Ryanair Case

RyanAir Case By Dian Ratnasari Company Overview Low cost airlines have been a trend nowadays anywhere in the world. There are many airlines that have adopted this strategy and have become more successful because of this. The low cost airlines have the advantage over the premium airlines due to the fact that they will never get their costs to a point where they can make a profit at low fares in bigger markets. Among these low cost airlines that are in existence nowadays is Ryanair. The Irish airline company Ryanair is the first low-cost, no-frills European airline to have any impact. Ryanair started operations in July 1985, flying between Waterford in the southeast of Ireland and London's Gatwick airport. Three brothers, Catlan, Declan and Shane Ryan were the founding shareholders of Ryanair, which was set up to offer low-cost no-frills services between Ireland and London. Now, Ryanair, with its rapid growth occupied a most sought position in its own field, being “Britain’s favorite airline”. Main Resources and Capabilities Resourced-Based of the Firm The resource-based view presents a perspective of competition that portrays the value of a resource or capability as derived from the dynamic interplay of market forces. While the market and environment establish external constraints and pressures, a firm’s response through resource allocation and capability development become a source of competitive advantage. The resource-based perspective views a firm as an organization that has a bundle of protective resources and capabilities. Resources are tangible and intangible assets a firm uses to choose and implement its strategies. Capabilities are the skills a firm uses to bring its resources to bear. The capabilities of the firm are: o

Lowest airfare rates

o

Simple processes (no frills)

o

Large brand awareness

o

Clear offer (focuses on particular market segment)

o

Innovative strategies on cost cutting

o

Quick turnaround time

The resources of Ryanair are: o

Physical Resources – consists of the resources that are needed to operate such as aircraft fleet, headquarter, secondary airports.

o

Human Resources – the company has 2,700 employees.

o

Financial Resources – The financial resources of the company comes from the Ryan Family, shareholders, investors and creditors.

o

Intellectual Capital – these are the knowledge, skills, abilities and talents that every in Ryanair possesses.

Sustainable Competitive Advantage Ryanair continues to be the lowest cost airline in Europe. The firm manages to maintain its cost leadership despite the presence of other low cost airlines in Europe. The source of competitive advantage of the company is its ability to drive down costs to sustain low fares while at the same time remain profitable. This is done through: 1. Fleet Commonality The airline’s fleet is made up of Boeing 737, the most common aircraft being flown in the present. Because of fleet commonality the firm is able to cut on costs in obtaining spares and maintenance services. 2. Contracting Out of Services Other than Dublin Airport where the firm maintains its staff and services, Ryanair contracts out aircraft handling, ticketing, baggage handling and other functions to third parties. The firm is able to obtain competitive rates and multi-year contracts at fixed prices, limiting exposure to cost increases. Third party service outsourcing also limits Ryanair’s Direct exposure to employee relations responsibilities and potential disputes.

3. Airport Charges and Route Policy Airport charges include landing fees, passenger loading fees, aircraft parking fees and noise surcharges. In order to reduce these fees, the firm avoids congested main airports and chooses secondary and regional airport destinations which are very interested in increasing passenger throughput. 4. Staff Costs and Productivity In order to control employee compensation costs, the firm implements a performance related pay structure. Although the company provides lower labor costs, the employees can earn additional pay or remuneration base on their performance. 5. Marketing Costs In order to reduce marketing costs, the firm cut its rate commission to travel agents. The firm’s main advertisement tools are newspapers, radio, television and its company website. SWOT Analysis Strengths Ryanair has been known as Europe’s first low-cost, no-frills airline brand.This fact alone credits is the company’s strongest selling point. Ryanair started in year 1985 with only 57 staff members and with one 15-seater turboprop plane from the south of east of Ireland to London-Gatwick which carried 5000 passengers on one route. In 1986, inspired from the story of David and Goliath the company go after the big guys for a slice of the action and end up smashing the Aer Lingus or British Airways high fare cartel on the Dublin-London route. From therein, Ryanair's lower fares offering increased their market share rapidly resulting to the establishment of low-cost subsidiaries of established airline companies such as British Airlines and KLM. The ‘low-cost, no-frills’ strategy resulted to a rapid increase of customers and expansion of their operations, wherein the staff increased from mere 57 to 3, 400 staff members and almost 35 million passengers. In terms of operations, the EU air transport

