Ryanair The Low Fares Airline Essay

Questions:

1.Why has Ryanair been successful thus far?
2.Is Ryanair’s strategy sustainable?
3.Would you recommend any changes to Ryanair's approach to changing environmental circumstances?

Answers:

Introduction

Ryanair Airline was established in the year 1985 and in the beginning; this airline provided short airline service from Ireland to the UK. This organisation was run by Ryan family and now Ryanair provides destination services to the 205 places. This organisation has its headquarter in Dublin, Ireland. This is mainly an Irish low-cost airline and has been through an expansion. However, despite being successful, this airline faced several issues from a global economic recession and its strategies taken by management. In the year 2010, this organisation had 67 million passengers and employed more than 8100 employees. In this study, a case study named ‘Ryanair- The Low Fares Airline: Whither Now?' will be analysed. This case study thoroughly analyses the Ryanair's strategies and loopholes in all angles and focuses on the competition in the industry.

1. Ryanair has been designed itself to be world’s favourite airline and now this airline is world’s eighth largest airline. Most importantly, Ryanair has been following the notion to grow up as second largest airline in the world and it would be second to Southwest. Success factor of this airlines are:

Firstly, Ryanair was following low-cost airline model as Southwest airline used to follow. Low-cost airline strategy helped this airline to fly to secondary cities largely. By flying to the secondary airports, this airline could avoid cost and charges of landing in the primary airports (major cities). This strategy was initiated by Michael O'Leary and from the beginning; this strategy was helpful to airline in avoiding the congestion. This flying to secondary airports also helped the airlines to improve turn-out time as it assisted the each aeroplane to land on time. This on-time arrival helped to develop customer satisfaction. Additionally, this airline always gave importance in point-to-point services that could eliminate the operation like baggage and transfer (O’Connell et al. 2015).

Secondly, Ryanair followed the contrarian strategy that enables an organisation to invest in a section that goes against the market trends. This contrarian strategy is all about to invest in an asset that does not make a profit right now; however, investor can sell this asset when the right time would come (Casadesus-Masanell and Ricart 2014). During the time of 2009, all the airline's companies were removing the flights, cutting the prices; O'Leary was buying new aircraft and exploring new routes for services. In the year 2010, O'Leary published the profit percentage and it clearly showed that the airline made 200 percent profit. This contrarian strategy helped Ryanair to attract more customers and overshadowed the competitors.

Thirdly, Ryanair took strategy to provide ancillary services to the passengers of Ryanair with the airline flight service. This strategy included the services of in-flight beverages, merchandise products, food items and internet based products. In addition, Ryanair decided to provide customers with the service of car rentals, accommodation and travel insurance through the website. This strategy assists to reduce unit cost and ancillary revenues were 28% of the total profit (Malighetti et al. 2013). Later, Ryanair included online gambling, in-flight mobile phone services to the customers during flight.

Fourth, Michael O'Leary was a key person behind the success of Ryanair and this airline first introduced the services of low-cost airline. This visionary leader understood the Southwest model and started a low-fare airline in the Europe. Before O'Leary, Ryanair was a small airline and it provided service only in Ireland and the UK. CEO of Ryanair, O'Leary tried to penetrate the global market to be lucrative business profit and took the low-cost model and tried to buy competitors Air Lingus.

Fifth, Ryanair started the concept of ‘no-frill'. The sole aim of this strategy is to give the end consumers cheapest products but quality of the product should be good. This helped the airline to reduce the cost of goods and services. For instance, Ryanair used a single type of aircraft (Boeing 737-8003) in the previous time and that gave the benefit to having low maintenance cost, low operation cost, inventory holdings (Barrett 2014). This strategy provided the advantage of having the lower maintenance engineers and developed organisational innovation.


2. Ryanair airline has been going successfully as the CEO of the organisation is visionary and his cost-cutting strategy was a big hit. The Southwest model of the airline became successful with its first-mover advantage. This airline got struck to the changing condition of the economic scenario. In order to apprehend the sustainable strategy of an organisation, it is needed to explain the competitive advantage of the organisation.

Porter’s five forces model

Industry rivalry: (Medium)

Ryanair took the strategy to grow their fleets and low ticket pricing strategy. Ryanair is increasing the customer base through low-cost strategy. Ryanair travels mainly in secondary places and airports. The industry rivals are British Airways, Easy Jet and others.

