strategic management - ryanair
TRANSCRIPT
Ryanair - The Low Fares Airline
Strategic Analysis
/
222621-0004 Strategic Management
dr Maria Aluchna
Ivan Martinov № 50170, e-mail: [email protected]
S. M. Sabbir № 50185, e-mail: [email protected]
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Table of Contents
1. Introduction ........................................................................................................................................... 3
2. Strategic Analysis ................................................................................................................................. 4
2.1. Microenvironment ......................................................................................................................... 4
2.1.1. Porter Five Forces Model ...................................................................................................... 4
2.1.2. SWOT Analysis .................................................................................................................... 5
2.2. Macroenvironment ........................................................................................................................ 7
2.2.1. PESTEL Analysis ................................................................................................................. 7
2.3. Strategic Capabilities .................................................................................................................... 9
2.4. Stakeholder Analysis .................................................................................................................. 10
2.4.1. Stakeholder mapping........................................................................................................... 10
2.4.2. Stakeholder initiatives ......................................................................................................... 11
3. Strategy Formulation .......................................................................................................................... 12
3.1. Vision and Mission ..................................................................................................................... 12
3.2. Business Model ........................................................................................................................... 13
3.3. Business Level Strategy .............................................................................................................. 16
3.4. The Ansoff Matrix ...................................................................................................................... 16
3.5. The Boston Consulting Group Matrix ........................................................................................ 17
3.6. Global Integration – Local Responsiveness Grid........................................................................ 18
3.7. The Balanced Scorecard.............................................................................................................. 18
4. Conclusion .......................................................................................................................................... 19
4.1. Recommendations ....................................................................................................................... 20
5. References ........................................................................................................................................... 22
6. Appendix ............................................................................................................................................. 23
6.1. Figure PESTEL Analysis ............................................................................................................ 23
6.2. Figure Strategic Mapping............................................................................................................ 24
6.3. Figure Market Positioning .......................................................................................................... 24
6.4. Figure The Ansoff Matrix ........................................................................................................... 25
6.5. Figure The Boston Consulting Group Matrix ............................................................................. 25
6.6. Figure Global Integration/Local Responsiveness Grid ............................................................... 26
6.7. Figure Balanced Scorecard ......................................................................................................... 26
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1. Introduction
Ryanair is the first European Low Cost Carrier (LCC) by utilizing the Southwest LCC model in
1990. It started its business as a small family owned business by Ryan family on 1985. Its first
route was between Waterford in the southeast of Ireland to London Gatwick with a 15-seater
Bandeirante aircraft. On the following year (i.e., 1986) it put milestone of European fare war in
the air travel industry by promoting a fare of £99 return compare with the BA/Aer Lingus lowest
return fare of £209. On the first full year it carried 82,000 passengers.
On 1990, after three years of constant growth, Ryanair faces a loss of £20m due to intense
competition with British Airways and Aer Lingus. The management decided to change their
strategy. They adopted US successful Southwest Airlines low fare model and re-launched its
whole management and become the first European low fares airline. After that Ryanair does not
look back from its profit.
Currently, Ryanair operates more than 1,400 flights per day from 44 bases with 1100+ low fare
routes in 27 countries. It covers 160 destinations. It operates a fleet of 250 new Boeing 737-800s
aircraft. Ryanair presently has more than 8,000 people as employee and expects to carry
approximately 73.5 million passengers in the current fiscal year1. According to IATA it has been
ranked as No.1 of international, domestic and total scheduled passenger numbers which was
73,500,000 which nearest competitor Lufthansa with 41,515,0002.
Ryanair‟s success story backed with its core strategy. It adopts the LCC core strategy by
focusing on lowering all kinds of cost. From the very beginning of its strategy it is found that
Ryanair use all possible steps to reduce the cost of operating in the aviation industry. It gives the
strength of lowering the fare and generates high passenger traffic all year round in all situations.
In the present study these aspects of Ryanair‟s strategy will discussed relating with various issues
arises in the aviation industry.
1 Adopted from http://www.ryanair.com/en/about
2 http://www.ryanair.com/doc/investor/present/quarter2_2011.pdf
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2. Strategic Analysis
2.1. Microenvironment
2.1.1. Porter Five Forces Model
Bargaining Power of Suppliers
» Boeing is the main supplier of aircraft for Ryanair
» Because of all mechanics and pilots would need to be retrained, switching costs from one
supplier to the other is high
» Cost of air craft fuel is directly related to the cost of oil (Ryanair controls these through
hedging).
» Regional Airports have less bargaining power as they are heavily dependent on one
airline
» Large airports, where Ryanair‟s competitors operate, have greater bargaining power.
Ryanair‟s strategy is to avoid these airports.
