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Today’s airline industry presents a different picture than it did prior to the
events of September 11, 2001 (9/11), with more passengers flying low-cost carriers,
fewer empty seats, and a smaller workforce.

The terrorist attack to “ World Trade Center “ didn’t hit just these two towers.
We can easily realize the world has changed a lot after 9/11. Mainly, the international
positioning of countries in politic, economic and social situations have changed. In
business sector, some of players have been deleted from the world arena and some
new players have entered the game because of political, social and economical results
of this tragedy.
Apparently, after 9/11 the biggest change was seen at “Airline Industry” in
business sector. Everything has started exactly the same day with that tragedy. All
airplanes at all airports -mainly in US- were grounded for 3days. Only this proves us
the huge difference between the day before and the day after 9/11. Customer reaction
was also fast. People did not want to fly and because of that most of the airlines had to
cancel their flights so ticket refund increased.
In chaotic situations like 9/11 or recession times if you reverse sector
weakness into opportunities you will gain highly competitive advantages in the sector.
But how did airline companies take advantage of 9/11? The simple and the visible
effective solution were reducing their cost. For example they preferred to buy cheaper
airplanes. But for differentiation you should do something more, which the other
companies hesitate. Some companies started offering what other companies ceased
and also some of them could see the potential in using market niches that the other
companies aborted or did not consider profitable. Best example for that is Ryanair.
After 9/11 they added capacity, purchased 50 new aircrafts. They cancelled only 16 of
1,800 scheduled flights the week after. They did some seat promotions.
After all, airline companies should have chosen their way to heal their
business. At those days, mainly 2 useful strategies were visible.
1. Trying to survive without cost reduction. To be full-fare airline
company with high-quality service like British Airways.
2. Trying to be strong in competition with your low costs. To be low-fare
airline company like Ryan Air.
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Ryanair international air carrier was established in 1985 in Dublin just with 57
workers and just one 15-seated turboprop plane, fly from south east of Ireland to
London-Gatwick. It is now the largest low cost airline in Great Britain and Europe
and has modeled its operations (since 1991) on the very successful Southwest Airlines
(US) Low Cost Leadership model. (Ryan Air Official Website) Ryanair's CEO,
Michael O'Leary, is an accountant by training but a combative entrepreneur by
inclination. He has angered trade unions, government officials and competitors with
his "bare knuckle " tactics but has achieved dramatic growth and profitability in the
very competitive airline industry. The main strategy of this very strong branded
company is reducing all of their costs. They prefer direct booking via Internet. They
have very simple ticket price structure and their check-in procedure is ticketless. They
prefer country’s secondary airports, which are charging lower than primary airports.
They use their aircrafts more efficient. They prefer point-to-point service rather than
interline service. Their customers have to pay for all additional services. They use
their aircrafts like a retail store. They focused short-haul and their fleet quality is high.!

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British Airways was established in 1924 as Imperial Airways and served in
that name until 1935. Their slogan is “The world’s favourite Airline”. BA is the
biggest airline company with the over than 550 destinations. Company aims to
provide superior service for the complete flight experience from air to ground. British
Airway provides diversity service passenger air, cargo air and corporate travel (BA
Official Web Site)

They have very strong brand name and their fare structure is very complex.
They are in connection with travel agents and they prefer to use primary airports. In
short haul they have lower utilization. One of the most important part of their service
is Interlining. They have mixed fleet and they have business lounges.

For more details to compare these two companies we can use the swot analysis
of them;

RYANAIR

Strengths:

• Brand name: the brand of the Ryanair is very well recognized


• Low airport charges: reducing costs
• %100 of bookings via internet: reducing costs
• To use regional airports give the advantages of first mover: to be preferred
• Very high seat density: reducing costs
• High quality fleet (Boeing): flight security
• Punctuality, low baggage loss, etc: customer reliability
• Using just one model of aircraft (Boeing 737-800) gives less expensive
maintenance: reducing costs
• To use their aircrafts highly efficient (more flights per day): reducing costs
• Fuel risk hedging: reducing costs
• Small headquarters
• Point to point service

Ryanair passenger number growth and load factor growth: FY06 to FY09

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Weaknesses

• Pressure of press: bad reputation


• Niche market: restricted expansion possibility
• Secondary airports: overtime journey to reach the city center
• Poor service: unskilled staff, customer dissatisfactions
• Highly sensitive to change of charges: increasing fare value