Threat of new entrants: (Low)

In an airline industry, it is very difficult to enter and most importantly, Ryanair has been following low-cost strategy. In this economic situation, in the European market, needs of high capital is very much fact in the airline industry.

Threat of substitutes: (Low)

Ryanair airline has been in the ancillary services as well. They give equivalent value to the consumers of the organisation. In this regard, Ryanair airlines provide not just flight tickets, however, they provide other services. In this scenario, substitutes of the organisation may not overshadow Ryanair.

Bargaining power of suppliers: (High)

In the airline industry, suppliers play a vital role as suppliers switching cost can be high. There are mainly two suppliers of Ryanair in the Europe. Boeing is one of the suppliers of Ryanair and pilot has to be retained by the airline.

Bargaining power of customers: (High)

Customers can switch any other airlines if they want. In this respect, bargaining power is high, however, Ryanair provides low-cost tickets to the customers and customer service is good. Cost leadership strategy is the key to O’Leary.

So, the competition in the market is average and Ryanair needs to take some brave steps to retain more customers and make a better foothold in the industry (Johnson 2017). The strategies like extra money for baggage and using toilets must be removed as these may lower the customers. Moreover, attacking competitors with taking name can be dangerous. Ryanair’s campaigning of ‘Bye-Bye Lufthansa’ was not successful. The organisation can take CSR strategy in order to sustain in the market. The strategy of green fuel and products that make the environment sustainable would be helpful strategies that attract more customers. Moreover, researched and surveys showed that customers want more comfort and legroom in the flight (Borenstein and Rose 2014). Cost conscious culture of the organisation and policies regarding them would be helpful for the organisation to grow.

SWOT analysis

Strengths

· Young aircraft

· Point-to-point services

· Low operation cost

· Low-cost services

· Marketing model

· R&D on aircraft development

Weaknesses

· Customer services

· Public image

· Working condition

· Choices of destinations

Opportunities

· Expansion in the market

· Modern technology

· Competition committee

Threats

· Substitute transportation

· Substitute in the industry

· Legal issues

· CSR activities

· Fuel price

Table: SWOT analysis

(Source: Self-developed)

Ryanair’s strategy is sustainable as the core strategies are ‘cost leadership’, low-price and Research and Development on aircraft design. Moreover, the marketing strategy of this airline is based on internet and passengers can book their tickets using the internet. Ryanair reduces the cost of advertisements and Ryanair needs to start responsible advertisements. The low-cost strategy, contrarian strategy and ancillary services strategy and no-frill strategies are helpful to grow for Ryanair. However, in case of public image and customer services, this airline has to take new promotion strategies in order to be more sustainable.

(Refer to Appendices for VRIO framework and strategic capabilities analysis)

3.Changes to Ryanair's approach to changing environmental circumstances?

  1. a) The strategy of secondary airports:

The concept of secondary airports was introduced by the management of Ryanair as the airline wanted to save time and money of the customers. In case of secondary airports, the customers had to take another vehicle to reach to the core cities (Eccles and Krzus 2014). In case of Frankfurt, the primary airport is Frankfurt; however, the secondary airport is at Hahn. Ryanair takes the passengers to Hahn and passengers need to take another vehicle to reach Frankfurt. In another flight service, the passengers do not need to take another vehicle. In this scenario, the passengers do not want this break journey and they want to take costly flight rather than low-cost flight. Therefore, Ryanair can change the strategy of using secondary airports instead of Primary airports. Most of the big airports are avoided by Ryanair and that reduce the customers for the airline. In this way, Ryanair can start both primary and secondary airports at a time.

  1. b) Cost strategy:

In the low-ticket price strategy, Ryanair provided low space, a little leg room space and customer service provision are not good. People have no complaining as it is the low-price ticket. This cheap flight strategy attracts many passengers to travel with them. However, the premium and business class passengers do not use this airline. Ryanair can go with low price strategy; however, they need to develop customer service provision with bigger space, friendlier personnel. Ryanair can offer free meals and beverages to the passengers (Coelli et al. 2013).