Bargaining Power of Customers
» Customers are very price sensitive
» Switching to another airline is relatively easy and is not generate high costs (all airlines
can booked by online)
» No loyalty among the customer for a specific airlines
New Entrants
» New LCC will face barriers to entry in the existing market
» The LCC needs high capital of investment and it will take time to see the break-even
» Restricted slot availability makes it more complex to find suitable airports
» Possibility of immediate price war if following on existing LCC route.
» Need for low cost base to compete with others
» Flight Authorizations needs to enter new airports
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Threat of Substitutes
» There is no brand loyalty among the customers
» No „close customer relationship‟ management
» There are no switching costs for the customer
» There are alternative modes of transportation, e.g. Eurostar, Eurolines, Ferries, Cars etc.
Competitive Rivalry
» Highly competitive LCC market
» The Southwest airlines strategy can be copied by the competitors easily
» Currently, the two major low-cost airlines have avoided direct head-to-head competition
by choosing different routes to serve which exhibit low competition
» If any company decide to compete on the same basis as Ryanair there will be heavy
pressure on prices, margins, and hence on profitability
» Services provided by the competitors are almost same. Price is the main factor of
differentiation.
2.1.2. SWOT Analysis
Strength
» Brand Name: For last 21 years Ryanair is operating in the LCC industry. It builds a good
brand position for offering lower fare among the customer.
» Benefits from low airport charges: Because of Ryanair‟s strategy to choose the airport‟s
with low charge, they have lowered the operating cost.
» Online booking: currently, 94% of the booking is done by online website of Ryanair. It
reduced the cost of physical establishment for booking as well as agent cost. By 2011,
Ryanair is targeted to make it 100% online booking.
» First mover advantage: Ryanair is the first who went to the regional airports for
commercial purpose. They can act as a barrier to enter these airports.
» All Boeing Air Craft: Ryanair runs its whole fleet service by the air craft produced by
Boeing. It reduced the cost of maintenance and training.
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» Better service performance: Ryanair is punctual, have high rate of flight completion, low
baggage loss, which create a reliable service provider among the passenger
» Updated fleet with low maintenance cost: Ryanair fleet comprise with all Boeing 737-800
model, which require low maintenance cost.
» High air craft utilization: Ryanair use its air craft for longer times which generate more
revenue per air craft than the other air companies.
Weakness
» Niche marketing: Ryanair is focusing in a specific market of lower cost. For future it will
restrict to expand the company on the other segments.
» Distance of regional airports: Ryanair is using the regional airports which are most of the
time, have long distance from the town or city. It creates some problems for the
passenger to get into the city.
» Poor service: the service quality of Ryanair‟s people are most of the time poor.
» Reluctant in charge adjust: Ryanair is often very sensitive to change their charges.
Opportunity
» European Union expansion: Due to EU expansion by 2007 and in the future Ryanair will
have lots of opportunity to capture new potential markets as well as air ports.
» Possibility to grow: the LCC segment is still in the growth stage. So, Ryanair has more
opportunity to grow more.
» Low focus on geographic region: Problems with maintaining too much geographic
coverage is low for the Ryanair as it is more focused only on European Union.
» Economic depression: Economic depression forced the passenger to seek only the air
travel service with lower cost, which actually creates opportunity for the Ryanair.
Threat
» Fuel cost: the whole aviation is industry depends on the price oil. Increase of oil price
thus reflect on the increase of cost of operation.
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» Low fare competition: Following the Ryanair success in the LCC market, some other
competitors are interested in this particular segment.
» Air traffic charge: Ryanair is facing the increase in air traffic charge.
» Customer: Customers are very price sensitive and not loyal.
» Regional airport bargaining power: Regional airport got bargaining power as other LCC
is competing in this market.
» Possibility of huge battle: Ryanair and Easy Jet are trying to avoid head-to-head battle.
They avoid each other‟s routes. But in the future when market gets mature, there is a
possibility to have battle in the existing market.
2.2. Macroenvironment
2.2.1. PESTEL Analysis
In order to analyze the Macroenvironment of the low cost airline industry we have applied the
PESTLE analysis. This analytical model clearly depicts which environmental factors and trends
are favorable for the airline industry and which are not. Focused on political, economic, social,
technological, legal and environmental aspects this tool could easily bring great clarity on what
is actually going on in the specific industry. Due to the fact that the success of Ryanair is
dependent upon a lot of different factors, it is very important to have a closer look at these six
dimensions.
On the political level there are several important factors directly influencing the airline industry.
