“Strategy to transport 5,000 people. The airline went

“Strategy
Formulation is the process by which the firm will establish a vision for its
long term future, identify goals that should be realised in order to achieve
that vision and choose the most appropriate course(s) of action to achieve its
goals.”

With reference to an organisation
of your choice that is either headquartered or has a significant presence in
the Republic of Ireland, please address the following:

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Introduction to Ryanair

Ryanair is an Irish Aviation company which was founded on the 28th
of November 1984, but it did not start it operations until the 8th
of July 1985.  Ryanair was set up by the
Ryan family, with a share capital of just £1, and a staff of twenty-five.  The first flights were on a 15 seater
aircraft, operating daily from Waterford to London Gatwick. Ryanair was Europe’s
first low cost airline.  Their company
slogans are “Low fares made simple” and “Always getting Better”. Over the
course of a year Ryanair managed to transport 5,000 people.  The airline went public in 1997 and the money
which was raised was used to expand the airline. 

 

In 2009 Ryanair bought 30% of Aer Lingus shares after a long
takeover bid.  It wanted to buy the whole
lot of Aer Lingus, but the Commissioner for competition pointed out that the
combined airline would have had a near monopoly at Dublin, with no competition
on 22 out of 35 routes.  “Ryanair has provided customers with more
competition and more choice, but it cannot now take away that choice.”

 

Today Ryanair, with its Headquarters based in Dublin Airport has
grown from a small airline flying the short journey from Waterford to London
into Europe’s largest carrier.  Ryanair
carries over 130 million passengers from 200 destinations in 34 countries on a
fleet of 400 Boeing 737 aircrafts, with a further 260 Boeing 737’s on
order.  Ryanair plans to lower fares and
grow traffic to over 200 million. 
Ryanair has a team of over 13,000 employees and an industry leading
safety record.  On the 31st of March
2017, Ryanair had €6.6 billion turnover, €1.5 billion in profits.

 

At the beginning, Ryanair followed a traditional business model,
but it quickly began to lose money. 
Michael O’Leary (now the Chief Executive of Ryanair) was sent to the
United States to study the Southwest Airlines business model.  The business model was further developed by
Ryanair to use receipts from on-board shopping, internet gaming, car rental (Hertz),
phone cards, bus and train tickets (Stansted express) and hotel bookings to
replace the ticket revenue from airline seats. 
About 16% if their profit is made from upselling.  Savings were also made by negotiating
discounts with airports for reduced landing fees.

 

Ryanair provides passengers with a low cost, no frills air travel
to European destinations.  The business
has lower costs and those lower costs are passed on to their passengers in the
form of low fares.  The branded airlines
such as Emirates argue that passengers are willing to pay more for a better
level of service.

 

Ryanair has got itself a reputation of being an airline which
thrives on controversy.  The Chief Executive
Michael O’Leary knows the value of being controversial and realises that even
if you are controversial this will give you free publicity which, in any
commercial situation, has value.  Some of
his quotes are so controversial, he had a book written about him, called “Plane Speaking: The Wit and Wisdom of
Michael O’Leary by Paul Kilduff and which was published by Aurum Press in 2010”.

 

In recent months Ryanair have been in the news in relation to the
recognition of unions.  Ryanair reversed
its longstanding policy of not recognising unions, as the airline faced the
threat of widespread industrial action across Europe close to the busy
Christmas period.

 

 

The Market
Structure of the Budget Airline Industry

 

The word “Oligopoly” is derived from the Greek words for “few
sellers”.  Oligopoly describes a market
that consists of a relatively small number of big players when viewed from a
global vantage point.  The products they
produce are not exactly the same but similar enough that it creates competition
within the market place.  There are
several examples of markets that possess the characteristics of oligopolies,
these include the fast food industry where a few major players compete for
market share such as Mc Donald’s, Burger King and KFC or the music industry
which is dominated by Sony, Universal and Warner.

 

Within the airline industry Ryanair’s main (budget airline) competitors
include Aer Lingus, Easy Jet, WOW and Norwegian Airlines.

 

Another defining feature of an oligopoly is that the success of
the firm is often largely dependent on the actions of its’ major competitors,
i.e.

 

Porter’s Five
Forces

 

Porter’s work has had a greater influence on business strategy
than any other theory in the last half of the 20th century.   The Porter’s Five Forces framework
classifies and analyses the most important forces affecting the intensity of
competition in an industry and its profitability level.

 

Porter’s five forces are the following (i) threat of substitutes,
(ii) threat of new entrants, (iii) bargaining power of buyers, (iv) bargaining
power of suppliers, (v) rivalry among existing competitors.

 

Porter’s five
forces have impacted on Ryanair’s strategy as follows: –

 

Threat of
Substitutes

The threat of
substitutes is low as within
Europe there are a number of other systems such as train, buses, and cars that
can be used to travel over the short-haul routes.  However, the train fares are not cheap.  They also take considerably longer.  Ryanair tackles this by providing a comparison
of their rates and the train fares over a number of routes on their website,
encouraging people to use their services over non-flying means of transport
(Dubovskiy, 2012).  This reflects a weak
threat of substitution for Ryanair.

