Udeeshan (JOURD83) SM Case study

Ryan Air Case Study Udeeshan Jonas

Table of Contents

1.0 Executive Summary.........................................................................................................................2

2.0 Introduction.....................................................................................................................................3

3.0 Discussion........................................................................................................................................3

3.1 MACRO ENVIRONMENTAL ANALYSIS...............................................................................................3

3.1.1 PESTEL FRAMEWORK................................................................................................................3

Political Forces...............................................................................................................................3

Economic Forces............................................................................................................................4

Social Factors.................................................................................................................................5

Technological Factors....................................................................................................................6

Ecological Factors..........................................................................................................................7

Legal Factors..................................................................................................................................7

3.2 Industry Analysis..............................................................................................................................8

3.2.1 Porter’s Five Forces...................................................................................................................8

3.2.2 Strategic Group Analysis.........................................................................................................10

3.3 Internal Analysis............................................................................................................................11

3.3.1 Strategic Resource and Capability analysis.............................................................................11

3.3.2 Resource and Capability analysis using Porter’s Value chain Model.......................................12

3.4 SWOT Analysis...........................................................................................................................12

4.0 Recommendation..........................................................................................................................13

5.0 Conclusion.....................................................................................................................................13

8.0 References.....................................................................................................................................14

10.0 Appendices..................................................................................................................................15

Appendix 1: Porter’s 5 Forces for Ryanair.......................................................................................15

Appendix 2: Market Share Analysis of European Low-cost Carriers................................................16

Appendix 3: VRIO Framework for Ryanair.......................................................................................16

Appendix 4: A brief Value Chain Analysis of Ryanair......................................................................18

Appendix 5: SWOT Framework for RyanAir....................................................................................19

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1.0 Executive Summary

The aviation industry of Europe has undergone major changes within the past few years, especially

the low budget airlines which have faced intense competition in the recent past. Ryanair has been

extremely successful in competing within this industry and has become the cost leader, experiencing

continuous cost reductions in its service provision.

Ryanair, founded in 1985 by The Ryan Family, has emerged as one of the most successful and

profitable low cost and low fare airline carriers in Europe. Gaining ground from the Deregulation of

the airline industry in Europe in 1991, it has been able to continuously grow through its low cost

strategy.

At present, the European budget airline industry is going through radical changes in growth in

competing with the co- competitors. This would pose a major threat to Ryanair’s target of doubling

its growth by 2012. Moreover, it has also expanded its service capacity and now faces the situation

of understanding how the environment and demand will turn out to be in the future.

Therefore, an Environmental Analysis has been in place, conducted by the URJ Management

Consultancy to analyze the external environment factors that can affect the performance of our

company. The Airline industry and the internal position of Ryanair have also been critically

evaluated to acquire a valuable insight into the uncertainty of the environment in which the

company has been operating. Analytical tools such as PESTEL, SWOT, VRIO, Porter’s five forces,

Strategic Groups and Value chain analysis have been used for this purpose.

Based on the environmental analysis, this report provides essential recommendations and strategies

that are vital for the management of Ryanair, to adopt a competitive advantage in the future.

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2.0 Introduction

We, the URJ Management Consultancy are specialized in providing Strategic Management

consultation for various sectors in the business world. As per the request of the management of

Ryanair, we have been allocated with the task of conducting a consulting service for future strategic

management of Ryanair. In our project, we critically conduct a strategic analysis on the External

Environment of Ryanair, identifying the issues that could arise in the environment together with the

industry analysis and the current position of the company.

With the expertise that we obtained through the research on the Aviation industry, we would be

able to successfully conduct this proposed report. At the end of the report, we present to the

management of Ryanair, the potential strategies available for them and recommend new initiatives

for the senior management of Ryanair to improve strategy implementation.

3.0 Discussion

3.1 MACRO ENVIRONMENTAL ANALYSIS

RyanAir currently functions in a business environment which is characterized by high uncertainty and

volatility. Therefore, a huge impact is placed upon by the surrounding environment on the

functioning and strategy of Ryan air. Conversely, the strategies and activities carried out by Ryan air

also influence the environment it operates within. The PESTEL model is used to analyze the

environment in which RyanAir is operating.