On one hand, EU offers a strong and stable political environment, which gives the company
security to plan long term strategies and make large strategic investments. On the other hand,
however the union follows a severe pro-environmental policy and it fights for global carbon
taxation, which will of course substantially increase the costs in the airline industry. At the same
time, we should not forget that in the last couple of decades the European Union has expanded
significantly. This has brought tremendous business opportunities for companies to expanded
their operations and enter new markets more quickly and trouble free. Ryanair experiences also a
lot of pressure from trade unions, because it does not recognize them. Therefore, often the
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company is being criticized on that matter and sometimes even it has to respond to legal
allegations.3
As far as the next dimension is concerned we have to point out that just as the political
environment the economic one is also very controversial, offering both supportive and opposing
factors for the airline industry. The economic level is not of minor importance. The collapse of
the financial market in 2008 was followed by a severe economic crisis. Unemployment increased
substantially especially in countries such as Spain and Greece. People cut down on leisure
activities such as travelling and preferred to stay at their homes. Furthermore, fuel prices are very
volatile and we have seen recently major price fluctuations. The crude oil prices skyrocketed in
2007, which resulted in higher prices for the end consumer. Maybe the weak US dollar slightly
softened the higher fuel prices for european companies, but the higher prices definitely caused
strong disturbances on the EU market as well. Nevertheless, Ryanair kept serving more and more
passengers and it seemed as it just did not want to participate in the global recession.4
The social environment is rather positive due to the following trends. There are changes in
demographics and consumer preferences. Although the EU population tends to get older, there is
definite tendency towards more frequent short-term trips for weekend city tourism. The
increased environmental awareness might make some people travel less, but Ryanair is one of
the leading airline companies trying to reduce CO2 emissions as much as possible. It has already
replaced its entire aircraft fleet and the new airplanes are much more fuel efficient and
respectively reduce less CO2 emissions in the atmosphere. We evaluate the threat of terrorist
attacks to be not very high, because Ryanair serves secondary airports with much less people
circulation. Even though those airports have usually lower security levels, we still do not think
that they will be an attractive target for any possible tourist attacks.
Technology also provides quite good environment for the airline industry. The new aircrafts
produced today are much more fuel efficient, which automatically means less CO2 emissions.
The continuous development of Internet has allowed Ryanair and other companies to
significantly reduce their costs through standardized online booking processes. Today, there are
indeed much quicker trains, however air transport still remains unbeatable as far as speed is
concerned.
3 http://companies.jrank.org/pages/3619/Ryanair-Holdings-Plc.html
4 http://www.ryanair.com/en/about
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The last two dimensions legal and environmental we have described as rather negative. This is
mostly due to increased climate change and environmental awareness. Therefore, many people
and environmental organizations are opposing airline industry. Although it online contributes
1.6% of the GHG, it is the transport sector with the highest growth in terms of CO2 emissions.5
At the same time local communities are concerned about noise pollution. Even though new
technology has significantly reduced the noise generated by airplanes there is still a room for
improvement. There are new initiatives by EU to implement a strong environmental policy. It is
focused on setting legal emission constraints and passengers will have to pay for their CO2
emissions as part of the flight price. Next to that we have to point out that in the recent years
Ryanair has other major legal troubles. There were some corporate lawsuits against the company
that caused some damage to the image of the company and in the future it definitely has to pay
greater attention towards the corporate brand and the society‟s perception.6
All in all, the Macroenvironment is contradictory with having both positive aspects supporting
the industry and negative aspects opposing it. The biggest problem by far is the increased
environmental awareness on political and social levels, which can easily result in increased
prices and jeopardize Ryanair‟s business model. However, the improved technology and travel
trends compensate to some extent for the above mentioned hostile factors.
2.3. Strategic Capabilities
Ryanair‟s strategic capability describes its strength to face the competitiveness in the market. Its
strategic capability is based on its resources. Those are:
Physical resources: Ryanair have more than 250 Boeing 737-800s aircraft in its fleet. It is easy
to maintain same category of aircraft, which minimize the cost. On an average the flights can
turnaround within 25 minutes, which help to increase maximum utilization of aircraft. Moreover,
Ryanair uses regional airports, which gives them the bargaining power over the airport authority.
Technological Resources: Ryanair is targeting to make its booking system 100% online, which
reduce the cost of maintaining agents for the ticket.
5 http://www.eoearth.org/article/Carbon_footprint
6 http://umu.diva-portal.org/smash/get/diva2:140520/FULLTEXT01
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Reputation: Ryanair is reputed and continuously focusing on being punctual and lowering the
percentage of losing baggage.
Human Resources: Ryanair has trained human resources which is continuously supporting to
give the best services to passenger as well as to the company. It has incentives for selling
merchandise on board.
2.4. Stakeholder Analysis
2.4.1. Stakeholder mapping
Ryanair has many different stakeholders that could influence the company in one way or another.