  1. c) Long-haul flights:

Ryanair can start long-haul flights as it would be a new market segment for the airline that would increase the market share and customer base. The airlines can start with secondary airports concept in long-haul flights that would lower the ticket costs. Ryanair in this way can compete in the international market as well. In this sense, Ryanair can start a joint venture with U.S based airline (Barbot 2016). However, Southwest airline can pose a threat in opening a market in U.SA industry. Ryanair’s management refused to talk to Employee Representative Committee and the employees are there over more than 31 nationalities. In order to start long-haul flights, it is needed to expand crew services and employee engagement.

  1. d) Improved customer service:

Ryanair airline targets mostly middle-class people who use the low-priced tickets. This is the reasonable approach of the airlines to segment the market and target the desired customers. Ryanair can improve the perception of customers. Customer service improvements are needed as the airline can provide large space and beverage system.

Did the Aer Lingus bid make strategic sense? Explain.

Michael O’Leary accepted the fact that the investment to Aer Lingus was a stupid decision from the Ryanair side. O’Leary stated that the decision to go with a single combined airline might be fruitful; however, it was turned out to be a disaster. In the year 2007, Ryanair took the 25.2 percent stake in Aer Lingus. Then the interest was increased to 29.8 percent and that the total amount to payable was approx 404 million euro (Burrell 2013). By the end of 2009, the investment to Aer Lingus was almost 79 Million euro. O'Leary made clear that the concept of taking the Are Lingus was to use the brand image of Aer Lingus and the capturing the market of long-hauled flights. Ryanair decided to reduce the short-haul fair to 2-5% per year in order to gain the market share. The amalgamation of an Irish company would eventually bring the mega market penetration for Ryanair.

However, Ryanair has been facing the issue of the economic downturn as the year 2008 brought recession and high unemployment rate. Ryanair had to raise the fares and that decreased the volume of the passengers. Moreover, in the present scenario, it is not accepted that Ryanair is to continue the Aer Lingus project. The stakeholders of the airlines, the board of directors, EU, Irish Government and Employee Shareholder Trust (EMT) all were against the buying of Aer Lingus (Barrett 2014). However, Ryanair airline can take the share of Aer Lingus as it would play a buffer for the competitor like Easy Jet. In international operation or international expansion, Aer Lingus can help Ryanair to land slots in primary (major) airports. However, Ryanair faced the issue of volcanic ash of Eyjafjallajokull that needs to close the airspace.

Conclusion

It is observed that Ryanair has been facing the issues of the economic downturn that may impact on the growth with reducing planned fleet expansion. Most of the all, Ryanair needs to make international industrial relation that may cause financial losses. Ryanair bullied some of the Aer Lingus pilots that caused another issue. In order to solve the issue, customer service provision and spaces in flights need to improve. Moreover, the environmental impact of CSR strategies can be taken that can improve the sustainability of the airline.

References

Barbot, C., 2016. Low-cost airlines, secondary airports, and state aid: An economic assessment of the Ryanair–Charleroi Airport agreement. Journal of Air Transport Management, 12(4), pp.197-203.

Barrett, S.D., 2014. How do the demands for airport services differ between full-service carriers and low-cost carriers?. Journal of Air Transport Management, 10(1), pp.33-39.

Borenstein, S. and Rose, N.L., 2014. Competition and price dispersion in the US airline industry. Journal of Political Economy, 102(4), pp.653-683.

Burrell, K., 2013. Going steerage on Ryanair: cultures of migrant air travel between Poland and the UK. Journal of Transport Geography, 19(5), pp.1023-1030.

Casadesus-Masanell, R. and Ricart, J.E., 2014. From strategy to business models and onto tactics. Long range planning, 43(2), pp.195-215.

Coelli, T., Perelman, S. and Romano, E., 2013. Accounting for environmental influences in stochastic frontier models: with application to international airlines. Journal of productivity analysis, 11(3), pp.251-273.

Eccles, R.G. and Krzus, M.P., 2014. One report: Integrated reporting for a sustainable strategy. John Wiley & Sons.

Honey, M., 2012. Ecotourism and sustainable development: Who owns paradise? Island Press.

Johnson, G., 2017. Exploring strategy: text and cases. Pearson.

Malighetti, P., Paleari, S. and Redondi, R., 2013. Pricing strategies of low-cost airlines: The Ryanair case study. Journal of Air Transport Management, 15(4), pp.195-203.

O’Connell, J.F. and Williams, G., 2015. Passengers’ perceptions of low cost airlines and full service carriers: A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia Airlines. Journal of Air Transport Management, 11(4), pp.259-272.

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