Contents Page

Executive Summary

Introduction

CORPORATE LEVEL STRATEGY

Corporate Strategy

Ryanair’s Organisational Structure and Growth Direction

Financials

BUSINESS LEVEL STRATEGY

Internal Analysis using Porter’s Value Chain

External Analysis using Porter’s 5 Forces

CSR / Sustainability Strategy

EVALUATION

Evaluation of Strategy with SWOT analysis

Conclusion

References

Appendices

Executive Summary

Introduction

This report will examine the strategy of airline operator Ryanair. Ryanair are a low cost Irish airline dealing with over 1600 short haul flights to more than 180 destinations spanning 30 countries across Europe. (Mintel, 2014) To ensure this process runs smoothly like in any organisation, it is vital a business strategy is in place. Strategy is hard to define as it is viewed through different perspectives, Porter (1996) feels that strategy is putting a plan in place to gain a sustainable competitive advantage over competitors, however believes there is a fine line between strategy and operational excellence.

Johnson and Scholes (2008) state that Strategy is the direction and scope of an organisation over the long term in which achieves advantage for the organisation through its configuration of resources within a challenging environment which meet the needs of and to fulfil stakeholder expectation.

It becomes clear that there is no single definition of strategy that is correct as theorists tend to have different perspectives, this is known as strategy formation.

This report will analyse and examine the corporate and business strategy of Ryanair by analysing the ways they have made their strategy so effective, before focussing on Internal and External Analysis and the company’s CSR sustainability strategy. The report will then evaluate the strategy before concluding the report.

Corporate Strategy

1.1 Corporate Strategy

Corporate strategy is

“The overall scope and direction of a corporation and the way in which its various business operations work together to achieve particular goals”. (Business dictionary.com)

Good strategies are generally simple, this enables the companies to generate a particular focus and not try to be all things to all people or as Porter 1996 states “stuck in the middle”.

The low cost airline strategy was first initiated by Southwest Airlines, this company offered short haul flights for cheap with only one class. Ryanair’s model has evolved from that but is more catered price crunching and being efficient. One of the ways Ryanair keeps costs low is just charging customers for the ticket, everything else is extra, whether it is a case, food or drink or a boarding pass. This enables people travelling light to travel cheaper and the plane to carry less weight optimising fuel consumption. (Mintel, 2014).

Goals

Ryanair’s goals can give us an indication of the company’s long term vision, however despite the fact these goals will heavily influence the overall strategy it is important to note that these are separate entities.(Rumelt,1980)

Ryanair aims to cement its position as market leader through its cheap pricing strategy. Through doing this they aim to increase growth and market share by entering new countries and adding more routes to existing countries (Ryanair, 2014). Ryanair’s strategy is to be cheaper and more efficient than any other airline operator by offering this, they offer a point of differentiation to its nearest competitors effectively giving the organisation competitive advantage. This is reflected through the way Ryanair act in business as the company aims to offer the cheapest and most efficient form of travel.

‘As our business matures, and our growth rates slow somewhat, we are committed to improving our customer experience in addition to providing our guests with the lowest fares, the most on-time flights, the fewest lost bags, and the fewest cancellations.’ Ryanair, 2014).

1.2. – Ryanair’s Organisational Structure and Growth Direction

The Ryanair organisational structure is traditional comprising of a team of functional directors who report directly to the CEO. The board comprises of one executive (Michael O ‘Leary) and nine none executives. This is integrated with Ryanair holdings, enabling the board to make changes throughout the organisation. (Ryanair, 2015)

Ryanair runs operations in the UK and across Europe, as a result of this the company undertakes a form of growth, this is done by setting up new activities (internal growth) but can also be undertaken by buying another firm (acquisition), this is known as diversification. (De Wit & Meyer 2012).

There are two types of diversification moves; horizontal and vertical. Vertical diversification is when a firm enters other businesses upstream or downstream within its own industry. According to Porter (1987), entering into another business should only be done if the proposition is attractive, financially beneficial and the company will be better off in the long term.

Ryanair demonstrated this by acquiring Aer Lingus, an Irish airline to which they own 30% in an attempt to get into the main airports. This was also the case when the company decided to buy Buzz as it enabled them to operate more planes, effectively increasing operations from Stansted airport. (Daily Mail ,2003)

Ryanair annually move vertically by entering new countries with the product they have. Firms can also enter horizontally for instance, Virgin possess many different operations through the same company. (Gyms, trains planes etc.) This is known as horizontal diversification as they are entering businesses outside their industry.

