More and more competitors try to imitate the Ryan’s model and they are increasing in size and scope. Furthermore, EX. regulations, substitutive transport possibilities and economical uncertainty are challenges Ryan airline has to face. This term paper provides the analysis of Ryan’s strategy and position in Rupee’s budget airline industry based on the case study ‘Ryan: the low fares airline – future destinations? ‘ by Eleanor Shinning. It evaluates if the budget airline industry is an attractive industry to operate in and reveals advantages and disadvantages of Ryan’s strategic approach.
The thesis questions ‘If and how Ryan can sustain its competitive advantage’ will be answered throughout the term paper. Finally, recommendations are presented on how to adjust Ryan’s strategy in order to beat the challenges and to maintain Ryan’s leading position. 2 Overview of Ryan Ryan airline was founded by Tony Ryan in year 1985. Initially, he intended to offer an alternative to the state-owned monopoly airline, called Are Lingua, between the countries Ireland and LIKE.
Based on the cost leadership strategy of the American Southwest Airlines, Ryan was the first airline introducing the budget airline model in Europe. After dealing with huge problems such as argue debts Ryan transformed to Rupee’s leading low fares airline in the ass’s. Until year 2009 Ryan has managed to become the leading budget airline in Europe and to sustain its competitive advantage. 2. 1 Facts and Figures Mission Ryan aims to offer low fares that generate increased passenger traffic while maintaining a continuous focus on cost commitment and operating efficiencies.
Vision To firmly establish itself as Rupee’s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low- fares service. Values Ryan is committed to bring customers the lowest fares and most on-time flights out in comparison to all competitors. Most importantly are safety issues, punctuality, near-perfect baggage handling, and the green policy. Goals Ryan plans to increase efficiency and lower costs even further in comparison to industry rivals. The company wants to become the 2nd largest international airline. Internal Analysis Why has Ryan been so successful so far? Ryan’s success Was based on a skilful adaptation Of the Southwest Airline model focusing on the cost leadership (see: Figure AAA It benefits from the iris mover advantage as it has implemented the budget model first in the European market by negotiating best rates possible with secondary airports. Ryan has established a single type aircraft fleet that saves on training costs, point-to-point flights that enable fast turn-around times and flights to secondary airports that save airport fee costs.
All of them enable Ryan to keep its operations extremely efficient. Furthermore, Ryan sub contracts employees on temporary basis, which again saves the company huge expenses making it flexible and adaptable to environmental changes. Figure AAA illustrates all the key points as a summary (see: Appendix). Further savings are generated through Ryan’s website where no advertisement is necessary. Through ancillary revenues as e. G. On-board gaming and car renting Ryan manages to generate highly satisfying 20% of its revenues.
The low-cost business strategy has been successfully integrated into the Porters Value Chain (see: Figure AAA). The Resource Based View Model shows the internal analysis as a summary (see: Figure AAA). 4 External Analysis PESTLE Analysis is a suitable tool in order to analyses the external environment. It summarizes all the external factors, which might create opportunities or cause significant threat to Reanalysis operations (see: Figure AS) political The political institution European Union affects Ryan’s strategy and operations by establishing regulations and restrictions in the airline industry.
For example, the regulation setting a ceiling on flying hours in order to prevent pilot’s fatigue forces Ryan to hire more employees. In addition, the EX. demands to refund air passengers in case of delays or cancelled flights. Also, the EX. might increase the emission fees. All those EX. regulations must be considered and Ryan’s strategy has to be accordingly adjusted in order to avoid a negative impact on the business. In addition, Ryan should be aware of regional distinctions as the Irish tourist tax and national government laws acting in favor of national airlines that increase Ryan’s costs, e. . National employees contracts in other countries have different terms and conditions that must be applied and are more expensive. Economical Ryan saves costs by operating over secondary airports. In that way they avoid primary airport charges and extra costs. The economics downturn in 2009 has shown that Ryan as the leading budget airline can offer the cheapest flights attracting customers and still generate returns. As long as the low fares are guaranteed Ryan will do well in comparison to its competitors.
But if fuel price fluctuations occur, an increase in price will lead to an increase of Ryan’s operating costs causing problems to guarantee low fares, which stand for the core competence of Ryan. Failures in hedging, as it happened In year 2008, should be avoided. Also exchange rates should be observed as they might lead to supply chain disruptions. Social Customers perceive Ryan’s customer service as poor, as the passengers expect to be compensated for cancelled and delayed flights. The poor working conditions cause legal and safety issues that can scare established and potential new customers away.
