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Ryanair case study and strategic analysis

An analysis on the competitiveness and low-cost strategy of Europe’s leading low-cost carrier Ryanair

Research Paper (undergraduate) 2011 37 Pages

Business economics - Company formation, Business Plans

Excerpt

Table of Contents

1 Table of Figures

2 Table of Tables

3 Introduction

4 Ryanair Competitive Analysis
4.1 Competition
4.2 SWOT Analysis
4.3 Ryanair’s Strategic Capabilities
4.3.1 Physical Resources
4.3.2 Human Resources
4.3.3 Core Competences
4.4 How Ryanair adds value and differentiates itself from competitors
4.5 Industry Life Cycle / BCG Growth-Share Matrix

5 Conclusion

6 Recommendations on Ryanair’s future direction
6.1 Michael Porter’s Generic Strategies / Bowman’s Strategic Clock
6.2 ANSOFF Matrix
6.3 Strategic human resources and CSR
6.4 Lean thinking
6.5 Diversification

7 Appendices
7.1 Five Forces Analysis
7.1.1 Barriers to entry
7.1.2 Power of suppliers
7.1.3 Power of buyers
7.1.4 Threat of substitution
7.1.5 Competitive rivalry
7.1.6 Competitive factors in the airline industry
7.1.7 Facts & figures of Ryanair and two major UK competitors
7.1.8 Flight ticket price comparison
7.2 PESTEL Analysis
7.2.1 Political & Legal
7.2.2 Economic
7.2.3 Social
7.2.4 Technological
7.2.5 Environmental
7.3 Value Chain Analysis
7.4 Asset/Resource Analysis

8 References

1 Table of Figures

Figure 1: Porter’s Five Forces Model

Figure 2: Industry Life Cycle

Figure 3: BCG Growth-Share Matrix

Figure 4: Michael Porter’s Generic Strategies

Figure 5: Bowman’s Strategic Clock

Figure 6: Ansoff Matrix

Figure 7: Michael Porter’s Value Chain

2 Table of Tables

Table 1: Basic figures of Ryanair and UK competitors

Table 2: Ryanair SWOT Matrix

Table 3: How Britain and Ireland’s biggest airlines compare

Table 4: Service performance and average fees of Ryanair and UK competitors

Table 5: Price comparison Ryanair and train services

Table 6: Competitive factors in the airline industry

Table 7: Facts & Figures of Ryanair and UK competitors

Table 8: Price comparison of Ryanair and UK competitors London-Madrid

Table 9: Price comparison of Ryanair and UK competitors London-Marseille

Table 10: Ryanair asset/resource evaluation

3 Introduction

This report conducts a competitive analysis of Europe’s leading low-cost carrier Ryanair. For this purpose, various concepts and frameworks of the strategic paradigm are applied, such as Michael Porter’s Five Forces and Value Chain Analysis, SWOT or Resource-Based View.

When it comes to Ryanair’s external environment the report provides extensive information on the external factors that are having a significant impact on Ryanair’s low-cost strategy and its economic viability. For example, it takes into account recent global incidents, such as the volcanic eruption in Island or the public turmoil in Libya. Furthermore, based on the competitive analysis recommendations are made on Ryanair’s future direction and as to how it can sustain and extend its strategic position. In particular, this part deals with strategic human resource management, corporate social responsibility, lean thinking and diversification. Due to the complexity of the aspects covered in this report and the need to clarify some of them more comprehensively, appendices are provided to promote understanding.

4 Ryanair Competitive Analysis

Porter’s Five Forces model helps to gain a holistic view of an industry by considering barriers to entry, supplier power, buyer power, threat of substitution and competition. Figure 1 shows Porter’s model listing various aspects which need to be considered in relation to the airline industry, either with a high or low power and influence (Johnson et al., 2008). (A more detailed analysis of the low-cost airline industry can be found in the appendices on page 23.)

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Figure 1: Porter’s Five Forces Model (Johnson et al., 2008, p. 60).

4.1 Competition

The airline industry has always been hotly contested, which is evidenced by a plethora of airline bankruptcies. The high fixed costs for operating scheduled flights necessitate a relatively high passenger number to at least break even. In fact, seats which are not sold today are virtually worthless tomorrow. Airlines have attempted to improve their processes as well as provide excellent customer service in order to gain competitive edge. However, the success of Ryanair’s low-cost business model, which was adopted from Southwest Airlines in 1992, has markedly changed the rules of the game (Ryans, 2008). In Schumpeter’s terms, as cited by (Grant, 2005), low-cost carriers caused a “gale of creative destruction”, or “discontinuous change” (Grove, 1999), which has disrupted the whole European airline industry.

Table 1 shows that Ryanair ranks on top in terms of passenger numbers and profit compared to its UK rivals. (More detailed information can be found in the appendices on pages 25-27.)

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Table 1: Basic figures of Ryanair and UK competitors (Source: Company annual reports 2010, websites).

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4.2 SWOT Analysis

Table 2 highlights Ryanair’s strengths, opportunities, threats and weaknesses as well as appropriate actions to overcome adverse effects and seize on opportunities.

