1.0 Executive summary
Ryanair has experienced tremendous growth and success over time. The low-cost company strategy has been quite effective for several years. The adoption of the strategy has contributed to the growth and the success that the airline currently enjoys (Barrett 2004, p.90). However, despite its success the company is faced with various challenges including but not limited to volatile fuel prices, increased competition among others. The strategy employed by the company has worked well in the past. However, there is the need to analyze the current market and develop appropriate strategies that will further increase the airline success and growth.
Ryanair Strategic Analysis Report
2.0 Introduction
In Europe, Ryan air is ranked first and has the largest budget in the airline industry (Barrett 2004, p.90). Barrett 2004, p.91 argues that in the recent years the industry has experienced some notable challenges from the environment, the fuel price uncertainties and the economic recession. The challenges facing the industry have resulted in a reduction of profits forcing some companies to retrench their workers (Diaconu 2012, p.343). In the wake of increased changes in the industry, the question is whether Ryan strategic plan and its implementation can ensure the company continued future success and growth. This report will analyze; the current strategic plan of the company, its overall strategy, appropriateness of the strategy, their responsiveness to nation’s differences, the reasons for the company to operate in some countries and not others, company key challenges, alternative strategies and how they can be implemented by the company.
3.0 Discussion
3.1 Current strategic situation of the company
A strategic situation of a company can be defined as a situation whose outcome is not only influenced by the company actions but also action of other players in the industry (Berk & Associates 2010, p 14). According to Berk & Associates (2010, p 14-160), a company can only partly control its strategic situation. The current strategic situation of the Ryanair can be properly understood by conducting a SWOT analysis of the company. A SWOT analysis involves an analysis of the strengths, weakness, opportunities and threats with the aim of understanding the external and the internal environment of the company (Fine 2009, p 29). The analysis of the airline situation strategy is summarized below.
3.1.1 Strengths
Ryan air has adopted ultra low-cost strategy in the European airline market. The airline has been able to dominate the market, with reports showing that the company flies more passengers than any other airline in the industry (Monitor 2008, P.2). Secondly, the company uses new, young and homogenous fleet leading reduction of the operating costs (Malighetti, Paleari & Redondi 2009,p. 196). Malighetti, et al. 2009, p.196 further argues that the company has adopted a strategy of disposing its aircraft before a major repair. The company strategy has been vital in reducing the fuel, repair and maintenance, staff and other overhead costs.
Thirdly, the company has adopted a strategy to flying from small regional airports whose slot fees are much cheaper (Monitor 2008. P.2). The company dominance over the small airports enables the company to get staff support and provide exceptional customer care services due to great reliability, shorter turnaround times and fewer cases of lost languages (Monitor 2008, P.3). Fourth, exceptional turnaround time- Ryan air has a turnaround of approximately 25 minutes compared to the average industry turnaround of 60 minutes. The company turnaround time has provided it with a competitive advantage over its competitors (Barrett 2004, p. 91).
3.1.2 Weaknesses
The weakness of Ryan air includes the following; first, public perception- the public perception of the company is that the company serves low-income earners (Monitor 2008, P.4). Monitor 2008, P.4 argues that the perception limits the company growth especially among the upper class of the society. Such a public perception could drive away customers who would otherwise have been company customers. Second, auxiliary fees- the company has been criticized over its auxiliary fees. The company charges relatively higher fees compared to other low-cost carriers in the industry. Third, customer service and relations- according to Malighetti, et al. 2009, p.197 the company seeks to reduce cost by any means necessary. This has lead company failure to provide some exclusive services provided by other carriers and requiring customers to pay for the services when such services are required by customers (Kitching 2014). Fourth, employee’s relations- in an effort to reduce its labor costs the airline refuses to allow its employees to join labor unions. The airline move has lead to wide spread criticism of the company labor relations. The airline has also been accused of poor treatment of employees, resulting in the Norway government threats to boycott the company (Malighetti, et al. 2009, p.197).
3.1.3 Opportunities
Ryan air has the following opportunities; first, market expansion- the airline currently mainly operates within Europe. Thus, the company has the opportunity to venture into other markets across the world. The expansion of the company into the untapped market could increase the company market share and profitability (Anonymous 2011). Second, the introduction of additional services- the company may include additional services to the currently offered services. The introduction of additional services would result in increased revenue streams for the company increasing its profitability (Malighetti, et al. 2009, p.198). Thirdly, the company may consider a review of its activities and operations with the aim of identifying some activities or operations that could be used by the company in its cost reduction strategies (Barrett 2004, p. 92).
3.1.4 Threats
The airline industry is experiencing increased competition. Belobaba, Odoni & Barnhart 2009 argue that the entry of more players in the industry creates a threat to the company existing customer base and market share. The shift of the full-service carriers to provide low-cost flights has further increased completion in the low-cost market segment. Second, the airline industry as a whole is faced with the threat of the uncertainty of fuel prices limiting the ability of the industry to effectively predict and budget for fuel cost (Belobaba, et al. 2009). Thus to ensure the company remains profitable despite the increase in fuel prices, the company needs to devise measures to further reduce their cost (Belobaba, et al. 2009).
3.2 Overall strategy of the company
A strategy is a long-term plan or policy providing a direction to realizing the goals and objectives of an organization (Hill & Jones 2012, p.17). According to Hill & Jones 2012, p.17-19 there are various organizational strategies, some which include, first, corporate strategy- it comprises of a set of decision rules that determines the types of the business an organization shall engage in. Second, business strategy- it provides a set of rules to be used by an organization to develop and maintain a competitive advantage over the competitors in the industry. Third, functional strategy- it comprises a set of decisions that guide the operations and functioning of the various organization departments and that supports the realization of the business strategy. The strategy adopted by an organization determines the success or failure of the company. In the case for Ryan air, its success and growth over the years have been driven by it low-cost and revenue maximization business strategy. Thus, it could be argued that the overall strategy of Ryanair is cost reduction and revenue maximization.