 

Threat of New
Entrants

Although one of the primary functions of Government is to preserve
competition within the market place so as to ensure economic health, they can
also either directly or indirectly create barriers to entry into industry
through strict legislation, regulation, policies and procedures.   Such barriers can prove to be a deterrent
for any new entrants wishing to enter the market.

 

This threat
of new entrants is low in the
aviation industry, as it is an expensive industry to enter for new
entrants.  The barriers of entry are
high.  Purchasing or even leasing jets is
expensive.  It is costly for new airlines
to get slots at desired airports and tough especially for new airlines,
inventory of spares is not economical and so on. 

 

In order to generate awareness, huge marketing costs would need to
be incurred.  The staff required for an
airline such as pilots, air stewards are not cheap nor is it easy to find
qualified staff.  Developing the low
operational costs that airlines like Ryanair have developed takes experience
and economies of scale (Bagdanskas, 2016). 
Only then can low-fare flights be profitable.  Thus the threat of new entrants is not high
for Ryanair.

 

Bargaining
Power of Buyers

This is high as the low-fare airline industry lacks customer loyalty or brand
loyalty.  Customers are only loyal to
low-fares.  Any player that offers the
lowest fares wins the greatest number of customers.  The switching cost for the buyers is almost
zero.  If any player attempts to increase
fares, buyers will shift to the other airlines causing the airlines to lose
business.  All low-fare airlines are
working towards reducing their operating expenses and providing the flyers with
great facilities.  All of this further
adds to the bargaining power of the buyers. 
This makes the bargaining power of the customers high.

 

 

Bargaining
Power of Suppliers

This is high as there are only two manufacturers of airplanes, Boeing and
Airbus.  Ryanair purchases its planes
from Boeing.  This Duopoly has led to
these manufacturers charging high prices for the aircraft.  However, since Ryanair is the highest
purchasing customer of Boeing in Europe, even during the 2005 post 9/11 era,
Boeing holds a soft corner for Ryanair and it gives it rates less than standard
market rates.  The other suppliers are of
jet fuel.  The prices are governed by
world trade, therefore Ryanair cannot attempt to bargain the prices of jet fuel
from the suppliers (Field, 2017). 
Therefore, the bargaining power of the suppliers is high against
Ryanair.

 

 

Rivalry Among
Existing Competitors

This is high as there are a number of low-cost airlines operating on the
routes similar to Ryanair, for example Easy Jet, Norwegian, Vueling, etc.  The competition to cover a maximum number of
routes at the least cost is intense. 
Each player in the industry is striving to minimise their costs by
reducing on board passenger facilities and airport outlay costs.  The focus is on short-haul flight
routes.  On may routes, Ryanair has been
able to drive out competition due to its experience and large fleet size,
however, on many routes, the competition is still intense.  The deregulated airline industry has made the
entry of other airlines easier into the European region increasing competition
for the local operators such as Ryanair. 
All of this reflects a high competitive rivalry for Ryanair.

 

Conclusion

The profitability of an industry is largely dependent on the
competitive forces that surround it, as a consequence the forces will have a
major impact on strategy formulation for an organisation. Taking into account
the analysis of the above competitive forces, a company like Ryanair with a
strong position within the global aviation industry, unthreatened by potential
entrants, buyer power and supplier power could still see low returns if it
faces a superior or a lower-cost substitute product.  In such a situation, coping with a substitute
product becomes a strategic priority. (Harvard Business Review, 2016)

 

 

 

Ryanair – Porter’s Five Forces of Competitive Position Analysis

 

(Adapted from
Porter, 1985)

 

Low

 

 

 

Low

 

High

 

High

 

High

 

 

 

 Ryanair – StrategyRyanair employs the cost leadership strategy to target a broad
customer segment that is highly price sensitive. It concentrates in lowering
its costs by constantly finding ways to rethink their primary and secondary
activities to reduce cost.  The airline has done well in 3 main areas to achieve cost
leadership. Firstly, Ryanair follows a very deliberate strategy which is only
configured with a single passenger class, serving no meals and assigning no
seats, as it offers a simple and low fare structure. In this sense, it manages
to attract strong growth in passenger number and high passenger load, hence
leading to profitability. Secondly, the airline insists on a single aircraft
type i.e. Boeing 737 and it has helped it to better negotiate a low leasing and
maintenance rates for its aircrafts. Moreover, Ryanair constantly purchases new
and more fuel efficient and environmentally friendly aircrafts. This is in part
to keep its fleet of aircraft young and at the same time, reduces the fleets
overall fuel consumption. In the end, it translates to more costs saving for
the company. Has it been affected? How did it respond? Political The uncertainty over Brexit to be a challenge for the business
environment.  Ryanair actively campaigned
for a remain vote in the UK Referendum on the 23rd of June 2016.  The UK’s departure from the EU in March 2019
brings a significant uncertainty with regards to the aviation business
environment.  If the UK remains in the
Open Skies Agreement with the EU, things will stay the same for Ryanair and the
UK aviation industry.  However, there is
a high possibility that the UK will not remain in the Open Skies
Agreement.  Ryanair has said that it is
focusing on growth away from the UK until Brexit is complete. Frequent terrorist attacks in Europe (Paris, Berlin, Munich, etc)
will have adverse effect on air travel demand, which will impact Ryanair.  EconomicalOil prices – fluctuationWeaker Great British Pound following Brexit could put pressure on
fare prices SocialConsumer preference of high speed rail over airlines on short haul
routesConsumer willing to spend more on ancillaries if ticket cost is
less Technological

