Firm’s strategy should take external opportunities and threats and internal strengths and weaknesses into account. This is done by SWOT Analysis. The SWOT-Analysis is an effective way of identifying internal strengths and weaknesses of any organization and of examining opportunities and threats of the external environment. The analysis’ objective is to take advantage of the opportunities the environment offers, and to avoid or minimize environmental threats. 1. What are the organization’s strengths? 2.
What advantages does the organization have compared to others? 3. Which procedures are better examined by the organization (compared toothers)? 4. What do other people perceive as the organization’s strengths? 5. What are the organization’s weaknesses? 6. What can be improved within the organization? 7. Which activities are carried out in a poor quality/way? 8. Which mistakes can be avoided in the future? 9. What are external opportunities? 10. What are opportunities that can be useful for future organizational development? 11.
What are current market trends and how may these develop into opportunities? 12. What are external threats? 13. What obstacles are faced by the organization? 14. Are changing technologies threatening the organization’s position? 15. Are there any bad debt or cash flow problems? 16. What is the development of the organization’s competitors? Ryanair is operating in the low cost airline segment of the market. Its main focus is given on pursuing the low cost strategy, which supports its mission ‘to make flying possible for everyone’.
The company demonstrated its superior performance. One of the main factors that helped to achieve the excellent profitability is the air transport industry deregulation. While concentrating on providing the lowest fares to its customers the company considers other important issues such as safety and extended customer service as well. “Ryanair is focusing on lowest costs it is able to offer low fare tickets but also puts effort into increasing service”. Strengths The low cost strategy is an obvious strength of Ryanair.
The company is able to successfully apply this strategy in recognition of simple company logistics, effective use of airtime and also in appreciation to its UK home market, which provides a strong base due to its high traffic. In addition, the focus on secondary airports allows minimizing landing and ground handling fees. The fact that the company does not take this strategy for granted and is seriously committed to it implicates even more positive factors. As the main focus is given on the secondary airports Ryanair does not come into direct competition with EasyJet/GO.
It also benefits from the ‘first mover advantage’15 since it was the first low budget airline on the European market. This enables the airline to develop a powerful brand while stimulating demand with low prices. With its low cost approach Ryanair has proven to be an excellent niche strategy. “It was playing its cards right” Strong revenue growth Ryanair has been reporting strong revenue growth. The company reported huge increase in revenues during the fiscal year ended March 2007, an increase of 32.
2% over 2006. The increase was primarily attributable to an increase in passenger volumes. The company's strong consistent revenue growth provides its operations with financial stability and the ability to fund expansion strategies. Weaknesses • The company is small in size compared to its competitors. Many of its competitors, such as Air France, Lufthansa and British Airways are larger in size and enjoy a competitive advantage in accessing financial, technical and human resources.
• Ryanair operating on secondary airports catches mainly the attention of new customers for whom traveling by air is a new habit. Considering traveling routines of European customers it might be difficult to take away market share from charter airlines since their passengers buy ‘holiday’tickets in a ‘travel package’. • Ryanair faces problems on domestic markets where competition is already very high and other full service airlines provide only slightly higher prices than the ones Ryanair would be able to offer. Opportunities
• Ryanair is in general benefiting from the crises in the airline industry that are occurring at the moment. The company is young and does not face problems in adapting to new environments at the same level as the flag carriers. • Developing small continental operating bases, such as ‘Hahn’ closed to Frankfurt, Germany and ‘Charleroi’ in Brussels, Belgium, which will allow them to serve more routes and to interconnect flights between the bases. • Airline market and target business travelers on routes, which are not served by bigger airlines at all.
• The youngest fleet carriers in its base. Threats • Increasing aviation fuel prices / The airline faces threats due to general losses within the low budget business and a rise in fuel prices. • Being forced to gain market share from mature airlines and charters. This will require a higher level of service and change of structure in order to be able to cope with the competitive challenges in these markets. • Threats to security / new security measures led to passengers suffering severe delays while passing through these airport security checks.
