Paulius BagdanskasU1271535Travel and Tourism management

University of HuddersfieldModule: BHH 4002 Strategic Management for the Hospitality, Travel and Tourism IndustriesModule leader: Dr Derek CameronDue date of work: 17/01/16Word count: 2500

Ryanair industry analysis – A case study report

Executive summary

This report looked into Ryanair’s industry, its position in the competitive industry. Ryanair’s

further development and improvement towards customers, SWOT and PESTEL analysis of

Ryanair, placing Ryanair in Porter’s generic strategies, use Porter’s five forces to identify

profitability in the industry and applying Christensen’s disruptive innovation model to Ryanair.

Table of Contents

1.0 Introduction……………………………………………………..1

2.0 Strategic Analysis……………………………………………….2

2.1 Ryanair’s Strategy……………………………………………...22.2 “Always getting better” programme……………………….......32.3 Ryanair’s PESTEL analysis…………………………………...42.4 Porter’s five forces analysis…………………………………...5 2.4.1 Porter’s five forces model……………………………......5

3.0 Strategic Choice………………………………………………...8

3.1 Ryanair’s SWOT analysis……………………………….........8 3.2 Porter’s generic strategies………………………………….....9 3.2.1 Porter’s generic strategies table……………………….....9

4.0 Strategic Implementation……....................................................11

4.1 Christensen disruptive innovation…………………………….11 4.1.1 Christensen’s disruptive innovation model………………11

5.0 Conclusion……………………………………………………..12

6.0 Recommendations……………………………………………...12

7.0 References………………………………………………….......13

8.0 Appendices…………………………………………………......14 A: Ryanair’s PESTEL analysis……………………………………15B: Ryanair’s SWOT analysis……………………………………...16C: Ryanair’s “always getting better” programme …….…………..17D: Ryanair’s 30 years overview…………………………………...18

1.0 Introduction

Ryanair - first Europe’s low cost budget airline that took over low-cost airline industry and

changed drastically since 1985, see Appendix D for Ryanair’s 30 years overview. Due to

copying the Southwest Airlines low fares model and strong leadership of Chief Executive

Michael O’Leary Ryanair is known for its strong cost leadership in the industry. As well,

Ryanair is known well for its bad reputation of poor customer service, working conditions

(Ryanair, 2015). However, in the recent years Ryanair is improving its image and making a lot of

new changes which helps to attract more travellers and to listen to the customers after many

years of poor reviews. Using PESTEL and SWOT analysis, Porter’s five forces and generic

strategies together with Christensen’s disruptive innovation Ryanair industry is going to be

broadly analysed by these indicators.

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2.0 Strategic Analysis

2.1 Ryanair’s strategyRyanair’s goal is mainly to become Europe’s greatest scheduled passenger airline by using more

offerings and improvement at low-fares. Ryanair aims to offer low-fares which would develop

more passengers’ numbers and at the same time concentrate on the quality and cost of the

operation in the challenging environment (Ryanair, 2015). Ryanair’s sustained strategy involves

few main key factors which are customer service and low fares. Ryanair’s strategy is to provide

finest customer performance within Ryanair’s competitor group. According to Association of

European Airlines and Ryanair’s announced statistics Ryanair has succeeded in less flight

cancellations, better on time punctuality, less lost bags compared to the other competitor airlines.

To make sure that small issues within airline, such as, loss of baggage and flight delay are

repaired fast and that staff is ready for this Ryanair keeps track of logs and everyday airline

organises conferences via calls with the staff at each of the Ryanair’s airport base (Ryanair,

2015). Ground operations staff are responsible for inspection of short flights and delays.

Passenger expectations fulfilment is achieved by different types of surveys, mystery-passenger

visit check and through online website.

