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Strategic Management

Strategic Management: Ryanair

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Strategic Management

Contents
Executive Summary ................................................................................................................... 3
1. Background Information of the Organisation ........................................................................ 4
2. External Analysis ................................................................................................................... 4
a) Macro-Environment Analysis ............................................................................................ 4
b) Competitive Analysis using Porter’s 5 Forces Model ....................................................... 6
3. Internal Environment Analysis .............................................................................................. 7
3.1 Current Strategy ............................................................................................................... 7
3.2 Resources and Capabilities of the Firm............................................................................ 7
3.3 Competencies ................................................................................................................... 8
3.4 Porter’s Value Chain ........................................................................................................ 8
4. Identification of Key Issues that the Organisation Faces and Recommendations ................. 9
Key Issues .............................................................................................................................. 9
Recommendations .................................................................................................................. 9
5. Conclusion ........................................................................................................................... 10
References ................................................................................................................................ 11
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Executive Summary
This report is focussed at critically assessing the key issues that strategic analysis plays in a
business. For this purpose, Ryanair has been selected in the current report. The report
commences by offering background information of the organisation. Moreover, to perform
external environmental analysis, PESTEL and Porter’s Five Forces have been used. Findings
of the external analysis shows the considerable issues for the company like charges by UK
government and bargaining power of buyers. In addition to this, internal analysis has been
conducted with the help of Porter’s Value Chain, Porter’s generic strategy and VRIO
framework. The internal analysis makes it clear that the company has strong potential, but it
needs to focus on its customer service and human resource management more. It has been
found that Ryanair’s current strategy is cost leadership and the company also uses corporate
clout for securing economies of scale. This aids Ryanair to get a strong place in aviation
industry. However, there are certain issues on which the company needs to focus for
maintaining its competitive advantage, and thus, necessary recommendations have been made
to the company.
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1. Background Information of the Organisation

The organisation selected for the paper is Ryanair, which is the primary lost cost
airline of Europe and provides customers low fare flights for all places. Ryanair was set up in
the year 1985 by Ryan family with a workforce of just 25 people and share capital of £1.
Since its establishment the company has developed from a mere one-stop airline to be one of
the largest carriers of Europe. Ryanair operates above 1600 flights in a day to approximately
1600 low fare routes, from 69 bases. This way, the airline company links 186 destinations in
30 nations (Ryanair, 2016). Also, in the year 2000, Ryanair.com was launched officially, and
the website currently accounts for more 98% of bookings for Ryanair airlines.

The vision of the company is to be the leading low-fares scheduled passenger airline
of Europe by making constant improvements and increasing offerings of its low-fares service.
The company has created a revolt in the air travel industry by adopting no-frills, low-cost
strategy. Ryanair is the only airlines of Europe that has made the air travel accessible to
masses and also played a substantial role in increasing Europe tourism unlocking it in a
manner, which it had never been before (Ryanair, 2016).

2. External Analysis

a) Macro-Environment Analysis
In order to perform macro-environment analysis of Ryanair, PESTEL model has been used so
that key factors related to the macro environment can be determined that affect the company:

Political Factors: The trade union of Europe is compelling Ryanair as EU directives impose
direct subsidies by the governments to their airlines because they mainly work to frame a
level playing field among the region’s airlines. This kind of approach was highly driven by
the political developments as many companies were interested to have a level playing field
across the EU. This was not only wished in the airline sector as it was demanded in various
other factors as well in many countries. On the other hand, government taxes affects low fare
airlines in the negatively manner when it comes to air journey (Thomas, 2014).

Economical Factors: It is evident that the global airline sector is facing decline in passenger
travel as the economic downturn has affected the spending of individuals and families. Apart
from this, increased price of fuels has decreased the profit ratio of Ryanair as well as labour
cost also plays a significant role in the cost of airlines. It has been viewed that if the fuel
prices have risen $115 per barrel then it is sure that losses will be up to $5bn (Jacobs, 2012).
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Social Factors: When it comes to travelling, customer attitudes has changed a lot in the
current era due to the high travel cost of airlines as compared to other means of transport.
Also, the fact cannot be neglected that the enhancing desire for mobility is inviting huge
development in the airline industry like Ryanair (Enz, 2009). Though, the costs are higher in
airlines but still, customers like to take a flight than to travel in ships or trains and this
significant improvement in the market would take customers to go back to utilize airline
travel again in the near future (Grubb & Neuhoff, 2006).