In January, the carriers filing on-time performance data reported that 8. 04 percent of their flights were delayed by aviation system delays, compared to 10. 57 percent in December; 6. 29 percent by late-arriving aircraft, compared to 11. 13 percent in December; 5. 09 percent by factors within the airline’s control, such as maintenance or crew problems, compared to 7. 65 percent in December; 0. 96 percent by extreme weather, compared to 1. 53 percent in December; and 0. 04 percent for security reasons, the same percentage as in December. PESTEL Analysis: Ryanair
Political factors: • The political leadership wants to maintain the domination of local airlines; hence it comes up with policies of restricting the foreign airlines from capturing the markets. Ryanair could face a similar situation when it goes into European markets. • Capacity in Europe exceeds demand, which leads to rate wars, equaling lower yields for companies. Economically, alliances lead to a greater control on capacity, therefore reducing competition and increasing yields. Alliances also reduce the near term possibilities of airport expansion.
By code sharing airlines are able to not only split costs but to offer services and enter markets, they might not be able to do on their own. Technological Factors: Wireless Technology Expansion: Within the Information Technology boom, everything has changed for the world trade. The newer technologies in providing luxurious travel options to customers is changing the way the airline industry works. Environmental Factors: Governments of most developed and developing countries is towards preserving the environment and saving it from the clutches of global warming.
These legislations have an impact on the functioning of airline carriers Ryanair's steady growth is being achieved in the most environmentally friendly and sustainable way by investing in the latest aircraft and engine technologies (which have reduced fuel burn and CO2 emissions by 45% over the past 10 years) and the implementation of certain operational and commercial decisions that help to further minimize environmental impacts (by an additional 10% between 1998 and 2008). Ryanair is currently the industry leader in terms of environmental efficiency and it is constantly working towards further improving its performance.
Economic Factor: The situation for the airline industry worsened dramatically after the events on September 11, 2001. It was the worst airline crisis since the Gulf War followed by great uncertainty in terms of world recession and a general fear of traveling. In some markets demand fell by more than 25 % overnight. The airline industry has not come out of the 911 terrorist attacks. The airline industry is still seen as a risky business and also taken into consideration the frequent turbulence in the world oil markets poses a threat to the airline industry. Social Factors: • Security threat from terrorists
• Security taxes being added to airline tickets • Prices and oil skyrocketed to historic market highs. All these factors are contributing towards slower growth in the airline industry of which Ryanair is an entity. Porter’s Five Forces Analysis Porter’s five force analysis offers a practical base to briefly introduce the airline industry. [pic] The entry of new competitors: The threat of new entrants is particularly low in the airline industry due to the high barrier to entry which is introduced due to high infrastructure investments required for opening airline companies.
Prices and investment structures are influenced by the threat of new entrants. It depends on the current entry barriers and reaction of present competitors if new entrants have a chance to enter the existing market. Major entry barriers: • Economies of scale • Product differentiation • Capital requirements Within the Airline industry two groups of competitors exist, the mature airlines and the low budget airlines. Competition within the group of mature airlines is most intense because national airlines are well established for many years.
The effects of the recent airline crises are putting even more pressure on all competing airlines. This leads to a process of consolidation and the foundation of alliances. Airlines within one alliance are not competing directly with each other anymore. The threat of substitutes All firms in the industry are competing with industries producing substitute products. Substitutes limit the potential returns of an industry by offering replacement for the original products. The extensive competition in the existing markets discourages industry players from other industries to enter the airline market.
The licensing regime also plays a significant barrier to entry in the airline industry. The bargaining power of buyers Buyers may influence competition, as they are able to push down prices, bargain for higher quality and more service and place competitors against each other under certain circumstances. Since customers purchasing plane tickets are neither concentrated nor purchase large volumes they do not have a strong bargaining position. Their single purchases from the industry do not represent a significant fraction of the amount offered. The fuel is essential for buyers.