3.1.1 PESTEL FRAMEWORK

Political Forces

1) Expansion of the European Union

The formation of EU, has been highly advantageous for Ryanair, because of the reduced barriers

of travelling around the member countries.

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2) Government Intervention

Governments of countries may support their own flagship carriers and neglect opportunities for

Ryanair. The shareholding of the Irish government in one of Ryan air’s main competitor flights,

Aer Lingus is a major threat to Ryanair, since there is a high possibility that the government

would support Aer Lingus in its activities and oppose RyanAir’s acitivities.

3) Threat of Terrorist Attacks on the Planes

From the tragedy of September 11th 2001, increased security measures have been imposed upon

the airline industry and airports, to ensure the safety of the passengers. The recent incident of

the Nigerian terrorist teenager trying to blow up a US North West Airlines flight has increased

the concern of potential Terrorist threats as well. These incidents together with the increase in

body-checks have reduced the number of passengers travelling within Europe with the fear of

threat to their lives.

Due to the security threat to passengers and the flight, the insurance companies have also

significantly increased their Insurance policy costs.

4) Increased charges at Airports

The government of Ireland is increasing charges of their sub-Airports, which increases Ryanair’s

costs, as it mainly functions through these sub Airports.

5) Tourism, a source of prime revenue for the government

The governments of the EU Nations are concerned about boosting tourism in their countries.

Therefore, they might act in favour of airlines such as Ryanair which bring in a large volume of

foreign flyers (Edmondson, 2008)

Economic Forces

1) Rising Fuel Prices

During the last few years, the fuel prices have skyrocketed, making the cost of flight service

provided to passengers to rise. Since, Ryanair functions with their low- fares policy, they

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have to bear these costs, since they have limited ability to transfer the fuel cost hike to the

passenger fares.

2) Volatility in Foreign Currencies

Since there is a high volatility in the exchange rates of the Euro,US Dollar and other

currencies, there is a high risk of foreign income declining when the US Dollar is depreciating

or when the Euro is appreciating.

In this case, Ryanair has to hedge the risks of the local currency depreciating, while hedging

may also be unprofitable if the local currency depreciates.

3) Cost cutting policy of Business firms

With the recession in place, business organizations all over Europe are focused towards

cutting costs. This measure makes them cut costs on air travel for business delegates who

usually travel in Business Class of main stream carriers, who in turn will fly in low cost

airways such as Ryanair.

4) Global Recession

The world financial crisis which struck in 2007 has caused enormous decline in the consumer

spending and their disposable income. This will lead to a high impact on travelers cutting

down their holiday traveling (Thomas, 2004).But, this could also be beneficial to RyanAir,

since the economic downturn can attract passengers who travel in high fare airlines to

RyanAir.

Social Factors

1) Customer Attitude Towards Ryanair

Few customer groups are possessed with the attitude that Ryanair is a cheap airway meant

for low end customers and perceive that the services offered by Ryanair are low in quality.

2) Criticisms of misbehaviour on Ryanair

Unfriendly and complacent staff together with reports of inadequate training and security

measures was reported through the media and web surveys. It made consumers perceive

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that Ryanair lacked focus on Business Ethics. Complaints of poor treatment of customers,

administration and wheelchair charges also created a negative image on Ryanair.

3) Travelling Lifestyle

The priority that people provide to leisure and tourism has increased and their preference is

for travel and venture throughout the globe. This lifestyle change has created a major

opportunity for Ryanair (Martin, 2003).

4) Refusal of Trade union activities and poor working conditions

There is much concern about RyanAir not allowing its pilots to form trade unions and

complaints on poor working conditions for workers. This has created a bad public image in

the European Community.

Technological Factors

1) Growth In Internet Technology

The radical development in the Internet has changed the way in which business is

conducted. Especially for the Airline industry, where there was a need for agents to link the

passengers with the Airways has been eliminated with the dawn of online booking services.

Ryanair is well known for its Online booking website (Largest in Europe).

2) Developments in the Electronic Communications Technology

The main threat for the airline industry has been the evolution of video conferencing. The

necessity for Businessmen to travel around the globe to meet their clients have been

eliminated with the use of video conferencing facilities and VOIP’s which help them

conference with their clients while being at home (Martin, 2003).

