Introduction
Ryanair is the first European Low Cost Carrier (LCC) by utilizing the Southwest LCC model in 1990. It started its business as a small family owned business by Ryan family on 1985. Its first route was between Waterford in the southeast of Ireland to London Gatwick with a 15-seater Bandeirante aircraft. On the following year (i. e. , 1986) it put milestone of European fare war in the air travel industry by promoting a fare of 99 return compare with the BA/Aer Lingus lowest return fare of 09.
On the first full year it carried 82,000 passengers. On 1990, after three years of constant growth, Ryanair faces a loss of 20m due to intense competition with British Airways and Aer Lingus. The management decided to change their strategy. They adopted US successful Southwest Airlines low fare model and re-launched its whole management and become the first European low fares airline. After that Ryanair does not look back from its profit. Currently, Ryanair operates more than 1,400 flights per day from 44 bases with 1100+ low fare routes in 27 countries.
It covers 160 destinations. It operates a fleet of 250 new Boeing 737-800s aircraft. Ryanair presently has more than 8,000 people as employee and expects to carry approximately 73. 5 million passengers in the current fiscal year1. According to IATA it has been ranked as No. 1 of international, domestic and total scheduled passenger numbers which was 73,500,000 which nearest competitor Lufthansa with 41,515,0002. Ryanair’s success story backed with its core strategy. It adopts the LCC core strategy by focusing on lowering all kinds of cost.
From the very beginning of its strategy it is found that Ryanair use all possible steps to reduce the cost of operating in the aviation industry. It gives the strength of lowering the fare and generates high passenger traffic all year round in all situations. In the present study these aspects of Ryanair’s strategy will discussed relating with various issues arises in the aviation industry.
Macroenvironment
In order to analyze the Macroenvironment of the low cost airline industry we have applied the PESTLE analysis. This analytical model clearly depicts which environmental factors and trends are favorable for the airline industry and which are not. Focused on political, economic, social, technological, legal and environmental aspects this tool could easily bring great clarity on what is actually going on in the specific industry. Due to the fact that the success of Ryanair is dependent upon a lot of different factors, it is very important to have a closer look at these six dimensions. On the political level there are several important factors directly influencing the airline industry.
On one hand, EU offers a strong and stable political environment, which gives the company security to plan long term strategies and make large strategic investments. On the other hand, however the union follows a severe pro-environmental policy and it fights for global carbon taxation, which will of course substantially increase the costs in the airline industry. At the same time, we should not forget that in the last couple of decades the European Union has expanded significantly. This has brought tremendous business opportunities for companies to expanded their operations and enter new markets more quickly and trouble free.
Ryanair experiences also a lot of pressure from trade unions, because it does not recognize them. As far as the next dimension is concerned we have to point out that just as the political environment the economic one is also very controversial, offering both supportive and opposing factors for the airline industry. The economic level is not of minor importance.
The collapse of the financial market in 2008 was followed by a severe economic crisis. Unemployment increased substantially especially in countries such as Spain and Greece. People cut down on leisure activities such as travelling and preferred to stay at their homes. Furthermore, fuel prices are very volatile and we have seen recently major price fluctuations. The crude oil prices skyrocketed in 2007, which resulted in higher prices for the end consumer. Maybe the weak US dollar slightly softened the higher fuel prices for european companies, but the higher prices definitely caused strong disturbances on the EU market as well.
Nevertheless, Ryanair kept serving more and more passengers and it seemed as it just did not want to participate in the global recession. The social environment is rather positive due to the following trends. There are changes in demographics and consumer preferences. Although the EU population tends to get older, there is definite tendency towards more frequent short-term trips for weekend city tourism. The increased environmental awareness might make some people travel less, but Ryanair is one of the leading airline companies trying to reduce CO2 emissions as much as possible.
It has already replaced its entire aircraft fleet and the new airplanes are much more fuel efficient and respectively reduce less CO2 emissions in the atmosphere. We evaluate the threat of terrorist attacks to be not very high, because Ryanair serves secondary airports with much less people circulation. Even though those airports have usually lower security levels, we still do not think that they will be an attractive target for any possible tourist attacks. Technology also provides quite good environment for the airline industry.
