Ryanair industry

analysis – A case study

report

Paulius Bagdanskas
U1271535
Travel and Tourism
management

University of Huddersfield
Module: BHH 4002 Strategic
Management for the
Hospitality, Travel and
Tourism Industries
Module leader:
Dr Derek Cameron
Due date of work: 17/01/16
Word count: 2500
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……………………………………………...2
2.2 “Always getting better” programme……………………….......3
2.3 Ryanair’s PESTEL analysis…………………………………...4
2.4 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……………………………………15
B: Ryanair’s SWOT analysis……………………………………...16
C: Ryanair’s “always getting better” programme …….…………..17
D: 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 Christense n’s
disruptive innovation Ryanair industry is going to be broadly analysed by these indicators.

1
2.0 Strategic Analysis

2.1 Ryanair’s strategy

Ryanair’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 cancellatio ns,
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 destinatio n
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 increase

2
passengers’ demand which could be unfavourable to airline market share (RyanairHoldingsP lc,
2015).

2.2 “Always getting better” programme

Ryanair 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).

3
2.3 Ryanair’s PESTEL analysis
PESTEL 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 employme nt

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 regulatio ns
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).

4
2.4 Porter’s five forces analysis
Michael 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

5
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 example,

6
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.

7
3.0 Strategic Choice

3.1 Ryanair’s SWOT analysis

SWOT 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 (RyanairHold ingsplc, 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 governme nt.
(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.

8
3.2 Porter’s generic strategies
Many 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

9
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 differentia tio n
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).

10
4.0 Strategic Implementation

4.1 Christensen disruptive innovation

A 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

11
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

12
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.

13
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

14
8.0 Appendices

15
16
Appendix C: Ryanair’s “always getting better” programme

17
Appendix D: Ryanair 30 years overview

18