3) New Modes of Transportation

Electronic Trains have become a huge popularity over the years. It can grow upto the level of

becoming an indirect competitor to RyanAir within the European region. Also, faster cars

and road transportation in the future would mean passengers to shift from air travelling.

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4) Web Based Check ins

Ryan Air currently operates an online check-in and self service check in at the airports which

is a use of Web technology to reduce costs.

Ecological Factors

1) The rising awareness on global warming and climate change

World leaders have begun to show much concern on global warming and have proved that

much of the carbon emission is from the airlines industry. Therefore, high environmental

taxes are charged on the airline industry. Also, Carbon credit policies have been

implemented by Governments (“Ryanair and the environment”, n.d.).

2) Environment Friendly Airlines

In order to reduce the carbon emission and fuel consumption, the need has arisen for more

efficient carriers to reduce the impact on the environment. Though it’s a costly measure,

cost savings could be gained in terms of lower fuel consumption and reduced environment

Taxes. Ryanair recently purchased environmental friendly airlines which reduced its fuel and

carbon emission by more than 50%.

3) Other unexpected Environmental Incidents

Diseases spreading around the globe, such as the Bird flu, SARS, Swine Flu together with

future diseases that may spread will make passengers avoid travelling to other countries.

Also, natural environment disasters such as the Iceland Volcano eruption which disrupted

flights flying to Europe are a potential threat for airlines (Thomas, 2004).

Legal Factors

1) Anti-competitive Laws

The laws established for eliminating monopolistic behavior have made Ryanair unable to

acquire competitors such as Aer Lingus, because of the charges against it that it is planning

to eliminate low cost rivals. Also the allegation over Ryanair on competitive and misleading

advertising has been scrutinized over the years.

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2) New EU Regulations

New EU Regulations have been brought about on limiting Pilot flying hours and

compensation for inconvenience cause to passengers. The cost of compensation could go

upto €200mn, which could lead to huge profit cuts for Ryanair.

3) Legal case against UK government

Ryanair have been involved in various legal disputes with governments both in this country

and the EU regarding their business deals with airports and airline regulatory bodies

4) Litigation over landing charges

Ryanair was also accused of an illegal receipt of state aid from publicly owned Charlerol

Airport.

3.2 Industry Analysis

3.2.1 Porter’s Five Forces

The framework developed by Michael Porter is used to analyze the competitive environment in

which Ryanair is operating. The model of Porter’s Five forces for Ryanair is included in Appendix 1.

Threat of New Entrants – Moderate

Threat of entry analyses the threat that new entrants may enter the industry and diminish the

returns of established companies (Hubbard and Beamish, 2008). Since the Airline industry was

deregulated in 1997, there was a high potential for new Airlines to enter the industry. However, the

low price strategy followed by Ryanair acts as a barrier to entry, making it unaffordable for new

comers to provide services at that price, especially because the costs they would incur would exceed

the price provided by Ryanair. Also, because the capital investment required is extremely high, most

new entrants do not prefer flying around Europe.

In the case of Ryanair, a strong brand identity built over the years would require any potential new

entrant to outlay massive sunk costs in advertising to compete on a level playing field. Restricted

slots which are available at local airports and the high risks involved with the aviation industry also

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act as barriers to entry for new entrants (Botten, 2009). It is reported that around 50 Airlines have

gone bankrupt or acquired over the past few years.

Bargaining Power of Suppliers – Low

There are only two airplane suppliers throughout the world, namely Boeing and Airbus. The

switching costs for RyanAir between these companies are extremely high. But it cannot be construed

that since there are only two players in the market, the bargaining power of them are high. Ryanair

has been involved in long term dealings and maintains a very healthy relationship with the main

airplane supplier, Boeing.

The sub Airports which provide the landing facility to Ryanair haven’t much of a say, because they

are dependent on the high revenue earned from Ryanair and also they don’t have much alternative

modes of airline income.

Fuel Suppliers

In terms of fuel supply, Ryanair has less control over the suppliers, because the fuel price is

controlled by world trade and the Middle Eastern countries who dominate the fuel market.