The new aircrafts produced today are much more fuel efficient, which automatically means less CO2 emissions. The continuous development of Internet has allowed Ryanair and other companies to significantly reduce their costs through standardized online booking processes. Today, there are indeed much quicker trains, however air transport still remains unbeatable as far as speed is concerned.
The last two dimensions legal and environmental we have described as rather negative. This is mostly due to increased climate change and environmental awareness. Therefore, many people and environmental organizations are opposing airline industry. Although it online contributes 1. 6% of the GHG, it is the transport sector with the highest growth in terms of CO2 emissions. At the same time local communities are concerned about noise pollution. Even though new technology has significantly reduced the noise generated by airplanes there is still a room for improvement.
There are new initiatives by EU to implement a strong environmental policy. It is focused on setting legal emission constraints and passengers will have to pay for their CO2 emissions as part of the flight price. Next to that we have to point out that in the recent years Ryanair has other major legal troubles.
There were some corporate lawsuits against the company that caused some damage to the image of the company and in the future it definitely has to pay greater attention towards the corporate brand and the society’s perception. All in all, the Macroenvironment is contradictory with having both positive aspects supporting the industry and negative aspects opposing it. The biggest problem by far is the increased environmental awareness on political and social levels, which can easily result in increased prices and jeopardize Ryanair’s business model. However, the improved technology and travel trends compensate to some extent for the above mentioned hostile factors.
Stakeholder Analysis
Stakeholder mapping Ryanair has many different stakeholders that could influence the company in one way or another. Some of the most important stakeholders are: shareholders, investors, creditors, the government, customers, employees, competitors, local communities, and NGOs. In order to analyze the stakeholders and their influence in detail we have used the stakeholder mapping framework, which will give us a better overview of the level of interest and influence of the different groups. Under key players we have identified shareholder, investors, creditors and the government as the most interested and influential groups on Ryanair and the airline industry in general.
Obviously, shareholders and investors are partial owners of the company, which gives them some power to influence the company’s decision making. Creditors could become very unfriendly, if they do not receive their monthly payments. The government could easily improve or worsen the business environment for every industry by implementing some new laws and legislations. The groups that Ryanair has to keep informed are customers, employees and competitors. They are very interested in the company, but compared to the key players they have far less influential power.
Employees are less powerful due to the lack of trade unions that the company is a part of. Customers could hardly switch to any other airline, because Ryanair prices are unbeatably low and the low cost passengers are extremely price sensitive. Competitors are also very interested, but they cannot easily influence the company a lot. They could hardly offer much lower prices than Ryanair. Even if they could they could only do it in a very short-term, which makes it pointless in the first place. The other two stakeholder groups NGOs and local communities we have identified as respectively keep satisfied and minimal effort groups.
We consider this group to be not that actively influenced, because if a company follows a strategy to reduce CO2 emissions and increase fuel efficiency as Ryanair does, then a NGO will not pay much attention to it. Local communities are the least important group according to the stakeholder mapping framework. First of all unorganized they do not have strong power and second Ryanair generally serves secondary airports which are outside of the big cities where fewer people live. Therefore, we think that local communities do not consider Ryanair in particular as a strong noise pollutant.
Thus, it has achieved much higher fuel efficiency, 45% less CO2 emissions and the average age of its airplanes is 2. 5 years in contrast to 11 years for the average industry. Through these actions the company tries to keep the government, employees and customers satisfied. On one hand the government sees that Ryanair is trying to reduce its impact on the climate change and to comply with the new legal frameworks and the increased carbon emission restrictions. On the other hand, employees and clients feel much safer when travelling in new airplanes.
As a result of all these initiatives the image of the company as far as reliability is concerned is pretty high. Even though they were some problems with a couple of flights, Ryanair has not experienced any incidents with casualties so far. This gives credibility to the company and makes one of the first choices in cheap international travel. Furthermore, the new airplanes fulfill all the new noise requirements. Ryanair has equipped all its aircraft fleet with winglets which will further reduce the noise pollution by 6. 5%.
