Business Strategy

Introduction

Back in the early 1990s, Ryanair introduced herself as European’s first low-fare airline (O’Higgins, 2017). Before their low-cost strategy, Ryanair started in 1985, operating as a full-service carrier flying primarily between Ireland and the UK (Ryanair, 2020). Due to disappointing sales and the lack of significant profits in the earlier years, Ryanair’s new CEO Michael O’Leary introduced the Southwest Airline Low-Cost Leadership model to the company (O’Higgins, 2017). This model contained low fares, high frequencies, ticketless distribution, single-class flights, single type airplanes, secondary airports, short length flights, and highly productive staff(Alamdari & Fagan, 2005). The information in this research can be used by business managers in improving their daily operations for the maximization of profits through the reduction of cost. Profits can be achieved through maximizing the cost or reducing the production expenses.

The operation of the company is on a low-fare basis for customer services inclusive of point-to-point, serving short-haul routes between Continental Europe, Morocco, UK, Ireland, et cetera. The daily offer of the company to about two hundred locations is approximately 1300 short-haul scheduled flights across Morocco and Europe. Also, the operating fleet is around three hundred aircraft under more than one thousand routes for flight (Ryanair, 2020). At the establishment of the company by the Ryan family in the 80s, the daily operating flights were on a 15-seater aircraft named Bandeirante from southwest of Ireland, Waterford, to Gatwick (London). Success compelled Ryanair to aggressively pursue a policy of expansion, operating new centers, and new routes across Europe. The result is that the company is the most popular airline in the world for international. In the financial year 2011, the number of passengers that was flown was appropriately seventy million. The concerned industry is highly competitive, but the case of flight, such a high number of passengers, is commendable (Alamdari & Fagan, 2005). However, other low-fare airlines are competing with Ryanair, for example, Monarch and Easy Jet, Lufthansa, and British Airways. The study assessed the strategies used by the company to achieve the status of the world’s most popular..

Management Problem

The company has shown an improvement in its financial records, but there are specific challenges to be mitigated. It has been evaluated that the growth of the airline has been exponential for similar strategic groups with the same characteristics in the same field. Currently, many other airline companies are offering similar services (Alamdari & Fagan, 2005). Therefore, Ryanair has to stand out among the competitors following by change management. The main problem observed by the management is that of competitors as the growth is slow.

Research Question

1. What are the challenges experienced by Ryanair in its operations?
2. Which is the main business strategy used by Ryanair?

• What are the benefits of the said strategy?

1. Recommendations for mitigating the challenges experienced by the company?

Literature Review

Background

In the year 2011, Ryanair had a successful year accompanied by stable growth in the number of passengers, net income, and revenues. The observed growth in revenues and the number of passengers outstripped the airline industry growth holistically in a considerable magnitude. In 2011, the financial year, the revenues increased by about twenty percent to record $5,000 million, and according to Ryanair (2020), the overall global growth of the industry increased by about two percent for the same year and eight in the previous year. The ability of the company to be the best in the industry shows its pull with popularity and travelers for the cheap-priced flights.

Together with the achievement of improved revenue presently, the net income of the airline has also increased. Following reduced demand and adverse fuel prices back in 2009, the first loss by the company was recorded. However, the company has rebounded from this downfall posting growth in the past two years. For example, in the financial year 2011, the net income was recorded as $521 million, which was an increase of about twenty percent from the financial year 2010. Despite providing cheap-priced flights, the company excels profitably from its business strategy of cost control.

Another noticeable growth has been observed in the number of passengers, and the values have outperformed the whole industry (Ryanair, 2020). The report illustrated that the industry growth in 2010 was by five percent, while the number of passengers for Ryanair rose by 13 percent. There was a further increase in 2011 by eight percent compared to the previous years. The growths are indicators of a financially stable and popular airline. Many business strategies have been involved in achieving these growths and are discussed below.

