Case Study on Ryanair Airlines

This case study analyzes the internal and external forces of Ryanair Airlines and its capabilities with core competencies through Porter's five forces framework and value chain analysis. It also explores the company's culture and its impact on its competitive advantage and position in the airline industry.

Case Study on Ryanair Airlines
Strategic Management in a Global Context
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Contents
1. Porter’s five forces framework...........................................................................................2
2. Value Chain Analysis.........................................................................................................4
3. Cultural Web.......................................................................................................................7
4. Implementation and Recommendation...............................................................................8
5. Conclusion........................................................................................................................10
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Ryanair: the low fares airline – ‘always getting better’
In Europe, Ryanair is the biggest low-cost carrier airline company. It is the largest
airline as measured by international passengers carried in the world with more than 34 routes
and adding new routes to expand network. The company provides baggage assistance, flights,
travel insurance, hotel accommodation, and other services related to traveling mainly to the
customers of Europe. It provides low fares at all routes and no frills policy benefits of air
traveling with the growth of 25% every year. The case study given is to analyse the internal
and external forces to enable the examining overall attractiveness in the airline industry
operations of Ryanair and its capabilities with core competencies conducting value chain
analysis. It shows the focus on the company’s culture to identify it for the successful
implementation of strategy with the achievement of competitive advantage and growth of
business in future.
1. Porter’s five forces framework
In 1979, Porter’s five forces were established by Michael E Porter analysing the
company’s competitive position structured to evaluate and assess the strength. It helps in
examining the competitive attractiveness and intensity of a market identifying the power in
the situation of business. This framework provides the understanding of company’s strength
and its current competitive position to move forward. It makes the company to know its
weaknesses for improvement and avoiding mistakes understanding the potential profitability
of new products or services. The bargaining power of buyers and suppliers, threats of
substitute product or services, and new entrants consisted competition between the existing
rivals.
1.1 Low threat of Entry
Ryanair is provided by the benefits in economies of scale at large while reduction in
average costs generated in long-run. The deals were made over flight paths and air-time by
various other local airports with Ryanair. Further, Ryanair made deals related to costs
reduction and also restricted the available air traffic slot as suitable of limited routes to the
airport. The easy increase of entry barriers and outperforming competitors with the
company’s operation in more than 29 countries at 180 airports flying 1,611 routes more than
1,500 normal departures. In the airline industry, Ryanair profits with lowest fares are not
affected by the increase in fuel costs at global space. This is the reason company can charge
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average lowest fare connecting in the UK with any airline low carrier. The new companies
are not setting the same prices as per the increase in entry barriers and Ryanair capital return
recorded 18% of profits. In the profitable industry of airline, the company’s over time in
long-run with the exploitation of economies of scale, there is a low threat of entry.
1.2 Low threat of substitute products or services
Ryanair considers substitutes like Eurostar ferries, trains and buses ranges of tickets
from around 50 to 180 euros of an individual ticket costing expensive and it takes longer-time
as well. Ryanair rates are much cheaper than Eurolines companies but the company do not
provide less time consumption and comfort for reaching at the destination. The flights prices
of Ferries and Ryanair are similar but Ferries are time consuming and not strong as a
substitute. The reason is not affecting the company instead of bringing changes in the future
with increase of global environmental awareness leading few passengers on planes traveling.
Another alternative can be leading customer dissatisfaction but the company’s ability of costs
reduction, and taskforce efficiently with new maintenance of low substitute products.
1.3 Bargaining power of customers (buyers)
Ryanair provides low customer satisfaction where the chance of losing its brand
loyalty is high in future. It shows that the given substitutes to flying and alternative of low-
cost airlines with high bargaining power of customers. The switching preferences of
customers forces buyers to down prices of the company looking at the opportunity of taking
advantage with cash flows growth experience and after recession time of operating profits.
The execution of policies such as friendlier websites and less overweight baggage fines was
started. Ryanair tried to win over the passengers with this plan changing its business model of
obsessive cost cutting from other costlier airlines. Ryanair thought of winning customers by
advertising increment over brand loyalty with the need of targeting social media either the
tendency of company’s customers leave due to change in high probability or prices over fares
because of bad customer service.
1.4 Bargaining power of suppliers
Market for production of planes is in hand of two producers, Boeing and Airbus
showing duopoly hence the high bargaining power of suppliers. Hence, the high prices
charged by these companies for planes in all airline companies with bargaining power
increment of Boeing helping Ryanair selling 737 models. So, this avoided paying the
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company premium prices due to the reason of Ryanair as the faster growing customer of
Boeing gaining 20% of EU market share recently. Thus, the decline in demand due to
changing preferences from Airbus or another alternative aircraft producer with rapid fall in
production of planes to lead.