Some of the most important stakeholders are: shareholders, investors, creditors, the government,
customers, employees, competitors, local communities, and NGOs. In order to analyze the
stakeholders and their influence in detail we have used the stakeholder mapping framework,
which will give us a better overview of the level of interest and influence of the different groups.
Under key players we have identified shareholder, investors, creditors and the government as the
most interested and influential groups on Ryanair and the airline industry in general. Obviously,
shareholders and investors are partial owners of the company, which gives them some power to
influence the company‟s decision making. Creditors could become very unfriendly, if they do
not receive their monthly payments. The government could easily improve or worsen the
business environment for every industry by implementing some new laws and legislations.
The groups that Ryanair has to keep informed are customers, employees and competitors. They
are very interested in the company, but compared to the key players they have far less influential
power. Employees are less powerful due to the lack of trade unions that the company is a part of.
Customers could hardly switch to any other airline, because Ryanair prices are unbeatably low
and the low cost passengers are extremely price sensitive. Competitors are also very interested,
but they cannot easily influence the company a lot. They could hardly offer much lower prices
than Ryanair. Even if they could they could only do it in a very short-term, which makes it
pointless in the first place.
The other two stakeholder groups NGOs and local communities we have identified as
respectively keep satisfied and minimal effort groups. The first group we have described as
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rather influential, because today non-governmental organizations could really help ruin the
image of a company, if they do not agree with the policy and actions performed by that
company. We consider this group to be not that actively influenced, because if a company
follows a strategy to reduce CO2 emissions and increase fuel efficiency as Ryanair does, then a
NGO will not pay much attention to it. Local communities are the least important group
according to the stakeholder‟s mapping framework. First of all unorganized they do not have
strong power and second Ryanair generally serves secondary airports which are outside of the
big cities where fewer people live. Therefore, we think that local communities do not consider
Ryanair in particular as a strong noise pollutant.7
2.4.2. Stakeholder initiatives
In order to keep its stakeholders happy Ryanair has undertaken different initiatives. In the last
several years, the company has replaced its entire aircraft fleet by spending EUR 17 billion.
Thus, it has achieved much higher fuel efficiency, 45% less CO2 emissions and the average age
of its airplanes is 2.5 years in contrast to 11 years for the average industry. Through these actions
the company tries to keep the government, employees and customers satisfied. On one hand the
government sees that Ryanair is trying to reduce its impact on the climate change and to comply
with the new legal frameworks and the increased carbon emission restrictions. On the other hand,
employees and clients feel much safer when travelling in new airplanes. As a result of all these
initiatives the image of the company as far as reliability is concerned is pretty high. Even though
they were some problems with a couple of flights, Ryanair has not experienced any incidents
with casualties so far. This gives credibility to the company and makes one of the first choices in
cheap international travel.
Furthermore, the new airplanes fulfill all the new noise requirements. Ryanair has equipped all
its aircraft fleet with winglets which will further reduce the noise pollution by 6.5%. On the top
of that the company has undertaken many operational measure that further drive down the noise
pollution. Some examples are absence of night operations, compliance with local noise
restrictions and operations mostly secondary airports which are far away from densely populated
7 http://sampleresearchproposals.blogspot.com/2008/07/ryanair-ups-and-downs.html
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areas. All these precautions will guarantee that the local communities will have fewer things to
worry about and will not be interested in actively causing troubles for the company.
Given the fact that Ryanair follows a severe low cost strategy and does not offer free meals,
drinks or any newspapers, this result in significant waste reduction compared to the traditional
airlines. We know how big of a problem is waste in our world today and the resources required
to properly manage it are tremendously hight. Thus, non-governmental organizations and even
governments will be satisfied with the company‟s lower levels of waste, which speaks for a more
sustainable business model.
For its shareholders, investors and creditors, the company releases regular financial reports,
which provide all the necessary information for interested stakeholders to see how the company
is performing. Two times per year Ryanair also releases profit reports, which further gives more
clarity on the current situation.
At the same time, the company is involved in different CSR campaigns. For instance, this year
they released 10 000 copies of the Girls of Ryanair Charity Calendar, which they will sell for $10
each and the revenue will be donated to some charity organizations. The company also offers
free flights to people who are recognizable donators or even to A-level students to stimulate
them to get better grades.8
3. Strategy Formulation
3.1. Vision and Mission
Ryanair doesn‟t have any formal mission and vision statement. According to Ryanair report
19979 Ryanair‟s mission statement is:
“Ryanair will become Europe's most profitable lowest cost airline
by rolling out our proven `low-fare-no-frills' service in all markets in which we operate,
to the benefit of our passengers, people, and shareholders.”