Additionally, the provoking and misleading advertisements lead to a bad image of Ryan from customer perspective. Those social factors should not be ignored, as customers are key for further growth and market expansion. Technological Ryan has successfully demonstrated how to make use of modern technology in order to save costs. Ryan’s online check-in policy and racketing on Ryan’s website demonstrates how to make use of the Internet technology avoiding expenses of travel agents and excessive advertising.
Besides, if technology such as on-board Internet connection and television are offered for a fee they can generate additional revenue on board. Legal Ryan is involved in a few legal battles with Standee and Dublin airport that raise their departure duties. Besides, Ryan’s misleading and provoking advertisement assault media law and civil law resulting in high penalty fees. The poor working conditions and insufficient training might be an issue of Barbour law (Ryan Documentation, Youth, 2011). Additionally, the poor working conditions lead to safety issues and can cause a bad image.
All those legal issues are causing handling-, penalty fees and court expenses that should be limited. External Labor Unions such as British Airline Pilot Association (BALSA) challenge Ryan’s business culture and do not accept the poor working conditions of their employees. Ryan is accused of unsatisfied working conditions such as long working hours, insufficient employee training and qualification, manipulation of employees to accept working conditions and low salary Ryan Documentary, 201 1).
Besides, EX. regulations regarding environmental awareness state that additional fees are applied if the CO- limit is exceeded. 4. 1 Key Drivers of change Key Drivers of Change are environmental factors likely have a high impact on the success or failure of a strategy. According to PESTLE Analysis the Key Drivers of Change are Economic, Political and Legal factors as those factors threaten Ryan’s business the most. Those factors have a tremendous influence on Ryan’s strategy and the power to abandon Ryan’s operations. 5 Porter’s Five Forces Analysis
The Porter’s Five Forces Framework helps to identify the attractiveness of an industry in terms of five competitive forces. In Ryan’s case it determines if the European budget airline industry is an attractive one. (see: Figure AS) 1) The Threat of Onto,’ The low fares industry, especially, with established leading players as Ryan, is really hard to enter. The entrants need high capital requirements in order to generate high economies of scale to compete in the European market. Besides, access to distribution channels is required.
That means that the factor threat of new entrants is pretty low. ) The Threat of Substitutes A service that creates equivalent value to the customers as the airline industry does is the railway nervous, sea transports and car rental firms. The only significant threat is the train service because the other options are too expensive. Even though Europe has a good train network like Uriah, the disadvantage of trains is the journey time. It takes much longer to reach a destination by train than by plane, which results in a higher opportunity & transaction costs.
To conclude, the threat of substitute is low. 3) The bargaining power of buyers Customers have a high bargaining power because switching to another airline is simple and there are no additional expenses required (e. G. Easiest and Virgin Express). Especially, in a strategy of cost leadership each customer becomes important. Besides, an increasing problem is that more and more competitors start to offer cheap prices, as well. 4) The bargaining power Of suppliers The bargaining power of suppliers is high, as there are only two manufacturers competing in the aircraft industry.
Supplier switching costs are high, as the pilots will need to be retrained and high capital investments must e made. Ryan’s main supplier has traditionally been Boeing. But Ryan can allow itself to change suppliers because of its healthy cash flow and because it has already tried to purchase Airbus aircrafts after the purchase of 200 jets from Boeing got cancelled. 5) The extent of Rivalry between competitors The number of competitors that are trying to imitate Ryan’s cost leadership is increasing. As the market share of the budget airline is only 30% of the whole airline industry the market contains the potential to grow.
This might also be the problem for Ryan and its expansion strategy. As the threat of entry is high the extent of rivalry stays as middle. 6 Competition Analysis As it can be seen from the statistical figures (see: Figure AAA) Ryan is the leading airline in terms of passenger numbers, which is 577 million. Besides, Ryan operates over 140 airports which is the highest number in the budget airline industry. Costs per customer make up 36? and an outstanding 89% cost difference compared to the closest competitor Easiest.
The Ashtray rating gives an overall evaluation rating for budget airlines. Criteria of the evaluation are such as customer service and customer attestation. The range goes from 1, as the worst, to 5, as the best rating. Ryan received a rating Of 2, which is the lowest one in comparison to its competitors and which indicates a bad customer service and satisfaction. 7 Scenario Analysis Based on the Key Drivers of Change (see above: 4. 1 Key Drivers of Change) and the factors of external environmental (see above: PETALS, Porters Five Forces) scenarios are developed.