deregulation allowed the airline for the first time to open up new routes to Continental Europe with over 3 million passengers on 18 routes carried in 1997. Ryanair also launched services to Stockholm, Oslo, Paris and Brussels and took time out to float Ryanair Holdings plc on Dublin and NASDAQ Stock exchanges. The company was awarded as Airline of the Year in 1999 by the Irish Air Transport Users Committee. In 2001, while almost all traditional airline companies suffered from losses and stiff competition, Ryanair, being a low-cost airline became more than merely profitable by recording 26 percent in operating margins - results that the former only dreams about. In June of the following year, Ryanair made a market capitalization amounting to 4.9 billion euro ($4.82 billion), breaking the records of 45 percent more than the mighty British Airways that has 20 times larger in terms of revenue. Ryanair possesses the sophisticated and able technology that can cater to the fast changing global marketing management trends. It has core competence in its use of information technology that can support its management and marketing operations. Thus, adding to its innovations in service providing among the wide range of clientele. Its IT supports competent procurement of services (e.g. bookings and ticketing) in e-marketing or online aspect. After establishing its website in January 2000, it became one of the busiest sites in the country with 14 million impressions a month. The booking in their web accounts have increased to 94% which has probably has something to do with opening another 26 routes. In year 2003, the company is characterized by rapid expansion and the start the year by announcing that the company has ordered an additional 100 new Boeing 737-800 series aircraft to facilitate the rapid European growth plans. The company is named as the most popular airline on the web in 2004 by Google. The company has also passed out British Airways to become the UK’s favorite airline in United Kingdom and throughout Europe. In sum, Ryanair’s strengths rest on the company’s commitment to low fares, deep-seated management, and willingness to address managerial challenges and marketing trends (e.g. competition, expansion, and IT solutions).

Weaknesses Despite of the increase of passengers, the company is not so good in managing cost that the company has lose its money. At the moment, there have been urgent and deliberate mechanisms that were implemented to address such weakness. Such cost reduction strategy relies on five main aspects like fleet commonality, contracting out services, airport charges and route policies, managed staff costs and productivity and managed marketing costs. Ryanair, in spite of its strategies has other problems that serve as weaknesses too. One of the problems is in terms of handling customers or target market. Reports say that Ryanair accumulates ‘hidden’ taxes and other fees, restricted customer services, and deceiving advertisements. In addition, another problem is assuring quality service. According to the result of poll conducted by BBC involving air travelers in 2003, 56 percent of respondents claimed that the airline caused them ‘the biggest headaches’ in terms of services and customers. Also, in 2007 Ireland’s Commission for Aviation Regulation recorded a total of 60 percent of all complaints accumulated by the commission. There has been significant number of bad publicity for the company, thus, creating a negative impression to the airline brand. The company is faced with different unsolved issues because of lack of strategic decision making in several areas of human resources particularly in relation to trade union policies. Opportunities With the management system of the company and the strengths that it has, Ryanair has bigger opportunities to still dominate and catch up with the competition in the European airline industry in terms of providing more quality service standard and at the same time preserving it low-cost no-frills strategy to its clients or even have an opportunity to be the number one airline company in the whole region after its eventual application of its proposed plans in the future. Another opportunity that can be attached to the company is it would gain more customers if they would be able to determine the latest trends in airline management and marketing to meet the demands of their target market. The continuous initiatives of the company in diversification of its revenue resources also open new opportunities to make the business become stronger to outgrow

all its rival companies. Such opportunities will include e-business development by strategic alliances as well as suppliers, leveraging the company’s investment in the World Class Customer Satisfaction Systems, and other business opportunities in both non-core and core areas. Threats Operating in the most competitive marketplace especially European airline industry, Ryanair is faced with the inevitable threat of stiff competition. For a company to succeed in global competition there is a continuous plan to develop new products with higher quality than its competitors. New product and new business development must be highly effective and efficient, however that alone will not ensure its competitiveness. The expansion of its operations to other areas means adjusting to the trade policies and political problems of the locality. The dynamic needs and demands of customers served to be a challenge to the management. Furthermore, consumer behavior and satisfaction with regards to the product/service procurement is also a risk. If the company will continue to be a vertically integrated corporation, the company may fail in terms of management ability. The division of the company may tend to have internal complexity. Additionally, fast paced technological advancement may be a threat to Ryanair as a whole. In terms of the competitors, the company should be able to provide unique and more technologically advanced services to be able to survive in the competition in the world airline industry. Generic Strategy Aside from it cost-reduction strategy, Ryanair has also been able to use Porter’s generic strategies to position itself in the marketplace. Accordingly, a company positions itself by leveraging its strengths. Today, more and more people and organization are striving to be recognized in the business arena. With this objective, these organizations had been able to competently and effectively adapt to the situation in the market place by using generic strategies that enhanced their competitiveness. There are five different generic strategies that a business can choose.

