BMP4003 - Analyzing Ryanair's Challenges Using Microeconomic Theory

This report analyzes Ryanair's business environment through the lens of microeconomics, focusing on the airline's profit warnings and the underlying issues of falling fares. It delves into the concepts of demand and supply, highlighting how Ryanair's low-cost strategy impacts its profitability, considering factors like unexpected events and employee strikes. The report further examines elasticity, particularly price elasticity of demand and supply, to understand the responsiveness of consumers and suppliers to price changes in the airline industry. Ultimately, the analysis emphasizes the importance of understanding microeconomic principles for businesses to navigate market dynamics and maintain profitability, concluding that a thorough understanding of demand, supply, and elasticity is crucial for strategic decision-making in a competitive environment. Desklib provides access to a wide array of study resources, including past papers and solved assignments, to support students in their academic endeavors.

Business
Environment

INTRODUCTION
Business environment can be defined as the term of marketing environment which includes various factors and forces
which impacts the ability of the company in order to build and maintain a successful relationship with the customers.
The business environment is basically classified into two main categories that is internal business environment and
external business environment. Internal business environment is within the organization where strengths and
weaknesses are analyzed and the external environment is outside the organization where threats and opportunities of
the company are examined in the form of political, economic, social, technological, legal and environmental factors
associated with the business environment. The following discussion is basically based on the economic environment
which is defined as the one of the factors of the external environment which affects the buying and purchasing habits
of the consumers and business which directly affects the performance of the company. These factors are not in the
control of the company either on a large or small scale. Economic factors include the demand and supply, elasticity,
employment, Gross domestic product, inflation and many more (Cherunilam, 2021). As per the given case study, the
chosen organization is Ryanair, it is one of the leading international airline company headquartered in Ireland and
established in 1984. It is one of the Irish ultra-low cost carriers founded which has the primary operational bases at
London airports. As per the research it is investigated that the company is cheap in offering their services to the
customers and also provides good services with low rates to the customers. Therefore, the following discussion is
based on the scenario given in which the arguments of the article using microeconomic concepts are discussed, theory
and its application is referred to the main issues which are related to the demand and supply along with the elasticity
with proper findings and conclusion in context of the Ryanair.

FINDINGS AND DISCUSSION
Explain the main argument(s) of the article using microeconomic concepts/terms
The given scenario is based on the Ryanair company which operates under the airline industry. Article is all about the
company facing the profit issues warning as fares fall. The company has cut its forecasting of profit and blaming the air
fares lower than expected. Article also states that the company has named the worst short haul airline along with the
facing of compensation claims to go to the court and warns on profits as strikes hit income. Low rates of the flights are
resulting in the reduction in the profits gained by the company and if they continue to operate with such prices then
they will definitely face the loss and coming time. Recently the company has forecasted that the fares will fall by 2%
but it lowered 7%. This is making the problem to fight against the competitors in the industry because other brands are
already giving the comparative prices to the customers along with the good services (Hrechyshkina and Samakhavets,
2019). Company always expect to carry more passengers than forecast but it somehow fluctuates. It is becoming
difficult for the company to make the cuts to air fares because of the unexpected Brexit and security development has
extremely impacted the yields. The company has also faced the strike from the employees working in the company
because of the summer season has forced them to cancel most of the flights and also refused to offer the passengers
compensation. Strikes have an adverse impact on the company and also in the revenues and profits generated by
them. Company is also affected because of the industrial action by air traffic controllers. As per the research and
investigation in the article, the scenario is all about the theories and applications of demand and supply along with the
elasticity. So therefore these two areas are being focused in the context of the company as per the given case study
(Hamilton and Webster, 2018).

Conti…
Refer to theory and apply it to main the issues
Demand and Supply
Demand and supply are the terms in microeconomics which have the relationship in context of the quantity of the goods which the
producers desire to sell at different prices and the quantity which the consumers desire to purchase. The price of the product is
examined by the demand and supply interaction in a market place. The price which results is defined as the equilibrium price which
represents an agreement among the producers and consumers of the commodity. In an equilibrium state, the quantity of demand is
equal to the quantity of supply (Calabrese, Iandolo, Caputo and Sarno, 2018). Demand states the negative relationship between price
and products demanded which means that if price increases of the product then demand automatically decreases and if price
decreases of the product then demand automatically increases. Similarly supply States the positive relationship between price and
product supplied which means that if the supply increases in the market then price automatically increases and if the supply decreases
in the market and price automatically decreases. In context of the given scenario, it is stated that the company offers airline services at
a low price as compared to other brands in the industry. So therefore it is natural that demand will automatically increase by the
customers to travel in the airline services provided by the Ryanair. But the issue is that the fair prices are too low that even if the
demand also increases then the company is unable to cover the profits and the profit margin. Low fares by the company is already
causing the problems for arrivals and thereby the cannot cut down more prices in order to increase the demand. This is because the
services provided by the airlines are good but not the lavish and luxurious as demanded by the customers who want their flight
experience to be luxurious and this is the another reason where demand can go down because of the limited services provided by the
customers in lower prices. Therefore, they are unable to be competitive and get the competitive advantages neither in terms of prices
nor in the terms of customers. This is the whole scenario of demand and supply issue as per the given scenario (Möller, Nenonen and
Storbacka, 2020).