8 http://www.ryanair.com/en/about/ryanair-and-the-environment
9 Mayer, 2007, pp. 01
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According to Michael O‟Leary, the CEO of Ryanair, their vision is to simply continue as the
largest low cost leader in the European airlines industry and to carry 50 million passengers by
200910
.
3.2. Business Model
In 1990, after having depression on the revenue, Ryanair decided to change the overall business
strategy by adopting Southwest Airline Model. Southwest airline is the first to rival in LCC
industry. It was introduced in the USA in 1971. The original Southwest lower-cost model
comprised of11
:
- Low fares;
- High frequency flights;
- Point-to-point service;
- No free meals or drinks on board;
- No seat assignments;
- Short flights;
- Flights to secondary airports
Ryanair’s adaptation of Southwest LCC Model:
Low fares: Ryanair use low fare to create demand, attracting the customers who seeking low
fares for their leisure and frequent business flyers who are using other method of travel. Ryanair
decide its fare based on the demand on a particular flights and times remaining before the time of
departure. Most of the seats are sold with the minimum fare assigned by the authority. In
September 2003, Ryanair launched a fare promotion offering a total of two million seats on
certain routes for “free” (excluding government taxes and passenger service charges) for travel
during the period between September 2003 and December 17, 2003. Ryanair used these kinds of
campaigns to strengthen the image of low fare.
10
Box & Byus, 2005, pp. 11 11
General review, 2006, pp. 18
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Short and Frequent of flights: The average flight time has been 1.1 hours with an average route
cover 746 kilometers in 2003 and the average turnaround time is 25 minutes12
. Ryanair‟s flew an
average of approximately 1.94 round trips daily per route. The choice of only flying short-haul
routes allows Ryanair to offer frequent service, while eliminating the necessity to provide "frill"
services otherwise expected by customers on longer flights.
Point-to-point service: Ryanair provides frequent point-to-point service on short-haul routes to
regional and secondary airports in and around major population centers and travel destinations.
Point-to-point flying (as opposed to hub-and-spoke service used by the other traditional carriers)
allows Ryanair to decrease the costs of providing through service for connecting passengers,
including baggage transfer and transit passenger assistance costs. This is one of the major
differences between Ryanair and traditional carriers.
No free meals and drinks: Ryanair doesn‟t provide any kinds of free products on board. It
provides a wide range of revenue generating products which includes on board merchandise,
drinks, foods.
Flights to secondary airports: This is one of most important strategy of Ryanair as LCC
Company. Ryanair focused on the secondary airports which has convenience access to the cities
(e.g., Katowice airport for Krakow city) and regional airport (e.g. Brussels-South Charleroi
airport). This strategy gives competitive access and handling costs as well as provide high rate of
on-time departures, less terminal delays and quick turnaround times (it is much quicker to land,
unload and reload passengers as well as luggage and take off again at smaller less crowded
airports then at a major airport such as London-Heathrow which has to accommodate many air
craft at the same time).
Low Operating Costs13
. Low operating cost is the main strength of Ryanair for attracting the
passengers with low fare. For major area have been controlled by Ryanair achieve these
competitive advantage. These are: (i) aircraft equipment costs; (ii) personnel expenses; (iii)
customer service costs; and (iv) airport access and handling costs:
12
Same as above 13
Ryanair Annual Report 2009
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(i) Aircraft Equipment Costs: Ryanair's first strategy for controlling aircraft
purchase costs was to get used aircraft of a single type, which was no longer
became viable. In 1998, Ryanair declared that it would add new Boeing
737-800 "next generation" aircraft in Ryanair fleet. The 737-800s is the
latest generation of Boeing's 737 aircraft and have common basic attributes
with Ryanair's existing fleet. This strategy of limiting its fleet primarily to
three variants of a single type of aircraft from a single manufacturer enables
Ryanair to lowering the costs related with staff training, maintenance and
the purchase and storage of spare parts, as well as enhance greater flexibility
in the scheduling of crews and equipment. Management of Ryanair believes
that the terms of the Boeing contracts are very favorable for Ryanair‟s
strategy.
(ii) Personnel Expenses: Ryanair efforts to control its labor costs by constantly
improving the productivity of its already highly-productive employee.
Remuneration for employees focuses by productivity-based pay incentives,
which includes commission for selling onboard merchandise for flight
attendants and salary based on the number of hours or sectors flown by
pilots and cabin crew staff. Moreover, there is remuneration for
participation in Ryanair's stock option programs14
.
(iii) Customer Service Costs: Ryanair use agreements with competitive terms
between third party contractors at some airports. To maintain aircraft,
passengers, ticketing, and other services Ryanair believes third parties are
more cost effective and efficient. Ryanair tries to obtain competitive offer
for such services by making multi-year contracts at prices that are fixed or
subject only to change linked to inflation. Using its own reservations centre
and internet booking service reduced the cost of commission for travel
agents.
