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Ryanair Strategic Planning
Ryanair Strategic Planning
Ryanair Strategic Planning
0 Introduction
Managers of the future will be under more pressure and have to meet more challenges than their predecessors. History has taught us that they will need to be expert planners, strategists and thinkers. Strategic planning is essential-at the heart of businesses of every size. It determines their objectives and the reasons for them. Large business may allocate more resources and time to strategic planning, where as small businesses being close to the stakeholders can move more quickly. (P. Rea & H. Kerzner, 2009)
External Analysis
Environmental Opportunities and Threats Gathering of Information
Internal analysis
Organizational Strength and Weakness
Evaluation of Information
Strategy Evaluation
Strategy Selection
Strategy Implementation
Figure1.0: The Traditional Strategic Planning Model (P. Rea & H. Kerzner, 2009 )
In the tourism and hospitality industry airline forms an important element of transportation. As Ryanair is the cheapest short haul airline, it has an important role in the UK and Irish tourism industry. On their website of 16.03.11 Ryanair boostede the English and Irish Economy by offering offer some special trips to Dublin and London for the Royal Wedding
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and St Patricks Day. Their cheap fares attracted a huge number of tourists to London from all over the Europe. I was inspired to choose Ryanair for my report because of their important and innovative role and success story in the tourism and hospitality industry. I obtained the information from the internet, books, journals, newspapers and articles.
Name Passengers Market Share Lufthansea 5.53m 7.8% Ryanair 5.12m 7.2% Air France 4.64m 6.6% EasyJet 3.53m 5% Iberia 3.3m 4.7% SAS 3.23m 4.6% British Airways 2.91m 4.1% Table: 2 Market Share of Ryanair in European Short-haul Market(Karl West,The Daily Mail)
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1.3 Products/Services, Price of Ryanair The low cost service of Ryanair to European customers is very attractive because of the lowest price of its one way tickets. It aspires to maintain simplicity of its products as much as possible. Ticketless travel in one class can be made by its passengers without reserving the seat. Ryanair represents the pure low cost airline concept with no frills at all with narrow seating on board by carrying passengers point to point on routes of short haul (Mayer, 2007). The company has deals with Hertz car rental and a number of hotel , phone card and bus ticket companies. They sometimes offer holiday packages.(www.ryanair.com) Ryanair realizes that price is the key part of its brand and this keeps them different from their competitors. Sometimes the price is more important than the product itself. Ryanairs long term strategy involves different pricing strategies which mean that off-peak booking and travelling in advance makes a ticket cheaper. Ryanair adapts its prices to maintain a 20% difference to those of its direct competitors their future policy is to continue these low fares strategies. (Gilbert,Child & Bennett 2007) 1.4 Target Customer of Ryanair The target customer is anyone within Europe in the age group 15-64 who are not willing to expend much but desire to make air travel to attractive places. Normally Ryanair defines its target customers as price independent but also includes young students, aged segment and corporate passengers too (Swarbrook & Horner, 2005). 1.5 Corporate Objectives of Ryanair Ryanair has the following corporate objectives - to Develop its share of market in low cost airlines industry of Europe to 40% within 6 years. Continue to pursue price sensitive present as well as potential customers to travel with Ryanair convincing them that it offers the lowest fares and specially attacking every other low cost airline on their truck routes. With the aircraft orders it has placed up to 2012, the airlines fleet will increase to approximately 200 aircrafts to cope with an estimated 95 million passengers. (Mayer,2007)
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2.1.4 Threats Heavy reliance on oil markets Variations in economic cycle Competition from other low cost competitors. decisions of EU court: future expansion will be difficult as a result of this Recent increase in bargaining power of Regional airports. Increased sense of price among customers. Increased regulations in air traffic. (Ryanair,2009.p-11)
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Michael OLeary claims that in a downturn there are a lot of positives for his company (Freeman,2009), This is only partly true. Even Ryanair suffered from the recession in 2008, as it led to high employment rates, disrupted credit markets and fuel cost 60% above the average. In 2009 Ryanair reported the first loss in its 20 year old business as a result of the credit crunch. (Milmo, 2009) Another threat is that several of Ryanair expenses and assets are denominated in UK pounds and, more particularly, some operational cost is paid in US Dollars.
