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Ryanair industry analysis – A case study report

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Ryanair industry analysis – A case study report

  1. 1. Paulius Bagdanskas U1271535 Travel and Tourism management University of Huddersfield Module: BHH 4002 Strategic Management for the Hospitality, Travel and Tourism Industries Module leader: Dr Derek Cameron Due date of work: 17/01/16 Word count: 2500 Ryanair industry analysis – A case study report
  2. 2. Executive summary This report looked into Ryanair’s industry, its position in the competitive industry. Ryanair’s further development and improvement towards customers, SWOT and PESTEL analysis of Ryanair, placing Ryanair in Porter’s generic strategies, use Porter’s five forces to identify profitability in the industry and applying Christensen’s disruptive innovation model to Ryanair.
  3. 3. Table of Contents 1.0 Introduction……………………………………………………..1 2.0 Strategic Analysis……………………………………………….2 2.1 Ryanair’s Strategy……………………………………………...2 2.2 “Always getting better” programme……………………….......3 2.3 Ryanair’s PESTEL analysis…………………………………...4 2.4 Porter’s five forces analysis…………………………………...5 2.4.1 Porter’s five forces model……………………………......5 3.0 Strategic Choice………………………………………………...8 3.1 Ryanair’s SWOT analysis……………………………….........8 3.2 Porter’s generic strategies………………………………….....9 3.2.1 Porter’s generic strategies table……………………….....9 4.0 Strategic Implementation……....................................................11 4.1 Christensen disruptive innovation…………………………….11 4.1.1 Christensen’s disruptive innovation model………………11 5.0 Conclusion……………………………………………………..12 6.0 Recommendations……………………………………………...12 7.0 References………………………………………………….......13 8.0 Appendices…………………………………………………......14 A: Ryanair’s PESTEL analysis……………………………………15 B: Ryanair’s SWOT analysis……………………………………...16 C: Ryanair’s “always getting better” programme …….…………..17 D: Ryanair’s 30 years overview…………………………………...18
  4. 4. 1.0 Introduction Ryanair - first Europe’s low cost budget airline that took over low-cost airline industry and changed drastically since 1985, see Appendix D for Ryanair’s 30 years overview. Due to copying the Southwest Airlines low fares model and strong leadership of Chief Executive Michael O’Leary Ryanair is known for its strong cost leadership in the industry. As well, Ryanair is known well for its bad reputation of poor customer service, working conditions (Ryanair, 2015). However, in the recent years Ryanair is improving its image and making a lot of new changes which helps to attract more travellers and to listen to the customers after many years of poor reviews. Using PESTEL and SWOT analysis, Porter’s five forces and generic strategies together with Christensen’s disruptive innovation Ryanair industry is going to be broadly analysed by these indicators. 1
  5. 5. 2.0 Strategic Analysis 2.1 Ryanair’s strategy Ryanair’s goal is mainly to become Europe’s greatest scheduled passenger airline by using more offerings and improvement at low-fares. Ryanair aims to offer low-fares which would develop more passengers’ numbers and at the same time concentrate on the quality and cost of the operation in the challenging environment (Ryanair, 2015). Ryanair’s sustained strategy involves few main key factors which are customer service and low fares. Ryanair’s strategy is to provide finest customer performance within Ryanair’s competitor group. According to Association of European Airlines and Ryanair’s announced statistics Ryanair has succeeded in less flight cancellations, better on time punctuality, less lost bags compared to the other competitor airlines. To make sure that small issues within airline, such as, loss of baggage and flight delay are repaired fast and that staff is ready for this Ryanair keeps track of logs and everyday airline organises conferences via calls with the staff at each of the Ryanair’s airport base (Ryanair, 2015). Ground operations staff are responsible for inspection of short flights and delays. Passenger expectations fulfilment is achieved by different types of surveys, mystery-passenger visit check and through online website. Ryanair’s low prices on tickets are used to attract more demand especially from people who have low budget and tend to use everything that is cheap and want to save money. Ryanair mainly sells tickets for passengers’ for one way travel who