Bargaining Power of Customers – High

There are many determinants to the power possessed by buyers in the airline industry. The

bargaining power of customers seems to be extremely high, as the customers are price sensitive and

quickly react to slight price hikes. Even though the costs of Ryanair escalate, they are left with the

position of maintaining their current low fare, because the price hike cannot be passed on to the

customers.

The switching costs of customers to other flights are very low and the customers are not very brand

loyal to RyanAir, which gives a higher bargaining power to the customers. For low cost carriers, the

switching costs may be found by simply clicking on a rival’s website. The fact that most low cost

carriers sell their seat via the internet means that any price discrepancies can be found very easily

(Grant, 2008). Since, the services provided by competitors like EasyJet are not much of a difference

to that of Ryanair, allows the customers to easily shift from them.

Threat of Substitute Products – Low

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The threat of substitute comes in three main forms to Ryanair which are road, rail and to a lesser

extent, the boat service. But, if there are significant developments in road transportation, speedy

vehicles and electronic trains, high competition could erupt in the Aviation industry.

Rail service would be the greatest threat, as it offers an excellent continental service around the

major cities of Europe that Ryanair fly to. Rail travel has several advantages over air in terms of the

fact that they can be more localized and more accessible but one must endure a longer journey also.

Another, less obvious threat comes in the form of global communications. As technology develops

there may be less of a need to physically meet with people, as business meetings could take place

via video conferencing (Thompson, 2003).The low switching costs for customers between the

alternatives, increase the threat of substitutes.

Rivalry among existing Firms – High

Currently, high competition prevails within the Aviation industry with almost 50 airline service

providers. Although many of them are focused towards Long Haul flights, there is a specific group of

direct competitors who cater to the same price sensitive customers who demand for short haul

flights for a lower price. These competitors compete based on price, even though RyanAir is the

Price Leader in the industry.

Although there are only few competitors who compete on price similar to Ryanair, there is high

competition when considering the aviation industry as a whole. The high exit barriers that exist in

selling off the planes and equipments for industry players make them continue to compete in the

market.

3.2.2 Strategic Group Analysis

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Price range

HIGH

LOW

Air France KLMVirgin Atlantic

EasyJetRyanAir

FlyBEGermanwings

British AirwaysLufthansa

Czech AirlinesBMI

AerLingus

Norwegian Air Shuttle

Air Berlin

PalmAir

“High priced- Long Haul flights only”


This Strategic Group Analysis segments the airline industry based on the strategy of ticket pricing

and the distance of the flights of the member airlines. A strategic group refers to the group of firms

in the industry, following the same or similar strategy along the strategic dimensions (Grant, 2008).

According to the classification of Strategic groups carried out on the players in the European aviation

industry, it is clear that the main direct competitors of Ryanair would be “the low fare- short haul”

flight providers such as Easy Jet, FlyBe, Germanwings and Sterling who cater to the same price

sensitive customer group.

Ryanair need not focus much on the Long Haul-high priced airlines, since they would only pose a

minimal threat to Ryanair. But, RyanAir is a threat to the “Short Haul-high priced Airlines” during

times of economic recession. There is a potential opportunity for RyanAir to move into ‘Long Haul-

low cost flight services’ as well, since there are only a few competitors providing long haul services at

a lower cost. In the future, if competition intensifies within the existing group, RyanAir could decide

whether to stay and compete within the same group or re-position itself as a “long haul-low fare”

airline and shift from the existing short haul market to the long haul market.

It is imperative to note that the growth of auxiliary modes of transportation available such as Trains

and cars which provide short haul services at lower prices can become a potential threat to Ryanair

in the future (Donald, 2005).

3.3 Internal Analysis

The resource based view of an organization argues that the resources and strategic capabilities that

a company possesses enable the company to gain a competitive advantage (Botten, 2009)

3.3.1 Strategic Resource and Capability analysis

Necessary Resources & Capabilities

These are the resources and capabilities, an airline company should possess in order to compete in

the industry. Since these are necessities that all players need to own, a competitive advantage could

not be generated from them.

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Long HaulOnly

Short HaulOnly

Short & Long Haul“Low priced- Short Haul

flights only”


One of the main necessary resources that Ryanair holds are the 103 Boeing 737 aircrafts and the 138

aircrafts ordered for the upcoming six years. The well trained staff, monetary resources, strong

management and brand identity are also the necessary resources that Ryanair holds. The necessary

capabilities that Ryanair possesses in order to compete in the market would be the reliability of the

service, satisfactory customer service, safety and timeliness of service.

