Introduction
Ryanair was founded in 1985 and has since risen to become Europe’s number one low cost airline. Today, Ryan air is Europe’s third largest airline by the number of passengers flown and seventh largest in terms of revenue collected. The airline carries an approximate of 100 million customers on over 1500 routes. Additionally, Ryanair boasts of having the best customer service and on-time record. By only engaging in short haul only profitable routes and reducing prices once it became standard in the industry, Ryanair has become the cheapest airline in Europe. With its expansion, Ryanair engages in innovative ways to keep costs down. Ryanair’s main selling points are customers with low prices, the reliability of their services and controversial advertising. The main strength of the company is the low cost fares, the weakness is mainly negative press, their opportunities include the exit of less traffic airlines and main threat is that the middle class may seek something more than just low fares. This report deals with strategic analysis of Ryanair Transportation Company. The reports starts by providing a background of the airline it will also deal with the traditional approaches to strategic management of the air transport industry, it will analyze the existing and potential strategies for Ryanair. The report will also analyze models and theories that support the strategic analysis of the airline and finally recognize the best practices across the industry and formulate strategic choices for the application within Ryanair.
- What is strategy?
Strategy is described as the scope and direction of a company over a specified time. A strategy achieves advantage in a changing environment through the configuration of competencies and resources with the aim of achieving company goals. The strategy of a company involves matching the internal capabilities with the external relationships and environment. The company strategy dictates how the company deals with customers, suppliers, competitors, and the environment which is based in.
- Prescriptive and Emergent strategies
A prescriptive strategy is defined as one with an objective prescribed before any progress. The main elements of the strategy are defined before the strategy commences. The prescriptive strategy begins with the analysis of the external environment and the resources within a company. The objective of the company is then derived from the analysis. The main advantage of the prescriptive strategy is that it allows objectives to be translated into targets against which the progress and performance of the company will be measured. It also allows resources to be allocated to the objectives and the efficiency of the objectives judged based on them. The prescriptive strategy is rational and logical. Finally, the prescriptive strategy ensures structuring of complex information, the definition and focus of the company and establishes targets through which the efficacy of a company can be measured. The prescriptive strategy has, however, been criticized as there exists major differences between the designed strategy and the realized strategy. Rigid planning in a dynamic environment has led to loss of opportunities. It is often better for the company to go without a short term benefit but with a long term one and because the business environment is mostly disorderly and complex.
Emergent strategy
Unlike a prescriptive strategy, an emergent one does not have a set objective. The entire process in an emergent strategy is experimental with many possible outcomes dependent on how a matter extends. An emergent strategy can be described as one where the final objective has not been set and whose elements are developed during its operation. The early stages of the emergent strategy are similar to the prescriptive and will involve an analysis of the environment and resources present. As it proceeds, however, the process becomes experimental, round and determined by the course of the company. The main advantages of the emergent strategy is that it allows flexibility in a chaotic business environment, and gives the business a room to adapt to the pressures and opportunities present in the environment at that particular time. The changing stakeholder connection of most companies’ means that at most times an emergent strategy will be required. The emergent strategy is consistent with the actual process in businesses and provides a space for the inclusion of culture and politics into the business (Creaton, 2008). The emergent strategy has however been criticized mainly as there is possibility of s strategic drift without clear objectives. With this strategy, it is difficult to measure progress, it removes the aspect of rational and logical decision making and it’s difficult for management control to function under this strategy.
Ryanair, prescriptive or emergent?
Ryanair has not exclusively rested on either the prescriptive or emergent strategy. However, different aspects and functions of the company to a certain degree to prescriptive strategy and some to the emergent strategy. In effect, Ryanair planning for new routes and new aircraft acquisition follow the prescriptive strategy with the objective having been defined beforehand. In fact, for such a function to be successful, the company would have planned on how to finance the situation and drawn out the expected end results. However, safety and training of staff is an emergent strategy as elements such as the staffs need for training cannot be predicted and have to be handled as soon as they come up.
- The macroeconomics
The service sector which is also commonly known as the tertiary sector involves all human activities that provide services to the economy. The sector ranges from communications, financial services such as banks, restaurants, infrastructure and their combination. The service sector forms a major part of the economy and is said to contribute up to 60% GDP in developed countries.
1.2.2 Globalization
Globalization is the interdependence of economies, people and culture which is as a result of cross border trade of goods and services, technology, flow of investment and the movement of people and information (Zwanenburg, 2018). Globalization leads to global economic integration and has triggered competition l, has led to a rise in technology and increased employment.