Opportunities

• New countries: There is a lot of new destinations opened up


• Potential market share: Low cost airlines markets share not reached the peak
level
• To be based on Europe: Less exposure to geopolitical risks
• Recession: People do not want to pay more

Threats

• Fuel costs
• Competition between low fare airlines
• Positive economic improvements
• European court decision: make expansion more difficult
• Day by day regional airports gain bargaining power
• Price sensitive customers
• Easy Jet

Ryanair operating profit margin FY06 to FY09

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BRITISH AIRWAYS

Strengths

• Fleet size
• Very strong brand reputation
• Customer experience is very high
• Customer loyalty
• High quality customer services
• Frills

Weaknesses

• Less functional when we compare with the Ryanair


• More luggage lost
• More delayed/ cancelled flights
• Reliance on established revenue sources
• Lower communication level in the company

Opportunities

• Transatlantic flights
• Acquire some struggling airlines
• Code sharing
• Decreasing costs

Threats

• Fuel costs
• Strong competition for same routes
• Virgin Atlantic/ Richard Branson

We can easily realize that during this economic condition Ryanair has very
strong cards on its hand. Which are mainly about the cost. You don’t pay anything
except the ticket price before you use this service/facilities at Ryanair. If you buy
ticket from British Airways your ticket cost includes everything like your food, drink,
toilet whether or not you use them. British Airways has to reduce their service cost in
some way to reach the success. After economic downturn if Ryanair keep its customer
on its hand, British Airways will be struggling.

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Porter’s Five Forces Analysis of the RYANAIR

Before starting to write analysis of the Ryanair based on Porter’s five forces I
should write some special information about Ryanair or all low cost airlines. The
main characteristics of these companies are designed for reducing costs. Because it is
obvious that the most competitive – maybe just one- side of them is their low fares.

For Ryanair, their aircrafts seat density is very high and they prefer just one
aircraft types (Boeing 737-800). All of their bookings are via Internet so they earn
huge amount of money because of no sales commissions. They haven’t got any frills
such as free food or haven’t got any air-mile promotions. They always prefer
secondary airports.

Actually these all I mentioned above are had mentioned at their S.W.O.T.
analysis in strengths part. In my opinion we can use every single details from
S.W.O.T. analysis of Ryanair when we are writing about Porter’s Five Forces analysis
of it.

This analysis has five-core element. These are

1. Bargaining Power of Suppliers


2. New Entrants
3. Threat of Substitutes
4. Competitive Rivalry
5. Bargaining Power of Customers

Bargaining Power of Suppliers

Ryanair’s main aircraft supplier is Boeing and we know that there is just one
other possible supplier for aircraft. It is Airbus. It is obvious that if you change your
aircraft supplier, the cost of switching will be very high. You should retrain your
staff; you should change every information’ about your aircrafts.

Ryanair is highly dependent the fuel prices. It is obvious that oil prices will
affect their cost directly. So it is very big threat of their strongest side.

Generally regional airports have little bargaining power if they are heavily
dependant on one airline but day by day their bargaining power increasing because of
the competition between low cost airlines. Besides of those regional airports, bigger
airports have very huge bargaining power.

Bargaining Power of Customers

Ryanair customers are highly price sensitive. It is very easy to change their
airline and it is not related to high cost. In this century customer’s knowledge about
the cost of service is high and there is no customer loyalty for Ryanair. Even though
there is no customer loyalty, bargaining power of customers is low. Ryanair is the
cheapest airline for all Europe destinations and customers are –especially in recession
times- highly price sensitive.

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New Entrants

It is very hard to be new in airline industry. There are lots of barriers to entry.
You should take the flight authorizations. The capital that you will invest in this
sector is very high. It is also hard to take a place current competition and also hard to
find suitable airports for your flights. In my opinion in short time period there will not
be any threats of new entrants against Ryanair even though some existing companies
are changing their strategy and reducing their ticket price (Lufthansa).

Threat of Substitutes

As I mentioned before there is not any brand loyalty of customers and Ryanair
preferred customer relationship is “not-close relationship”. If their customers find
better way to travel they will not feel any hesitation to chose it. So the threat of direct
and indirect substitutes is very high and the most important point is there are no
switching costs for the customers.