Technological Factors: There have always been the greatest technological advancements in
the airline sector especially when it comes to the improved fuel efficiencies of airlines. Some
of the greatest technological advancements have made Ryanair a great low cost airline
company such as booking of tickets through online platform and checking the status of flights
on internet in order to avoid any kind of ambiguity.

Environmental Factors: It is so true that the carbon footprint has been the most major issue in
the airline sector and in this regard, Ryanair has been one of the most targeted airlines due to
high amount of carbon emission in the environment and hence, it is advisable to Ryanair to
lessen the impact of the carbon footprint in the environment (European Environmental
Agency, 2012).

Legal Factors: There is a major trade union pressure on the airline industry as the
government has two choices which are either to reduce or promote costs. For instance,
government has started strict security levels at airports which might cost airlines to increase
their costs. EU expansion is one of the major causes to promote or enhance costs and this
need to be done with proper carefulness in order to avoid political turbulence in future
(Deloitte, 2014).

From the above discussion, it can be concluded that Ryanair has a greater opportunity
to think on the favour of environment in order to win the hearts of various people or
passengers by reducing carbon footprint. On the other hand, the constantly increasing fuel
prices can be a major threat for the company as it would lead to increase costs and people
might feel reluctant to this aspect. The UK government charges and government taxes are
also a major expense but it is necessary to pay them on time in order to maintain goodwill of
company.
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b) Competitive Analysis using Porter’s 5 Forces Model

Competitive Rivalry: Competitive rivalry can be contemplated as nominal as airlines
companies always try to avoid direct clash by laying emphasis on poaching travellers. Here,
the price competition is of greater value as traffic will be moved to a company who serves
nominal prices and this is what Ryanair do attract large number of customers.

Bargaining Power of Suppliers: Bargaining power of suppliers is quite higher as two aircraft
companies are majorly present in the market namely Boeing and Airbus. In this regard,
Ryanair does not have many options to choose the suppliers as there is lack of suppliers in the
region (Thomas, 2011).

Bargaining Power of Customers: The bargaining power is very high as the market contains
huge amount of price receptive travellers and they can easily switch to those companies
which are offering the same services at cheaper prices. Also, the bargaining power of
customers seems high as the customers are not at all loyal towards a single company and
switch to other companies when they are likely to get better services at nominal prices. In
context to this, price sensitivity of Ryanair customers is another significant factor that highly
contributes to their bargaining power.

Threat of Substitute Products: This is undoubtedly true that the threat of substitute products is
very high as travellers do not hesitate to shift to other substitute of transportation such as
trains, buses, ships or personal vehicles. On the contrary to this, the threat of substitute is low
as customers are not likely to get the same luxurious services in any other mode of transport.
Hence, it is very noteworthy to state that the threat of substitute products and services for
Ryanair is insignificant when it is highly compared to various other industries in the market
place.

Threat of New Entrants: The threat of new entrants is not too high but is present as many
companies are ready to copy the success of low fare flights but also, they face huge challenge
to get landing slots for the same. Besides this, liberalization has really allowed maximum
numbers of competitors in the industry but, companies are not willing to set up due to heavy
investment in this area. In nutshell, it can be said that the threat of new entrants is quite low
because of essential entry barriers which are highly associated while entering in the airline
sector and they may involve capital requirements, access of distribution channels, economies
of scale and many other factors (Belobaba, Odoni and Barnhart, 2009).
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From the above discussion, it can be concluded that the Ryanair is doing well in its area and
it does not have any major competitor as well as the threat of new entrants is not so high
which makes the company very strong in various aspects. Apart from this, the major key
issue here is that difficulties which are associated to proper distribution channel can be
considered as another major hurdle for new companies to enter into airlines sector. Hence,
Ryanair is doing well and does not need to worry about the new entrants and suppliers.