14
http://www.ryanair.com/doc/investor/Strategy.pdf
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(iv) Airport Access Fees: Ryanair is interested on those airports who offers
competitive airport service charge which leads lowering the airport cost. It
is possible because constant increase of high traffic of passengers on the
service of airport allows taking the bargaining position over the airport
authority. It allows Ryanair to make a favorable agreement with the airports.
3.3. Business Level Strategy
Ryanair‟s business level strategy comprise with its core competencies of offering the best service
with minimal value compare to other competitors. It gives the strength of competitive advantage
in the LCC industry. Ryanair follows Michael Porter‟s three major strategies to gain competitive
advantage. Those are:
Cost Leadership: Gain cost leadership by maximum utilization of air craft, avoid free meals on
board, overall online booking, give less space of supplier in bargaining, maintaining same air
craft model in the fleet, search for low charged airports, encourage employees for sales
commission.
Differentiation: Ryanair make their differentiating strategy by lowering passengers cost to travel
by plane, compare to other competitors.
Focus: Focused on the segment of the passengers who are seeking low cost for travel in leisure
and frequent flyers who just want to travel fast but with good rates (e.g., businessmen).
Positioning: Ryanair exclusively follows the Southwest LCC model. It makes Ryanair to
successfully position itself in the pure low cost segment. Compromising the services cost of
maintenance Ryanair focused in this Low Cost Carrier segment15
.
3.4. The Ansoff Matrix
According to the Ansoff matrix, Ryanair operates on two of the quadrants characterized with
existing products. The company focuses on both market penetration and market development. On
one hand, the company tries to increase the number of passengers and flights within existing
15
Market Positioning strategy of Aviation industry in the appendix
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destinations as well as offering additional routes from and to these countries. On the other hand,
the company continuously tries to enter new market and offer their services there. For example,
recently Ryanair started serving the new EU members Bulgaria and Romania, where there is far
larger potential. The company only serves one airport in each country and both markets could be
easily further developed. Those countries offer incredible nature and many leisure opportunities,
which come on much lower prices compared to Western and Central Europe. The low cost
airline offers also flights to North Africa and Marocco in particular, which is also an interesting
destination for Europeans rich in history and culture. Ryanair is currently looking at Turkey as
the next possible destinations with great potential. If the company manages to get its hand on the
Turkish market, it will most probably steal some market share from the typical charter airlines
for the summer. Other countries of interest for the near future could be Egypt and Tunis, which
both are desired tourism destination and have also a lot to offer.16
3.5. The Boston Consulting Group Matrix
Another analytical tool that we have used to analyze Ryanair‟s strategy formulation is the Boston
Consulting Group Matrix. Following theoretical framework provided we have allocated several
destinations in their respective quadrants according to their market share and market growth. As
cash cows we have identified well visited European big cities and capitals that attract
continuously a great amount of visitors throughout the year. Examples of cash cows are London,
Paris, Barcelona, Madrid, Milan, Rome, etc. Under the stars category we have put hot new
destinations such as Croatia with its booming tourism on the Adriatic coast. Croatia‟s relatively
cheaper prices compared to Spain, France and Italy makes it a desired destination especially for
young people who enjoy having fun. We believe that Turkey will also fall in this quadrant once
Ryanair enters the market. The country is popular for its amazing culture, historical heritage and
wonderful beaches and it is visited by a great number of people every year. Although Morocco is
relatively popular destination, its exact demand is difficult to be assessed and therefore we have
identified it as a question mark. Under this category will also fall other North African countries
such as Tunis and Egypt once the company starts offering flights to those destinations. It is true
that these North African countries are amazing places to visit, offering such places as the
Pyramids, but at the same time they are also famous for lower quality of services, terrorist
16
http://ivythesis.typepad.com/term_paper_topics/2008/07/ryan-airs-ansof.html
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attacks and other less attractive features. This dubious nature of the destinations makes it hard to
estimate exactly how many people would like to book a flight to North Africa and how often.17
3.6. Global Integration – Local Responsiveness Grid
Trying to identify Ryanair‟s business model and specifically their degrees of standardization and
customization we have used the global integration/local responsiveness grid, which shows which
strategy the company actually follows. Our analysis revealed that although the company offers
more of standardized services in terms of prices and airplanes equipment, Ryanair has also
turned into a multicultural company with workers from all over Europe. Furthermore, the
company is able to exploit experience curve effects and to learn from previous markets
expansions. Therefore, we believe that the low cost carrier actually combines aspects from both
global and multi-domestic strategies, which results in a transnational strategy; a strategy that
focuses on high global integration and high local responsiveness.18
3.7. The Balanced Scorecard
One analytical tool for proper management and control is the Balanced Scorecard. We have
applied it to Ryanair to see how this measurement tool helps companies to monitor the
company‟s performance based on desired strategy and previously identified specific measures
and initiatives. For every different strategic dimension of finance, customers, internal process
and learning/growth we have identified proper measures, targets and initiatives that have to be
constantly monitored.