Given the fact that Ryanair follows a severe low cost strategy and does not offer free meals, drinks or any newspapers, this result in significant waste reduction compared to the traditional airlines. We know how big of a problem is waste in our world today and the resources required to properly manage it are tremendously hight. Thus, non-governmental organizations and even governments will be satisfied with the company’s lower levels of waste, which speaks for a more sustainable business model.
For its shareholders, investors and creditors, the company releases regular financial reports, which provide all the necessary information for interested stakeholders to see how the company is performing. Two times per year Ryanair also releases profit reports, which further gives more clarity on the current situation. At the same time, the company is involved in different CSR campaigns. For instance, this year they released 10 000 copies of the Girls of Ryanair Charity Calendar, which they will sell for $10 each and the revenue will be donated to some charity organizations.
Conclusion
After applying several different analytical frameworks to analyze Ryanair’s strategy on various levels we have found out that the company is being successful mostly as a result of the deregulation of the Airline industry, the European Union expansion and the its severe low cost strategy. Since its foundation in 1985 the company has transformed itself into the low cost airline with the highest number of international passengers in Europe; in 2010 Ryanair served approximately 73. 5 million passenger whereas Lufthansa served 41. 5 million and Easy Jet 34. 6 million.
Clearly, the company outperforms its direct rival and all the other airlines. Copying Soutwest Airlines business model gave Ryanair the opportunity to gain competitive advantage over its competitors and move ahead of them. The low cost carrier has been indeed criticized a lot; however, it is an outstanding business organization that delivers its clients what they need – the opportunity to travel abroad on a very low price. The reason why Ryanair is being so successful is because it manages to offer prices on average at least 12% cheaper than the next low cost competitor – Easy Jet.
Recommendations
Our analysis has revealed that the main reason Ryanair has grown tremendously in the last couple of decades is mostly due to the expansion of EU, deregulation of European markets and the severe low cost strategy followed by the company. It is interesting how it seems as if the company was not impacted by the recent global crisis; the company continued increasing its number of passengers and offering new and new destinations.
However in order to keep being successful and further improving its leading position on the market, we have prepared some recommendations for the company to implement. Ryanair has to keep increasing the number of flights offered to existing destinations. There is still a lot of room for improvement and the company can definitely obtain new destination cities within existing markets.
Next, Ryanair has to continue exploiting new markets in Eastern Europe, Turkey and North Africa. The company successfully entered the new European members Bulgaria and Romania and started operating on both markets. However, they only serve one city per country. The company has to better exploit both destinations, which are generally cheaper destinations in Europe and have a lot to offer for less money. At the same time, Ryanair has to continue looking at Turkey and figuring out a way to enter the country.
The western part of the country is very interesting with an incredible history, which makes it a desired destination for many Europeans. The market in North Africa could also be developed further; countries such as Tunis and Egypt are generally desired tourism destinations and are rich in history and culture. Charter flights are one of the best ways for going on a holiday. However, Ryanair is trying to challenge this model by offering cost-effective opportunities for people to organize their own holidays and avoid the appalling mass tourism model offered on the market today.
Often there are corporate lawsuits against the company as a result of bad marketing campaigns or some personal lawsuits towards the company’s CEO O Leary. He is a genius but at the same time an arrogant person, who often gets into public confrontations, which damage the corporate image. Ryanair has to be more concerned how the society and all its stakeholders perceive the company and what they think of it. Ryanair has already reduced significantly its cost as a result of a severe reduction policy.
The company has saved a lot by efficient optimization of its uniform fleet, administration, crew costs, sales expenses, food and beverages offering, higher flight time, sales commissions, secondary airports, ground handling, seat density. Cost reduction per passenger amounts to 59% in comparison to traditional airlines. Nevertheless, Ryanair has to keep searching for ways to further reduce its costs, because this is a perfect way to continue outperforming its competitors. Last but not least, the company has to try to make all its bookings done online.
This will enable Ryanair to further drive costs down as it will get rid of expensive call services that it currently provides. Getting the best use of the Internet and online bookings will allow the company to make its booking process completely automated and much more efficient.