Business Strategies

The company has been the first to incorporate a low-cost business framework, and the airline industry has been redefined consequently. It is vital to note that close competitors, for example, Monarch and EasyJet, have also implemented the framework. However, Ryanair has shown to prevail over the competitors in operating at a low-cost (Alamdari & Fagan, 2005). The airline has strict control over the cost and hence able to give cheap flights while ensuring profits to the stakeholders. The company has a competitive advantage whenever the cost is the primary driver of the clients’ choice (Box, 2007).

The strategy also involves selling flights directly to the clients using the Internet or by telephone. The company, however, was connected to about 99 percent of the sale carried out online. As a result, there is no need for travel agents who tend to raise the prices of flights and operations. In some industries, the commission asked by the agents could be as high as 15 percent; therefore, the company saves an enormous amount. Consequently, cheap fares are offered by the airline as the cost of operation is strategically planned.

Another strategy is the policy of utilizing smaller airports that are regional as opposed to larger airports that are international. The company saves a lot by observing this policy since it is cheaper than international airports; cheaper landing and taking-off slots. The cost that would have been passed to the customers is reduced, allowing it to offer cheap flights. Additionally, the airports are less busy relative to the international ones; hence there are quicker turnaround times and more comfortable to secure landing and taking-off slots. Consequentially, punctuality is enhanced, which another major is the selling factor of the company.

In comparison to legacy carriers, for example, Lufthansa, British Airways, and Air France, the company provides a point-to-point carrier as opposed to hub-and-spoke. The airline, therefore, flies to the end destination directly, avoiding the costs related to connecting services that include transit passenger assistance and baggage transfer costs. Additionally, pitfalls that are associated with connecting are eliminated. The competitive advantage with a point-to-point approach is that the journey is more convenient compared to connecting travels.

The frills provided by other carriers as the basic are extras with the airline as it offers cheap flight costs. The model operated is a system of by-onboard in that the passengers are expected to buy any drink or food consumed during the flight without free literature. The distribution of the sick bags is on a request, no pockets on the seats, no in-flight entertainment, and uniform is paid for by the staff. Also, destination seats cannot be booked by the passengers, and this makes the reservation system of the company cheaper and simpler to operate. There are online fees that are cheaper compared to telephone services and the cost of possessing a physical check-in desk for customer care. Ryanair lacks bridges, hence passengers and bussed or walk saving costs since the operation of the buses is by the airport.

Benefits of Ryanair Business Strategy

Following the statistics gathered from the company, the airline is the most punctual airline across the globe back in 2010, which recorded about 80 percent of punctuality. The independent data published by Flight Stats further support the state of Ryanair’s punctuality. The organization gathers data on arrival and departure times. In 2011, the airline was in the first runners-up in performance based on arrival time among key carriers in Europe for the Flight Stat awards (Ryanair, 2020) after the Swedish carrier. Since 2012, the company has maintained a high efficiency in punctuality. According to the report, between 1^st January and 29^th February 2012, about 85 percent of the flights were considered on time, with only four percent as excessively or very late. Customer satisfaction is highly influenced by arriving at the corresponding destination on time. Therefore, more customers are won whenever the arrival time efficiency is high.

Another benefit of the low-cost business strategy is that in 2010, the company lost fewer bags in comparison to the involved legacy carriers or competitors. The statistic by Flight Stat indicated that BA had a record of about twenty bags per thousand passengers. The strategy has also ensured that the company receives few complaints from customers compared to the competitors. The company gave the information illustrates that the airline continuously creates high efficiency in customer service, although the information has not yet been verified. The company’s data indicate a rate of about 0.85 complaints for a thousand passengers back in 2011, which was 1.06 fall of the preceding year. Again, the response to the complaints was carried out with seven days of reporting.

There are several benefits of using regional airports for landing since they are generally less busy, for example, Heathrow and Frankfurt. As a result, there are quicker turnaround times and more accessible to secure landing and taking-off slots. This is a factor that has improved the efficiency of punctuality, contributing to improved customer services. Also, the operation of the airline is a point-to-point carrier that is cost-effective and also inhibits the potential of pitfalls associated with hub-and-spoke carriers. The pitfalls are inclusive of reimbursing the passengers following failed connections resulting from delays. The approach considered by the airline has a competitive advantage related to service to the customers. The common perception of the customer is that direct flights are more convenient compared to a connecting journey.