In order to monitor the financial aspect of the business, Ryanair has to pay close attention to
profit margins, revenue growth, cash flow and costs. Some specific targets could be an annual
increase of 10% in market value and another 10% increase in seat revenue per year. Ryanair has
to offer additional routes, more frequent flights and continue reducing costs, if it wants to
achieve the desired goals.
As far as the internal processes are concerned we recommend that the company monitors market
share, customer satisfaction, on time arrivals and numbers of passengers. Examples of the actual
goals could be as follows: no more than 0.5% missed bags, an annual passenger increase of 10%
17
http://medlibrary.org/medwiki/Ryanair_destinations 18
http://www.ucd.ie/quinn/aboutus/newsevents/title,44634,en.html
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and at least 95% of on time arrivals. Some ways to do that is develop sophisticated customer
loyalty and quality management programs.
The internal processes of the company are also of vital importance and their optimizations are
crucial for the success of the business. Two significant performance characteristics are on-
ground time and on-time departures. Ryanair should try to keep on-time departures above 95%
and on-ground time no more than five hours. A cycle time optimization program could
substantially help the company to achieve the desired targets.
To keep educating and improving its employees Ryanair has to think of some measures to
observe the learning and growth dimension. A good example could be to offer various training
courses and to monitor the employees‟ attendance with deserved target of at least 70% of its
employees taking at least one course per year.19
4. Conclusion
After applying several different analytical frameworks to analyze Ryanair‟s strategy on various
levels we have found out that the company is being successful mostly as a result of the
deregulation of the Airline industry, the European Union expansion and the its severe low cost
strategy. Since its foundation in 1985 the company has transformed itself into the low cost airline
with the highest number of international passengers in Europe; in 2010 Ryanair served
approximately 73.5 million passenger whereas Lufthansa served 41.5 million and Easy Jet 34.6
million. Clearly, the company outperforms its direct rival and all the other airlines. Copying
Soutwest Airlines business model gave Ryanair the opportunity to gain competitive advantage
over its competitors and move ahead of them. The low cost carrier has been indeed criticized a
lot; however, it is an outstanding business organization that delivers its clients what they need –
the opportunity to travel abroad on a very low price. The reason why Ryanair is being so
successful is because it manages to offer prices on average at least 12% cheaper than the next
low cost competitor - Easy Jet. Today the company has 44 bases, serving over 160 airports, 27
countries, 1200 routes, 1500 daily departures, and 254 relatively new Boeing 737-800. With 93%
on time arrivals Ryanair is outperforming every other European Airline in this category
19
http://www.accaglobal.com/students/acca/exams/p5/technical_articles/2950518
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including well established Airlines such as Lufthansa, Air France and British Airways. There is
no doubt that the company is on the right track and it could accomplish a lot. Nevertheless, the
airline industry is very cut-throat business where companies without the right strategy could get
easily acquired by larger corporations. Therefore, we have come up with some recommendations
how the company can further expand its business and achieve additional growth.
4.1. Recommendations
Our analysis has revealed that the main reason Ryanair has grown tremendously in the last
couple of decades is mostly due to the expansion of EU, deregulation of European markets and
the severe low cost strategy followed by the company. It is interesting how it seems as if the
company was not impacted by the recent global crisis; the company continued increasing its
number of passengers and offering new and new destinations. However in order to keep being
successful and further improving its leading position on the market, we have prepared some
recommendations for the company to implement.
Ryanair has to keep increasing the number of flights offered to existing destinations. There is
still a lot of room for improvement and the company can definitely obtain new destination cities
within existing markets.
Next, Ryanair has to continue exploiting new markets in Eastern Europe, Turkey and North
Africa. The company successfully entered the new European members Bulgaria and Romania
and started operating on both markets. However, they only serve one city per country. The
company has to better exploit both destinations, which are generally cheaper destinations in
Europe and have a lot to offer for less money. At the same time, Ryanair has to continue looking
at Turkey and figuring out a way to enter the country. The western part of the country is very
interesting with an incredible history, which makes it a desired destination for many Europeans.
The market in North Africa could also be developed further; countries such as Tunis and Egypt
are generally desired tourism destinations and are rich in history and culture.