Ryanair’s low prices on tickets are used to attract more demand especially from people who have

low budget and tend to use everything that is cheap and want to save money. Ryanair mainly

sells tickets for passengers’ for one way travel who are not planning to return to the original

destination and buy the ticket together (Ryanair, 2014). Ryanair determines the fare price

according to demand of the certain flight and by day count left till the departure day, for

example, the less days left till the departure the higher price will be. When the demand of the

flight is high Ryanair increases the price of the fare to be profitable. As well, Ryanair from time

to time introduces promotional fare campaigns which attract more people (Ryanair, 2015).

Main competitors of Ryanair are Lufthansa, British Airways, Alitalia, EasyJet and Air France.

Fare competition amongst airlines appears within increased capacity, price discounting, ticket

sale promotions and price matching. Little variations in passenger flows and pricing may have a

negative impact on airlines finances and operations. Consequently, big competition between

airlines could influence airline potential to expand route map, open new bases, and help to

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increase passengers’ demand which could be unfavourable to airline market share

(RyanairHoldingsPlc, 2015).

2.2 “Always getting better” programmeRyanair in 2013 introduced customer experience programme called “Always getting better”

AGB, see Appendix C. This Ryanair’s strategy applied to management team, 9,500 aviation staff

and entire Ryanair’s board to listen to the customers wishes in order to fix Ryanair’s bad

reputation over the years along with, better flight experience, various problems which passengers

do not like, deliver new online booking platform and deliver new services by keeping what is the

best for the Ryanair on time flights and low fares (Ryanair, 2015).

Especially, Ryanair improved customer reputation regarding answering and listening to

feedbacks that customers give to Ryanair through “customer suggestions” website and the most

important factor is that everything is answered by chief executive Michael O’Leary (Ryanair,

2015). As well, Ryanair policies changed which were the same for over twenty years. Customers

desired second carry-on luggage and assigned seats and Ryanair implemented it. More

importantly, Ryanair renewed “Family extra” and “Business Plus” services, introduced up to date

mobile app for people to make it easier to buy tickets, re-designed Ryanair’s website which was

very poor and had many difficulties, developed “quiet flights”, reduced luggage and airport fees

and brought back relationship with global distribution system which is connected to corporate

travel agents (Ryanair, 2015).

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2.3 Ryanair’s PESTEL analysisPESTEL analysis for Ryanair assists with producing opportunities or seeing what threats disturb

Ryanair’s operations in the external environment and what is the situation of the company

(Yuksel, 2012). PESTEL consists of political, economic, social, technological, environmental

and legal factors, see Appendix A for Ryanair’s PESTEL analysis.

Political factors of Ryanair are: regional government’s regulation on national employment

contracts with Britain and France and taxes, European Union’s regulations and restrictions on

staff welfare and emission fee interrupts Ryanair’s strategy (Ryanair, 2015). For Ryanair all

regulations from EU have to be reviewed for Ryanair’s strategy in order to evade from negative

effects on the airline.

Economic factors follow use of secondary airports to escape from extra costs and charges in the

primary airports. If exchange rate and fuel price rises then Ryanair’s operation costs go up. Since

2015 Ryanair’s growth rate last time was affected enormously in 2008 by economic downturn.

Primary Ryanair’s social factors are good relationship with staff, “always getting better

programme” created in 2013, public image history of providing bad customer service, new IT

hub and Ryanair labs for improving the image or the airline (Ryanair, 2015).

Main technological factors are use of internet, online check-in saves time for customers, new

improved website without no more of unfair advertisement and new aircraft model contributes to

cut emission and cost charges.

Most important environmental and legal factors consist of harsh CO2 management, lower

emissions and noise due to new aircraft model, bad working conditions and violation of media

have implications on law. Also, acquisition of Aer Lingus was rejected more than three times by

UKOFT and EC (Ryanair, 2015).