Strategic Resources & Capabilities

The VRIO framework is used to identify whether the resources and capabilities that Ryanair

possesses are strategic Resources and capabilities which lead to competitive advantage (Grant,

2008). Refer Appendix 3 for the VRIO Framework.

According to the VRIO analysis, the strategic resources or the core competencies that lead Ryanair to

a sustainable competitive advantage are the fleet of environmental friendly aero planes, Leadership

of Michael O’ Leary and the effective strategic planning process of the management of Ryanair.

The strategic capabilities of Ryanair would be the continuous cost reduction, the low fare chargeable

capability and the strong relationship with the Airport hubs.

3.3.2 Resource and Capability analysis using Porter’s Value chain Model

The resource and capability analysis conducted through the value chain analysis has been included in

Appendix 4 of this assignment.

3.4 SWOT Analysis

The SWOT analysis provides a situational analysis in terms of how a company is functioning at the

present situation. The SWOT analysis of Ryanair will enable the company to take strategic decisions

which aim to produce a good fit between the company’s resource capability and its external

environment (Thompson, 2001)

The SWOT analysis of Ryanair has been included in Appendix 5.

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4.0 Recommendation

From the environmental analysis carried out on Ryanair, it is clear that the company is functioning in

a highly uncertain environment. Defensive actions have to be planned to threats such as government

intervention and misleading criticisms on the company that could spread around in the community.

Based on the Industry analysis, it could be said that Ryanair has to concentrate well on direct

competitors’ activities and strategies, especially, the indirect competition that could arise from

alternative modes of transportation. As the cost leader, they should take the ‘first mover advantage’

over its competitors. It should watch out for radical price cuts of its direct competitors such as

Easyjet and Aer Lingus.

From the Internal Analysis, it is recommended that RyanAir builds on its brand image and the

strategic capability of low cost provision furthermore, together with the use of Technological

advancement and continuously improve without harnessing the quality of the service.

5.0 Conclusion

As per the request of the management of Ryanair, URJ Management Consultancy was able to

successfully conduct the external, industry and internal environment analysis of Ryanair. The report

identified the factors in the external environment that affect the performance of Ryanair, such as the

Political, Environmental, Social and Technological elements which were potential factors in the

success of the company.

The industry analysis on the competitive position of Ryanair also gave valuable insight into the

competitors’ activities and strategies. In the report, we analyzed the internal factors of our client on

aspects such as Strengths, Resources and capabilities and identified how value for customers was

created through the chain of activities carried out at Ryanair. Finally, based on our analysis, we

provided possible recommendations on what Ryanair has to execute towards strategic management

in the future.

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6.0 References

Edmondson, A.C. (2008). ‘The Competitive Imperative of Learning’, Harvard Business Review, July-August.

Martin, P.R. (2003). The Wall Street Journal: Essential Guide to Business and Style Usage, Wall Street Journal Books.

Hubbard, G., Rice, J., & Beamish, P. (2008). Strategic Management: Thinking, Analysis, And Action, 3rd ed. NSW: Pearson Education Australia.

Thomas, D.A. (2004). ‘Diversity as Strategy’, Harvard Business Review, September: p 23.

Donald, N. (2005). ‘A Wider Perspective’, Times Magazine, September: p34.

Ryanair and the environment. [n.d.]. Ryanair. Retrieved April 22, 2010, from

http://www.ryanair.com/en/about/ryanair-and-the-environment

Botten, N.(2009). Enterprise Strategy. 1st Edition. UK: Elsevier Publishing.

Thompson, A. & Strickland, A. (2001). Strategic Management. Twelwth Edition. Australia: McGraw Hill.

Grant, R.M. (2008). Contemporary Strategy Analysis. 6th Edition. Australia: Blackwell Publishing.

