Ryanair Strategic analysis

Prepared and presented by: Hammad Ali

Carleton ID: 101290003

Presented to: Dr. G.L. Frank Jiang

Executive summary

The report starts with the current strategic problems faced by Ryanair, these include strategic,
human resources and decision-making. The profit-formula of the company is average and
needs improvement. It is currently costing more to fly a passenger but we are saved by profit-
pool of ancillary revenue generated by the airline (Exhibit 7).

We will further discuss analysis of the company; in analyses we have taken different
approaches to see internal and external factors. Review of porters five force analysis we
realized that, industry competition is high, threat of new entrants is low, substitutes are
available and considered medium, buyer power is high, and supplier power is low.

The SWOT analysis, Strengths include marketing, deals with airports and deals with
suppliers, weakness includes poor management skills to handle employees, large amount of
capital investment, generating lower revenue per capital and decisions made by a single
person. The opportunities are present in current and future markets by creating value
proposition for the customers. These include loyalty programs using My-Ryanair and new
routes.

Resource based review suggested that Ryanair has value and uniqueness relative to the
competition, they hold the best airport deals and aircraft deals in the low-cost industry.

At the end we will discuss which alternative strategy why and what should be used. The
suggestions are based on the data provided in the case study. These suggestions include the
better employee employer relations, deals with other airlines in case of a mishap or
cancelation, new loyalty programs using My-Ryanair and new international routes to create a
wider more reliable network. The trade-off here will be cost in relation to better employee
retention.

Introduction: statement of strategic issues

Ryanair had encountered different problems; they are facing strikes in near future; the current
negotiations have been lingering around for years. The human resource strategy of Ryanair is
problematic and centered to what management presumes. Looking at exhibit 7, Ryanair has
high break-even load and their average passenger booked was costing more than then the fare
paid, but alternative ancillary revenue was profit-pool. The company has a profit-based
mentality and customer value proposition is often ignored. The managements Pessimism is
clear in the market and will make it difficult to implement any new strategy. The current
strategy implementation is based on decisions of only one person, who is highly focused on
goals, results and does not care about long-term impact or customer value proposition.

Analysis

Europe airline industry started to be profitable when the new European union rules came in
effect. They replaced national rules with a single set of EU rules for European-Union, this
structural change influenced profitability. Ryanair influenced the industry by bringing
southwest business model to Europe. The business model was based on cost cutting, operating
point to point services, using a single type of aircraft, lowest fares, highest frequency and
highest productivity. Business start was based on lowest-cost only and they did not care about
the customer. Due to customers disliking the current services provided by Ryanair. It had to
change its customer-value-proposition to offer added-services. Ryanair was profitable from
2013 to 2018 by delivering timely services and lowest cost among competition airlines. It had
implemented a new long-term strategy on how to keep current-customers and bring new-
customers. They made more publicity using controversy even on the mistakes and problems of
Ryanair. They had a big disaster, they cancelled multiple flights and did not provide
alternative to customer, management of Ryanair did not want to make any trade-offs on any
issues. This effected the long-built reputation of airline and suffered a long-term loss for a
short-term gain.

Porter’s five force Model

Industry competition on price was high between low-cost carriers. One LCC’s had to close its
business due to strong competition. The competition in the market was strong, but Ryanair
leaded all of them in cost per passenger as shown in Exhibit 3. Porter “Rivalry is especially
destructive to profitability if it gravitates solely to price because price competition transfers
profits directly from an industry to its customers”.

Potential of new entrants is medium as entrance to travel industry needed special licences and
high capital investment. Different countries needed airlines to follow rules and regulations
pre-country making it harder for a new entrant. I consider this to be low level threat of new
entrants.

Availability of substitutes was medium for Ryanair. The substitutes were other existing low-
cost airlines serving the same routes in addition to rail and land. Customers had no constraints
or cost related to switching service to substitutes.

Buyers bargaining power in case of Ryanair was very high, being in generation of social
media and internet. The users are socially interactive and do a lot of research before buying
air tickets. Buyers are well informed of prices and deals; via internet and other mediums. The
services offered by Ryanair which include hotel, car rental and vacation packages are also
offered by other competitors across Europe.

Bargaining power of suppliers is low; Ryanair with its large scale holds the power to switch
suppliers and demand better terms specially to cut the cost. They took advantage of their
power and cut great deals with Boeing.

Organizational factors

Strength:

Ryanair’s strongest organizational strength was marketing. Marketing have created strong
brand reputation. Aggressive price strategy was also implemented through marketing.
Europe’s largest-budget airline reputation was also created by marketing. Deals with
secondary airports were strength of Ryanair, which served them to deliver low-fares to
customers. Ryanair was the only airline beating every other airline on ticket prices Exhibit 2.