Ryanair tend to use internal growth, as their strategy is easily adaptable to other countries, this is highlighted through the new countries the company now fly to such as Russia.

“Ryanair has announced plans to begin regular flights from Dublin to Moscow and St. Petersburg. Experts believe that the new routes could increase traffic between the cities by 35-40 percent and revive competition in the market.”(RBTH, 2013)

We can see that Ryanair have attempted to expand by different means in the airline market. This is done annually by offering their low cost product in different markets. Now Ryanair tends to keep to this type of growth however have also tried to grow through the assistance of other companies such as Aer Lingus and Buzz to increase their operations and market share.

Financials

Ryanair’s nearest competitor is Easy Jet, appendix b shows a graph of profit after tax for the two companies. As Easy Jet profits continued to increase (EasyJet, 2015), Ryanairs profits increased until 2014 when they decreased, this indicated that this indicates that the strategy in place needed to be tweaked to prevent declining profits.

BCG Matrix

Market Growth-

Ryanair in terms of the BCG matrix is evolving into a “cash cow, this is because it has a high market share and with development into new countries annually there is plenty of potential to continue achieving market growth., however with less countries to move into the growth may slow down hence the decision to improve customer service to increase customer retention.

Business Strategy

Internal Analysis

According to Porter (1985) the concept of value creation lies at the heart of competitive advantage

Market Share ? Ryanair

“Dividing the organisation up into separate value adding activities by means of the value chain tool allows the analyst to identify what the company does more cheaply or better than its competitors (Porter, 1985).

Essentially, by breaking up all the operations that go on with in an organisation such as Ryanair enables the company to breakdown their services and look at where they can improve in accordance with their business structure. This is also known as operational excellence as it is analysing a business in every detail.

Managers adopting an inside out perspective believe that strategies should not be built around external activities, instead they should be built around a company’s strength; it is argued that a build-up of strong resources can determine the successfulness of a company. (De Wit and Meyer 2012)

Primary Activities

Inbound logistics

Inbound logistics are placed first on the value chain as it is the first opportunity for a business to create value. Ryanair’s inbound logistics are measures put in place to make sure the company drives down cost.

Firstly Ryanair charges its staff for initial training (Dispatches), this not only keeps the cost low for the company but also ensures commitment from the staff, as it is coming out their own pocket, so if someone was to drop out it is at no direct cost to the company.

A factor key to Ryanair’s cost driving strategy is the sourcing of planes. As there are only two major airline manufacturers, a deal with Ryanair is majorly beneficial to either airline manufacturer, this gives Ryanair and Chief Michael O’Leary the bargaining power to negotiate a deal best suited to Ryanair. Also it enables extra seating due to the planes being larger and more efficient on fuel fitting in with Ryanair’s strategy. In September 2014, Ryanair negotiated a deal with Boeing worth nearly £14 billion, this will

“Offer more seats, 18pc fuel savings and allow the low cost airline to almost double in size over the next decade,” (Telegraph, 2014).

Another factor for driving down costs is the use of secondary airports, this is because it is cheaper to pay ground rent then the main airports.

“The low-cost model motivates airlines to negotiate contracts that significantly reduce aeronautical revenues, leaving airports to compensate by seeking commercial revenues from the increase in passengers” (Francis, 2003)

Operations Management

At the centre of Ryanair’s operations is the tagline “low cost no frills” , every task undertaken is catered towards driving down cost in an attempt to make the ticket price as cheap as possible for the customer.

This approach had been effective as it enabled Ryanair to establish itself as a market leader (Appendix A). This also enabled the company to grow in stature and increase their profits year on year. In 2013, Ryanair’s profit dropped (see appendix B) this indicates that the strategy in place needed to be tweaked to prevent declining profits. This adaptation may have been down to bad reputation due to negative press and social media, because of bad customer service and poor customer retention.