Charter flights are one of the best ways for going on a holiday. However, Ryanair is trying to
challenge this model by offering cost-effective opportunities for people to organize their own
holidays and avoid the appalling mass tourism model offered on the market today. The company
provides people the flexibility to customize their holiday on a very reasonable price; in only a
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couple of weeks people could visit 3, 4 major cities in Europe paying a price unbeatable by any
other company offering travel services. Thus the company tries to steal market from the charter
airline business, which for the moment captures around 25% of the entire air industry.
Ryanair has to pay much more attention to the company„s image. Often there are corporate
lawsuits against the company as a result of bad marketing campaigns or some personal lawsuits
towards the company‟s CEO O‟Leary. He is a genius but at the same time an arrogant person,
who often gets into public confrontations, which damage the corporate image. Ryanair has to be
more concerned how the society and all its stakeholders perceive the company and what they
think of it.
Ryanair has already reduced significantly its cost as a result of a severe reduction policy. The
company has saved a lot by efficient optimization of its uniform fleet, administration, crew costs,
sales expenses, food and beverages offering, higher flight time, sales commissions, secondary
airports, ground handling, seat density. Cost reduction per passenger amounts to 59% in
comparison to traditional airlines. Nevertheless, Ryanair has to keep searching for ways to
further reduce its costs, because this is a perfect way to continue outperforming its competitors.
Last but not least, the company has to try to make all its bookings done online. This will enable
Ryanair to further drive costs down as it will get rid of expensive call services that it currently
provides. Getting the best use of the Internet and online bookings will allow the company to
make its booking process completely automated and much more efficient.
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5. References
About Us. (2011). Retrieved January Wednesday, 2011, from Ryanair:
http://www.ryanair.com/en/about
Air, R. (2011). Passenger Charter. Retrieved January 2011, from Ryanair:
http://www.ryanair.com/en/about/passenger-charter
Air, R. (2011). Presentation for the Investor 2011. Retrieved January 2011, from Ryanair:
http://www.ryanair.com/doc/investor/present/quarter2_2011.pdf
Box, T. M., & Byus, K. (2005). Ryanair (2005): Successful Low Cost Leadership. Allied
Academies International Conference (pp. 9-13). Las Vegas: International Academy for case
studies.
Helterlin, G., & Ramalho, N. (2007, June). How did the deregulation of air transportation in
Europe foster entrepreneurial behavior and innovation in the European airline industry over the
last twenty years?: Case studies: SAS Airline & Ryanair. Umea, Vasterbotten, Sweden.
Mayer, S. (2007). Ryanair and its low cost flights in europe. Queensland, Australia: University
of the Sunshine Coast.
Morgan, G. (2005, August). Performance Measure to Support Competitive Advantage. Retrieved
January 2011, from ACCA-the global body of professional accountant:
http://www.accaglobal.com/students/acca/exams/p5/technical_articles/2950518
O'Culleanain, E. S., & et, a. (2004). Seminar on Business Plan: Ryanair. Brussels: Solvay
Business School.
Review. (2006). Easyjet and Ryanair flying high on the Southwest model: Charting the ups and
downs of low-cost carriers. Strategic Direction , 18-21.
Ryanair Destination. (2010, October). Retrieved January 2011, from MedLibrary.org:
http://medlibrary.org/medwiki/Ryanair_destinations
Ryanair Holdings Plc Business Information, Profile, and History. (2006). Retrieved January
2011, from Other Free Encyclopedias » Company History » Airlines & Air Transport:
http://companies.jrank.org/pages/3619/Ryanair-Holdings-Plc.html
Ryanair. (2008, July). Ryanair and the environment. Retrieved January 2011, from Ryanair:
http://www.ryanair.com/en/about/ryanair-and-the-environment
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Ryanair's Ansoff's Matrix. (2008, July). Retrieved January 2011, from Thinking Made Easy:
http://ivythesis.typepad.com/term_paper_topics/2008/07/ryan-airs-ansof.html
UCD Business School Growing Ireland Event. (2009, November). Retrieved January 2011, from
UCD Quinn School of Business:
http://www.ucd.ie/quinn/aboutus/newsevents/title,44634,en.html
Walser, M. L. (2010). Carbon footprint. Retrieved January 2011, from Encyclopedia of Earth:
http://www.eoearth.org/article/Carbon_footprint
6. Appendix
6.1. Figure PESTEL Analysis
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6.2. Figure Strategic Mapping
6.3. Figure Market Positioning
Figure-01: Market Positioning strategy of Aviation Industry (adopted from O‟Culleanain and et
al, 2004, pp. 14)
Pure Low cost Differentiation
Competitive Advantage
Broad
Narrow
Competitive Scope
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6.4. Figure The Ansoff Matrix
6.5. Figure The Boston Consulting Group Matrix
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6.6. Figure Global Integration/Local Responsiveness Grid
6.7. Figure Balanced Scorecard