University Assignment: MNG93002 European Airline Ryanair Analysis

This report presents a comprehensive analysis of Ryanair's strategy within the European airline industry. It begins with an executive summary and table of contents, followed by an introduction detailing Ryanair's history as a low-cost carrier. The report then delves into a competitive-forces analysis, ...Read More

MNG93002 EUROPEAN AIRLINE RYANAIR STRATEGY AND CASE ANALYSIS
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Executive Summary
Ryanair is an Irish airline company started in 1985 considered the first Low Cost Carrier
(LCC) in Irish. It is the third largest airline in Europe that caters for low cost budget routes. In
2013, Ryanair agreed with Boeing to transact 175 new jets, the largest deal ever done in Irish.
The company operates in almost 168 airports in 29 countries and has a fleet of over 400 Boeing
jest. Ryanair flies to various regions across Europe with more than 80 million customers being
handled per year. The company touts itself as the cheapest airline in Europe with an average
ticket price at 47 pounds than its competitors who offer their prices at 48 pounds. The company
has expanded since 2012 and expanded to various regions in Europe while maintaining the low
cost strategy. The company CEO O’Leary has faced a number of allegations including non-
compliance to European Union regulations including imposing fees on facilities such as
bathroom. While other airline companies continue to cut down on their flight costs, Ryanair will
have to appeal to the public to retain their market share. If they successfully expand to other
underdeveloped markets, they should maintain their position in the market as a low cost carrier
that ever existed in Europe.
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Table of Content
Executive Summary..............................................................................................................i
Introduction....................................................................................................................................1
European Airline Ryanair Strategy and Case Analysis..............................................................................1
Competitive-forces analysis attractiveness of the European airline industry..........................1
Strategic Choices.....................................................................................................................................1
Strategic Position.....................................................................................................................................3
PESTEL Analysis...........................................................................................................................4
Political....................................................................................................................................................5
Economic.................................................................................................................................................5
Social.......................................................................................................................................................5
Technological...........................................................................................................................................5
Environmental analysis............................................................................................................................6
Legal analysis...........................................................................................................................................6
VRIO Analysis Ryanair................................................................................................................6
Internal Analysis......................................................................................................................................6
VRIO Analysis...........................................................................................................................................6
Conclusion......................................................................................................................................7
Recommendation...........................................................................................................................7
References.......................................................................................................................................9
Appendices....................................................................................................................................12
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I. Introduction
European Airline Ryanair Strategy and Case Analysis
Ryanair is a venture by a trio: Christopher Ryan, Liam Lonergan, and Tony Ryan that
was founded in 1985. The Airline’s original flight occurred between the regions of Waterford,
Ireland and London in a small airplane with 15 seats (Ahmed, et al., 2019). Factually, the
airplane was so small that there was a limitation on the height of flight attendants allowed to
work in it. This epitomizes how small the airline was when it started. In fact, it had only a total
of 51 employees and a total of 6,000 passengers in the debut year it operated (Ahmed, et al.,
2019). However, there was an idea that rooted its foundation: there was a desire to break the
duopoly that existed between British Airways and Aer Lingus on the flights operating between
London and Ireland (Annual report, 2017). The company’s strategy was to work on costs and
give travelers a more affordable rate in comparison to the duopolies. Ryan Air could later grow
to become Europe’s first low-cost carrier, and a transformation of how air travel prices were
structured.
Consequently, the Airline would undergo a rapid expansion in number of airplanes
acquired and the route offered, within five years. While the desire to expand made the owners
more ambitious, there was a concern in the profits being made. Ryan Air was losing money
because of it being a low-fare airline (Button, 2017). It was imperative to put cost-effective
measures in place. That is why when Michael O’Leary was hired as the company’s CEO, his
strategy was to lower operation costs by squashing free meals and beverages during flights
(Christoffer, 2019). Such cost-saving measures would be the beginning of Ryanair breaking its
streak of unprofitability and claiming a stake as one of Europe’s elite airlines.
Competitive-forces analysis attractiveness of the
European airline industry
Strategic Choices
The European airline industry has been active since 1993 after the liberation of the
European Union. At the time, low cost carriers were emerging to compete both regionally and
internationally after the cabotage rights were granted in 1997 (Associated Press, 2015). Their
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growth has been tremendous over the past five years, which now compete with the full service
network carriers (FSNCs) with a growth rate of 181% since 1998 – 2003 (Graham, 2013).