1.2.3 Impact of recession
Recession is described as the fall in a country’s GDP. The fall is characterised by high unemployment rates, increased poverty, and decrease in real incomes, higher tax revenues and increased borrowing. During periods of recession, employees are likely to be retrenched, companies are likely to go bankrupt. In turn, the government receives less tax from business profits and salaries and will likely borrow to make up for the deficits.
1.2.4 Continued uncertainty due to Brexit
Britain’s decision to leave the European Union has led to uncertainty for business and capital markets around the world. The probability that Britain may fail to receive a deal from the European means that there’s a likelihood that the country may fall into recession in the coming years. The probability that it may get a deal of less than it bargained for could have negative impacts on businesses in the UK. In large companies and in small. The uncertainty has led to decreased risks and companies have stepped back from making major decisions until they know the fate of Brexit.
1.2.5 Ryanair amidst Brexit and slowdown in globalization
Ryanair is not likely to benefit at all with the Brexit and slowdown in globalization. Actually, the company is likely to lose largely if Britain gets a no deal Brexit but due to its low coat strategy, it could withstand without going bankrupt (Ryanair v Commission, 2013). Ryanair as an airline company depends largely in globalization and global trade to become successful. With a reduction in these. The company encounter large financial losses.
1.2.6 Impact of the macro issues on Ryanair
Ryanair is likely to experience losses owing to the Brexit and slowdown in globalization and recession. This will be as a result of reduced customers to other nations due to reduced trade as a result of Brexit. In case of a recession, most customers will have less to spend on travel which may lead to reduced profits for the airline. Brexit could cause a cut in ties with some nations which would reduce the number of trips made by Ryanair and thus reduced profits.
1.2.7 How to deal with the macro issues
Ryanair can increase on the number of local trips to make up for the international trips its likely to lose. It can also put a stop to large expenditures such as buying of aircrafts and aircraft equipment to keep enough cash afloat in case of a recession. It can also invest in creating new routes to countries that are not affected by Brexit.
1.3 Strategic Management
Ryanair is a British Airline Company which was founded in 1985 as a family business that specialized in providing full service conventional services between UK and Ireland. Ryanair began to grow and make its impact in air transport by trying to steal customers from the giants in the market such as Air Lingus. The red Ocean strategy as their strategy to steal customers was referred ensured that Ryanair became everything that everyone needed in air transport. Ryanair later began restructuring but even then the profits incurred were not enough and their cost advantage too low to be profitable. By 1986, Ryanair became stuck in the middle as outlined by Porter as they had low cost advantage and no service advantage either (Evans, 2003).
After the blow, Ryanair created a competitive advantage edge by aligning three components into their business systems. Outside perspective: Creating superior value for clients. Value chain: They added activities efficiently. Inside perspective: they possessed over the resource base that was required to add value to the airline. According to Porter, the corporate strategy is what makes the corporate whole add up to more than a sum of its parts. Corporate strategy is seen to compromise of the vision, purpose and scope of the organization in order to line up with the expectations of the stakeholders (Sabbir, 2011). AS such, all the aspects of Ryanair are important to the company management and the shareholders as decisions made in the business add value to both.
This report deals with the three components that shape up Ryanair business system considering the theories of Porter.
Blue Ocean Strategy
Ryanair has discovered a way to ensure competitive advantage and added value to their customers by adapting the low cost strategy. The low cost strategy was borrowed from the Southwest airlines which gained a considerable access to the market by re-conceptualizing the market segments. In 1990, Ryanair adopted the strategy to the European airlines by ensuring no frills and focusing on short haul destinations. Ryanair furthered this concept by ensuring that their planes were in the air as frequently as possible in a 24 hour period. A low price segment which had not previously existed in Europe was created which led to the development of the concept blue ocean. In this blue ocean Ryanair was able to stand unchallenged (Ryanair, 2015). The reduced fares by the airline created increased demand that rose from frequent business travelers and fare conscious leisure travelers. The two categories of people would have instead used alternative means of transport or would have failed to travel before given the pricing of the airlines. With reduced relevancy on competition, Ryanair was able to create a high performance in an industry that was already overcrowded. Up to date, Ryanair enjoys the profitability incurred from the blue ocean stage and has kept up the low cost strategy.
Red Ocean Strategy
The low cost strategy was of increased benefit for Ryanair but as many blue oceans it wasn’t easy to protect. Competitors came up that tried to copy the low cost approach. Additionally, the company has been competing in the red ocean by targeting a broader range of clients and luring customers from their rivals. By using this strategy, Ryanair was able to compete with new entrants to the field and was able to launch an all-out war by lowering prices and remaining profitable by increasing the frequency of flights and by creating new routes.