3. Internal Environment Analysis

3.1 Current Strategy

With reference to Porter’s three generic strategies, it is considerable that Ryanair has
adopted the lost cost strategy. Low Cost Model has been implemented by the leader of the
company Michael O’Leary who used it from Southwest airlines. The company has taken
some strategic moves that allow it to offer low cost services to its customers (Clark, 2014).
For example, Ryanair flies to secondary airports only, so that it can avoid the huge landing
and gate charges and consequently offer low price to its customers. In addition to this, point-
to-point flying is also used by the company, which helps in getting rid of many extra
operations (Casadesus-Masanell and Ricart, 2011). Further, the company has also adopted the
cost culture and has communicated it to all the employees to make it an important part of its
cultural web. The biggest competitive advantage, the company has on its competitors is first
mover advantage as it is the primary airline to instigate low fares by discussing low rates with
secondary airports (Mitchell and Coles, 2004).

3.2 Resources and Capabilities of the Firm

The below present VRIO analysis demonstrates the capabilities and resources of the firm:

Capability/Resource Valuable Rare Costly to Non Competitive

Imitate Substitutable Advantage
Brand Name Yes Yes Yes Yes High
Management by Yes Yes Yes Yes High
Michael O'Leary
No Frills Low Cost Yes No No Yes Medium
Strategy
New Fleet Yes No No Yes Low
Low Cost Culture Yes No Yes Yes High
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Physical Resources Yes No No No Medium

3.3 Competencies
Core competencies of Ryanair have played a critical role in forming the basis of competitive
advantage for the company (Mennen, 2010). For the company, generating core competency
as a low cost airline came from bringing together a bunch of complementary resources,
comprising of a fleet of easy maintaining aircraft, and flying towards regional airports, selling
mainly via an online channel and looking after customer service. The enviable profits of
Ryanair are the outcome of making sure that all the capabilities and resources bring down
expenses and enhance capacity (Kahawatte, 2010).

3.4 Porter’s Value Chain

Porter’s value chain is helpful to determine the activities which connect and generate
value for the company. The below discussed are the value chain activities of Ryanair.

Support Activities: This includes the infrastructure of the firm and Ryanair’s infrastructure
expenses comes from gate leasing at airports, maintaining technology systems, like website
or online booking.

Human Resource Management: Ryanair uses low cost agency training for its employees and
aircrafts mostly includes minimal crew. Ryanair employs pilots of young age and offer them
low wages for maintaining low cost operations (Rankin, 2014).

Technology: Ryanair.com is the major source of sale of tickets for the airlines. The website is
managed internally and thus cost saving is done by not relying on any third party
(Whois.com, 2014).

Procurement: Ryanair utilises procurement for acquiring resources at the best possible low
cost. This is done by utilising the corporate clout of Ryanair (Kew & Stredwick, 2006).

Primary Activities: The cost of inbound logistics is low due to the corporate clout of the
company and skilled procurement team. The operations of the company are extremely lean
and outbound logistics of the company are concentrated on accuracy and punctuality. In
2013, 90% of the flights of Ryanair landed on time, defeating other European airlines (BBC,
2013). The focus of marketing and sales is on low cost promotions. Moreover, in terms of
service, it is considerable that customer service is often regarded as the biggest weaknesses of
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the company. However, implementing turnaround strategy shows an attempt to transform

brand perception (Topham, 2013).

4. Identification of Key Issues that the Organisation Faces and Recommendations

Key Issues
The main aim of Ryanair is to become a big giant in the low cost market but is facing
few major issues which are not allowing company to see its position in low cost such as
regulation by domestic and EU is a major issue. This is because European airline is always
compelled to check regulation from both domestic as well as European Union. On the other
hand, Ryanair’s objectives and long term vision is another major setback as it is next to
impossible for a company to operate the largest amount of routes with minimum or the lowest
fare can lead to declining profits of company.

It has been analyzed that Ryanair has 4 dominant objectives and they are passenger
traffic, passenger growth, smooth European routes and perfect customer service delivery and
they together can serve as a myth as it is not possible to achieve all of them and hence, the
company should try to achieve one by one so that its goals may not get neglected and can be
fulfilled on time. Although, Ryanair does not have to face major competition from its
competitors but still, this can be a major issue as companies are setting up their businesses in
this sector after the allocation of liberalization as mentioned properly in the above section. In
nutshell, it can be said that the company is doing well in its field and can enhance with flying
colours if it may resolve the above mentioned issues in a better manner.