It is generally a long term contract between the suppliers and buyers which keep the prices fixed for certain duration of time. The bargaining power of suppliers Main suppliers within the airline industry are the aircraft manufacturers, such as Airbus, Boeing, Concrord and Fokker, suppliers of fuel (e. g. Shell, British Petrol, Chevron Texaco), technical support and IT-service and to a smaller extent catering services. Suppliers have a strong bargaining position if they are concentrated. The suppliers can use bargaining power by raising prices or reducing the quality of goods and services that they are providing.
The industry structure is such that there are many suppliers as well as many buyers. The suppliers hold a simple advantage over the buyers but do not have a commendable position. The fuel prices keeps on fluctuating which makes it hard for the buyers to sustain themselves, hence the suppliers have an advantage and they can form a lobby. The bargaining power of suppliers is high. The rivalry among existing competitors Rivalry among competitors takes place when competitors feel the pressure or see the opportunity to improve their position. • Numerous or equally balanced competitors • Slow industry growth
• High or fixed storage costs The airline industry is one of the most competitive industries where the profit margins are low. The industry players are constantly looking for merger and acquisition opportunities to maintain their market share. Referring to the Ryanair case, critically discuss the extent to which low cost competitive strategies are sustainable. The emergence and growth of no frills, low-cost carrier shave radically altered the nature of competition within the industry. Ryanair has exploited different operation methods to lower their cost and provide lower average fares.
“Ryanair’s passenger- Kilometers grew on average about 45 percent per annum from 1998 to 2003” Rynair’s Key Features of low cost Business Model: Ryanair’s well-known founder and strong leader Michael O’Leary is personally involved in the company as he managed to guide the airline for the last 17 years. He developed the values and motivates the airline’s employees to be committed towards the low cost focus, which so far ensured long term success. “Concerning the competitive advantage, Ryanair is focusing on its costs and presently succeeds to achieve overall cost leadership. It occupies a low cost niche position”.
Ryanair’s key strategic issues can be summarized as follows: • Only Ryanair guarantees the lowest airfares. • Ryanair uses efficient secondary airports. • Ryanair is No. 1 in frequency and punctuality. • Unbeatable customer service. People fly with low fares but it is the friendly, efficient, on-time service that keeps them coming back. The lowest cost position and the competitive advantage allows Ryanair to offer the lowest fares in all markets it operates in. It is critical to its strategy to be able to provide the most attractive offers to price sensitive customers. Ryanair is operating in the low cost airline segment of the market.
Its main focus is given on pursuing the low cost strategy, which supports its mission ‘to make flying possible for everyone’. The company demonstrated its superior performance throughout 17 years of save operations and 11 years of profitability in sequence. One of the main factors that helped to achieve the excellent profitability is the air transport industry deregulation. While concentrating on providing the lowest fares to its customers the company considers other important issues such as safety and extended customer service as well and the airline runs a program of continuous improvement in customer service, which, besides other,
includes tickets, refunds, speed up check-in and changes of reservations. Extensive training programs, qualified pilots and maintenance personnel support the safe operations. As the company keeps growing it is able to increase the service level. For example, Ryanair enlarges its network by entering new routes and connecting the destinations it flies to with each The airline further plans on implementing a rebooking system. Therefore one can argue, that its service level is and will be increasing (www. ryanair. com).
Considering people development, the airline is investing into pilot training by enlarging the number of flight simulators. Employees are also valued by share option schemes, which provide a possibility to profit from the company’s success. According to the recruiting website “Ryanair is an equal opportunities employer” (www. ryanair. com). Further, the promotion policy proves that Ryanair trusts in its employees. In terms of customer results it is obvious that the airline achieves lowest fares and an increase in service due to its enlarged European route network.