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2.4 Porter’s five forces analysisMichael Porter in his first chapter of 1980 competitive strategy book identified that five forces

establish the structure of the competition demonstrating the reason of lucrativeness in the

industry (Porter, 2008). According to Porter (1980, p.3) identifying all five forces together the

potential of profit in the industry can be established. If the five forces are extremely intense and

especially in industries, such as, hotels and airlines then for a firm to achieve positive returns on

investment is really hard. Porter’s five forces consist of threats which are caused by power of

suppliers, power of buyers, the intensity of rivalry between competitors, substitute products and

possible new entrants, and for Ryanair it is shown in Figure 1. In this situation for Ryanair it

shows if it is worth entering budget airline industry (Dobbs, 2014).

2.4.1 Porter’s five forces model

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The Threat of New Entrants

To enter low fares industry when there is a strong cost leader Ryanair is very difficult. In order

for new entrants to compete in the strong European market high entry barriers are necessary,

such as, capital requirements, price and access to distribution channels to establish high

economies of scale (Ryanair, 2015). To conclude, the treat of new entrants for Ryanair is low.

The Bargaining Power of Buyers

There is high bargaining power of buyers because switching to different airline is easy and there

is no need of extra expenses (Ryanair, 2015). Those budget airline examples are, such as, Virgin

Express, EasyJet and Aer Lingus. Particularly in the cost leadership strategy each buyer takes up

significant position. The main trouble is that at the same time rise in competitor numbers

participating in offering cheap prices is involved.

The Threat of Substitutes

Substitutes, such as, sea transport, railroad networks, busses and rent-a-car companies are the

services that generate relative value for customers same as airline industry. Train services are the

most notable in terms of threat for the airlines because other alternatives are too costly (Ryanair,

2015). Europe is known for well-established railroad network, especially “EuRail” which

connects west, central and southern part of Europe and the main barrier between airlines is the

travel time. To travel to a destination with a plane takes less time than with a train and this factor

for trains brings higher transaction and opportunity costs. To summarise, the threat of substitutes

for Ryanair is low.

The Bargaining Power of Suppliers

There is high bargaining power of suppliers in the industry and there are mainly two major

aircraft producers in Europe which are Boeing and Airbus. The bargaining power of suppliers is

high because switching costs are high and meaning that high capital investments together with

training pilots from the beginning are necessary (Ryanair, 2015). Ryanair’s primary supplier is

Boeing, though Ryanair any time can modify their suppliers because of positive cash flow, for

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example, Ryanair tried to purchase Airbus aircrafts but later they cancelled their plans and

ordered 200 new Boeing aircrafts in 2014 (O’Hora, 2014).

The intensity of Rivalry between competitors

The intensity of rivalry between competitors is medium though the threat of entry is high

because numbers have risen in competitors trying to copy Ryanair’s cost leadership. Ryanair

command as a leaders of budget airline industry (Ryanair, 2015). The development of airline

industry is feasible because barely 30% of budget airline’s market share takes part in the entire

airline industry. There is a little chance of possible difficulty for Ryanair trying to broaden its

strategy.

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3.0 Strategic Choice

3.1 Ryanair’s SWOT analysisSWOT analysis occupies significant part in company’s strategic business planning and it is very

important to summarise SWOT for companies at least once a year in order for firms to stay

strong (Simoneaux & Stroud, 2011). See Appendix B for Ryanair’s SWOT analysis.

Ryanair’s main strengths are robust brand name of low-fare airline, broad Ryanair network, high

operating margins, economies of scale for being the greatest low price airline in Europe, best

current low cost strategy provides bigger profit, and new aircraft model allows to save costs on

fuel and maintenance (Ryanair, 2015). Also, Ryanair’s single type fleet helps to maintain lower

maintenance and training costs and one of the most fundamental factors of Ryanair’s strength is

being the first created budget airline in Europe (RyanairHoldingsplc, 2015).

Primary Ryanair’s weaknesses follow use of secondary airports which for customers’ point of

view is too far from city centre, reputation from media and news about providing bad service,

large level of innovation is needed. Moreover, Ryanair’s profit is based mainly on seasonality

and working conditions for employees are not perfect which makes them less loyal to the airline

(CAPA, 2014).