Strategic positioning and market share
Strategic positioning refers to the strategies that a company adopts in order to acquire a bigger market share and win a competitive edge over other companies. It also refers to choices the company makes about the value it will create and how it will be different from that of its rivals.
Porters Model
According to Porter, the competitive advantage of a company depends on the failure or success of other firms. Porter’s main interest is in two basic types of competitive advantage which are cost leadership and differentiation. Ryanair set out to be the best company in low budget market economy by constantly decreasing their fares. The company ensured that it did not deal with paper tickets, no pre-arranged seating, and no passenger meals. This way, they were able to make profits even though low and still remain relevant. Ryanair is also constantly in an effort to reduce the major expenses that are involved in running an airline. Ryanair is in a bid to reduce the expense of buying aircraft equipment, to increase in personnel productivity, reduce on the customer service costs and on the airport access and handling costs. Ryanair deals competitively with other company’s such as British Airlines and Air Lingus and is a market leader in offering low cost travel and in generating an increased return on investment. The success of the company in price leadership can be used to argue that price leadership is more relevant to competitive advantage than cost leadership. Projections into the future of Ryanair indicate that acquiring new planes will allow him to cut down on fare by 5%.
Differentiation achieved through price indicates that the superseding nature of Porters generic strategies. In addition to reduced fares, Ryanair has also put emphasis on punctuality and efficiency which is mainly achieved through the use of secondary airports. The success of Ryanair is not only attributed to low prices but also to the on time record and the friendly people that operate in the company. As a result it can be argued that even cost leaders need to differentiate their message and thereby contradicting Porters original idea that there are fundamentally different routes towards competitive advantage.
There are five forces in Porters model. The first one is bargaining power of the supplier. This is the possibility of how fast and easy a supplier can raise prices thus affecting the pricing of the airline. Suppliers in the airline business are mainly aircraft manufacturers and service providers of the airline. The switching costs of suppliers is quite high hence airlines prefer long-term contracts with the supplier. Besides, airlines only seem to be different with their services as the planes are very similar.
The second force is bargaining power of the buyer. Buyers have the capability to drive down the prices of the airline. The number of buyers, cost of switching to another airline and the importance of each buyer to the airline determines the power of the buyer. There are two types of buyers in an airline. The direct buyer who chooses the airline himself or the one who goes through online portals and online agencies. The agencies choose the best airline for the buyer according to the amount of money he is willing to part with. As a result the agencies only work with several companies to give the buyer a good experience. The bargaining power of the buyer poses low or no threat in the industry as different buyers focus on different aspects of the airline.
The third is competitive rivalry. These are the number of competitors in the industry. Many competitors offering the same product and undifferentiated make the market unattractive. In the airline business however, it is still not clear whether the services are differentiated or undifferentiated. It is hard to understand customer preferences hence hard to deliver differentiated services (CAPA, 2016). The industry seems to be in the maturity stage where no more improvements are being made to make the customer have a superb experience. However, this is the strongest force and poses a very big risk to Ryanair airline. Due to its low prices, it is expected that the services are not perfect compared to those of its competitors who offer high prices. In case the buyer needs excellent in-flight services he might opt for an expensive airline.
The fourth is threat of substitution.in this case close substitutes exist as the airlines are almost similar. There is a possibility a customer will switch to another airline in case there is a slight change in the price or services offered.
The last force is threat of new entry. This is not much of a threat as the initial capital of entering the industry is quite high and most people are not willing to invest in the risky business.
Strategic positioning and market presence
The SWOT analysis for Ryanair reveals a company that has a good command over the aviation industry. The Strengths of Ryanair is that it has low-cost flights and very innovative. The Weakness is that it has a bad public image and ranks below average in polls. Its Opportunity is that it has a high potential for growth. Like any other airline company, Ryanair faces the threat of terrorist attacks and accidents.
Competitive advantage
Ryanair is competitive in that have a homogenous set of aircraft. These help in reducing the amount of time spent on training and leads to a higher development of skills. Additionally, they have a strong benchmark that helps them land in regional and secondary airports. This makes them be very competitive.
External environment
A PESTEL analysis for Ryanair reveals a company that is politically favored in the region. It benefits from the high levels of political stability in Europe. Their low-profit margins least favor them as governments may impose high taxes on them. Economically, they are affected negatively by the fluctuating cost of oil in the region. Socially, they have negative publicity which is a negative consequence. Technologically, the company has a very strong technical background which helps them be competitive. The company has been sensitive to check on their environmental implication. They are using the Boeing 737-800 NG which are recent planes with low emissions (Anderson, 2018). Finally, the airline faces the challenge of being forced to comply with both EU and UK regulations which may be more demanding to this company (Burca et al., 2013).