2.2.3 Social Factors Increase in the grey market Increasing business travel Change in the mode of travelling As the economy grows more people will be interested in taking a holiday Lower company costs means they can fly more frequently .(www.scribd.com/doc)
2.2.4 Technological Factors For Ryanair it is absolutely vital to keep abreast of new technology which helps to enhance business processes and cost-efficiency. Ryanair run a multifunctional web-system on its websites that allows selling tickets, ancillaries and services of third parties and checking in customers. The (Personnelttoday, 2004) 2.2.5 Environmental Factors Natural disasters, such as the volcanic eruption in Iceland in 2010, can have a dramatic affect on the basic airline strategy. It disrupted the whole airline industry leading to numerous cancellations and customers claims. (Milmo, 2010) 2.2.6 Legal Factors Ryanair has been alleged of misleading advertising. UK and European countries always try to decide in favour of their flag carriers.The increase in almost all airport charges is a further problem for the airlines industry. EU competition law safeguarding the aviation industry imposes further restrictions. (Ryanair, 2009.p-12)
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2.3.1 Threat of New Entry The threat that new entrants may encounter in entering the industry and lessen the earnings of existing companies is analyzed by this force. In the case of Ryanair, it has been able to build a superior brand identity over the years since the time of deregulation. As a result a large amount of investment is needed to be expended by a new entrant by way of sunk costs in advertising if it wants to compete on a level playing field. 2.3.2 Competitive Rivalry in the Existing Market
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The cost of high rivalry among the competitors can be quite high whereas customers are getting the benefit from such price wars among the airlines. Thats why Ryanair has advantages over other airlines because they have designed a policy of low frills and low prices which help them to become strong competitor for the customers who are more sensitive to price. 2.3.3 Bargaining Power of Suppliers At a very basic level the airlines industry suppliers are limited only to two segments. One is the supplier of planes and another is the supplier of fuels. Ryanair has a very healthy relationship with the main aeroplane supplier, Boeing. With the downturn in the economy airlines are putting their purchasing on a very limited scale. 2.3.4 Bargaining Power of Customers A large number of new customers of new member countries of the European Union are taking an interest in flying from one destination to other due to low airlines price. The distribution power of travel agents is increasingly threatened with the increasing preference for booking tickets on the internet or directly. (Ryanair, 2009.p-8). 2.3.5 Threat of Product Substitute Customers have others modes of travels which are sometimes considered safer than airlines such as fast train or travel by coach/bus favoured by most .holidaymakers. (Ryanair, 2009.p8)
2.4 Service Gap Model of Ryanair 2.4.1 The management perception gap (Gap 1)
The primary reason for the gap 1 is that customer perception is that Ryanair are unwilling to discuss or address their expectations. For new customers particularly they focus on transaction marketing rather than relationship marketing. (Gummesson 2008) Another key factor for this gap is Ryanairs inadequate service recovery.