At current times, there is increased environmental awareness, and airlines are always under pressure to incorporate green operations. Social and corporate responsibilities are a considerable concern to the companies since reputation can be impacted significantly. Therefore, the airline has invested vast amounts of the fund on fleet and currently operates the most modern fleets. The company garnered an efficiency reputation since the incorporation of the modern fleet has paid dividends. Again, reports are indicating that in twenty biggest airlines based on the volume of passengers, the airline records the best relating to emission of carbon dioxide per passenger mile.

Wicked Problem

It is a common scenario to see the company in articles and papers following isolated cases of customer care being insufficient. Several examples have been observed, and some have been reported to the relevant legal authorities. Consequently, there is some poor reputation garnered by the airline based on customer services. However, it is vital to understand that in some areas, Ryanair excels. The main issue with the company is minimizing costs, which has allowed the airline to maintain a policy of strict low-price. With its strategy in business, the airline is to contend with the increasing costs, especially the ones relating to the unstable fuel costs. The impact is especially significant as it takes about forty percent of the entire costs of operation. There is an upward trend observed in the prices of jet fuel, and this is a threat towards the goals and business plans and strategies of the company.

Methodology

Business Model Convergence

Framework measurement, which synthesizes strategy and airline literature in identifying the correct elements and dimensions of the models in the airline business. (Al-Debai & Avison, 2010)This framework applicability in describing the structures and strategies, in terms of conceptualization, for the assessment of potential airline business convergence models is shown utilizing minute samples. In the strategic management field, the paradigm that is predominant for sustainable advantage (competitive) is in terms of the notion that effective and efficient leveraging of capabilities and idiosyncratic resources leads to the excellent performance of the airline (Grant, 2010). Importantly, the notion is inclusive of the existence of similarities, and the implication is that the company requires several new capabilities and resources to perform more excellently than the legacy carriers (Daft & Albers, 2013).

SWOT Analysis Model

The unique model of the company aimed at operating at low cost allows the airline to accomplish superior utilization of assets producing stable performances in finance. Mostly, intense competition can be adverse to the growth ability of the airline based on customer volume, together with expanding the network of operation that has harmful effects in its share in the market (Ryanair, 2020). Using the approach of SWOT analysis, there is an opportunity created by the use of low fare as passengers have responded in the direction of accepting the trade-offs seen in the fares and the many lost services by the competitor airlines. Strength has been observed with the inclusion of secondary airports. The increased use of the secondary ports indicates a low fare interest, confusion, interest in point-to-point carriers, long waiting and walking times, and dislike of congestion seen with hub-and-spoke (Barrett, 2004; Doganis, 2001). The basis of low-cost operation observed in Ryanair is a pure product function, a strict cost control policy, and high airline staff productivity over aircraft suppliers, airports, and cost distribution.

Analysis

Findings

The results show that a great deal of negative publicity was received by the airline. However, some of the public may not be warranted, but the claim is that the company fails sometimes. In the past, Ryanair has been under fire concerning the poor treatment of disabled people, but these are isolated cases. A passenger won a case upon being charged some amount following the use of a wheelchair. The use won their claim as they were left on the runway unattended and had to be carried by another passenger (Malighetti, Paleari, & Redondi, 2009). Some individuals consider a few of the criticisms as stealth charges.

An example is given about the levy charged upon credit card booking compared to a debit card. For instance, in the UK, the fee is about six pounds for one-way flight per passenger. This is observed to double on the return flight to the former destination. The response by the airline was that the charges were based on the card charges rather than fees from the administration. However, the company has received unwanted attention, which has lured the ire of the clients. This issue of charges dispute is the same as the use of phone line services.