According to Barrett 2004, p 95 the current strategic situation of the company, the company focuses on cost reduction and revenue maximization measures to maintain its competitiveness in the industry. Some of the measures put in place by the airline include the following; failure to provide customers with inclusive services provided by other carriers and requiring the customers to pay for the services if needed, requiring customers to carry their luggage or pay for the service, and charging the use of bathrooms. The overall strategy of the company over the past years seem to have worked exceptionally well for the company resulting in the company success and growth. However, in the modern market, the company strategy is likely for face challenges as competition intensifies in the sector.
3.3 Is the strategy correct for the company?
According to Pate & Beaumont (2006, p.324-326) this concept is based on the appreciation that personnel is the greatest assets of an organization. As such organizations are striving to motivate their employee to ensure organization productivity and efficiency. Various researchers have shown that when employees are motivated, they are likely to provide better customer experience (Belobaba, et al. 2009). As such majority of the airline in the current market are not just concerned with offering low-cost services but also ensuring better customer experience. Creating a better customer experience enhances customer loyalty thus giving an organization a competitive edge over the competitors. Studies have also shown that majority of customers in the airline industry are more concern with the services they are offered rather that the price of the service (Belobaba, et al. 2009). Belobaba, et al. 2009 argue that the market is shifting towards value for money concept and not just delivery of service.
The Ryanair has adopted a strategy of cost reduction and revenue maximization at all costs (Monitor 2008, p.3). As such the company is ready to disregard their customer needs and charge their customers for basic services so as to reduce their operational cost and increase their revenue. This strategy is contrary to the market dynamics and their competitor's strategies. As such, in my opinion, though the strategy may have worked in the past, it may not be the right one for the company under the current economic pressures and market shifts. Therefore, the company should consider revising its overall strategy to enable it to compete effectively with other players in the industry and to retain its market share.
3.4 Ryanair responsiveness to differences among nations
The success of a business operating in different countries is largely determined by the ability of the organization management to understand the local market (Sadler & Craig 2003, p. 74). As such, an analysis of the local market is important in gaining insight into the strategies that should be adopted by the company in the local market. Though the company strategies may result in the desired success, and greater success would be realized by the company by integrating its strategies to the local culture. Failure to recognize the local culture is likely to lead to the business failure. In the case for Ryan air, the company operates in thirty-one countries. The airline has adopted a similar strategy in all its countries of operation (Monitor 2008, p.4). As such the company is not quite responsive to the differences among the nations it currently operates in. the lack of the airline responsiveness could be influenced by its organization structure, where strategic decisions of the company are made at the top level.
3.5 Key challenges of Ryanair
Despite its success over the years, Ryan air like any other business has been faced with various challenges. According to Barrett 2004, p 95-97 some of the key challenges facing the company include; first, customer satisfaction- in line with the airline cost reduction strategy, the airline abolished the traditional in-flight and inclusive services such as newspapers, complementary drinks, and meals, carrying customer luggage’s and seat allocation among others. The airline instead charges customers for these services and other expenses such as internet and travel insurance. The elimination of these services has resulted in challenges of satisfying customers in the modern market as customer’s value more the customer experience they get from the company.
Second, public perception of the airline- the public perceives the airline as for the low-income earners. As such, the perception could negatively affect the customer loyalty.. Third, increased competition- over the years the airline industry has seen more players enter the industry. This has resulted in increased competition in the industry. Ryanair also faces competition from charter flights and franchise of the major airlines. The increased competition is a challenge to the airline in retaining its market share and customer base. Fourth, the introduction of European Union Regulations- the introduction of the law aims to provide a level competition ground by preventing companies European airlines from having a beneficial relationship with airports and being given state aid. The introduction of the law created a challenge to the airline since the continued provision of the service would be illegal. Fifth, increased fuel prices- today, the uncertainty of the fuel cost is one of the major challenges facing the airline industry.
3.6 Alternative strategies
According to Kangis & O’Reilly (2003, p.102-104), understanding the current trends in the airline industry is the key to developing appropriate strategies that the company should adapt. The increased competition has lead to the emergence of the low-cost airlines which seem to be doing quite well.
As such, I would recommend the following strategy directions. First, aligning the ancillary fees with cost- Ryanair success and growth has been largely influenced by the ability of the company to offer low price tickets. However, this had been made possible by excluding some of the traditionally inclusive services from the cost of the ticket and thus giving the customer the power to decide what services to include. Although, this strategy may have worked, it creates a negative perception toward a company especially when the company charges services such as carrying luggage, using washrooms, drinks, and foods. Such a strategy is likely to change the perception of the public about the company, thus increasing the customer base.
Second, making use of fleet during winter- the volatility of fuel prices is one of the major challenges that airlines are facing. Although the airline has insured against it, more measures are required to be taken. As such the airline should consider using rented aircraft during winter due to the high cost of the fuel during these months. Third, expand routes- continued expansion would be healthy for the company. Continued expansion is likely to result in increased economies of scale.
4.0 Conclusion
The success of every business depends on the effectiveness of the strategy adopted by the management. To be able to compete effectively the management should conduct an environmental analysis of the company using appropriate tools such as the SWOT analysis technique (Fine 2009, p. 47). The organization strategy should be designed in response to environmental analysis (Sadler & Craig 2003, p. 110). In a competitive industry such as the airline industry the management should keep track of the changes in the industry and the market and develop appropriate strategies to respond to those changes. Continued innovation and adoption of the technology could give the company a competitive advantage over its competitors. As such innovation and technology should be a part of the organization culture.
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