Outbound Logistics

Ryanair did hold the biggest share of the low cost airline market, their closest rival is Easy Jet.(appendix a) Easy Jet seem to offer better customer care but Ryanair differentiate by being more efficient (Mintel,2014), one of the ways Ryanair achieve this is through the quick turnaround of planes(Panorama). This enables Ryanair to charter more flights then its nearest competitors. With the introduction of improved customer service and more efficient planes, indicates that Ryanair will be perceived to be strong competitors in the next few years. This section of the value chain is important from Ryanair as it helps achieve what has been promised to the consumer. If outbound logistics is successful then Ryanair are able to continue offering high levels of efficiency and maximise their profits enabling them to continue their competitive rivalry.

Marketing and Sales

Figures from OAG (Appendix A) show that Ryanair owns the biggest market share for low cost airlines. Ryanair have shown increasing net profit from 2009- 2012, however in 2012 net profit dropped slightly (Fame) (Appendix b). This may have been because of negative media from newspapers and programmes such as Panorama and Dispatches. Ryanair operate online meaning that no money is spent on premises enabling the company to drive down cost. Through their website they are able to offer low cost promotions, although this is seen by many as controversial as extra charges misleads the customer and often leads the consumer into paying more than expected. (BBC News, 2010).

However, due to a mixture of media pressure and drop in net income, Chief executive Michael O’Leary has enforced some changes to make it easier for customers when booking online and decreasing charges for forgetting online boarding passes. This has in turn led to an increase in sales in the last quarter of 2014.

“If I had known that being nicer to our customers was going to result in higher load factors [a measure of how full its aircraft are], I would have been nicer years ago,” Mr O’Leary said. “No one is going to be nicer to our customers now than me.” (Financial times,2014).

It seems Ryanair have also stepped up their attempts to change people’s negative perception of the company through marketing. In early 2014, Ryanair brought out their first advert for 25 years highlighting the recent changes made to website, baggage allowance and introduction of allocated seating. (Smith, 2014)

Service

As Ryanair operate online, the cost of offering this service is very low, this is an essential part of the Ryanair business plan as it further increases operating the companies operating costs.

Support Activities

Ryanair operate through a traditional board made up of a chief executive and nine none executives.( Ryanair,2014) These figureheads form the basis of how the company is ran. Through keeping the strategy simple and cheap, the company can maximise its profits easily, this is highlighted through the online system provided offering competitive advantage over the firms with shops nationwide. Ryanair also employ their staff on performance contracts with flight attendants on commission for selling products on flights, this enables staff to work towards target schemes effectively increasing company profits. (Panorama, 2009)

External Analysis

Porters 5 forces

Porter’s 5 forces framework shows things from a different perspective. It allows a company to be view from an external perspective. The outside in perspective believes firms should not be self-centred and take into account the environment when creating their strategy, it is argued by some that successful companies are externally orientated and market driven (Day, 1994).

Competitive Rivalry

The industry as a whole offers broad competition with lots of companies offering different parameters such as price, comfort and efficiency. (Appendix c)

Threat of new entrants

With Ryanair’s pricing strategy twinned with the cheap deals already being negotiated with airports and manufacturers, makes a threat of a new entrant seem unlikely, as they are not likely to be able to compete on price.

“The number of people flying with the Irish carrier climbed 20 per cent on the same period in 2013 to 6.02 million. Seat occupancy rose 7 per cent to 88 per cent and in the year to December it carried 86.4million passengers.”

The only threat would be on quality; however, more people are willing to sacrifice this commodity for cheaper flights. (See appendix c)

Competitive Rivalry

High

Threat of New Entrants

Low

Suppliers Bargaining

Power

Medium

Buyers Bargaining

Power

High

Threat of Substitution

Low

New entrants would have to differentiate on strategy and have massive financial power to indent themselves on the market. New entrants may need to offer something unique and have lots of equity to compete in the market.

Threat of substitution

Threat of substitution is low as alternative methods of transport are generally less reliable, expensive and more time consuming. Airlines, especially low cost carriers offer the cheapest and most efficient travel as well as one of the quickest. Alternative transport would be more than likely indirect and more costly, as well as more likely to encounter delays.

Buyers bargaining power

As there are so many airlines in the sector, buyers can choose the best parameters of which to fly e.g. luxury, time of flight, cost, best customer service etc. (appendix c) This signifies that buyers bargaining power is high due to the high level of competition between firm in the sector.

Suppliers bargaining power

Airline operators are reliant on fuel, if fuel prices fluctuate this can have a detrimental effect on the operator.