Appendix A is a flow chart showing the market share of various business model in Europe.
The increased number of airlines in Europe was triggered by the high demand of
passengers who wanted to fly in the mid-90s leading to high competition being experienced
(Christoffer, 2019). In addition, the rapid growth of airlines poised the industry to consolidate on
the future of various airlines by delving into financial and competitive competence. Even though
there is no airline that dominates the industry, few rivals still exist in the market. For instance,
the low cost carriers (LCC) compete with the FSNCs on the long haul routes since the LCC
mainly focus on the short haul routes that goes point to point (Pollack, 2012). However, in the
sub-industry, the LCC Ryanair and EasyJet have the largest market share with Ryanair carrying
about 35% of passengers in 2012 compared to EasyJet.
Large barriers exist for entrepreneurs who want to venture into the airline industry. The
high operational cost and huge start up is a challenge. Moreover, Boeing jets are sold at high
prices ranging from 70 million dollars to 250 million dollars (Pollack, 2012). The rental cost and
maintenance cost are enormous with limited slots limiting the entry. Other regulations exist
limiting the entry into the industry such as having flights of a certain distance. Contract services
have been used by airlines including Ryanair to cushion such entry barriers. Deregulation that
happened in 1990s has made airline companies to be independent that made the LLC to penetrate
the industry with low labour costs such as Ryanair (James, 2018).
Transport means that substitute air travel include road, water and train transportation.
Since European countries are mainly surrounded by water, it therefore means that travelling by
boat can be the best option (Lauren, 2017). However, air transport dominates on long distance
travel since it is considered the fastest means of transport. On the other hand, Europe is a
promising country with good infrastructure system that incorporate high-speed trail that has a
speed of up to 200mph, which is much faster than air jets (Reichmuth, et al., 2010). Moreover,
train has an advantage of dropping passengers in the city centers compared to airports that are
located in the outskirts of airports.
Trains are reliable with a shorter boarding time. However, today airplanes are much
faster than planes and high-speed trains, the increasing trend of high fuel prices could make
trains a substitute in the future. For years, Air travel complements hotels and rental cars.
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Companies such as Expedia Priceline and Travelocity have capitalized on these opportunities by
connecting passengers to these hotels and rental cars to simplify the consumer process (Soares,
2013). However, other customers ignore such services and opt to book for separate reservations
that are much cheaper. However, Ryanair does not offer such services to their customers,
although they have a separate page in their website (Ryanair.com) for their customers to book
hotels.
Suppliers in the airline industry such as the airplane manufacturers, labor, and jet fuel
distributors have tightened their bargaining power (Myre, 2015). Oil prices have risen in the
recent years and the same is predicted to increase in the near future. Fuel-efficient aircrafts will
naturally offset the oil prices and this usage has declined over the past decades as ASM declined
as shown in the Appendix B.
Labor costs are very expensive for the airline industry since the high profits mean high
wages, and pension plans. However, since the deregulations, the bargaining power of supply has
dwindled over the years.
Strategic Position
Ryanair’s main advantage is the low cost of light compared to their competitors. EasyJet
and Ryanair dominate the market as low cost carriers. In 2018, Ryanair flew 90miillion
passengers while EasyJet flew 70million passengers yet Ryanair is considered an ultra-low cost
carrier with an average price of €46 compared to EasyJet fare of €72. Ryanair has maintained
low-ticket prices by operating a homogenous fleet and flying to and from all the small ports in
the region, paying low wages than other airlines and charging ancillary fees. The company
emphasizes on productivity and provides incentives and commissions to their employees in flight
sales and the hours of flying.
Opportunities
Ryanair fly on short haul routes to regions around Europe and they have an opportunity
to expand their market base. The company has planned to offer their services to cross-Atlantic
flights, but it abandoned the plan to offer long haul routes for a next time. Nevertheless, the
company has expanded to the northern and eastern part of Europe. The company opened a base
in Zadar and has plans to do the same in Eindhoven and the city of Krakow.
Threats
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The company faces stiff competition, high cost of jet fuel and the regulations enforced by
the airline bodies in the European Union. Competing with the low cost prices can become
challenging to keep afloat in the market but since there is need for customers, the firms remain to
be loyal with their prices to compete fairly in the sub industry with airlines that offer LCC.