are not planning to return to the original destination and buy the ticket together (Ryanair, 2014). Ryanair determines the fare price according to demand of the certain flight and by day count left till the departure day, for example, the less days left till the departure the higher price will be. When the demand of the flight is high Ryanair increases the price of the fare to be profitable. As well, Ryanair from time to time introduces promotional fare campaigns which attract more people (Ryanair, 2015). Main competitors of Ryanair are Lufthansa, British Airways, Alitalia, EasyJet and Air France. Fare competition amongst airlines appears within increased capacity, price discounting, ticket sale promotions and price matching. Little variations in passenger flows and pricing may have a negative impact on airlines finances and operations. Consequently, big competition between airlines could influence airline potential to expand route map, open new bases, and help to increase 2
  6. 6. passengers’ demand which could be unfavourable to airline market share (RyanairHoldingsPlc, 2015). 2.2 “Always getting better” programme Ryanair in 2013 introduced customer experience programme called “Always getting better” AGB, see Appendix C. This Ryanair’s strategy applied to management team, 9,500 aviation staff and entire Ryanair’s board to listen to the customers wishes in order to fix Ryanair’s bad reputation over the years along with, better flight experience, various problems which passengers do not like, deliver new online booking platform and deliver new services by keeping what is the best for the Ryanair on time flights and low fares (Ryanair, 2015). Especially, Ryanair improved customer reputation regarding answering and listening to feedbacks that customers give to Ryanair through “customer suggestions” website and the most important factor is that everything is answered by chief executive Michael O’Leary (Ryanair, 2015). As well, Ryanair policies changed which were the same for over twenty years. Customers desired second carry-on luggage and assigned seats and Ryanair implemented it. More importantly, Ryanair renewed “Family extra” and “Business Plus” services, introduced up to date mobile app for people to make it easier to buy tickets, re-designed Ryanair’s website which was very poor and had many difficulties, developed “quiet flights”, reduced luggage and airport fees and brought back relationship with global distribution system which is connected to corporate travel agents (Ryanair, 2015). 3
  7. 7. 2.3 Ryanair’s PESTEL analysis PESTEL analysis for Ryanair assists with producing opportunities or seeing what threats disturb Ryanair’s operations in the external environment and what is the situation of the company (Yuksel, 2012). PESTEL consists of political, economic, social, technological, environmental and legal factors, see Appendix A for Ryanair’s PESTEL analysis. Political factors of Ryanair are: regional government’s regulation on national employment contracts with Britain and France and taxes, European Union’s regulations and restrictions on staff welfare and emission fee interrupts Ryanair’s strategy (Ryanair, 2015). For Ryanair all regulations from EU have to be reviewed for Ryanair’s strategy in order to evade from negative effects on the airline. Economic factors follow use of secondary airports to escape from extra costs and charges in the primary airports. If exchange rate and fuel price rises then Ryanair’s operation costs go up. Since 2015 Ryanair’s growth rate last time was affected enormously in 2008 by economic downturn. Primary Ryanair’s social factors are good relationship with staff, “always getting better programme” created in 2013, public image history of providing bad customer service, new IT hub and Ryanair labs for improving the image or the airline (Ryanair, 2015). Main technological factors are use of internet, online check-in saves time for customers, new improved website without no more of unfair advertisement and new aircraft model contributes to cut emission and cost charges. Most important environmental and legal factors consist of harsh CO2 management, lower emissions and noise due to new aircraft model, bad working conditions and violation of media have implications on law. Also, acquisition of Aer Lingus was rejected more than three times by UKOFT and EC (Ryanair, 2015). 4