Information technology has
dramatically changed the commercial landscape of today, with the aid of technologies
such as computers, smart phones, mobile electronic devices such as tablets and
iPads, businesses operations can perform the same duties more effectively and
efficiently. Technological advances in social media such as Webpages, Twitter
and Facebook have broken down barriers to markets such as geographical location
and physical presence.

 

I.T. significantly affects
strategic options by creating opportunities for growth and providing new
innovative problem solving techniques that are a necessity for decision makers
when addressing many aspects of business production and processes.

 

 

Enhancements in digital platforms (mobile and website) to improve
customer experience.

 

Legal

Ryanair is subject to lawsuit by European Commission for receiving
state aid at certain European Airports

Brexit may require Ryanair to comply with dual UK and EU
regulations

 

Environmental

EU regulation to emissions for airlines may increase costs for
Ryanair

Operates a fleet of Boeing 737-800NG aircraft with fleet age under
6 years and has lowest emissions intensity amongst its peers.

 

Did these influence its strategy

 

Internal –

‘For decades air travel had been the preserve of money classes’
(Ruddock, 2008:231). Ryanair low-cost fares revolutionised air travel. The
concept of budget airlines became the norm across Europe (Ruddock, 2008).
Moreover, due to Ryanair’s low-cost fares, a new short break phenomenon
developed. Furthermore, Ryanair became one of the most profitable of Europe’s
low-cost airlines.

 

After establishment, Ryanair was known as a small company with a
very positive atmosphere. However, because of O’Leary and his ‘bolloxology’
used to insult any stakeholder on his way, the Ryanair brand is being seen as
cheap, nasty and rough to anyone (Byus, 2005; Ruddock, 2007). It is disliked,
even by the customers who continue to fly with it (Ruddock, 2007). The
organisation’s revolutionary impact on the airlines industry is often
forgotten.

 

Impact on
stakeholders

 Gratitude or appreciation
for its stakeholders is not acknowledged in Ryanair’s corporate culture or
policy. Two groups of stakeholders: customers and employees are mostly impacted
by Ryanair’s culture. Cost-cutting strategy applies in every aspect of the
company.

 

During the years, O’Leary is sending a message to the public that
it is a cheap airline with no concessions. The airline’s commitment to the
customers is to provide the lowest fair, and a safe and on-time flight. Its
attitude to the passengers when something goes wrong is not to provide anything
extra because they are paying too little and have no right to complain
(Creaton, 2005; BBC a, 2009; Channel 4, 2006). The no frills concept includes
everything where the right to use of a wheelchair or use of toilets in the
airplane can be charged (BBC b, 2009).

 

Ryanair’s culture and especially its customer service policy are
perceived as embarrassing by the staff, and causes high staff turnover in
customer service-related positions. Conversely, the main advantage of Ryanair’s
culture is that it stimulates a company’s growth and opportunities for
promotion are considerably higher than in other airlines (Barrett, 2004).

 

In the organisation’s early days it was believed that those who
joined Ryanair – joined a dream (Creaton, 2005). It was easier for management
to contact and negotiate with employees because everyone had the same dream and
the company was small. Nevertheless, the young staff employed weren’t
restricted by union conditions and job definitions. In a crisis, employees were
expected to help out where they could, this flexibility was crucial to
Ryanair’s development (Ruddock, 2008). After the 1990s, people were joining an
airline (Creaton, 2005). The rapid expansion of the airline complicated direct
contact with employees. A tough management style, policies and cultural
dissatisfaction increased threats of strikes.

 

Ryanair’s culture and its low-cost strategy had a major impact on
airlines, the tourism industry and society lifestyle. Power and market cultures
identified in the airline have not changed since its establishment. However,
the CEO, Michael O’Leary, revolutionised the company’s cultural artefacts,
values and basic assumptions. There is strong evidence that the cost-cutting
concept is implemented in every aspect of the company’s operations. Customers
cannot expect to gain anything more than a cheap, safe and on-time flight. If something
goes wrong, nobody has the right to complain and the company does not take any
responsibility. Employees can be awarded for excellent performances, but at the
same time abused and ‘bolloxed’ if they made a mistake. Language used by
O’Leary internally and externally is a cultural attribute which had direct
impact to its corporate culture and image. A volatile atmosphere is dominating
the company. The brand is recognised for its rudeness and nastiness by various
stakeholders. The only measurement of success is profits and there is no place
for loyalty appreciation or gratitude to stakeholders. Management of the
company can be seen as complicated because there are high demands and very few
incentives provided.

structure, culture & resources

 

Industry environment – industry, suppliers, employees,
competitors, trade associations, customers, government, stockholders

Societal environment –