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RyanAir is an Irish airline that was established in 1985 by Tony Ryan, the business started as a regional flight with one fifteen seat aircraft between London and Waterford, a second route was added the next year between Dublin and London, the airline witnessed a growth in number of passengers during the first five years of operation, but in 1990 Ryanair faced many problems and losses, that is when a new CEO was appointed in a try to save the airline, Michael O’ Leary made one of the most influential strategic decisions in the airline industry, by transforming the airline to become the first low fare airline in Europe, following the model of American Southwest Airlines. The airline achieved profits annually since then. The strategy O’ Leary used is to be the lowest cost service provider in the industry in order to offer the lowest fares to customers, many methods were used to implement this strategy, such as selecting regional airports that were looking to attract airlines at lower landing prices, and avoiding congested airports, as well as building a fleet of Boeing 737 planes in order to reduce staff training and aircraft maintenance costs. Today RyanAir is considered as the largest lowcost carrier in Europe, with more than 1100 routes across Europe and North Africa on its fleet of 250 Boeing 737-800 aircraft from 44 bases, with its biggest base at London Stansted Airport. International Air Transport Association (IATA) named RyanAir as the World’s favourite airline as a result of having more international passengers than any other airline. RyanAir earned many global awards, but two of the most important awards were the “Best Managed Airline” and “FT-ArcelorMittal Boldness in Business Award”, because such awards demonstrate the importance of the managerial talents and strategic decision making in the success of any business, which is the focus of this report (RyanAir Website 2011).
political stability in the EU results in more opportunities to growth. which reduced some of the ancillary revenues for the airline. As table-1 below shows. . while some political factors outside the EU can present threats. most of the impact was on the full service carriers. which might affect the prices of oil. this political factor created an opportunity that enabled RyanAir to expand its services into new markets and to earn great profits. PESTEL Analysis: . such as the 1999 legislation to bring intra-EU duty free sales to an end.III. but within the airline industry. such as political issues in the Middle East. which in turn resulted in more growth in the fleet and routes served by the airline. Economic Factor: The GFC (Global Financial Crisis) in 2008/2009 affected most businesses all over the world. Ryanair was one of the few airlines that continued to increase their overall capacity during the crisis (Ryanair Holdings Plc 2009). the recession turned customers from full service airlines to low-cost airlines. and it also presented the threat of increasing the landing and other airport charges at some airports that lost some revenue because of the legislation (FlightGlobal Website 1999). which allowed airlines within the EU to operate in any member country of the EU. In general. Some regulations can present threats. Political Factor: One of the key drivers that influenced the strategy of RyanAir was the 1992 de-regulation of the air industry.
basically using air travel. Even though RyanAir do not have a business class. over the focus on price. but this high growth rate might have an opposite impact on low-cost airlines. high incomes. RyanAir adopted a 100% web check-in policy. especially young people with low income to consider air travel. but many businesses today are trying to reduce costs. Technological Factor: Advances in IT enabled many companies to use online services. and high growth rate) resulted in high disposable income which enabled more and more consumers to spend money on holidays. so this might bring an opportunity to RyanAir in the business market. low unemployment rates. enabling a staff reduction. Lower costs will always attract and encourage more demographics. Socio-Culture Factor: The stable economic conditions in EU resulted in more people flying away for holidays. where customers are ready to spend more. this will require a focus on quality and services. which resulted in reducing costs. as well as using self service check-in at airports . a study of the UK CAA (Civil Aviation Authority) found out that there are about 34 intra-EU routes with potential for new operators (UK CAA website 2011).Table-1: Key Statistics 2009 (Source RyanAir Financial Report 2009) The stable economic conditions in most members of the EU (represented by high GDP. which created new opportunities and opened new markets in countries that were un-considered.
& Scholes 2011 p. while other cases were regarding the unauthorised use of photos of the Queen of Spain and French President Sarkozy. where video conferencing might replace travelling for meetings. which resulted in reducing the CO2 emissions by 45%. Whittington.623). and require less maintenance. RyanAir realized the importance of such issues. such as business market. but these cases were used as marketing tool.(Johnson. where latest aircrafts consume less fuel. as a result many investments in the latest aircraft technologies were made to improve the fleet. therefore it is a factor that should be carefully monitored in order to minimise such losses. these regulations have an impact on many businesses. Technological advances in the aircraft industry can also be a competitive advantage for airlines with a young fleet such as RyanAir’s 2. where RyanAir had to pay a fine (Johnson. due to the CO2 emissions by aircrafts. The green factor is becoming more and more important all over the world.624). But technology might be a threat as well in some market segments. and in commercial measures (flying with maximum number of travellers) to spread the fuel use (RyanAir Website 2011). both in terms of compliance to regulations and to gain competitive advantage in the eyes of customers. many governments issued regulations in an effort to save the planet. & Scholes 2011 p. natural disasters such as Iceland’s volcano with the cloud of ashes over European skies resulted in great losses in the industry.5 years average old fleet (RyanAir Website 2011). RyanAir also minimised fuel emissions through fuel saving measures (using latest aircrafts). . Legal Factor: RyanAir was involved in many legal cases regarding the deals they made with airports. Whittington. and airline industry is heavily affected. Environmental (Green) Factor: The environment’s impact on the aviation industry is high. which generated more brand awareness and profit.