PESTEL Analysis

The characteristics and analysis include the following six elements of study as relates to the case study. Political factors are elements concerning what degree and how the government intervenes in the economy. Commonly, these factors are all the influences a government has over the business entity. The factors included her are trade restrictions, environmental law, labor, law, tax policy, foreign trade policy, corruption, and political stability or instability. Economic factors are the elements determinants needed in the performance of the economy. The distinguishing factors are inclusive of unemployment rates, disposable consumers’ income, interest rates, inflation rates, exchange rates, and economic growth. Social factors are elements representing the typical environment of norms, demographic behaviors, values, and customs of the population operating in the company. The factors included are cultural barriers, lifestyle attitude, health consciousness, safety emphasis, career attitude, income distribution, age distribution, and the rate of population growth.

Technological factors are elements of innovations affecting industrial operations and market unfavorably or favorably, and they include research and development, innovation level, technological incentives, and the technological awareness possessed by the market. Environmental factors are elements essential following increased raw materials scarcity, carbon footprint, and pollution targets set by the involved governments. The factors are inclusive of climate change, environmental offset, climate, and weather adversely affecting insurance, agriculture, farming, and tourism. Legal factors are elements overlapping with political factors, although they are particular to safety and health law, patent and copyright law, consumer protection law, employment law, antitrust law, and discrimination law.

Conclusion and Recommendation

Conclusion

Ryanair has redefined the airline industry upon the implementation of low-cost fare models. Implementation of the model has also allowed the company to offer a leading price-led strategy. The product promotion focuses on showing that the company is an airline of low fares. The price promise is that the airline pays double whenever a customer gets similar flights cheaper somewhere else. With this strategy, the company has attracted vast income from passengers under short journeys and who consider prices. However, the company’s business strategy that is led by price is not the only driver of success. Potential has also been shown in the provision of customer services at a first-class level, and it is a fact that the company has topped over the past years. The elements of effective customer services are shown by lost bags, environmental friendliness, and the rate of complaints. With the achievement of excellent service standards, the airline disapproves of the notion that high prices imply excellent services.

Recommendation

It is imperative not only to compare Ryanair with the other airlines but to have a broader perspective of competitors. Ryanair not only compete in the airline industry, are there more, likewise companies in passenger transportation. For travel destinations less than 500 kilometers, cars and trains are other options a consumer could think of. Compared to airplanes, taking the train would reduce CO₂ emissions by eighty percent. More and more customers are aware of the impact flying has, and people even reconsider their holiday destinations because of environmental awareness. With London as Ryanair’s airport central hub, it is wise to have a closer look into the train network from London to Europe’s mainland.

References

Alamdari, F., & Fagan, S. (2005). Impact of Adherence to the Original Low-cost Model on the Profita. Transport Reviews, Vol. 25 No. 3, 377-392.

Al-Debai, M. M., & Avison, D. (2010). Developing a unified framework of the business model concept. European Journal of Information Systems, 359-376.

Barrett, S. D. (2004). The sustainability of the Ryanair model. International Journal of Transport Management, 89-98.

Box, T. (2007). Ryanair (2005): Succesful low-cost leadership. Journal of the International Academy for Case Studies, Volume 13, Number 3, 65-70.

Daft, J., & Albers, S. (2013). A conceptual framework for measuring airline business model convergence. Journal of Air Transport Management, 47-54.

Doganis, R. (2001). The Airline Business in the 21st Century. Berlin: Routledge.

Grant, R. M. (2010). Contemporary Strategy Analysis. New Jersey: John Wiley & Sons.

Malighetti, P., Paleari, S., & Redondi, R. (2009). Pricing strategies of low-cost airlines: The Ryanair case study. Journal of Air Transport Management, 195-203.

O’Higgins, E. (2017). Ryanair: the low fares airline – ‘always getting better’? In G. Johnson, R. Whittington, K. Scholes, D. Angwin, & P. Regnér, Exploring strategy (pp. 622-632). Edinburgh Gate: Pearson Education Limited.

Ryanair. (2020, February 25). The world’s leading low-cost airline. Retrieved from MarketLine: WWW.MARKETLINE.COM