Ryanair’s main opportunities are social media expansion, use of ancillary product, technology

advance for new aircraft models and internet, improved customer service in 2013. Also, “always

getting better” programme success and popularity of Ryanair’s website brings advertising

promotion and revenue (Ryanair, 2015).

The most significant threats for Ryanair are the risk of security due to terrorism, regulations from

local and EU government, legal issues with European Commission and Irish government.

(Ryanair, 2015). As well, risk of forecasted economic downturn, threat of euro exchange rate

against US dollar, rising fuel price and competition in low-cost budget industry.

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3.2 Porter’s generic strategiesMany academics around the world to date follow Michael Porter who wrote a book about

competitive strategy which is used widely in the strategic management (Miller and Friesen,

1986). Porter (1980) stated that competitive strategy is the tool for allocating suitable

competitive position in the industry which by the companies may be upgraded or destroyed

subject to businesses alternative of the strategy. Michael Porter obtained a conceptual model of

the three generic strategies which are differentiation and focus strategies and cost leadership

strategy (Eldring, 2009). Michael Porter’s main aim in competitive strategy is to categorise and

identify unsuccessful and successful firms and place them either in differentiation and focus or

cost leadership (Porter, 1980, p.40). If the company is not going to be allocated in one of those

strategies then company automatically will operate poorly and will be recognised by phrase

“stuck in the middle” (Eldring, 2009). Ryanair’s position in Porter’s generic strategies is shown

in Figure 2.

3.2.1 Porter’s generic strategies table

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Ryanair belongs to Cost Leadership strategy and is a leader of low-cost fares in the Europe.

Companies which use cost leadership strategy set goal to become low-cost manufacturer in the

industry. Framework of the companies’ structure in the industry is important because sources of

cost advantage differ all the time. Low cost companies attempt to make full use of and derive

benefit from sources of cost advantages when companies sell standardised product within wide

rage (Porter, 1980). Generally, cost leadership strategy is set to be more appropriate for big

companies which have more power and strength over operating expense costs and resources

(Salavou, 2015). When Ryanair became cost leader in its industry then the company took over

the control of being dominant with the prices and performance. Firms who are cost leaders

benefit from rivals which have prices lower or at the same level because they get extra profit for

that and it opens the way for the barriers to enter the market (Miller and Friesen, 1983). In fact,

Cost leadership companies cannot avoid the competition coming from companies with

differentiation strategy because if the product which is to be sold is not suitable by consumers,

cost leadership firms sell products cutting them which however repeals the cost advantage (Akan

et al, 2006). According to Porter (1980) the only way how cost leadership functions is by letting

only one company take over the industry by developing into cost leader in the whole industry.

The problem is that if another company aims for the cost leadership then the rivalry between

those two companies gets very intense that the outcome of lucrativeness in the industry is

catastrophic (Porter, 1980) (Eldring, 2009).

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4.0 Strategic Implementation

4.1 Christensen disruptive innovationA disruptive innovation in business is an innovation that establishes value network and new

market and later in time disrupts current value and market network taking over as a market leader

(Christensen, 2015). Ryanair belongs to low end disruptions in the Christensen’s disruptive

innovation mode, which is shown in figure 3. For example, full service airline such as British

Airways are being disrupted by budget airline Ryanair. Another example can be Amazon giant’s

disruption to book retailers and example of Dell disrupting big brands by its low cost.

4.1.1 Christensen’s disruptive innovation model

Figure 3: Christensen’s disruptive innovation model

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5.0 Conclusion

To sum up, in the recent years Ryanair improved in customer service, expanded route map,

updated their website, and finally listened to their customers after years of poor customer

reviews Ryanair’s image is improving. Due to Michael O’Leary’s changed strategy focusing

more on the customers and keeping low fares at the same helped to get away from closest

competitor “EasyJet”. Also, digital innovation, improved boarding flight experience and “always

getting better” programme for Ryanair helped to bring more customers and to prove to people

that Ryanair is changing. Ryanair has a strong secure cost leadership position in the industry and

it is hard to enter the market for new entrants.