  8. 8. 2.4 Porter’s five forces analysis Michael Porter in his first chapter of 1980 competitive strategy book identified that five forces establish the structure of the competition demonstrating the reason of lucrativeness in the industry (Porter, 2008). According to Porter (1980, p.3) identifying all five forces together the potential of profit in the industry can be established. If the five forces are extremely intense and especially in industries, such as, hotels and airlines then for a firm to achieve positive returns on investment is really hard. Porter’s five forces consist of threats which are caused by power of suppliers, power of buyers, the intensity of rivalry between competitors, substitute products and possible new entrants, and for Ryanair it is shown in Figure 1. In this situation for Ryanair it shows if it is worth entering budget airline industry (Dobbs, 2014). 2.4.1 Porter’s five forces model 5
  9. 9. The Threat of New Entrants To enter low fares industry when there is a strong cost leader Ryanair is very difficult. In order for new entrants to compete in the strong European market high entry barriers are necessary, such as, capital requirements, price and access to distribution channels to establish high economies of scale (Ryanair, 2015). To conclude, the treat of new entrants for Ryanair is low. The Bargaining Power of Buyers There is high bargaining power of buyers because switching to different airline is easy and there is no need of extra expenses (Ryanair, 2015). Those budget airline examples are, such as, Virgin Express, EasyJet and Aer Lingus. Particularly in the cost leadership strategy each buyer takes up significant position. The main trouble is that at the same time rise in competitor numbers participating in offering cheap prices is involved. The Threat of Substitutes Substitutes, such as, sea transport, railroad networks, busses and rent-a-car companies are the services that generate relative value for customers same as airline industry. Train services are the most notable in terms of threat for the airlines because other alternatives are too costly (Ryanair, 2015). Europe is known for well-established railroad network, especially “EuRail” which connects west, central and southern part of Europe and the main barrier between airlines is the travel time. To travel to a destination with a plane takes less time than with a train and this factor for trains brings higher transaction and opportunity costs. To summarise, the threat of substitutes for Ryanair is low. The Bargaining Power of Suppliers There is high bargaining power of suppliers in the industry and there are mainly two major aircraft producers in Europe which are Boeing and Airbus. The bargaining power of suppliers is high because switching costs are high and meaning that high capital investments together with training pilots from the beginning are necessary (Ryanair, 2015). Ryanair’s primary supplier is Boeing, though Ryanair any time can modify their suppliers because of positive cash flow, for example, 6
  10. 10. Ryanair tried to purchase Airbus aircrafts but later they cancelled their plans and ordered 200 new Boeing aircrafts in 2014 (O’Hora, 2014). The intensity of Rivalry between competitors The intensity of rivalry between competitors is medium though the threat of entry is high because numbers have risen in competitors trying to copy Ryanair’s cost leadership. Ryanair command as a leaders of budget airline industry (Ryanair, 2015). The development of airline industry is feasible because barely 30% of budget airline’s market share takes part in the entire airline industry. There is a little chance of possible difficulty for Ryanair trying to broaden its strategy. 7
  11. 11. 3.0 Strategic Choice 3.1 Ryanair’s SWOT analysis SWOT analysis occupies significant part in company’s strategic business planning and it is very important to summarise SWOT for companies at least once a year in order for firms to stay strong (Simoneaux & Stroud, 2011). See Appendix B for Ryanair’s SWOT analysis. Ryanair’s main strengths are robust brand name of low-fare airline, broad Ryanair network, high operating margins, economies of scale for being the greatest low price airline in Europe, best current low cost strategy provides bigger profit, and new aircraft model allows to save costs on fuel and maintenance (Ryanair, 2015). Also, Ryanair’s single type fleet helps to maintain lower maintenance and training costs and one of the most fundamental factors of Ryanair’s strength