostly on business clients
which is the priority for them and then people who are going on holidays and require
comfort over A to B transportation.

According to O`Higgins, to reduce unnecessary waste of cost Ryanair buys only Boing 737-
800 and all the aircraft fleets that is 11 to 17 years old. This focuses on less training and
availability of trained staff on board.
Bowman` Strategic Clock

The high level of competition on flight market needs efficient strategy to gain advantages
and high profit. Ryanair`s strategy can be placed in different options in Bowman`s Strategy
Clock. According to Johnson (2011), Bowman`s Strategy Clock is model that analyse the
position of the company in relation to what the competitors have to offer. In different times
Ryanair’s strategy could be placed in different options in Bowman`s Strategy Clock (figure2).
But all of them can be placed between options 1 and 5 (figure 2).

Bowman`s Strategy Clock model

(figure 2)
(Friesner, 2019)
Low price and low added value

According to O`Higgins, Ryanair had very dramatic changes during last decade period and
this was flabbergasted its competitors. Their low-price strategy in flight service helped their
profitability and it brought a significant value on the growth. Their market segmentation is
focused on the economy class travellers and those who are price conscious.

Low price and risk of price

Low price and low risk of price competition with low margins is one of the main focuses of
Ryanair and its could be counted as heart of the business.
Hybrid

Hybrid is about investment in more low-priced goods, Ryanair uses hybrid strategy in
purchasing aircraft fleets which reduced the cost of new fleets.

Differentiation

Ryanair make their customers to pay for the services like food, drinks and usage of toilets on the
aircraft, also they give the opportunity to select the seats for a really low price of 5 euros which
make them different to the other airlines.

Focussed differentiation

According to O’Higgins, Ryanair used this strategy for the particular segment, where they focus on
regular customers who doesn’t take any baggage and uses only sets.

Then higher price than higher standards

According to CEO Michael O`Leary Ryanair is a short haul airline and its has future strategic plan of
entering to luxury and long haul airline, where the business class will be very expensive compare to
economy class.

Porter`s Five Forces

The concept of the competition implies that the risk and returns over the industry should be at the
same level. Michael Porter (1980) framed a model which helps to identify the different forces that
influence the industry. This model is known as Five Forces.

Competitive Rivalry

Ryanair has its rival from other airlines such as Easy Jet, Lufthansa, British Airways. The competition
is so high on flight market and it makes the companies to keep their prices more closely the same in
order to strive in the market. According to O`Higgins most of the cost advantages that Ryanair has
already could be easily copied by the other companies and it would make the pressure on prices,
profitability and margins of the company. Therefore, Ryanair has agreements to not complete head
to head with their biggest competitor Easy Jet.

Bargaining Power of Suppliers

According to O`Higgins, Ryanair has one aircraft supplier which is Boeing. Also, they have airports
authorities which is essential part to run their strategies in smooth way as it was planned by the
management. Generally regional airports heavily dependent on the airlines and bargaining power is
always increasing because of the competition between low cost airlines.

Ryanair is highly dependent of the fuel prices. All the changes in oil prices will affect their cost
directly. However, the supplier switching costs for Ryanair is extremely high due significant amount
of expenses involved associated with pilot retaining needs. Its

Bargaining Power of Buyer

The buyers have an impact on the prices that been fixed by Ryanair. It is very east to change the
airline and it is not associated with high expenses. Ryanair has no monopolistic advantage and it is
perfect competition from other airways.

Barriers to Entry

Ryanair has no impact on protecting new entering companies into the industry, but it’s very hard to
be new in airline industry. One of the biggest barriers of entry is flight authorization. Also, many
difficulties could come with gaining access to the distribution channels. International and local
airports may not be able to create any additional space in their platforms in order to serve new
entrants into the industry. Therefore, a lot of investments needs to be done to enter the market.
Moreover, significant capital requirements include: marketing activities and attracting qualified
workforce.

Threat of Substitutes

Ryanair has other substitutes services which include railway networks, sea transport, coach
transport as well as car rental companies. The treat of main substitute, trains are occasionally
addressed by Ryanair in proactive manner through providing price comparison of Ryanair services
with train services on the company website and other sources. If the customer finds better way to
travel they will not feel any hesitation to choose it. This means that availability of substitutes for
Ryanair makes the demand for their seats more elastic.

Strategic group mapping

Pure Differentiation Pure low cost

 Source: (Created by Vladimir Losenkov).

On the above presentation it shown that Ryanair is the most radical low-cost airline, its different
with more closet competitors on the graph because it’s used secondary airports to lower its cost
base whereas other don’t. Air Lingus is getting close to the low-cost model on its short haul flights.
Virgin Express is based on the middle of the graph as it still offering seat allocation. Lufthansa, Air
France and British Airways adds more comfort and has high standards.

Cultural Web

According to Johnson (1992) cultural map is the tool that is created to understand different
influences of organisation.

Culture and Complicity (Richard Seel)

Stories – Stories are told in the organization about Michel O’Leary thriftiness and this helps to
promote low cost culture within organization.

Symbols – The initial slogan of Ryanair was the low fares which is a symbol of recognition of Ryanair
in the world. It helped the organization to thrive as cost leader in industry.

Power Structure: Michael O`Leary is the boss and there is no doubt about in the organisation

Control system: All the control derives from Michael O’Leary

Organizational structures: It is the main pillar of any organization in which the employees were
appreciated and empowered to reduce the cost.

Control: The head of the organization, Michael O`Leary performs all the control functions.

Rituals and Routines: There should be a less time consumption to perform chores of daily routine.
Online platform has proved to be a time saving.
The paradigm: With the advent of the self-sustaining and self-enforcing culture and history, a
general low-cost culture has been introduced in the Ryanair.