(More detailed information on Ryanair’s external environment can be found in the appendices on pages 28-30.)

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Table 2: Ryanair SWOT Matrix.

4.3 Ryanair’s Strategic Capabilities

Ryanair’s success is attributed to outstanding operational effectiveness, as it gets more out of its inputs through eliminating unnecessary processes. Ryanair has markedly tailored its activities to be more efficient than any other rival. This, without doubt, is Ryanair’s core competence and a critical determinant of its competitiveness. In order to succeed as a low-cost carrier it is of paramount importance to develop the critical resources needed in order to gain profits and outpace competitors.

4.3.1 Physical Resources

Ryanair flies the youngest fleet, aged 2.9 years on average, consisting of Boeing’s 737-800NG winglets aircraft which, according to Boeing, “promise to enhance safety, capacity and operational efficiency” (Ryanair, 2010; Boeing, 2011). A single modern fleet entails cost-advantages with regard to operations, staff training, maintenance as well as purchase and storage of spare parts. Likewise, flexibility in terms of staff scheduling and equipment handling significantly increases. Ryanair pays meticulous attention to safety and quality maintenance, which is a critical success factor to win customers’ trust. In this regard it adheres to the highest European standards (Ryanair, 2010).

4.3.2 Human Resources

Ryanair employs a highly trained and non-unionised workforce, which plays a key role in operational efficiency. In 2010 Ryanair’s average employment rose by 10% to a total of 7,032. Average pay has increased from € 45,333 in 2009 to € 45,948 in 2010 which is above the average of some major rivals. Labour costs are controlled by continually improving the productivity of employees through performance-based pay incentives. When it comes to employee planning Ryanair attempts to offer staff “new opportunities for career development and progression.” Employees attend initial and regular trainings which include safety and fire drill courses, ground school training as well as pilot conversion courses. (Ryanair, 2009; Ryanair, 2010). It is worth mentioning that employees are expected to pay for trainings, uniforms, meals and drinks and even mobile phones used at work (BBC, 2009a).

4.3.3 Core Competences

Even though Ryanair’s tangible resources are crucial for successful operations, its overall success primarily depends on intangible resources, such as its system of processes, which make its low-cost strategy feasible and enable it to achieve competitive advantage.

Ryanair flies direct non-stop short-haul, single-class routes and favours secondary less congested airports that ensure lower handling costs, fewer delays and faster turnaround times to increase aircraft utilization. At the core of Ryanair’s strategy is the elimination of unnecessary frills such as free in-flight meals, drinks, movies and earplugs as well as many other services. Ryanair pursues a pricing strategy similar to “captive pricing”, where the actual product or service is low-priced, yet any additional frills are sold at relatively high prices in order to increase profits (Solomon et al., 2009). These, for example, encompass on-board sales of food, drinks or merchandise as well as the sale of products and services of strategic partners including public transport, car rental, accommodation and insurance. In addition, Ryanair sells advertising space on its planes and charges high fees for services such physical check-in, excess baggage, hotline calls and ticket cancellation. Since Ryanair has no seat allocation it increases profits through selling a “Priority” option, which allows the ticket holders to enter the plane first. In fact, Ryanair’s ancillary revenues accounted for almost 30% of its total revenues in 2010 (Ryanair, 2010).

Table 3 shows that Ryanair has the highest prices for in-flight food and drinks compared with competitors.

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Table 3: How Britain and Ireland’s biggest airlines compare (Starmer-Smith, 2009).

However, the key to Ryanair’s success is its website, which serves as the primary distribution channel. It enabled Ryanair to reduce costs through process automation and disintermediation as customers are now obliged to book tickets and check-in online. Ryanair’s web system also facilitates the management of capacity and demand which was considered a difficult process in the past (Alderighi and Piga, 2010). Tickets are sold at discount prices months before the actual flight. Prices then increase depending on demand and the time between the booking and the flight. If a capacity target cannot be reached discounts are offered to increase demand. (A ticket price comparison can be found in the appendices on page 27.)

It is worth noting that many key value chain activities are outsourced to third-parties in order to significantly increase cost-efficiency, whereas Ryanair favours fixed-prices, hedging and multi-year contracts. This, for example, includes employee training and aircraft maintenance (Ryanair, 2010).

In fact, it is evident that Ryanair’s set of activities and processes makes a decisive contribution to its operational efficiency. This is crucial because, as Porter put it, “positions built on systems of activities are far more sustainable than those built on individual activities” (Porter, 2008, p. 61) . He further adds that “when activities complement one another, rivals will get little benefit from imitation unless they successfully match the whole system” (Porter, 2008, p. 63).

(A value chain of Ryanair’s activities and a resource evaluation can be found in the appendices on pages 31 and 32.)

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Details

Pages
37
Year
2011
ISBN (eBook)
9783640897247
ISBN (Book)
9783640897322
File size
3.6 MB
Language
English
Catalog Number
v170739
Institution / College
The University of Surrey
Grade
A
Tags
ryanair strategy low-cost strategy strategic analysis strategy analysis ryanair case study competitiveness case study airline airline industry

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Title: Ryanair case study and strategic analysis