Competitive Rivalry

The market is highly competitive. Most of Ryanair’s cost advantages can be


copied immediately. In Europe it seems like there is an agreement between Ryanair
and Easyjet about not to compete head to head. However if any company does decide
to compete on the same basis as Ryanair it will be highly crucial for Ryanair. There
will be heavy pressure on prices, margins, and hence on profitability.

Porter’s Generic Strategy

Ryanair’s main strategy is cost-reduction. It is the strongest side of itself. We


can also use Porter’s Generic Strategies to position Ryanair in the market place.
Accordingly, a company positions itself by leveraging its strengths. By applying these
strengths we can write three generic strategies:

• Cost Leadership
• Differentiation
• Focus

Cost leadership strategy is based upon a business organizing and managing its value-
adding activities so as to be the lowest cost producer of a product within an industry
(Campbell, 2002)

For Ryanair, these three strategies had been utilized. Firstly, they offer the
lowest cost than its competitors. They have also become a focuser because their
customer segment was narrow which include UK business travelers who could not
afford to fly full fare airlines.

No frills service with low fares, which designed to stimulate demand, is the
main purpose of the company. At the beginning they did not aim to offer the lowest
fare on the market. However, Europe expansion and the economic recession forced
the company focus on critical success factors to survive. Nowadays, Ryanair utterly
shifted generic strategies to become more of a cost leader. Ryanair has restyled itself
and become to the first European low fares, no frills carrier.

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In 1985, Ryanair scheduled passenger airline services between Ireland and the
UK. By the end of 1990 and despite a growth in passenger volume, the company had
experienced some trouble and had to dispose of five chief executives, recording losses
of IR£20 million. They had to fight survive and the new management leading by
Michael O’Leary, decides to change the company strategy on the model of American
Southwest Airlines.

Ryanair’s generic strategy used to be unclear. It situated itself somewhere


between focuser and cost leader and it was closer to a focuser. They were not sure
about which one they wanted. But as soon as competitors started blooming they had
to decide their strategy. It was Michael O’Leary’s strategy. He decided to ruthlessly
pursue cost leadership.

Ryanair has the purest form of low cost airline in Europe. Ryanair boasts
many No.1’s:
• No.1 for passenger traffic
• No.1 for passenger growth- 50% + this year
• No.1 for European routes (149) and bases (11)
• No.1 for customer service delivery- punctuality, flight completion and
fewest lost baggage

So as we can see from the above representation Ryanair is the most radical
low cost airline, it differs from the closest competitor on the graph (i.e. Easyjet)
because it uses secondary airports to lower its cost base whereas Easyjet does not.
Virgin Express is nearly stuck in the middle; it still offers seat allocations… Aer
Lingus is an interesting case, as it has been gradually getting closer to the low cost
model on its short haul flights. Ryanair comes out as the purest low cost carrier. Also
in appendix is a comparison of Ryanair against other LCC and traditional carriers
based on some key operational measures (Revenue, employee/passenger,
revenue/employee…).

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Bowman’s Strategy Clock

Bowman created his “Strategy Clock” in “The Essence of Competitive


Strategy” book. With this strategic model he illustrates companies competitive
position in comparison with their rivals. For him the real advantage of companies
being achieved cost and differentiation. His strategy clock has 8 options.

First two options are about the low price. First option is totally low cost low
added value but the second option totally about to be a “cost leader” without caring its
value. Second option has the risk of price war and low margin.

Third option is a hybrid option. Mainly the low cost but not the lowest price.
The most important difference between second and the third option is in third option
reinvestment in differentiation.

Fourth option is about differentiation. For option five the biggest difference is
the differentiation is highly focused. It perceived added value to a ‘particular
segment’ warranting a premium price.

Rests of the options are failure options. At option six the price is increased but
the value is standard. Option seven is worse than option six. In option seven you can
see increased price with low values. It is only feasible in monopoly situation. Last
option is option 8, which is the cause loss of market share. Because your low value
has a standard price.

Like Porter’s Generic strategies, Bowman’s strategy clock offers effective


framework to realize company’s competitive status via using eight options. We can
examine the business environment of Ryanair.