It also offers seasonal products such as low fare trips to skiing destinations – “For the lowest fares to the slopes” (www. ryanair. com). Ryanair publishes its passengers service statistics monthly to prove an increase in service and therefore in customer results. Ryanair – Frequency and punctuality: The carrier reported that 87% of its flights in the month arrived on time, compared to 78% in February 2008. Ryanair received 0. 80 complaints per 1,000 passengers in February 2009, compared to 0. 44 in February 2008. The airline reported 0.
35 mislaid bags per 1,000 passengers in February 2009, compared to 0. 48 in February 2008. A total of 99% of complaints were answered by Ryanair within seven days in February 2009, unchanged from the same period of last year. Only Ryanair guarantees the lowest airfares Low cost airline Ryanair is launching its cheap flights in France and Germany as it continues to expand around Europe. From the beginning of May Ryanair will operate four new flights a week from Beauvais airport about 50 miles north of Paris to Marignane airport near Marseilles. It is also launching new flights from Frankfurt to Berlin.
The budget airline says in a press statement: “For too long, French and German passengers have been forced to suffer Air France and Lufthansa’s high fares and fuel surcharges for the ‘privilege’ of air travel within their own countries. These new routes will slash the cost of domestic travel and will save French and German consumers over €26m per annum”. As an opening offer, Ryanair has released 25,000 seats on the new routes for just €10 one way including taxes until midnight on 24 March. After this the average fare is likely to be around €25 to €30 one way.
“French and German passengers will now enjoy Ryanair’s guaranteed lowest fares within their own countries. 200,000 German passengers will save €20m p. a. and 60,000 French passengers will save €6m p. a. compared to Lufthansa and Air France’s high fares,” comments Ryanair spokesman, Peter Sherrard”. Rival low fares airline easyJet used to operate cheap flights from Paris Orly airport to Marseille but decided to axe the route in 2005. Ryanair will also face competition on the Paris to Marseille route from the TGV high speed trains that travel at up to 200mph and take only three hours to cover the 500 mile journey.
Reference: Bibliography 1. Andrews, K. , (1999) “The concept of corporate strategy”, In: The Strategic Process, Mintzberg, H. , et al (Eds. ), Pearson Education Ltd, pp 51-60 2. Ansoff, I. , McDonnell, E. , (1990) Implanting Strategic Management, 2nd Edition, Prentice Hall 3. Besanko, D. , Dranavo, D. , Shanley, M. (1996) The Economics of Strategy. John Wiley and Sons Inc, New York, USA 4. Cullinane, J. (2006) Working in Organisations, Harlow, UK, Pearson Custom Publishing. 5. Dalton, L. & Porsche (1970) Organisational structure and design, London, Richard D. Irwin, Inc. 6.
Datamonitor (2007) Company Profile: Ryanair 7. Grant, R. M. (1987) Manufacturer-retailer relations: the shifting balance of power, in G. Johnson (ed), Business strategy and retailing, Wiley, 1987. 8. Porter M. E. (1980) “Competitive Strategy: techniques for analyzing industries and competitors”, The Free Press, USA 9. Arbnor, I & Bjerke, B. (1997), Methodology for Creating Business Knowledge, 2ndedition, Sage Publications, Thousands Oaks, USA. 10. Daniels, J. D. & Radebaugh, L. H. (1998), International Business ' Environments and Operations, 8th edition, Addison-Wesley, USA.
Internet Resources: www. mckinseyquarterly. com http://www. bts. gov/press_releases/2009/dot028_09/html/dot028_09. html Distributed by M2 Communications Ltd – http://www. m2. com http://www. ryanair. com/site/DE/about. php? page=About&sec=environment http://www. tmcnet. com/usubmit/-ryanair-reports-february-2009-customer-service-statistics-/2009/03/31/4098691. htm http://www. holidayextras. co. uk/news/hx-travel/ryanair-brings-cheap-air-fares-to-france-11281. html www. airfrance. com www. britishairways. com www. jp. dk www. easyjet. com www. ryanair. com www. ryanair. com/charter/policy. html