1.5 Low Intensity competition
In 2014, CEO Michael O’Leary tells about the business model of Ryanair related to
cost-cutting helped in competition reduction by the experience of huge economies of scale
reducing threat and helped in gaining market share of EU of 20% making easy low-cost
airline company. Thus, this allowed company to reduce the average fare price increasing their
market and customer base. The company planned to buy 175 more for the next five years in
future to work on the newest and largest fleet with Ryanair making planes for further increase
in competitive advantage and cost effectiveness. In some countries, Ryanair is one of the top
airline companies but can lose its competitive advantage because of less advertising, showing
low intensity of competition as per the number of flight paths and ever-expanding fleet
combining with economies of scale.
2. Value Chain Analysis
After the study Porter’s five forces framework of Ryanair, it is important to analyse
the value chain of the company as well for identifying the various activities forming
production process. The company’s operational strategy helps in analysing the primary and
supporting activities responsible for creating and delivering services. Hence, the company
adopted low-cost strategy from Southwest airlines used for execution by Michael O’Leary,
leader of Ryanair. It results in less investment in staff training and maintenance cost when
company want to create strong revenues rather than selling low-cost fares resulting with the
ability of sustaining costs to a minimum level such as online and ticketless bookings and
flying to secondary airports. For instance, use of secondary airports by the company is to
avoid gate charges and huge landing, and consequent offers to its customers related to low
prices. Ryanair used point-to-point flying as well to help in getting various operations for
free. Further, they decided to adopt the cost-culture and its communication with every
employee as an important part of company’s cultural web. Hence, the main core
competencies of the company show various operations at its cost management efficiently
related to its competitive position. The competitive advantage can be attained by strategies
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such as cost leadership and differentiation aiming at the maintenance of cost leadership by the
airline managers in the airline industry.
2.1 Inbound logistics
The management of low-cost airline is to maintain the model of low costs in this
perspective from suppliers by source material supplying cheaper rates as compared to by
others normally charged. Moreover, taking as an example of other airlines located at big
cities to attract premium rates with landing fees and ground services. In most of the flights
landed and departed at the airports of Ryanair are outside the major cities except Dublin
airport having access to the airport outside major cities. This strategy helps in showing
capability of the company charging low fees using smaller airports for not to incur high
expenses which are located outside the main cities. Further, the establishment of strong
relationship by Ryanair with different suppliers such as fuel airplane manufacturer Boeing
and Jet ensured on-time deliveries and efficiency achievement.
2.2 Operations
Ryanair operations adopted various strategies to make sure about the company
managing to keep its operations efficient and charging low prices. The automated booking
system of the company implies no requirement of hiring employees for booking, check-in and
reservation. Ryanair do not offer on-board meals and entertainment to passengers that are
willing to pay more in the situations where company implied capability while ignoring
additional expenses.
2.3 Outbound Logistics
Ryanair never uses any agencies like other traditional airline companies that rely on
online agents to sell tickets to active customers with brick and mortar agents instead use
website of the company for selling tickets. The approach of direct marketing of the company
implied from website related to the capability of selling low costs tickets without any
commissions with the need of paying to travel agents as looked in the case of other airlines.
Nevertheless, Ryanair is focused on turnaround times (TAT) ensuring planes at times in the
air with lesser costs.
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2.4 Service
Ryanair offering services depends on the loyalty of setting all time schedules helping
the company with the approach of maintaining the model of low-cost implied to ensure
airplanes most of the time in the airline. Looking from the customer’s point-of-view, the
company is not spending more time in departure halls to wait for the flights.
2.5 Supporting services
Ryanair deal with other supporting services like baggage handling and aircraft
services to many third parties experiencing and provide essential resources to make sure
about not wasting time. This approach of the airline makes sure about capability of offering
high quality low cost services to their customers. Hence, the company ensure that the whole
workforce had to be experienced and trained for providing high quality services to the
travellers. The company’s supporting activities include infrastructure, technology
developments, procurement and human resource management. In procurement, the
company’s purchasing power related to favourable deals enables negotiation with suppliers.
The volume is based on the number of passengers with large and growing demand with the
aim of double the taskforce where it slows down the new planes ordered. The contracted
functioning of the company need to maintain the good buyer-supplier relationships by
ensuring the low-cost and reliability services procurement. Ryanair aims to control the cost of
workforce for the improvement in productivity continuously with the help of human resource
management. It is the pressure for the workforce in working to set by a person of overhead
and the common feeling of dissatisfaction. The supporting activities factor technology
development shows that Ryanair monitor booking and planes vacancy through using its
website and internet site is also used by the company as a part of the business saving $6
million on an average in a year.