Increasing the flight prices does not only mean that the firm will not receive competition but it
will reduce the purchasing power for their customers who will opt to fly with other cheaper
airlines. The high cost of jet fuel is a threat to all the airline companies. Its volatility is also a
concern that needs to be looked at and analysts predict that the trend will continue to increase in
the coming years. The graph below shows the trend of jet fuel prices over the past decades.
Other threats for the industry include the economic shocks that hurt the airlines when the
economy is worse like now when corona virus outbreak disrupt the normal operation of airlines,
which prevented the planes from flying to certain regions across the continent such as china. This
has been a blow to many airline companies not only Ryanair which has seen the management lay
off other employees due to no operations and other send home for unpaid compulsory leaves to
save the company for the hard times to come. Many airline companies in Europe are at their
breaking point to an extend of asking for loans and government support to bring services back to
normal because they cannot cope when there are no travels and the economy is almost going to
recession. Ryanair has also suffered the effect of this pandemic, which means the extreme
volatile fuel at the airport was still undergoing hedging. According to reports, Ryanair spend up
to €330 million to hedge 95% of its fuel, but the future of oil prices remain a threat to the
industry anyway.
PESTEL Analysis
Ryanair is an airline company located in Irish with its headquarters in Ireland. The airline
carries over one billion customers per year. The subsidiary firms include Ryan Atlantic, laud
motion, viva air Columbia among others. The company has experienced steady growth over the
years with a turnover of £6,650 million in 2017 from £6,540millions in 2016 while the profit
rose by 6% (Annual report, 2017). Appendix Cc shows the annual revenue of Ryanair from 2013
to 2018.
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Political
Increasing the taxes for passenger ticket prices can affect the low cost of transportation.
The UK government has a habit of increasing taxes for long and short journey, which affect
flight prices (Peter, 2017). High tax rates scare away passengers due to the high flight prices thus
reducing their purchasing power making them to choose alternative means of transport such as
rail and road transport. These events could eventually reduce profits for Ryanair Company.
Economic
Oil prices has experienced drastic shifts that has seen it fall in the recent years thus
favoring airline companies such as Ryanair adding to the benefits the company accrues in return.
In addition to the weakening of the European pound, the airline companies suffer since their
customers avoid spending on leisure travel expenses (Nicholas, 2017). Recently, Ryanair has
focused on short haul routes to increase their travel capacity. However, there margin profits
declined due to the increased investment in different regions to spur growth.
Social
The growth of social media such as Instagram has been used by travelers to display
different travelling destination that has attracted various people in Europe to visits such places.
Europeans now travel to holiday destinations than ever before due to the increased rate of
travelling agencies that offered such services at subsidized rates that are favored by many.
Reports shows that 4 out 5 people go for holidays (Nicholas, 2017). With the low cost of
travelling, Ryanair has benefited on such causes.
Technological
The increased use of internet services in the modern world has opened up various regions
that can be tourist destination to the outside world. Vloggers have also contributed to the
increased travel in the world today by showing the beauty of the world through their videos thus
attracting viewers that engage them and get the urge to visit such places thus adding up to tourist
travel which translates to air travel enjoyed by airline companies. The ability to book tickets
online has also tempted so many people to book for flights by checking on the travel prices that
were hidden from the public who mistaken air travel to be so expensive and only left for the rich.
Such opportunities have prompted European people to travel across the world to experience and
have new adventures. Ryanair has benefited from tourist travels more than any other purpose for
travel.
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Environmental analysis
Carbon footprint has been a struggle for many airline companies since there are
regulations set by the European Union to combat such emissions to the environment (Nicholas,
2017). It is evident that such conduct will be difficult for airlines such as Ryanair to combat and
may lead to penalties if the laws are flawed.
Legal analysis
BRETIX countries must comply with the laws imposed by European Union and the
United Kingdom (Nicholas, 2017). Ryanair being in Irish will be affected by such regulations
which means that the airline operate under certain low cost strategies that may not be align with
the stated laws on cost regulation. This might lead to closure of other airlines in the areas that
might affect Ryanair operations.
VRIO Analysis Ryanair
Internal Analysis
Developing a successful strategy for the Ryanair requires that we first understand the internal
strategies that can be applied by Ryanair (Tomek, 2013). Therefore, this section will look into
the strength and weakness identified in the SWOT analysis. To achieve our objective, we will
analyse the available resources at Ryanair and their competencies in order to apply VRIO model
to the identified resources.