Scenarios are possible outcomes on how the external environment, that could harm or benefit the company, might change. According to those scenarios action plans are constructed on how to exact to those changes. Scenario 1 (see: Figure AAA) As an economic downturn and fuel prices are major threats for Ryan, Scenario 1 illustrates possible outcomes setting Economy according to the fuel price. Scenario 2 (see: Figure AAA) As political factors and competition may harm Ryan’s business Scenario 2 illustrates possible outcomes setting EX. regulations according to competition. SOOT Analysis The Strengths, Weaknesses, Opportunities and Threats – Analysis is the summary of the Resource-Based View and the PESTLE analysis (see: Figure AS: PESTLE Analysis). 9 Stakeholder Analysis Did the Are Lingua bid make strategic sense? Since the year 2006 Ryan made a huge effort to take over the state-owned Are Lingua airline. The strategy made totally sense, the merger will allow Ryan to increase its market share significantly: 80% of all flights between Ireland and other European countries will be operated by Ryan in the future.
Besides, it should help Ryan to focus on long-haul flights that correspond with its prospective strategy plans. Should Ryan launch another bid for Are Lingua or any other carrier? Ryan has managed to bid until the year 2012 three times without success. Are Lingua and the European Commission rejected Ryan’s bid arguing that the acquisition will transform Ryan to a monopoly, which is against the anticompetitive law. Furthermore, Are Lingua stated that a harmonic cooperation of both airlines is impossible. Both airlines have been competing with each other for more than 20 years.
TO conclude, Ryan should not continue trying to take over the Are Lingua airline. As the majority of Are Lingua airline, the Irish government, as well as the EX. Commission are against the merger (see: Figure AAA On the other hand, Ryan should keep the Are Lingua shares in order to void a possible merger of Are Lingua with another budget airline as Easiest. In addition, if Are Lingua continues to lose share value Ryan should focus on Are Lingua international operations only. In that way Ryan captures its prospective plans to expand internationally.
Does the proposal to introduce long haul flights make strategic sense? As Ryan has to plan for the future it would make sense to introduce long haul flights only if they manage to keep the prices lower as the prices of competitors. Ryan would establish itself in a completely new market segment competing in the international market. With operations over secondary airports it will be possible to offer low fares. But it must be considered that in the international market there is much stronger competition as in Europe. Southwest Airline can become Ryan’s threat that is operating in the much bigger US market.
A merger with a popular airline in Europe that offers long haul flight is a possibility. Keep watching Are Lingua development also should be considered. 14 10 Evaluation of Michael O’Leary Leadership Michael O’Leary is an extraordinary figure and key personality in Ryan’s management. He owns an aggressive and innovative leadership style. His tenements are provoking and direct. Even though he has a deep financial understanding and became a wealthy person by selling 5 billion of Ryan’s shares, he still lives the life Of a middle-class person.
Strong Leadership style O’Leary has an energetic, motivating leadership style. Former employees are praising his leadership style and he received a the European Businessman Award from the magazine Fortune. Innovation abilities O’Leary persuades Ryan to adopt the strategy model of Southwest Airlines even though the majority of the management team was not willing to do so. He was the inventor of charges for online check-in. Skilful Promoter O’Leary was able to bring Ryan to the customers by doing provoking stunts and curious advertisement.
He always managed to attract the attention of the media and was able to put the company Ryan on the first page in the news. Maintaining Core Competencies and effective Organizational Culture Over the years, O’Leary managed to build a low-cost culture amongst Ryan workforce. The corporate culture determines how Ryan operates and conducts its business. 15 Developing Human and Social Capital Social capabilities are O’Leary disadvantage. As he is totally focused to squeeze out everything out of the available resource, e. G. He employees, to lower costs and offer the lowest price, he forgets about the social component. If he and the company want to survive they need to start developing closer relationships without exploiting all the resources. Ryan has to manage to move away from an autocratic leadership style and transfer to a democratic one. 16 1 1 Recommendations Would you recommend any changes to Ryan’s approach in view Of the changing environmental circumstances? SO strategy Ryan should definitely proceed with its plan to open up 146 routes in year 01 0 according to its five years plan.
Expanding further in the market pursue the goal to achieve economies of scale that provide a guarantee to offer the lowest price in the airline industry. Moreover, Ryan should make use of the strengths as its young, commonality aircraft fleet and start to promote a Greening-image. Besides, more revenue can be generated by increasing cross-selling over the website. SST strategy Ryan should keep buying the newest aircraft models from Booing as supplier. That will allow Ryan to minimize Its emission costs that will lead to competitive prices. Especially, in time of increased competition Ryan would promote the greening image.