Thus, analysing Ryanair development shows an effective value chain analysis with its
primary and supporting activities to make sure that the company is continuously making
profits even on charging less for services. The company is experiencing growth from long
because of its appealing services for customers. The biggest competitive advantage is the first
mover advantage over the company’s competitors to initiate low fares being the primary
airline and discussion on secondary airports with low rates. Ryanair core competencies for
effective marketing involve flights, aircrafts maintenance services and training of employees.
The company is mainly concerned for the low-cost and cheap fares establishment that is
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copied by other airline companies and difficult to beat. The core competencies are supported
by the company experts managed by the leaders of the company where other airline
companies creating single focus in not enabling to copy of cost efficiency practices. There is
an adverse effect on employee relations due to the low-cost leadership strategy implying
employee wages reduction and productivity based on rewarding systems for short-term with
implementation of HR policies and practices to control the internal reputation of the
company.
3. Cultural Web
According to the case study, Ryanair forces and value chain are analysed to know its
competitive advantage and position of the company in the airline industry. Further, cultural
web analysis is going to be discussed to explore the organizational culture and its impact. It is
done to result in strict ordered power culture showing low-task division and centralized
power. Michael O’Leary, the leader of Ryanair has a high control and stands as a charismatic
and symbol leader with top-down management leadership style. It shows a value of strong
leader and difficult to substitute for aligning company’s strategy with company culture.
Cultural web shows the existing culture and its effects of changes needed during leadership
shifts which are essential to examine. The cultural web of the Ryanair is complete but also
knows some difficulties and need some changes as well like its policy related to trade union
which is a problem in the company. Even the employees are offended to not to be a union
membership and the company’s no frills policy can be too strong, for instance employees
cannot recharge their mobile phones due to reduction in electric bill and Ryanair thought of
selling expensive tickets. Cultural web is used to identify the organization culture of
Ryanair’s paradigm in the case study consists of stories, symbols, power and organisational
structures, control systems, and rituals and routines.
The stories of Ryanair show economy of Michael O’Leary and promotion with
helping the culture of low-cost in the company and brand symbolization showing power
structures with low-cost of the leader being the boss. Organizational structure is of top-down
while employees are empowered and encouraged for taking initiatives in cost reduction. The
company’s whole control is in the hands of the leader who is Michael O’Leary which is the
reason of everything to be done rapidly. In past, Ryanair was filled with its low-cost culture
and still is for becoming self-enforced and self-sustained. Ryanair shows its culture
appearance by using models also considering the changes in the company’s culture. With the
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idea of no-frills airline, low-cost while not even wanted to associate with something cheaper
as the company was known with its working place showing glamor and excitement. Further,
O’Leary has the personality reflecting the culture of its company’s environment. The
organizational aspect applies cost-cutting policies accordingly with the establishment to
provide nominal prices as a “value for money” and impressive customer service. O’Leary as
a leader of Ryanair is with a vision to make money by avoiding value and providing deals
brought to customers. The company maintained a power culture with a flat management
structure instead of quick growth for enabling to ignore bureaucracy.
The capability of responding and reacting of Ryanair towards competitive threats
rapidly shows its importance in the competitive environment in which they operate. The main
focus was profitability and leading company with low-fares scheduled passenger airline and
preventing power of airlines in the market for future, making sure to generate traffic numbers
by low fares. Ryanair relationship with its employees is performance-based where every
individual in the company can generate profit for the success. Employees are the shareholders
of the company and the performance-based scheme was at a different level and strengthened
after making of agreement between O’Leary and Ryanair linking directly with the company’s
profits. The management shows the employees’ salaries under productivity-based linked to
commissions and incentives for duty free goods sales on-board and for number of hours
hovered. Hence, Ryanair culture can be classified as a market culture with no changes in the
company’s concept. The impact of Ryanair’s culture is on the company and stakeholders
where stakeholders consisting employees and customers mainly do not get much
acknowledgement under every aspect in the company’s culture with the applied cost-cutting
strategy. The organizational culture of Ryanair encourages company’s opportunities and
growth for considering promotion high than any other airlines. Therefore, Ryanair focuses on
best management culture which ignores its poor relations with customers as the main aim of
the company is its cost-cutting. But, the complaint regarding its reputation for poor service
was made restricting the growth space. O’Leary accepted that the organizational culture of
Ryanair is related to his own personal style and public reputation.
4. Implementation and Recommendation
The capabilities Ryanair use to grow their business with the help of market
penetration, market development and product development which need to be focused by
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Ansoff’s matrix for future growth of the company. Strategic map showing the growth of
product market with the help of Ansoff’s matrix in assisting the growth of companies.