Increased competition in the low-cost carriers. Unpredicted natural disasters and political conflicts. through the adopted 100% web check-in policy.IV. Highest seat density. New countries joining the EU might open up new markets. . Price sensitive customers. Economic slowdowns might help low-cost carriers. which affect the low fares. EU deregulations might make it easy for new entrants to compete. no-frills” strategy in Europe (RyanAir Website 2011). Using a unified fleet to minimise training and maintenance costs. Low marketing and advertising expenditure through using free publicity. Online growth. Market share leadership. Poor service. Wise. Bad press might affect the brand. innovative and experienced CEO and qualified staff. Ancillary revenue initiatives. Strong brand equity. Opportunities: The increasing growth of low-cost carriers’ market share. High sensitivity to changes in charges. Weaknesses: The far distance from some regional airports to the announced destination. Selecting regional airports with less traffic and avoiding congested airports to reduce costs. SWOT Analysis: Strengths: First airline to adopt the “low-cost. creative. Threats: Unpredicted oil prices.
RyanAir operates at regional airports. which can compete with low-cost air travel in terms of cost and speed. Most cost reduction processes can be copied. 4. 3. loyalty only to low prices. Many countries in the EU are investing in intra cities high speed trains. price is the main factor. RyanAir and other big players are prepared to enter price wars. The Threat of Substitutes: The absence of switching costs makes substitution easy. Fuel is controlled through hedging. RyanAir successfully benefited from the first mover advantage.V. but success is hard. Bargaining Power of Suppliers: Aircraft supplier (Boeing) has high bargaining power. in order to reduce airports bargaining power. Porter’s Five Forces Model: 1. Entrance is easy. 5. Competitive Rivalry: A highly competitive market. Video conferencing technologies might replace some business trips. as the market is mature. as switching costs are high (staff training and maintenance). The Threat of Entry: Deregulation of airlines in EU made it easier for new entrants to enter and exit the industry. No service differentiation. Bargaining Power of Buyers: Switching costs are low. Price sensitive customers. so customers have the power. 2. . Cost aware customers.
RyanAir’s Strategic Capabilities: RyanAir succeeded in positioning itself as the low-cost airlines leader in EU. and adopting online services. and Porter’s Five Forces Model. made it difficult for competitors to imitate the success of RyanAir. such as a unified fleet to cut costs. not mentioning the use of free publicity to keep attracting more and more passengers. . and Non-Substitutable to customers. SWOT. to create competitive advantages that are of Value.VI. Even though there are many substitutes to air travel. Inimitability. The rarity of RyanAir’s strategic capability was achieved by using the large numbers of passengers gained through the first mover advantage to get lower operating costs from regional airports. the value of this strategic capability was providing customers with lowest fares. in addition to the complex network of relations built with airports across the EU. The EU deregulation of airlines enabled airlines to negotiate operating arrangements with airports within the EU. such as high speed intra cities trains. while gaining profits. this was done through a series of strategic choices that took advantage of the key factors identified by the PESTEL. experienced. RyanAir continues to innovate. Having an innovative. this strategic choice was supported by many actions. the increased numbers of passengers can tell that this strategic capability is non-substitutable. Rarity. avoiding high traffic airports. and adding new routes. as well as an organisational culture that supports continuous growth. further reducing costs. something that competitors couldn’t offer. RyanAir saw an opportunity to transform to the first Low-cost airline in Europe. and creative CEO such as Michael O’Leary. and video conferencing. the strategy chosen was the cost leadership strategy (of Porter’s generic strategies).
being the market leader of low-cost airline didn’t stop RyanAir from continuously monitoring the constantly changing environment they work in and adapt to changes. Technological advances should always be monitored. so innovative moves should be put in place in order to further strengthen the position in the value segment. VIII. as the environment is constantly changing. not only in low-price. which is demonstrated by the announcement made by CEO O'Leary that “RyanAir plans to launch transatlantic no-frills airline” (FlightGlobal Website 2007). Conclusion: RyanAir adopted the cost leadership strategy. .VII. this decision was made after a careful monitoring of the external environment to sense opportunities and to seize the suitable ones. being the low-cost leader alone will not give competitive advantage for ever. which was a major strategic decision in the life of the Irish airline. and maybe working on alliances with hotels and car rentals would attract more people. such as offering vouchers for free drinks or services on the passenger’s next flight with RyanAir. then matching them to the internal capabilities. which would encourage passengers to come back. as many competitors are also finding ways to cut costs and offer low prices. as they can offer more ways to innovate and reduce costs. as well as non European markets. Recommendations: Even the most successful strategies need to be reviewed and re-evaluated regularly. The challenge now is to develop a strategy that can earn RyanAir a strong position in value.
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