Strategic choices
Strategic choice is a process of choosing a particular option from various options. To do this, managers of organizations need to put internal and external environment into consideration. Strategic choices form part of strategic policies in a company and due diligence is followed before coming up with the final option. In most cases majority vote of shareholders is used to come to a final decision. Impact of past strategies, competitor’s reaction and management attitude towards risks are some of the factors that affect strategic choice.
Process of strategic choice
The first step is focusing on strategic alternatives. This step involves the identification of all available alternatives. To achieve this, managers use the gap analysis-gap between what is expected and what has been actually achieved. The second step is analyzing strategic alternatives. The alternatives are subjected to a thorough analysis to identify the pros and cons of the potential choice. The third step is evaluation of strategies whereby each factor is evaluated for its capability to help the organization achieve its goals. The final step is making a strategic choice. A choice is made based on the organization policies of making decisions and its environment.
The world is changing at a remarkable rate and organizations need to keep the pace. In the airline industry however, customer satisfaction is the first priority. Training of employees is essential to ensure customers are served by well trained and presentable employees, in this case ranging from ground hostesses to air hostesses and pilots. To compete with the competitors, there are some of the things the airline has to do to keep their customers happy and improve the chances that the customer will choose the airline next time he/she travels.
Leadership styles
The CEO uses a democratic style of leadership in which the contribution of all members of staff contributes to the overall ideas. The two-tier leadership style makes it possible for the CEO to get directly involved in every decision of the organization.
Employee motivation
In employee motivating, the organization makes use of Taylorism theory in order to motivate these employees. Through this strategy, the organization is able to identify employees who perform to their best knowledge. Those who help the organization to reach higher profitability are rewarded for their efforts in doing this.
Teams
The Ryanair employee team is effective. The Input of the company is a contributory effort of all stakeholders. The Process is formulated to help the company realize low-cost flights. The output, on the other hand, is realized in the overall reduced costs although profitability still exists.
Implementation
The implementation of the strategies depends so much on the recommendations that have been highlighted above. It is important that the organization deals extensively with how they do the implementation but it must be based on creative strategies that work out. They make use of the two-tier management tier to ensure that they exert their management and remain at the top of the industry. Additionally, they have strong organizational factors that make their PESTEL analysis work effectively for them.
Customer service
This is one of the most important activities in an airline. Employees should assist the customer to their best ability or refer them to a desk where the help can be offered. Loss of luggage in the luggage collection bay is a common issue in the airport. Most of the times is not loss but delay of the luggage. If a customer complains of such an issue, he is supposed to be served with immediate effect. If he is ignored there is a possibility that airline will not be his choice next time.
Customer feedback
A successful business or organization relies heavily on customer’s feedback as they will know the strengths and weaknesses of their services. An airline is no exception. The airline needs to establish ways of collecting feedback. This can be by filling some questionnaires issued during the flight or by emails once the services have been offered. The airline can also incorporate customer’s ideas and suggestions of they would like their meals offered etc. customers feedback without improvement of services is of no use.
Keep an eye on competitor
Customers prefer one airline to the other simply because the other airline has offers during summer time and they offer blankets or shawls during the flight. To compete effectively, the management has to be at par with their competitors. The airline industry is saturated and customers are spoilt for choice, therefore, a unique selling proposition of a competitor can lead to losses in your airline.
Technology
Airlines need to make sure there is a good communication system to ensure flow of information. Nowadays customers can book their flights online without having to appear physically compared to the past. The airline needs to ensure their systems are up to date with the changing technology. The airlines should also keep up with the trends of entertainment during the flight. Some airlines have WIFI to help keep their customers entertained during the flight.
Conclusion
Ryanair is a very successful airline company and has reduced her fares significantly. Although the strategy has worked and failed for multiple companies, it remains to be an integral part of the business strategy in the aviation industry. The overall cost of running a flight between these distances is generally lower and the logistics not as demanding as cross-regional flights. The regulations are also generally not as strict as other flights.
Recommendation
Ryanair should work on more innovative means to become very competitive. This way they will become immune to shocks that result from changes in policies. Additionally, they should work on their bad reputation to find out why they have a bad public image. The company should strive to become environmentally sensitive and work on reducing their carbon footprint. If they do this, they will be better placed in dealing with the environmental issues.
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