VRIO Analysis
In order to convert the resources identified into competitive advantage for Ryanair, the VRIO
model must be utilized.
V-value: it is important to analyse whether employing the resources will help meet the needs of
the customers who are the main asset for the company (Tomek, 2013). Combing the low price
model, reduced airport charges and government subsidies will help the company to deliver on
low-ticket prices, which ultimately attracts millions of passengers.
R-rareness: For point-to-point budget business, Ryanair is the only airline that receives
subsidies form the government. EasyJet, which is the company’s main competitor do not receive
such resources (Nwagbara, 2011). This makes such resources to be valuable for the company. In
addition, Ryanair receive subsidies from the government since they fly to routes that attract
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tourist to the country thus transferring the resource to the local government by bring in more
tourists that bring more goodies.
I-imitability: Ryanair unlike other airline companies have an advantage of getting extra
resources that cushion them from financial crisis giving them a cost advantage compared to other
airlines mentioned above. This is because such resources cannot be imitated or transferred.
O-organization: Ryanair is prudent on how it uses the resources given to them by successfully
offering low prices to their customers. The effective leadership in the company makes good use
of their operating and marketing strategy by using its resources successfully building up the
competitive advantage part.
Conclusion
Ryanair has managed to maintain the ultra-low cost in the European market since the
deregulation measure in the 1990s. The company’s leadership has been exceptional to enable
them become competitive advantage with the low costs, profit margins and expanding to other
borders. The coming years are going to be tuff for the airline industry and Ryanair should
maintain its position in the market to increase its profitability. Ryanair aspire to remain
affordable by providing low prices while at the same time, other airline companies might take the
same approach to cause stiff competition, therefore, Ryanair counteractive strategy will to
improve their image and reputation to the public to retain their customers. However, the fuel
prices will remain a challenge that the company must find ways to navigate in order to remain at
the top for Low Cost Carriers for years to come.
Recommendation
Before delving into the recommendations, let us consider potential patterns going ahead
in the aircraft business. At the point when the business was nationalized, aircrafts had selective
rights to specific courses and could in this manner charge costs far above the competitive levels.
Aircrafts bought in additional to the center point and talked model, taking into account less
beneficial courses since carriers made benefits that are more prominent on principle courses and
put higher incentive on client unwaveringness (Nwagbara, 2011). With increments in rivalry
coming about because of deregulation, minimal effort transporters have risen on the scene with
extraordinary achievement, flying even more solely productive courses at lower costs. As clients
have moved to fly with ease bearers, full assistance organize, transporters have needed to
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rebuild, dispensing more airplane toward gainful courses, and cutting work costs (Paul &
Alexander, 2018). As the industry advances, we will probably observe a combination towards a
lower cost model than before guideline. Nonetheless, governments will work to ensure aircrafts
that fly less productive courses due to worries for the travel industry and business, in this way
guideline will be a key worry for carriers going forward. Ryanair should align the ancillary Fees with Costs
Even though Ryanair offers cheap ticket prices to their customers, many services offered
by the company are priced. The company makes 20% of its revenue from ancillary charges,
which is good for the growth of the company (Button, 2017). Such fees arise from the various
goods purchased by customers such as food to compensate for the low-ticket prices because of
their desperations. This is not good for the company, it will lead to poor customer reputation, and
therefore such fees should be eliminated to secure the company’s future.
 Retaining their largest share in the market from the LCC
In order to meet the demand and supply for customers, Ryanair should purchase more jets from
Boeing to supplement the already existing by at least 30% to increase their market share with the
LCC (Nwagbara, 2011). Capitalize on the number of flights during winter seasons
Given the increase in the market share and the purchase of more jets from Boeing (Tanya, 2017),
Ryanair should ensure against the high cash flow due to the high fuel volatility and given the
shaky European economy Expand their services to Eastern Europe
Eastern part of Europe is promising to be lucrative for air travel due to the high growth rate
experienced in the region (Peter, 2017). Thus, it is mindful of Ryanair to expand to the regions
that include Scandinavia, the Baltics, or even move to Eastern Europe. Appendix D shows the
popular tourist destinations in Europe.