is being the first created budget airline in Europe (RyanairHoldingsplc, 2015). Primary Ryanair’s weaknesses follow use of secondary airports which for customers’ point of view is too far from city centre, reputation from media and news about providing bad service, large level of innovation is needed. Moreover, Ryanair’s profit is based mainly on seasonality and working conditions for employees are not perfect which makes them less loyal to the airline (CAPA, 2014). Ryanair’s main opportunities are social media expansion, use of ancillary product, technology advance for new aircraft models and internet, improved customer service in 2013. Also, “always getting better” programme success and popularity of Ryanair’s website brings advertising promotion and revenue (Ryanair, 2015). The most significant threats for Ryanair are the risk of security due to terrorism, regulations from local and EU government, legal issues with European Commission and Irish government. (Ryanair, 2015). As well, risk of forecasted economic downturn, threat of euro exchange rate against US dollar, rising fuel price and competition in low-cost budget industry. 8
  12. 12. 3.2 Porter’s generic strategies Many academics around the world to date follow Michael Porter who wrote a book about competitive strategy which is used widely in the strategic management (Miller and Friesen, 1986). Porter (1980) stated that competitive strategy is the tool for allocating suitable competitive position in the industry which by the companies may be upgraded or destroyed subject to businesses alternative of the strategy. Michael Porter obtained a conceptual model of the three generic strategies which are differentiation and focus strategies and cost leadership strategy (Eldring, 2009). Michael Porter’s main aim in competitive strategy is to categorise and identify unsuccessful and successful firms and place them either in differentiation and focus or cost leadership (Porter, 1980, p.40). If the company is not going to be allocated in one of those strategies then company automatically will operate poorly and will be recognised by phrase “stuck in the middle” (Eldring, 2009). Ryanair’s position in Porter’s generic strategies is shown in Figure 2. 3.2.1 Porter’s generic strategies table 9
  13. 13. Ryanair belongs to Cost Leadership strategy and is a leader of low-cost fares in the Europe. Companies which use cost leadership strategy set goal to become low-cost manufacturer in the industry. Framework of the companies’ structure in the industry is important because sources of cost advantage differ all the time. Low cost companies attempt to make full use of and derive benefit from sources of cost advantages when companies sell standardised product within wide rage (Porter, 1980). Generally, cost leadership strategy is set to be more appropriate for big companies which have more power and strength over operating expense costs and resources (Salavou, 2015). When Ryanair became cost leader in its industry then the company took over the control of being dominant with the prices and performance. Firms who are cost leaders benefit from rivals which have prices lower or at the same level because they get extra profit for that and it opens the way for the barriers to enter the market (Miller and Friesen, 1983). In fact, Cost leadership companies cannot avoid the competition coming from companies with differentiation strategy because if the product which is to be sold is not suitable by consumers, cost leadership firms sell products cutting them which however repeals the cost advantage (Akan et al, 2006). According to Porter (1980) the only way how cost leadership functions is by letting only one company take over the industry by developing into cost leader in the whole industry. The problem is that if another company aims for the cost leadership then the rivalry between those two companies gets very intense that the outcome of lucrativeness in the industry is catastrophic (Porter, 1980) (Eldring, 2009). 10
  14. 14. 4.0 Strategic Implementation 4.1 Christensen disruptive innovation A disruptive innovation in business is an innovation that establishes value network and new market and later in time disrupts current value and market network taking over as a market leader (Christensen, 2015). Ryanair belongs to low end disruptions in the Christensen’s disruptive innovation mode, which is shown in figure 3. For example, full service airline such as British Airways are being disrupted by budget airline Ryanair. Another example can be Amazon giant’s disruption to book retailers and example of Dell disrupting big brands by its low cost. 4.1.1 Christensen’s disruptive innovation model Figure 3: Christensen’s disruptive innovation model 11