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http://www.ryanair.com/en/about/ryanair-and-the-environment


7.0 Appendices

Appendix 1: Porter’s 5 Forces for Ryanair

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Bargaining power of customers

LOW

Bargaining power of Suppliers

LOW

Threat of Substitutes

Medium

Threat of New Entrants

Medium

Industry Competitors

Rivalry among existing firms

High


Appendix 2: Market Share Analysis of European Low-cost Carriers

29.90%

25.90%11.80%

4.70%

4.70%

23.00%

Market share Analysis

RyanairEasyJetAir BerlinFlyBEGermanwingsOthers

Appendix 3: VRIO Framework for Ryanair

The letters V, R, I, O specify four questions that need to be asked about a resource or capability, in order to determine the competitive potential of those resources.

1. The Question of Value: Does a resource enable a firm to exploit an environmental opportunity or add value to the service provided? If it does not add value, it leads to competitive disadvantage.

2. The Question of Rarity: Is a resource currently controlled only by a few competing players?

3. The Question of Imitability: Are the valuable and rare resources of Ryanair, hard and costly to imitate?

4. The Question of Organization: Are the company’s other policies and procedures organized to support the exploitation of its valuable, rare, and hard-to-imitate resources?”

(Thompson, 2001)

The criteria for Competitive Implications

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Summary of VRIO for Ryanair - Competitive Implications, and Economic ImplicationsTangible Resources of RyanAir

Physical Resources

Valuable?

Rare? Costly to Imitate?

Organized Properly?

Competitive Implications

Economic Implications

Fleet of Environmental friendly Aero planes

Yes Yes Yes Yes Sustainable Advantage

Above Normal

Unused Land & Buildings of Ryanair

No --- --- No CompetitiveDisadvantage

Below Normal

Financial ResourcesHigh cash reserves(€1439

Mn)Yes No Yes Yes Temporary

AdvantageAbove Normal

(at least for some amount of time)

Technological Resources

Online booking website (largest in Europe)

Yes Yes No Yes Temporary Advantage

Above Normal(at least for some amount of time)

On-line web check ins for passengers

Yes No --- Yes Competitive Parity

Normal(Average)(once was temp. adv)

Organizational Resources

Effective strategic planning process by Mgt

Yes Yes Yes Yes Sustainable Advantage

Above Normal

Effective control systems at Ryanair


Normal (Average)

Intangible Resources of Ryanair

Valuable?


Organized Properly?



Skills & capabilities of Mgt & employees


Normal (Average)

Leadership of Michael O’ Leary

Yes Yes Yes Yes Sustained Advantage

Above Normal

Brand Image Yes No --- Yes Competitive Parity

Normal (Average)

Capabilities of Ryanair

Valuable?


Organized Properly?



Low Fares & Continuous cost reduction


Above Normal

Strong relationship with its hubs


Above Normal

Reliable on-time service Yes No --- Yes Competitive Parity

Normal(Average)

A few of the resources of Ryanair are analyzed through the VRIO framework to identify the strategic resources or the core competencies which will lead Ryanair to sustainable competitive advantage:

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Appendix 4: A brief Value Chain Analysis of Ryanair

The Value chain of Ryanair analyses the activities, functions and business processes that add value to

its customers. These are the linked set of activities performed internally within the organization

(Thompson, 2001).

The primary activities of Ryanair could be categorized into Inbound Logistics, Operations, Outbound

Logistics, Marketing & Sales and Service. The secondary activities consist of procurement,

infrastructure, HRM and technological development. Ryanair follows the Cost Leadership value chain

of Michael Porter, through which it attempts to reduce costs in each of its primary and secondary

activities, in order to facilitate its low cost model and provide a low fare service to the passengers.

The way in which it achieves this is specified in the diagram (Thompson, 2001).

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Appendix 5: SWOT Framework for RyanAir

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Opportunities

Moving into Long Haul flights

Cost Reduction

through technology

EU Expansion

Growing Tourism Industry

Availability of fuel efficient airplanes

Enforcement of Anti-trust laws

Cost cutting policy of businesses

Merging other short haul flights

Development of the internet

Threats

Increased Competition

Trade Unionism

Substitute modes of Transportation

Flotation of Aer Lingus

Fuel cost rise

Terrorist attacks

Alternative transport methods

Misleading advertisements

Less security at Regional Airports

Damages for cases by Pilots

Environmental Threats

S W O TR y a n A i r


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