Ryanair – Strategic Position
These impressive figures are a result of the holistic implementation of a cost-oriented business approach and efficient operations. The following paper highlights Ryanair’s low fares business model, its strategy and operations and moreover identifies potential strategic choices maintaining the company’s success within the next 5 years. In order to get an insight into the subject the paper starts with a brief summary of Ryanair’s history and moreover focuses on the strategic developments accounting for the company’s success story.
The second section determines the current strategic position of Ryanair. Models are applied to explain the airline’s operating environment, its strategic capabilities, the expectations and purposes it is confronted with as well as the economic situation. Gathering and analysing these facts provides a basis for alternative courses of action Ryanair might take to maintain its leading position within the industry.
The most beneficial strategic choice to reach or respectively maintain this objective in the future is clarified in more detail under the fourth step of the paper.
Its implementation is discussed and exemplified. The paper ends with a conclusion summarising the main findings and furthermore pointing out a strategic direction ensuring Ryanair’s position as leading low cost carrier within the next 5 years. Step 1: Identification of the main problem 1. 1 Summary Starting in 1985 as a full service conventional airline with one small turboprop plane and daily flights between Ireland and the United Kingdom, the company grew rapidly.
Routes were expanded, airlines acquired and passengers’ volume increased.
Nevertheless, profits were missing, instead enormous losses were recorded and the company feared to run out of business. With the appointment of Michael O’Leary as chief executive officer in 1990, a new leadership style and the new low-cost business model was introduced. Ryanair was restyled into Europe’s first no-frills airline, based on the Southwest Airline Model in the United States as the world’s first leader in the low-cost segment, with the objective to stimulate demand by offering lowest fares and no extra services to its customers.
Such low fares were primarily rendered as a result of Ryanairs’ continuous concentration on cost-cutting strategy with the reorganisation of its fleet as well as changes in the pricing structure.
Nowadays, the airline is regarded as the world’s most profitable airline on the basis of operating and net profit margins. Ryanair is marketleader in the low cost aviation segment, with 437 short-haul point to point routes between regional airports in 24 different countries and intent for further capacity expansion and growth. Ryanair has outperformed many competitors, even globally.
The strategic focus on offering the lowest price has helped Ryanair to accept customers service at the bottom line and convince customers to fly no-frills. 1. 2The strategic development of Ryanair Since its restyle into the first low cost carrier the airline company’s objective has always been ambitioned meaning that Ryanair has been intent to establish itself as Europe’s leading low-fares scheduled passenger airline through continued improvements and expanding offerings of its low-fares services and moreover to maintain this position sustainably.
Ryanair accomplishes its objective by offering low fares that generate increased passenger traffic. Other essential determinants in this respect are cost-oriented leadership and operating efficiencies. In the following section additional key elements of Ryanair’s price-based business strategy are pointed out: Low fares: Cheap flights are offered to stimulate demand by attracting price-sensitive leisure or business traveler who would revert to alternative, cheaper means of transport. Seats are sold on a one-way basis. 0% of the seats are sold at the minimum available fare assigned for a certain route.
Once they are filled, the price rises in respect to the demand for a destination. In September 2003, Ryanair has launched a fare promotion offering seats on certain, less popular routes for free (excl. government taxes, passenger service charges). Frequent point-to-point flights on short-haul routes: This service is provided to regional and secondary airports in and around major population centers and travel destinations.
Point-to-point flying removes costs of providing service for connecting passengers, including baggage transfer and transit passenger assistance costs.
Additionally, the short average flight time of 1. 1 hours allows Ryanair to offer the service frequently whilst eliminating the necessity to provide “frill” service. Choice of routes: Approaching secondary or regional airport accounts for more competitive access and handling costs but also for a higher rate of in-time departures, fewer terminal delays and faster turnaround times (maximize aircraft utilization).
Low operating costs: In fact, Ryanair’s operating costs are among the lowest of any European scheduled passenger airline enabling them to take over the costs of leadership. There are four main areas which are highly controlled by Ryanair: Aircraft equipment costs (single type of aircrafts) Personnel expenses (steadily improving productivity) Customer service costs (contracting out service, e.
g. ticketing) Airport access fees (airports offering competitive costs terms) Maximizing the use of the internet: Booking via internet is heavily marketed resulting in an online booking rate of 94% of all bookings.
The website was awarded as user-friendly and furthermore produced ancillary revenues (e. g. advertising space).
Commitment to safety and quality maintenance: The maintenance of the fleet is carried out in accordance to the highest European security standards. Routine aircraft maintenance and repairs are done in-house to cut costs whilst contracting out extensive maintenance under review. Ancillary services: Offering a variety of ancillary services on the internet generates revenues on the one hand and reduces unit costs on the other hand.
Services such as food and beverage, on-board merchandise or travel insurance account for a relevant part of the airline’s turnover. Focused criteria for growth: Since the deregulation of the EU Ryanair follows a manageable internal growth plan.
1. 3 The main problem and resulting questions As a basis for the long-term success of the airline company in the upcoming years, strategic choices at business units and corporate levels will be necessary. In order to point them out and give directions for their implementation, the current strategic position of Ryanair needs to be analyzed.
The report provides an analysis of both mentioned aspects – strategic position and strategic choices – and will give an outlook on the following issue: What is Ryanair’s strategic position in the European airline industry and how can it be improved? For a structured and concise analysis, supportive questions have been formulated and categorised under the two aspects mentioned above. Strategic position How does Ryanair operate within the different layers of the business environment and which are the key environmental impacts the company has to face?
Which strategic capabilities does Ryanair dispose of and how do they add value to the company? Which is Ryanair’s competitive strategy and how can it be evaluated in terms of competitive advantage? How can the financial situation of Ryanair be judged? Which are stakeholders’ expectations and purposes and in what way do they influence the organisation? Strategic choices What are alternative strategic courses of actions in consideration of market opportunities? Which strategic action is most appropriate to be implemented and why might this particular strategy succeed better than the others