  15. 15. 5.0 Conclusion To sum up, in the recent years Ryanair improved in customer service, expanded route map, updated their website, and finally listened to their customers after years of poor customer reviews Ryanair’s image is improving. Due to Michael O’Leary’s changed strategy focusing more on the customers and keeping low fares at the same helped to get away from closest competitor “EasyJet”. Also, digital innovation, improved boarding flight experience and “always getting better” programme for Ryanair helped to bring more customers and to prove to people that Ryanair is changing. Ryanair has a strong secure cost leadership position in the industry and it is hard to enter the market for new entrants. 6.0 Recommendations  Ryanair management should launch effective programs and initiatives in order to become “greener”  Seek to protect themselves from oil prices  Exploit tourism trends  Improve in-flight food service  More leg room for passengers  Reduce costs  Continue improving “always getting better” programme  Ryanair should look to develop capabilities to move into the long haul sector 12
  16. 16. 7.0 References Akan, O., Allen, R. S., Helms, M. M., & Spralls, S. A. (2006). Critical tactics for implementing porter's generic strategies. Journal of Business Strategy, 27(1), 43-53. doi:10.1108/02756660610640173 CAPA (2014). Ryanair SWOT: low costs remain the key strength, even as customer service enhancements take root. Centre for aviation. Retrieved from: http://centreforaviation.com/analysis/ryanair-swot-low-costs-remain-the-key-strength-even-as- customer-service-enhancements-take-root-186145 Christensen, C. M., Raynor, M. E., & McDonald, R. (2015).What is disruptive innovation?. Boston: Harvard Business Review. Retrieved from: https://hbr.org/2015/12/what-is-disruptive- innovation Dobbs, M. E. (2014). Guidelines for applying porter's five forces framework: A set of industry analysis templates. Competitiveness Review, 24(1), 32-45. doi:http://dx.doi.org/10.1108/CR-06- 2013-0059 Eldring, J. (2009). Porter´s (1980) generic strategies, performance and risk. an empirical investigation with german data (1. Aufl. ed.). DE: Diplomica Verlag GmbH. Retrieved from: https://library3.hud.ac.uk/ Miller, D., & Friesen, P. H. (1986). Porter's generic strategies and performance: An empirical examination with American data: Part 1: Testing porter. Organization Studies,7(1), 37-55. Retrieved from: https://library3.hud.ac.uk/ O’Hora, A. (2014). Ryanair places $22bn order with Boeing, buys up to 200 new aircraft. Irish Independent. Retrieved from: http://www.independent.ie/business/irish/ryanair-places-22bn- order-with-boeing-buys-up-to-200-new-aircraft-30564972.html Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York;London;: The Free Press. 13
  17. 17. Porter, M. E. (2008). THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY. Harvard Business Review, 86(1), 78-93. Retrieved from: https://library3.hud.ac.uk/ Ryanair (2014). Ryanair annual report 2014. Retrieved from: http://investor.ryanair.com/wp- content/uploads/2015/04/2014-Annual-Reports-Annual-Report.pdf Ryanair (2015). Ryanair annual report 2015. Retrieved from: http://investor.ryanair.com/wp- content/uploads/2015/07/Annual-Report-2015.pdf Ryanair Holdings plc (2015). Ryanair Holdings, PLC SWOT Analysis. Marketline, 1-9. Retrieved from: https://www.ebscohost.com/academic/business-source-complete Salavou, H. E. (2015). Competitive strategies and their shift to the future. European Business Review, 27(1), 80-99. doi:10.1108/EBR-04-2013-0073 Simoneaux, S. L., & Stroud, C. L. (2011). BUSINESS BEST PRACTICES: SWOT analysis: The annual check-up for a business. Journal of Pension Benefits, 18(3), 75. Retrieved from: https://library3.hud.ac.uk/ Yüksel, I. (2012). Developing a multi-criteria decision making model for PESTEL analysis. International Journal of Business and Management, 7(24), 52. doi:10.5539/ijbm.v7n24p52 14
  18. 18. 8.0 Appendices 15
  19. 19. 16
  20. 20. Appendix C: Ryanair’s “always getting better” programme 17
  21. 21. Appendix D: Ryanair 30 years overview 18

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