Ryanair - The Low Fares Airline: Whither Now - Analysis And Recommendations

Ryanair's success

This report focuses on the analysis of the business strategy of the famous airlines Ryanair. Report analyzes the given case of Ryanair and provides answers of the given case. First of all, it is important to understand about the business operations of the airlines in the operating market. Ryanair is known as one of the cost effective and famous airlines company operating in the Europe. Aim of the business of airline to achieve competitive advantage in the market in terms of affordable cost and prices. The company has adopted various cots leadership strategies to meet the needs and requirements of the customers in the market. In this way, company has an effective slogan i.e. you get what you pay for. By this effective message, company is able to focus on the strategic consideration and provide low cost services to the customers. By the effective strategic practices, the company is now able to gain strong position in the airline industry over its competitors. The report provides answers of the given questions in the case (Muller, 2011).

The success of the Ryanair depends upon some factors which are different from other airlines. It is noted that the company has ‘no-frill concept’ that is helpful for the company to reduce the prices of goods and services. The objective of this concept is to improve the efficiency of any product or service. Along with this, by using ‘no-frill concept’, aim of the company is to provide cheaper products and services to the end customers to gain competitive advantage in the market. Ryanair is using this concept due to some reasons i.e. saving money to hold the inventory, providing training to the pilots and maintaining the business in the industry, buying new airplanes and selling the old ones etc (Witcher & Chau, 2010). That is the reason, Ryanair is known as one of the youngest aircraft fleet in the world. Along with this, this concept is also used by the company to save the money on airport. At the airports, customers have to pay airport fees while buying the tickets and the bigger airports want higher amount from the customers. In such case, Ryanair imposes low airport fee by reducing the ticket prices for the customers and makes the offers more attractive for them (Hoskisson, Hitt & Ireland, 2008).

Further, Ryanair has only point-to-point flights for some routes. It means the company is avoiding big routes flights for the comfort of the customers. along with this, company is focused on the luggage management and minimize the risk of missed connection flights of the passengers. Apart from this, Ryanair has effective cost model which is the key factor of the success. The cost model for the company is provided by its CEO Michael O’Leary. By adopting the cost model, the company is now biggest low-cost airline of Europe and third biggest airline company in the world. Before starting the work of O’Leary as CEO, Ryanair was not so much developed and provided the flights between England and Ireland. After the joining him as the CEO, he adapted a low cost model for the company to rescue Ryanair. In summary, the credit of the success of Ryanair goes to Michael O’Leary who effectively adopted the low-cost model for the company. By using that model, Ryanair is now the biggest airline company in Europe and is able to transport more and more passengers every year (Palepu, Healy, Geek & Bernard, 2007).

Sustainable strategy

To understand the strategy of the Ryanair, it is important to analyze the position of the company in the market. For this manner, market analysis tools can be used in the company. By the five forces model, the sustainability of the airline can be analyzed for the long term basis.

Threats Of New Entrants-

In the factor of new entrants, the threats are relatively low as companies need huge amount of capital to start the business. Along with this, there is high level of entry barriers for the new companies such as access to distribution channels, economies of scale etc. So, for the new companies, it is quite difficult to enter in the airline industry.

Threats Of the Substitutes-

There is the strong presence of the substitute transportation services in the market for Ryanair such as coach transport, railway networks, car firms and sea transports. But all the transportation services are costly and it is not possible for every person to afford the cost of transportation. Along with this, it can be said that flights are the main reason of the competitive advantage for Ryanair. So, in this case, threat of the substitute for Ryanair is relatively low in the airline industry (Roosa, 2010).

Bargaining Power Of Suppliers-

In case of bargaining power of suppliers, it is well known that Boeing is the key supplier of Ryanair. The company is the biggest buyer of Boeing with 737 models and the fastest growing airline of the industry. It can be observed that the bargaining power of the suppliers is growing continuously. Along with this, the switching cost of the suppliers is relatively high due to the presence of many airlines in the industry (Milmo, 2011).