Ryanair competitive advantage lies regions that are less congested. Being the first mover,
Ryanair will get a favorable deal by dominating the airports, which later on will increase in terms
of value and size by offering a point-to-point route services to their customers. Pollack (2012)
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recommends that the company should move to Hungary, and expand to Czech Republic,
Lithuania, and Latvia.
References
Ahmed, J.U., Khan, M.M., Sultana, I., Ahmed, A. and Begum, F., 2019. Ryanair: A low-cost
business model in the european airline industry. SAGE Publications: SAGE Business Cases
Originals.
Annual report 2017 “Annual report and financial report” [Online] at
https://investor.ryanair.com/wp-content/uploads/2017/07/Ryanair-FY2017-Annual-Report.pdf
Associated Press, 2015. Norway's leaders threaten boycott of Ryanair after ex-employee
complains about work conditions. [Online] Available at:
https://www.foxnews.com/world/norways-leaders-threaten-boycott-of-ryanair-after-ex
employee-complains-about-work-conditions[Accessed 11 April 2020].
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business transformation: the case of Ryanair’s CEO Michael O’Leary (Doctoral dissertation).
Graham, A., 2013. Understanding the low cost carrier and airport relationship: A critical analysis
of the salient issues. Tourism Management, 36, pp.66-76.
James, S., 2018 “The £172m tax raid that’s hitting your sunshine getaways: Rise in air duty will
hit all long haul flights from the UK” Mail Online [Online] at
http://www.dailymail.co.uk/news/article-5461235/Rise-air-duty-hit-long-haul-flights-UK.html
Lauren, Z., 2017 “Passengers feel the squeeze: Airlines cut legroom for more seats” Stuff Travel
[Online] at https://www.stuff.co.nz/travel/travel-troubles/90130954/passengers-feel-the-squeeze-
airlines-cut-legroom-for-more-seats
MacDonald, M., 2013. Annual Analyses of the EU Air Transport Market 2012. Croy-don: Mott
MacDonald.
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Myre, M.A., 2015. An analysis of airline’s financial performance and its influencing factors.
Aarhus University School of Business and Social Sciences, Deparment of Business
Administration, Bachelor’s Thesis.
Nicholas, M., 2017 “UK airline passenger growth to halve due to Brexit: Moddy’s” Financial
Times [Online]at https://www.ft.com/content/f0645f31-eef3-3970-9be3-265c3d71def2
Nwagbara, U., 2011. Homing in on paradigm shift: Ryanair leadership in the age of expensive
air travel. Kravis Leadership Institute, Leadership Review, 11.
Peter, H., 2017 “Ryanair punctuality worsens as customer complaint volume worsens” The Irish
Times [Online]at https://www.irishtimes.com/business/transport-and-tourism/ryanair-
punctuality-worsens-as-complaint-volumes-increase-1.3182401
Pollack, V. J., 2012. Possible Scenarios of European Airline Industry. [Online]
Available at: https://www.tourism-review.com/travel-tourism-magazine-the-future-of-european
airline-industry-article1744[Accessed 11 April 2020].
Paul, M., and Alexander, B., 2018 “Will Brexit complicate landing rights for UK flights?”
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Reichmuth, J., Grimme, W., Berster, P. and Gelhausen, M., 2010. Analyses of the European air
transport market, Airport Accessibility in Europe. European Comission, Köln, Germany,
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[Accessed 11 April 2020].
Star Feature, 2013. Ryanair reigns again, as Week 2 of the Summer 2013 season delivers
another 150 new routes. [Online]Available at: https://www.anna.aero/2013/04/10/ryanair-reigns-
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April 2020].
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Tanya, p., 2017 “Easy jet warns of tough market from rising competition” Financial Times
[Online]at https://www.ft.com/content/43e36540-6d2d-11e7-b9c7-15af748b60d
Tomek, R., 2013. Ryanair Mulls Slovak Base as Next Step in East European Push. [Online]
Available at: https://www.bloomberg.com/news/articles/2013-04-10/ryanair-considers-slovak
base-as next-step-in-east-european-push[Accessed 11 April 2020].
Tomek, R., 2013. Ryanair sees plenty of room to grow with Eastern Europe expansion. [Online]
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europe-expansion/[Accessed 11 April 2020].
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Appendices
Appendix A
Appendix B
Appendix C
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Appendix D
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