Ryanair Existing Products New Products
Existing Markets Market Penetration:
-More passenger acquirement
-More flights
Product Development:
-Business plus class addition
New Markets Market Development:
-Entering new airports across
Europe
Diversification:
-Vertical integration
(forward/backward)
-Long haul flights
As recommended by Ansoff, providing more flights in the Ryanair’s current strategy
incorporates growth by three methods to reach to the popular destinations and with the
market penetration in cutting back less favourable areas lining routes to give option offering
more destinations to customers suggested by the Ansoff’s market development. Its product
development strategy helped in business class establishing existing product portfolio
suggested the company to make most out of it following existing markets. Ryanair had a
chance of undertaking diversification but O’Leary suggested multiple times about trans-
Atlantic flights path he wanted to explore in the future. So, alternative of forward/backward
integration is possible involving airports (backward) or hotels (forward) purchasing for the
expansion of the company’s business offering to its customers. The association with existing
route and increase in market share of the company in market penetration consisting low-fare
and procurement as well and product development including IT development like using new
planes, online checking and secondary product, and free flights. Ryanair’s development
requires strategic direction with connecting flights, global expansion and secondary airports
related to market development. The significance of new product development for future
benefits in new market tells about the company’s profit and sales increment through Ansoff’s
matrix within the current market. This is possible by reducing the competitive edge and
merging the low-cost airline with the achievement of low-fare. It requires consolidation of
existing route avoiding market share increment and direct competition. Further, promotion of
online ticketing through IT development, offering free flights, capacity of carrier increment
using new plane, alternative source of secondary product related income is product
development. There is a possibility of market development with the help of globalisation,
secondary airport and connecting flights such as Eastern Europe expansion, new EU
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countries. Ryanair offering its customers new services such as business class luxury with fine
dining, availability of planes hiring at hourly rates for sports, private and group clients, 18
inches extra legroom comparing with Ryanair standard flights, and minimal restriction on
baggage and other passenger. Ansoff positioning the new service as every year more than 25
million business travellers fly with Ryanair. The company flies commercial aircraft entering
the private charter market instead of scheduled flight market which is way away from the
Ryanair’s low-cost model.
In the particular airport benefiting the company for customers with increasing
frequency of connecting flights achieved by diversification within longer haul routes. To
recommend, Europe to open new routes as the traditional carrier of competition is more
expensive to attract the passengers with cheaper option and no-frills. Moreover, the increase
in the frequency of existing routes from the traditional carrier helps the company to steal
some of the customers effectively with increase in market share. The “Aer Lingus” bid
pursued by the company and holding on its current share which can be a good safeguard
against possible takeover by one of its competitors like Easy Jet of Aer Lingus. Ryanair long
haul routes expansion after experiencing short haul routes which can be achieved by
connecting flight. The company need to improve the satisfaction and loyalty of its customers
as the competition is high and they can switch to another carrier affecting the Ryanair
involving expensive ideas to work out. It is essential for the company’s customers to improve
its currency trading and oil hedging practice due to the volatile market with its policy to buy
US dollars paying for flight fuel. The company’s website leveraged the secondary products
while marketing for the better selling of secondary products. If possible, generate advertising
revenue from Ryanair’s website by adding credit card as an option for the secondary products
portfolio. Make the company fully online by aiming every booking through internet to
minimize the costly call centre. The purpose of providing safety and security requires
employee satisfaction and training facility needed for improvement. Lastly, Ryanair merged
with other industry to increase the scope of hospitality management and making it a package.
Hence, the recommendations were based on issues relating to Ryanair’s image, employees,
customers and management style.
5. Conclusion
To conclude, Ryanair built a low-cost culture and its whole company bought into the
viewpoint with its leadership practices helps in reinforcement of low-cost further. To make
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the future better of the company, Ryanair sustainable and low-price strategy same as other
companies like Aldi, Southwest and Ikea for making it fit perfectly. It is important for the
company after Michael O’Leary highlighting to pay attention towards the close risks for
continuous growth and planning for future. In the airline industry, Ryanair took an advantage
of filling the gap with significant portion capturing the cost-conscious base of customers. The
company aims at providing low-cost option by maintaining the consistency to fly point-to-
point with its procedures and policies in the air transport environment as an ultimate offer.
The creation of low-cost culture of the company was feasible for the management and
employees thus Ryanair is working with its strategy and awareness about its business
environment. It is important to monitor it as the market is constantly progressing and
changing which Ryanair needs to adapt following the changes in strategy. There are
numerous challenges faced in the company’s strategy and maintaining the competitive
advantage sustainability. Moreover, every customer was aware about the Ryanair’s price
structure where the sustainability is questionable in European countries with the increase in
economic and legislation crisis setting the feasibility of its business model in danger. The
management of Ryanair need to maintain the competitive advantage considers all challenges
possible for company’s competitiveness and business strategic feasibility.
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