Recommendations
Considering the growing need of transportation, it is necessary that Ryanair should
commence new routes in EU. The company should attempt to set up its presence in the EU
and generate customer loyalty. The company can do this by starting Ryanair service to a
location that is not low-cost service (Morris, Schindehutte and Allen, 2005).

Ryanair should keep into consideration strategic alliances with other small companies at
international and national level for enhancing its efficiency, service and to deal with the
rising competition (Johnson, et al., 2014). Strategic alliances will provide the company the
chance to get capabilities for targeting more markets and sharing financial risks (Porter,
2001).
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Another recommendation to the company is to focus on improving its customer service.

Ryanair should work on its customer service by employing new talent, launching new
customer service schemes and offer customers innovative services for their long term
satisfaction (Hitt, Hoskisson & Ireland, 2011).

5. Conclusion
It can be concluded on the basis of the aforementioned discussion that Ryanair has
surpassed airline industry by originating the low cost airline in Europe. The leadership in lost
has enabled the company to get significant competitive advantages, uphold profits, and quick
growth. However, with the changing airline sector and difficult external environment, it is
complicated for the company to sustain competitive advantage. Thus, it is necessary for
Ryanair to now consider new strategic moves and utilise its capabilities for offering better
service to customers and maintain their loyalty for an enduring period of time.
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References
BBC News. (2013). Is Ryanair really Europe's most punctual airline? Retrieved from:
http://www.bbc.co.uk/news/magazine-22659822
Belobaba, P., Odoni, A., & Barnhart, C. (2009). The Global Airline Industry. John Wiley &
Sons.
Casadesus-Masanell, R., & Ricart, J.E. (2011). ‘How to Design a Winning Business Model.’
[Online]. Available at: https://hbr.org/2011/01/how-to-design-a-winning-business-
model (Accessed: 16 February 2015).
Clark, R. (2014). Ryanair Feels the Squeeze as Rivals Lower Fares. Retrieved from:
http://www.nytimes.com/2014/05/20/business/international/ryanair-feels-the-squeeze-
as-rivals-scramble-to-lower-fares.html?_r=0
Enz, C.A. (2009). Hospitality Strategic Management: Concepts and Cases. John Wiley and
Sons.
Grubb, M., & Neuhoff, K. (2006). Allocation and competitiveness in the EU emissions
trading scheme: policy overview. Climate Policy, 6(1), 7-30.
Hitt, A, M. Hoskisson, E, R., & Ireland D, R. (2011). The Management of Strategy Concepts
and Cases. 9th edition. South –Western, Cengage Learning.

Jacobs, R. (2012). ‘Fuel prices put pressure on airline profits’, Retrieved from:
http://www.ft.com/cms/s/0/aa028df6-727e-11e1-9c23-
00144feab49a.html#axzz3ARS65OV1
Johnson, G., Whittington, R., Angwin, D., Scholes, K., & Regnér, P. (2014). Exploring
Strategy. Pearson.
Kahawatte, U. (2010). Ryanair's Strategy from a Perspective of Core Competencies. GRIN
Verlag.
Kew, J., & Stredwick, J. (2006). Business Environment: Managing in a Strategic Context.
CIPD Publishing.
Mennen, M. (2010). An Analysis of Ryanair's Corporate Strategy. GRIN Verlag.
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unified perspective. Journal of Business Research, 58(6), pp. 726-735.
Porter, M.E. (2001). Strategy and the Internet. Harvard Business Review, 79(3), pp. 62-78
Rankin, J. (2014). Ryanair flies high after customer service overhaul. Retrieved from:
http://www.theguardian.com/business/2014/sep/03/ryanair-customer-service-profits-
passengers
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Duty-reformed-to-boost-trade.html
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Topham, G. (2013). Ryanair's new touchy-feely O'Leary hits turbulence but sees clearer air
ahead. Retrieved from: http://www.theguardian.com/business/2013/nov/05/ryanair-
michael-oleary-investors-future
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