Weakness:

Ryanair had made bigger investments in buying new-aircrafts, generated lower returns on the
capital invested as compared to other airlines. The entire company was based on European
low-cost airline market and did not explore to grow outside. They struggled in people’s
management and service provided to customers. Once they cancelled multiple flights and did
not make trade-offs to save cost, leaving unhappy customers. They had other management
weaknesses, which included refusal to accept the union’s demands onetime ignoring the real
issues. They had poor relationship with their employees; the employees were not happy with
them and were not satisfied to work for Ryanair. Some pilots left for other airlines due to
uncertainty created by management. The decisions of CEO Michael O’Leary alone were part
of organizations weakness.

Opportunities

The airline had a big-fleet of aircrafts at its disposal and had already deals for future
deliveries. They had an opportunity to start new routes inside and outside of Europe to grow
in the existing business of LCC’s and include international service under low-cost business.
The new-planes that are coming to the market are more fuel-efficient thus providing lower
operating cost and more savings. They may partner with advertising companies and advertise
on their planes and website to generate more revenue.

Threats

The biggest threat to Ryanair was the competition with other low-cost carriers in Europe. All
these airlines had identical business model and provided similar services. The new deal with
the union will increase expense and increase operational-cost. The Brexit deal can cause a
new threat as airline will have to abide by UK rules. Fluctuations in fuel price are another
concern and threat to low-cost carriers in general, Ryanair had already suffered losses.

Ryanair is facing multiple challenges in 2019, it is losing profits margins. It is facing strike by
pilots because it cannot manage and make a deal with pilots union. If it makes this deal, it will
need to change the strategy; cost will increase to operate the same schedule under these new
terms and conditions.

Analysing resource-based review, it is concluded that, Ryanair has tangible and intangible
value and uniqueness. These resources include lowest airport fees and low purchase cost due
to great deals made with suppliers. They also had great brand recognition due to the lowest
cost of fares across Europe.
Strategic alternatives and decision criteria

Ryanair needs to evolve its strategy in order to create competitive advantage using pre-
available resources. Ryanair has a great set of available resources which can be used to create
alternatives to current strategy. It needs to work on human resources and create a new plan for
its employees to gain their confidence. It needs work on the business model to achieve
competitive advantage and avoid disasters in future; to achieve this some trade-off must be
made. They need to create alternative profit-pools in addition to ancillary revenue and
increase fare. They do have room to do such increase and still stay competitive. The decisions
are made on basis of information provided, which includes bad relationship with employees,
customers and loss in profits in the first quatre of 2019.

Recommendations and action plan

I recommend that, they resolve the current negotiation between pilot union and Ryanair.
Ryanair must also work on their profit-formula in order to create one which will have more
customer value proposition and introduce new profit pools. They need to generate advertising
revenue and customer relations must improve in order to get away from Red Ocean. A huge
fleet is available at its disposal, Ryanair should start flying to international routes. This
strategy of starting low-cost international airline will bring Ryanair to Blue Ocean. They need
to learn from the past and ensure that, cancellation of flight won’t be repeated as a disaster.

The action plan includes finishing negotiations with unions. The employees should be taken in
confidence by providing them more job security and benefits like health care and pension
plans. The trade-off must be made by accepting the union contract; this trade-off will increase
operational cost, but will give employees job satisfaction. Happy workers are productive
workers and productive workers are likely to be happy. The second recommendation is
creating a new customer value proposition. This will be in form of benefits in return for
loyalty. Using My-Ryanair, customer books one flight with us they will get free drinks on the
next flight, on booking second flight, 2 nd carry-on will be free of charge, third booking will
provide him/her with 10% discount on the future-fare. This will attract new customers and
keep the current customer-base loyal to Ryanair. The prices should be increased by 10% as
the margin permits us to stay lowest-cost carrier after increase (Exhibit-2). The advertising
should be aggressive as always, we should use new methods to advertise, including social
media, emails and google. They should start a new international low-cost flight to south-
American beach destinations. These flights will be based on the current low-cost airline
business model and will include benefits of loyalty. The most important strategic change
needed is that, decisions making should be made by a team and not a single person. They need
to hire people in management as, exhibit-5 shows that management staff increased by 15%,
administrative staff, pilots and cabin crew increased by 100%. In order to avoid another
disaster in case of a mishap or cancelation they should have contracts in place with other low-
cost carriers to provide alternative services.
Appendix
 The 7 modules of Strategic concepts.
 The lectures of Dr. Frank Jiang
 Case study Ryanair: Flying too close to the Sun?