6.0 Recommendations

Ryanair management should launch effective programs and initiatives in order to become “greener”

Seek to protect themselves from oil prices Exploit tourism trends Improve in-flight food service More leg room for passengers Reduce costs Continue improving “always getting better” programme Ryanair should look to develop capabilities to move into the long haul sector

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7.0 References

Akan, O., Allen, R. S., Helms, M. M., & Spralls, S. A. (2006). Critical tactics for implementing

porter's generic strategies. Journal of Business Strategy, 27(1), 43-53.

doi:10.1108/02756660610640173

CAPA (2014). Ryanair SWOT: low costs remain the key strength, even as customer service

enhancements take root. Centre for aviation. Retrieved from:

http://centreforaviation.com/analysis/ryanair-swot-low-costs-remain-the-key-strength-even-as-

customer-service-enhancements-take-root-186145

Christensen, C. M., Raynor, M. E., & McDonald, R. (2015).What is disruptive innovation?.

Boston: Harvard Business Review. Retrieved from: https://hbr.org/2015/12/what-is-disruptive-

innovation

Dobbs, M. E. (2014). Guidelines for applying porter's five forces framework: A set of industry

analysis templates. Competitiveness Review, 24(1), 32-45. doi:http://dx.doi.org/10.1108/CR-06-

2013-0059

Eldring, J. (2009). Porter´s (1980) generic strategies, performance and risk. an empirical

investigation with german data (1. Aufl. ed.). DE: Diplomica Verlag GmbH. Retrieved from:

https://library3.hud.ac.uk/

Miller, D., & Friesen, P. H. (1986). Porter's generic strategies and performance: An empirical

examination with American data: Part 1: Testing porter. Organization Studies,7(1), 37-55.

Retrieved from: https://library3.hud.ac.uk/

O’Hora, A. (2014). Ryanair places $22bn order with Boeing, buys up to 200 new aircraft. Irish

Independent. Retrieved from: http://www.independent.ie/business/irish/ryanair-places-22bn-

order-with-boeing-buys-up-to-200-new-aircraft-30564972.html

Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors.

New York;London;: The Free Press.

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Porter, M. E. (2008). THE FIVE COMPETITIVE FORCES THAT SHAPE

STRATEGY. Harvard Business Review, 86(1), 78-93. Retrieved from:

https://library3.hud.ac.uk/

Ryanair (2014). Ryanair annual report 2014. Retrieved from: http://investor.ryanair.com/wp-

content/uploads/2015/04/2014-Annual-Reports-Annual-Report.pdf

Ryanair (2015). Ryanair annual report 2015. Retrieved from: http://investor.ryanair.com/wp-

content/uploads/2015/07/Annual-Report-2015.pdf

Ryanair Holdings plc (2015). Ryanair Holdings, PLC SWOT Analysis. Marketline, 1-9.

Retrieved from: https://www.ebscohost.com/academic/business-source-complete

Salavou, H. E. (2015). Competitive strategies and their shift to the future. European Business

Review, 27(1), 80-99. doi:10.1108/EBR-04-2013-0073

Simoneaux, S. L., & Stroud, C. L. (2011). BUSINESS BEST PRACTICES: SWOT analysis:

The annual check-up for a business. Journal of Pension Benefits, 18(3), 75. Retrieved from:

https://library3.hud.ac.uk/

Yüksel, I. (2012). Developing a multi-criteria decision making model for PESTEL

analysis.  International Journal of Business and Management, 7(24), 52.

doi:10.5539/ijbm.v7n24p52

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8.0 Appendices

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Appendix C: Ryanair’s “always getting better” programme

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Appendix D: Ryanair 30 years overview

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