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Ryanair had dramatic changes during last decade period time and this was
flabbergasted its competitors. Their profitability rose within a short period of time.
Their low-fares strategy without frills and punctuality in flight service helped their
high profitability period and it brought a significant value on the growth.

The high level competition needs efficient strategy to gain advantages and at
the same time high profit. In different times we can put Ryanair’s strategy in different
options in Bowman’s Strategy Clock. But all of them can be placed between options 1
to 5. Their strategy never placed in failure part of Bowman’s clock. Mainly, in these
days Ryanair place in the clock is between options 1-2, which is mainly about low
price. We can easily realize Ryanair is the best example for this option. If they can
secure their price and gives higher valued service they can easily take a place option
three and they will be strongest company in the competition. In my opinion, hybrid
strategy is the most preferable strategy in the clock that is why Virgin Airlines prefer
this option. If Ryanair updates their lowest price strategy with a standard service they
easily will be the strongest company in the competition.

PESTLE ANALYSIS OF RYANAIR

In Pestle analysis we investigate macro external factors for companies, which


are very important for identify their strategies. There are 6-core elements of Pestle
analysis. These are Political, Economical, Social, Technological, Legal and
Environmental options. We can examine these factors in the airline industry to realize
Ryanair’s future external threats and opportunities.

POLITICAL FACTORS:

• Trade Union pressure.


• Government latest moves about airline industry. Most of them are
about security solution, which will increase the cost of service.
• Some countries support national airlines.
• EU expansion. It means new routes new competitions.
• New European Union regulations.
• Increase in tourism will work in favor for Ryanair.
• Legal eye of the governments can take an action if there will be any
dispute in Business deals from Ryanair with Airport and Airline
regulatory bodies.
• It will definitely affect to airline industry if there any change in
government policies.
• New possible taxes or the different tax policy for different countries
• Government actions to promote industry or reduce costs

ECONOMIC FACTORS

• The threat of Oil Prices


• Taxes and Interest rates
• Depreciation of US dollars
• Increasing business class travelling
• The threat of the substitutes
• Rise of airport handling charges

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SOCIAL FACTORS

• After 9/11 people have started to hesitate to flying.


• In recession times people do not want to fly abroad for holiday
vacations
• Increase in grey market. Grey market is the trade of a commodity
through distribution channels, which while legal, are unofficial,
unauthorized, or unintended by the original manufacturer.
• Populations growth - does an ageing population affect them i.e. baby
boomers, lots of people in that life stage have more disposable income
to spend
• Safety solutions
• Trends

TECHNOLOGICAL FACTORS

• Internet sales / Increased internet competitions


• High speed trains
• Online check-in
• Low fuel consumption

LEGAL FACTORS

• Privatizing of airline industry


• Illegal subsidies from airports
• Competition laws in aviation industry
• Allegations of misleading advertisement
• Regulations about Carbon emission level

ENVIRONMENTAL FACTORS

• Noise level controls


• Global warming
• Green house gas effect (Carbon emission level)
• CSR (Corporate Social Responsibilities) Policy

There is a cruel competition in airline industry. Especially, after credit crunch


in 2008 the competition has become crueler. Companies have to fight with recession
also and in this economic situation we can see lots of threats in sector. If you reverse
these threats to the opportunities you will be one step further in the competition.
Ryanair is the most suitable company to gain advantages from today’s world. With
this assignment we answered the questions, which frequently asking for their future
strategy and their position’s of the future competition. That’s why; they have started
to corporate social responsibilities. The biggest example for that their “Cabin Crew
Charity Calendar”, which you can see at the very first page of this assignment.

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REFERENCES:

• International Business; Donald A. Ball, Paul L. Frantz, Michael S. Minor; 9th


Edition; McGraw & Hill 2004
• The Strategy Process; Henry Mintzberg, James Brian Quinn; 3rd Edition;
1996
• Exploring Corporate Strategy; Gerry Johnson, Kevan Scholes, Richard
Whittington; 8th edition; 2008
• Strategic Management; Pearce & Robinson; 8th Edition; 2003
• Ryanair Official Web Site
• British Airways Official Website
• BBC – Panorama
• http://www.marketingteacher.com/Lessons/lesson_bowman.htm
• http://finance.mapsofworld.com/company/b/british-airways.html#
• http://www.slideshare.net/The_E_group/Ryanair-Study-version-7

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