These include cost leadership, differentiation, focused cost leadership and integrated cost leadership/differentiation. Each generic strategy helps the company to establish and exploit a competitive advantage within a particular competitive scope. By applying these strengths, three generic strategies are resulted: cost leadership, differentiation and focus. The strategies used by the company include cost leadership, differentiation strategy and focused differentiation. Cost leadership strategy is based upon a business organizing and managing its value-adding activities so as to be the lowest cost producer of a product within an industry. Cost advantage may achieve in terms of how product or services is designed or in terms of its quality. Differentiation strategy is based upon persuading customers that a product is superior to that offered by competitors. The value added by the uniqueness of the product or services may allow the company to charge a premium price for it. However, the danger associated with differentiation may include imitation by competitors and changes in customer tastes. Focus-differentiation strategy is aimed at a segment of the market fro a product rather than at the whole market or many markets. The successful way using focus strategy is to tailor a broad of product or service development strengths to a relatively narrow market segment that they know very well. The risk may include imitation and changes in the target segments. In the case of Ryanair, these three generic strategies had been utilized. First, the company offers the lowest cost of fare than its competitors in the airline. On the other hand, Ryanair has also become a focuser because it concentrated on a narrow customer segment which include Irish and UK business people or travelers who could not afro to fly major airlines. The main goal of the company is to provide a no-frills service with low fares designed to stimulate demand. At the time, it did not aim to offer the lowest fare on the market. However, the company expanded to continental Europe and had to focus on critical success factors to survive. Nowadays, it can be said that Ryanair has shifted generic strategies to become more of a cost-leader not only in terms of passenger volumes but being the lowest cost operator in the airline industry. Ryanair has restyled

itself and shifted from a full service conventional airline to the first European low-fares, no-frills carrier. In 1985, it provided scheduled passenger airline services between Ireland and the UK. By the end of 1990 and despite a growth in passenger volume, the company had experienced some trouble and had to dispose of five chief executives, recording losses of IR£20 million. Ryanair had to fight to survive and the new management team, headed by Michael O’Leary, decides to restyle the company on the model of successful American Southwest Airlines. Indeed, when one considers Porter's original framework, Ryanair's generic strategy used to be unclear as it situated itself somewhere between a cost leader and a focuser, although we can consider it was closer to a focuser. The problem with such niche strategies is that they involve a number of risks, the most obvious being that the niche can get saturated and competitors invade the segment. As long as Ryanair was the only European no-frills airline, it did not have to distinctly define its strategic position. It used to try and mix focus and cost leadership and was muzzy about which one it wanted. But as soon as competitors started blooming, it had to decide which strategy it would stick to. This was the very strategy of Michael O'Leary as he decided to ruthlessly pursue cost leadership. This strategy was a success and by 1997, Ryanair was floated on the Dublin Stock Exchange and on NASDAQ. Expansion strategy is another factor that enables Ryanair to position itself in the marketplace. The company has been known to be an airline which launches new routes since its operation begins. In addition, under the expansion strategy, company acquires Buzz in February 26, 2003. Such acquisition enables Ryanair to gain immediate access to11 new French regional airports and makes the company the largest airline operating at London Stansted Airport. It also continues to expand by opening two new Continental European bases with low-fare flights from Milan, Bergamo and Stockholm. Ryanair launched 73 new routes and carry over 2 million passengers in one month (July) of 2003. In addition, the company website has been able to make the company position itself in the global market.

Future Strategy and Recommendations Mergers and Acquisitions Mergers and acquisitions have become one of the most important corporate-level strategies in the new millennium. Merger and acquisition strategies are important to firm growth and success in the 21st century. As Ryanair continues to grow it is expected that the company will acquire other companies such as Buzz, in order to improve its capabilities and acquire more competitive advantage. Strategic Human Resource Management Ryanair, in its commitment to low-cost airfare have sacrificed its processes and services. The human resources of the company are not seen as a potential source of competitive advantage. The company do not seem to value its people. There is a growing belief that a company’s human resources is the most important source of competitive advantage. Human resources or the company’s people are one source of sustainable competitive advantage. In a fast-changing environment where technological innovations and other strategies can be copied, it is the human resources that bring a sustainable competitive advantage. Marketing Plan Strategies Ryanair should has a detailed plan for its strategic moves in the market and be able to provide good customer services to the customers like by having discounted flights and value promotion to keep the competitive advantage at a stable mode within its competitors and will need to focus more on the core competencies that allow Ryanair to practically and wisely designs suitable airline operations within the bracket of their marketing network services in a market standard-based perspective. Ryanair need to be goal oriented and must not stop to rejuvenate and change their marketing plan strategies from time to time in order to re-invent the performance process upon the upgrading of rules and regulations mandated by the state. Ryanair is to overcome the lack of product differentiation and increase it that will have the ability to revive revenue generation.

Operational Effectiveness It is then recommended that Ryanair should outsources as many non-core functions as possible that may abandon peripheral services such as catering or ground handling services and can be required to perform such activities as external specialist companies defined to be independent profit centers. Recommendation Based on above analysis, it is recommended that Ryanair consider the expansion in to haul markets – specially the transatlantic routes which accounts for more than 60% of world’s air travel. By moving in to this new market with its low fare strategy coupled with added service options the company can utilize its existing business with introducing complementary goods and services via its web site its also recommended as this will allow the company to further reduce its cost base per unit of customer.