SWOT analysis

According to Rose (2017) SWOT analysis is study undertaken by an organization to identify its
internal strengths and weaknesses, as well as its external opportunities and threats.

Ryanair Strengths

 Lowest cost base – Ryanair cost per passenger is the lowest in Europe. This unit cost an
advantage against the competitors mainly because of the secondary airports with fast
turnover time, bargaining power with airports, lowering handling and check in costs at
airports. Another important source of unit cost advantage is labour force, which are more
productive and flexible. It also benefits from high seat density (189 seats per aircraft).

 New airplanes – leading to less cost in maintenance and fuel efficiency.

 Financial performance
 Ancillary revenues – Ryanair drives around 25% of its revenue from services such as travel
insurance, car hire and in-flight beverage.
 Management focus

Ryanair Weaknesses

 Low frequencies – departure at inconvenience time

 EU sensitivity – EU commission always targeting Ryanair with verbal attacks and singing out
the airline for selectively harsh treatment.
 Perceived to be an airline that is obsessed on bottom line at any cost
 Perceived bad customer service polices
 Seasonality of earrings – the profit relying strong on the summer.

Ryanair Opportunities

 Ryanair web site is very popular, and this opens new opportunities to leverage the web
traffic into the advertising revenue
 New countries: there a lot of new destinations.
 Potential market share: low cost airlines markets share not reached the peak level.

Threats

 Fuel price and currency movements

 Air travel taxes
 Competition between low fare airlines
Recommendations for the Ryanair approach.

1) Succession planning

According to the analysis, Ryanair`s only strategy is only to reduce the cost. Perfect leadership under
Michael O`Leary had led company to success so far but as company is growing they need to improve
or redesign the strategy. Therefore, Ryanair needs a new succession planner and leader. Also new
leader could help to the company mend the relationship with EU and Irish officials.

2) Ancillary products

Ryanair needs to enhance the quality of company website to have better sell of ancillary products as
well as looking into the possibility of gaining advertising revenue through website. Therefore,
innovative functions and futures needs to be introduced in Ryanair website, aiming to provide
customers with important information about services in an effective way and increasing the ease of
online transactions.

Ryanair could create a special credit card which allows to earn bonuses for their ancillary products.

3) Improve customer perception

As the Ryanair was the first low cost airline, most of the people wanted to fly with them. But
competition has increased, customers can choose to fly with the other slightly expensive airline that
Ryanair because Ryanair perceived poor customer service polices.

Improvements of the Ryanair brand image could help it future to proof against potential
competitors. Ryanair brand managers have to ensure that Ryanair image associated with “value”
rather than “cheap”.

4) Improve fuel hedging and currency trading

The international oil and foreign exchange market is extremely volatile and in the event of political
conflicts in countries that produce oil, oil prices could increase enormously.

The income of Ryanair is in euros but the international trade of fuel in us$ and Ryanair is exposed to
the vagaries of the currency market. The policy of buying us$ in order to pay for the air fuel must be
improved for Ryanair.

Additionally, Ryanair need to hire specialists’ companies that specializes in the futures markets to
help it improve its hedging practices.

5) Improve the customer service

This could be achieved through improving the quality of training giving frontline employees. This
would allow to reduce the number of staff and lead to big savings.
Conclusion

Based on analysis, Ryanair have succeeded and have managed to do far beyond expectations.
Ryanair has created a low- cost culture and the whole organization has adopted this philosophy. To
achieve their set goals, Ryanair had to use aggressive pricing and expansion strategy. This led them
to become the biggest low-cost airline company in Europe. A low-price strategy is a sustainable
strategy as it shown by Ryanair company. Ryanair was able to increase them profitability in very
short time. So now they have more to lose as they are under observation by both competitors and
shareholders. They need to keep paying attention on how the public perceives them as a brand.
Also, extremely important that, Ryanair need to evaluate and make strategy changes because
market changes and competitors adapt. At one-point Ryanair’s core competencies will be copied and
they not going to be able to content with their success.

References

David P. campbell (2002), Campbell Leadership Descriptor, Facilitator’s Guide.

Friesner, V. (2019). Bowman’s Strategy Clock.Marketingteacher.com.

Available at: https://www.marketingteacher.com/bowmans-strategy-clock/ [Accessed 5 Feb. 2019].

Johnson, Gerry (1992) “Managing Strategic Change – Strategy, Culture and Action”. Long Range
Planning Vol 25 No 1 pp 28-36.

Johnson G, Whittington R, Scholes K, Angwin D & Regner P (2017), Exploring Strategy, Ed11, Pearson.

Johnson, Whittington and Scholes (2011) Exploring Strategy, 9 th Edition, Pearson Education, Chapter
6.

PORTER, M. E. (1980). Competitive strategy: techniques for analyzing industries and competitors.

New York, Free Press.

Richard Seel. Organizational Culture: An Introduction, edited by Nasreen Taher, Hyderabad: ICFAI
University Press, 2005, pp 82-92.

Rose, Margaret. "What Is SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats
Analysis).
Appendix

Choice Matrix

Decision Criteria Option 1 (low cost Option 2 (middle cost Option 3 (high cost
airlines) airlines) airlines)

Must grow market share 5 4 3

in Europe

Must enter new 5 4 2

countries/cities Highly consistent Small changes

Entry of a major low- 3 5 5

cost operator Profitability low

Terrorist attacks – no 5 5 5
control over the risk

Raise in fuel prices 5 5 5

Uses of existing strategy 5 4 3
Out side Europe
Total score 28 25 23