Conti…
Elasticity
There are basically 4 types of elasticity in demand and supply such as demand elasticity and income elasticity
along with the cross elasticity and price elasticity. As per the given scenario, price elasticity of demand and
supply is identified. The price elasticity of demand is defined as the percentage change in the quantity
demanded of a commodity is divided by the percentage change in price (Nikitina and Lapiņa, 2019). Price
elasticity of supply is defined as the percentage change in quantity supplied is divided by the percentage
change in price. Basically the price elasticity measures the responsiveness of the demanded and supplied
quantity of the commodity to a change in its price. Elasticity is further classified as elastic which is very
responsive and inelastic which is not very responsive. Elastic demand and supply states that the demand and
supply quantity response to the change in prices is greater than the proportional manner. Inelastic demand
and supply States that's the percentage change in price will affect the small percentage change in demand and
supply quantity. Other classification includes the perfectly elasticity, unitary e and perfectly inelasticity. In the
given case study, it is recognised that the airline company is charging low prices for the services they are
providing in the flights and therefore it is associated with the price elasticity of demand and supply which is
not very much flexible but can be either elastic or inelastic as per the demand and supply of their services
according to the needs and requirements of the customers (Gaganis, Pasiouras and Voulgari, 2019).

CONCLUSION
It is concluded that the business environment is an important concept to learn and study so that its applications can be
applied to real world organisations. As discussed in the report that includes the internal and external environment
which contains the swot and pest analysis of the organisation which is essential for the company to examine so that a
can determine their strengths and weaknesses along with the opportunities and threats in terms of the political and
social along with the economic and technological which is followed by the legal and environmental factors (Pérez-De-
Lema, Hansen, Madrid-Gujjarro and Silva-Santos, 2019). As per the given scenario, economical factors are discussed in
terms of demand and supply along with the elasticity and pricing because of the issues mentioned in the case study as
per the context given. Therefore, it is important to learn about the economy especially the microeconomics because it
contains the demand and supply along with the elasticity which is necessary to recognise and identify the positive
points and the negative points of the company so that they can control the demand of the product and services and
supply of the product and services as per the elasticity in the economy and the competitive prices. Economy is mainly
considered of the nation but each and every organisation contains their own personal economy which mainly relates
with their pricing and commodity structure which associates with the market and business profits and losses.
Therefore, it is important to analyse the insight study of the case study given and study in an in depth manner so that
the main arguments of the article using microeconomic concepts and terms can be acknowledged, it is essential to
examine various theories and apply it to the issues mentioned in the article which includes demand and supply along
with the elasticity of demand and supply in context of pricing. hence this report covers all such areas in order to better
understand the conception of business environment and microeconomics.

REFERENCES
Books and journal
• Calabrese, M., Iandolo, F., Caputo, F. and Sarno, D., 2018. From mechanical to cognitive view: The changes of decision
making in business environment. In Social Dynamics in a Systems Perspective (pp. 223-240). Springer, Cham.
• Cherunilam, F., 2021. Business environment. Himalaya Publishing House Pvt. Ltd.
• Gaganis, C., Pasiouras, F. and Voulgari, F., 2019. Culture, business environment and SMEs' profitability: Evidence from
European Countries. Economic Modelling, 78, pp.275-292.
• Hamilton, L. and Webster, P., 2018. The international business environment. Oxford University Press.
• Hrechyshkina, O. and Samakhavets, M., 2019. Changing business environment in Belarus. Journal of Geography,
Politics and Society. 9(1). pp.1-11. Möller, K., Nenonen, S. and Storbacka, K., 2020. Networks, ecosystems, fields,
market systems? Making sense of the business environment. Industrial Marketing Management, 90, pp.380-399.
• Nikitina, T. and Lapiņa, I., 2019. Creating and managing knowledge towards managerial competence development in
contemporary business environment. Knowledge Management Research & Practic. 17(1). pp.96-107.
• Pérez-De-Lema, D.G., Hansen, P.B., Madrid-Gujjarro, A. and Silva-Santos, J.L., 2019. Influence of the business
environment in the dynamics of innovation and in the performance of SMEs. International Journal of Innovation
Management. 23(05). p.1950044.