The airline industry offers domestic and international passenger transportation. The Demand in this type of industry depends highly on the condition of the economy, Which affects spending on business and air travel. Ryanair is one of the Europe’s low-fair airline and operates more than 1600 daily flights across several countries.
The business strategies adopted by Ryanair has led to the rapid growth of the company over the past few years. This report will discuss Porters five forces on Ryanair to analyze its competitive environment and the way company has adopted Pestle factors. It will also examine the major Stakeholders and factors that contributed the most to the success of Ryanair.
Porters five forces
Threats of new entrants: The entrants in a market will reduce the market share for Ryanair which will affect its profits. The threats of new entrants for Ryanair is relatively high due to low barriers to enter the market. New companies can enter the airline market by simply renting the plane. However Ryanair has a deal with Boeing and Airbus for reduced prices on 737 aircraft in bulk buying (Ryanair, 2012) therefore, New entrants will not be able to get these benefits.
Moreover, some barriers may prevent new companies to enter because there are barriers for the new companies for gaining access to the distribution channels as the local and international airports may not be able to create additional slots in their platforms for the new entrants.
Threat of substitutes: The main substitutes for Ryanair are railway network, Buses and cars. With increasing distance, flights become a more convenient way for the customers to travel, That is why people prefer faster and cheaper journey which makes the threat of substitute lower for Ryanair.
Bargaining power of suppliers: The bargaining power of suppliers is high because there are only two main suppliers of aircraft, Boeing and airbus. Ryanair use 737 airplane and can not switch its supplier because Boeing is the only company who sells 737. These companies charge high prices to all airline companies. Therefore, The cost of switching the supplier is very high.
Bargaining power of customers: Customers of Ryanair have a high bargaining power because there are other cheap competitors on the route as well. Half of the customers of Ryanair are not satisfied with its service due its No-frills policy. “This policy has been voted as having the worst customer service out of Britain’s 100 biggest brands” (Ryanair, 2012).
Competition: The airline industry is highly fragmented, the rivalry among competitors is high. The main competitor of Ryanair is Easy jet who offers cheaper flights for the customers but Ryanair has an advantage over other airlines because of their policy to maintain low cost that is why they are able to get 20% of the market share.
Political: Political issues are very important in the airline industry and it is still under political influence. In 1997, Ryanair enter the UK airline market which was previously dominated by Air France and British Airways (introduction to business and marketing, p02). Changes in European union enable new companies to enter the market, Ryanair took the advantage of this political change and started operating new routes between the Dublin and continental Europe.
Economical: The UK has high GDP per capita and is a favorable place for the investors to do business. After September 2001, many airline companies went bankrupt and had serious economical effects, at the same time Ryanair showed healthy growth rates by capturing the market share of the other companies. Moreover, The fuel cost constitute 10-14% of an airline’s operating cost, The rise in oil prices will affect the companies revenue thats why Ryanair use only one supplier to buy fuel. It will prevent Ryanair to buy expensive fuel from other suppliers and they also get discount on bulk buying from one supplier.
Socio-cultural issues: The Ryanair has adopted faster ways to travel then any other airlines. They use airports away from major cities to avoid delays because the lifestyle in UK is quite fast, people prefer fast and cheap journeys. By landing the plane away from major cities will save cost of landing at major airports as they charge higher prices than other airports
Technological: The increasing trend towards Internet in the late 90’s encouraged Ryanair to get the benefit by opening Ryanair.com. The website was opened for the customers to book the tickets online which led to a great success for Ryanair as they were able to sell 75% of the seats same year and it sells almost all seats this way.
Environment issues: The UK has a good reputation of achieving its environmental objectives and in 2010, European commission issued a final warning for the airline companies to control the air population that is why Ryanair has adopted healthy environmental policies and is the cleanest airline industry in europe (global travel industry news, 2013). Ryanair is also very efficient in using fuel, it uses about one third of the oil as compare to other airline.
Legal:The main focus of Ryanair was to increase profits by cutting down the cost, that is why it has always been criticized due to lower customer satisfaction. Ryanair has now improved its services in order to entertain the passengers which results in lower revenue for the company. They introduced this policy because the European union has increased the rights for passengers.