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2.4.5 Recommendations
After discussing these theories, models and concepts I would recommend the following to achieve the corporate goal of Ryanair Building customer relationships Core service provision Relationship bonds(Gremler and Brown, 2009) Service recovery Page 9
Make the service fail-safe Encourage and track complaints Act quickly Provide adequate explanations Hire /train the right people Address service intangibility(Fisher,2009)
3.1.3 Developing the Other Operating Bases within the Continent With Ryanairs service will be able fully cover the low cost market from London , other operating bases such as Dublin, Brussels, Hahn etc must also be looked at by it that can all be developed. 3.1.4 Covering the market of Central/Eastern Europe Increasing number of tourists and business travellers are travelling to Eastern Europe due to the continuing enlargement of EU. None of these destinations is served by Ryanair. Although business has already been set up by SkyEurope, there is still great scope for Ryanair. There is still a plenty of opportunity. (The McKinsey Quarterly 2009) 3.1.5 Entering the Market of North Africa Many tourists and North African immigrants in Europe are also visiting North Africa in great numbers. SN airlines currently dominate traffic from Brussels to North Africa but they are neither a low cost airline nor a traditional airline. By applying its low fare strategy, a large share of this market can be occupied by Ryanair. (M Michel, 2011) 3.1.6 Attacking the Market Share of the Charter Airlines Represents 25% of overall European traffic is represented by the Charter market. Ryanair must carry on aggressive attack to this market by widespread promotion of D.I.Y, holidays in lieu of package tours. 3.1.7 Overhauling the Customer Service Ryanair has had a remarkable track record has been achieved by Ryanair for its tangible customer service .However the softer side of Ryanairs customer service drew bad records from press and media. Ryanair must keep this in mind and should adjust this issue with its rules and regulations. (M Michel, 2011) 3.1.8 Continuing search for ways to reduce costs Despite having the advantage of lowest cost base than other competitors, experts believe that the company can further reduce cost by growing at a fast pace. 3.1.9 Ryanair Fully online A part of optimizing the distribution cost, Ryan air will constantly use the internet as prime ticket distribution channel. In next 12 months they are expecting 100% booking will be made through internet as they want to eliminate the cost of call centres (Mayer, 2007) 3.2 Best Strategic options and Recommendations Due to the economic turndown Ryanair faces a fall in its passenger numbers but because of its business model Ryanair must keep growing at all costs as this is the way to reduce its unit cost. Volume of routes and passengers is the strategy of Ryanair - different from
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Easyjet for instance. Ryanair also needs more passengers for two other reasons achieving the target quotas set by airports and earning the allocation of subsidy from them, and maintaining constant earnings from ancillary revenues which account for 20% of the carriers revenues. (Matthias. 2011). The strategy of Ryanair is to maintain its load factors at all costs. In spite of its cut ticket prices its yield has been falling by 17%. Therefore it needs to think of some new strategies to generate new sources of revenue. Following are four options which Ryanair could follow 3.2.1 Increase the passenger tax Through 2009 Ryanair has constantly added new taxes to its passengers such as registering online to print their boarding passes and even pay 5 for it or pay 100 if they forget to bring their boarding pass.(Matthias. 2011). 3.2.2 Get more from airports and regions As we know that passenger wont provide enough revenues to Ryanair. One way to generate more money is to get more subsidies from the airport, but, due to European Commissions Regulations these practices are often denounced as unfair. The solution is to get high cost reduction from the airports.(Matthias. 2011). 3.2.3 To freeze staff pay A more secure way to maintain cost is to freeze staff pay for three years. In March 2009 Ryanair pilots agreed to freeze their pay for 12 months. These repetitive freezes will limit costs increases but wont reduce them permanently (Matthias. 2011). 3.2.4 To buy new aircrafts at low price Finally Ryanairs last option for a change of strategy is its fleet renewal. The carrier needs to buy new aircraft for two reasons:- to keep growing and to operate new more cost effective aeroplanes (Matthias. 2011).