“Fuel prices have a profound effect on the airline industry. Much of an airlines cost structure is based on fuel being available at a certain price”. ( EHow, 2014)

Another factor operators have to consider is where to source their planes. There are currently two major plane manufacturers, Boeing and Airbus. The bigger the operator the more they are able to negotiate with the operator due to fear of loss. Operators also have to consider the competition and the offers on purchases, this could cause an operator to examine their strategy.

CSR /Sustainability Strategy

Ryanair have been at the forefront of both media and customer attention for many years, this is due mostly to the way that the company have acted in trying to get the most money out of their customers in a view to maximising costs and adhering to their strategy. This has been done in many different circumstances, firstly when booking online Ryanair tend to hide hidden costs, so although a flight may appear to be cheap by the time baggage, credit card fees and various other options are added, the figure increases much further. Research suggests that Ryanair is less likely to be trusted by consumers, perhaps based on negative news coverage earned from being profit centric. (Mintel, 2014)(Appendix E)

“…is because of Ryanair’s policies to charge for..well, just about anything. O’Leary charged customers if they hadn’t printed out their boarding pass or if they lost it between check-in and arriving at the airport, if they had an extra bag, and for failing to check in online” ( This is money.co.uk, 2014).

Dispatches (2012) also claimed that Ryanair’s changeround was too quick to clean the planes and do the necessary safety checks, putting public safety at risk however this claim was dismissed by Ryan air claiming that the BBC show was biased and untrue.

“It’s surprising that dispatches are again inventing false and unsubstantiated claims” (Kiely, 2013)

Research suggests that although Ryanair has dismissed most claims, the amount of negative attention brought to the company believe that CSR was not initially a policy that they felt was beneficial to the company. As company figures have dropped this has forced the company to rethink the strategy and tailor it more towards the need of the customer.

Evaluation of Strategy

The strategy put in place by Ryanair focussed on low cost deals and efficiency. The procedures put in place such as 30 minute turnarounds and the introduction of online check ins allowed Ryanair to achieve both being the cheapest in the market as well as the most efficient. However punishing the customers with fines and not seeming to be “socially responsible” led to a decline in profits during 2013 . This way of acting had eventually caught up with Ryanair, this meant that Ryanair had to adapt their strategy. As a result of this, Ryanair had to tailor themselves more to retaining the customer with better service skills, after putting this into practice in 2014 there has been a record high in sales

I will evaluate this strategy with a SWOT analysis showing Ryanair’s strengths, weaknesses, opportunities and threats. This will be assessed on the internal and external analysis I have conducted.

Strengths

Leading low cost airline Good aggressive strategy under

Michael O ‘Leary Quick, Efficient Cheap and direct

routes Established for over 20 years in the

industry( good foot hold in the market) Profits set to increase after increased

customer care New aircraft Strong financial performance

Weaknesses

Cash flows could fluctuate by taking on new routes

Customer service still needs improving Treatment of staff could be investigated. Fluctuating cash flows, increases till last

year, this year has shown improvement but this year’s annual report yet to come out.

Flights to secondary airports

Opportunities

Plan to expand out of Europe, also increasing flights on routes already established.

New fleet of planes will help the company expand and become more efficient

Increase market share as low cost leader.

Growing industry

Threats

Ryanair still have a bad reputation through customers, media and social media (may take time to repair).

In a competitive market, lots of discounts and competition

Bad relationship with media may lead to being exposed for another issue

Britain a recovering economy Customer retention, although customer

service has improved its early days in terms of figures.

Conclusion

In conclusion, my finding show that the strategy used by Ryanair has been very effective. Ryanair instead of concentrating on the customer aimed to grow their business for their exceptionally cheap

flights. A parameter mirrored by the consumer (see appendix), this worked as it enabled them to become the leaders of that sector which helped them in negotiation. O’Leary felt by offering these cheap deals and making extra money on extra charges and in air sales would make the strategy be a success. For many years this was successful, and although it was giving Ryanair a bad reputation amongst customers, sales were increasing. When the numbers dropped in 2013, the strategy then needed adapting to be more tailored towards the customers’ needs rather than solely the companies. This approach clearly worked as it enabled Ryanair to retain customers effectively contributing to record sales in December 2014.

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Appendix

Appendix A

Appendix B

2010 2011 2012 2013 2014 20150

100

200

300

400

500

600

700

Graph comparing Easy Jet and Ryanair Profit after Tax

Ryanair Easy Jet

Appendix c

Appendix D