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(Ryanair Annual Report-2010) 4.1.3 Frequent Point to Point Service on Short Haul Routes Frequent point to point service on a number of short-haul routes is provided by Rayanair which covers a large number of secondary and regional destinations across important population centres and travel destinations. In FY 2010 Ryanair flew an average 2.01 round trip per route per day. Ryanair offers frequent services, while eliminating the necessity to provide frill services subject to the customers expectations on longer flights (www.ryanair.com). 4.1.4 Low Operating Cost The operating cost of Ryanair is the lowest among the scheduled passenger airlines in the European market. Ryanairs management mainly focus on controlling four types of primary expenses involved in operating a major passenger carrierA. B. C. D. The cost of equipments of aircrafts The cost associated with productivity of the personnel The cost of Customer service The costs associated with accessing and handling airports. (www.ryanair.com)
4.1.5 Effective Use of Internet The host reservation system of Rayanair was converted to a new system named Flightspeed in 2000 from previous system of the BABS which is operated by it under a 10 year hosting agreement with Accenture Open Skies. An internet booking system for Rayanair has been developed by Open Skies which is a part of the new reservation system. (Ryanair Annual Report-2010)
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4.1.6 Safety and Quality Maintenance Commitment of Rayanair Ryanairs commitment to safety is a primary priority of the company Rayanair and its management are committed to ensure the safety of its passengers and to maintain a quality standard of its service. This commitment is reflected in Ryanairs the total process from hiring and training of pilots, cabin crews, maintenance personnel to maintaining its carriers and aircrafts in accordance with highest industry standards (www.ryanair.com). 4.1.7 Improving the Operating Results by offering Ancillary Services A wide range of ancillary services together with other activities related to its core passenger service is offered to its customers by Ryanair. These services of Ryanair include non flight services, selling beverages and other food items on board, different internet related services etc (Ryanair Annual Report-2010). 4.1.8 Focused Criteria for Growth Based on its huge success in the Ireland-UK route and coverage of the market of continental Europe, Ryanair intend to follow a manageable growth plan by A. Initiating passenger service to other destinations in Continental Europe from the UK or Ireland B. Entering potential domestic routes between countries under EU. C. Considering opportunities of profitable acquisition of other companies in near future D. Putting a connection among the airports within its current networks of routes E. Considering and selecting new bases available in Continental Europe. (www.ryanair.com)
A useful way to represent a business model is by means of by using a causal loop diagram we can represent the business model of Ryanair: here casualty is represented by use of linking choices and consequences (R Casadesus & Enric Ricart, 2009)
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Figure: 5.0 Ryanair business model representations. (R Casadesus & Enric Ricart, 2009) In Figure 5.0 choices are shown as underlined and elements that are not underlined are consequences. Consequences that are rigid are placed in boxes whereas consequences that are flexible are in the boxes. When a consequence is very to choices we call it flexible. (R Casadesus & Enric Ricart, 2009) The assembly and working process of Ryanair machine has been represented by Figure 5.0 a machine can be assembled in a number of ways to perform particular tasks such as variation in levels of redundancy, specific mechanisms, components quality etc. Other market players also have distinct assembly process than Ryanair in terms of logic, operating style, and value creation for stakeholders. (R Casadesus & Enric Ricart, 2009)
4.3 Ryanair Synergy Synergy is the advantages of combined efforts greater than individual effort. In Ryanair synergy is that they are trying to merge with AirLingus because the chief executive of Ryanair thinks that they are the closest competitor. In terms of synergy Ryanair has the car rental contract with the car company named Hertz for their passenger and they have some cheap deals with so many hotels in all over the world. Ryanair was the fastest growing airline
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in Europe in recent years and because of its growing market share OLeary now has the objective of outperforming Europes biggest airlines Lufthansa. (Johnson and Scholes, 2002) Another important trend among European airlines is that because of price wars airlines are forced to form alliances. Many try to increase margins by merging with other airlines in order to reduce cost and benefit from synergy effects such as the merger of LTU and DBA in February 2006. (http://ftd.de/ub/di/48739.html accessed on 30.05.2011)
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References 1. Peter Rea & Harold Kerzner. (2010), Strategic Planning: A Practical Guide, Canada: CIP. 2. Karl West, Daily Mail 6 June 2007, 12:00am 3. R Casadesus & Enric Ricart, (2011) http://www.iese.edu, [Accessed on: 26.05.2011] 4. Dian,Ratnasari,(2011) http://www.scribd.com,http://www.scribd.com/doc/18152552/ RyanAir-Case, [30.05.2011] 5. Matthias.(2011).Low Cost Carriers: What are the strategic options for Ryanair?.Which Budget Airline Market Analyse [online]. 1,6. http://whichbudget.com[Accessed on: 31.05.2011]
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