Bargaining Power Of Buyers-

In this case, it can be seen that there is high bargaining power among the buyers or end users of the airline services. The reason is that there are many low cost airlines available in the market. The bargaining power of the customers has increased as most of the airlines are providing the services at the lower rates because of the presence of strong position in the market.

Competitive Rivalry-

At last, this factor is also observed as the low in the airline industry. The reason of low competitive rivalry is that there are massive economies of scale in the country that impact on the entry of new companies in the industry. It is well known that Ryanair is the newest and largest airline in the industry so; company has strong competitive advantage with its cost leadership plans.

Analysis of competitors

The sustainability of company can be analyzed by understanding the position of the competitors in the market. The competition with other airlines in the industry is very unique and needs a little bit bravery. The competitors are trying to provide low cost services to give tough competition to Ryanair in the market but in terms of services, Ryanair has superiority as compared to other airlines. The company has low cost model along with the high seat density, high load factor, and efficiency to attend the passengers. Competitors are trying to copy this low cost model but they are not able to manage the expenses with lower cost services. There is one more problem for the company i.e. competitors are trying to offer the affordable services in the long routes flights and Ryanair is still operating short route flights. In this manner, competitors will be able to target large customer base who want to travel on long route. To attract large customer base, company should start long route flights with the same services (Hitt, Ireland & Hoskisson, 2010).

Ryanair is doing well in its operating model. To stay competitive in the market, it is important for the company to change its strategies and models time to time. To achieve high level of competitive advantage, there are some recommendations for Ryanair that must be adopted by the company. Recommendations for Ryanair are given below:

The company is focused on the ‘no-frill concept’ to reduce the additional cost in the business so that tickets at the lowest price can be offered to the customers which is possible. This is an innovative and very good idea as passengers will travel with lots of comfort and friendly mood. This function was doing well when Ryanair was the single operator of this plan but now there are many companies adopting this strategy and now it is very difficult for the company to retain its customers in the competitive market (Azar & Brock, 2010). So, there is the need for the company to change the existing cost model so that more and more customers can be targeted. Further, company is dealing with the secondary airports like Frankfurt-Hahn which a good idea for saving the money but passengers is facing problems to reach the destination. Passengers have to waste their lots of time and money to reach on those secondary airports. So, Ryanair should think about changing the deals of the secondary airports in the big cities as it is very expensive for the passengers (Szymanski, 2011).

Recommendations for change

Introduction Of Long Route Flights-

Further, if the company wants to enter the market of long route flights, then the company has to quit its ‘no-frill’ concept. The reason is that if the passenger travel for 6 hours and longer, then it is important for the airline to offer free snacks and soft drinks to them. Along with this, it is necessary to provide more space to the travelers as compared to short route flights. So the company has to decrease number of seats in the airplanes that will lead to the higher cost of a customer per kilometers. Some entertainment should also be installed in the planes as in the long route flights; it is quite difficult for the passengers to sit for so much long time. If Ryanair on these factors and does changes according to the long flights, company will be able to attract more passengers.

Change Of Low Frill CAoncept-

Ryanair should change its no frill concept as this concept is applicable only on short route flights but for the long route, it is not applicable. This concept with the secondary airport is completely useless as after a long journey, passengers want to arrive at their destinations. They do not want to stay at the other airport which is miles away from their original destination. So, this concept must be change while the company is seeking to expand its business with the long route flights to attract more and more customers (Walsh, 2011).

According to the case, it is analyzed that the Aer Lingus Bid does not make any sense in the business operations of Ryanair. In the current environment of the company, it is not advisable for the Ryanair to continue the process of Aer Lingus Bid. It can be seen that each and every stakeholder in the company is against of this bid. Some of the main players of the business such as Aer Lingus board will not be accepting this bid. Along with this, there is also opposition from both Irish Government as well as EU (Milmo & Wearden, 2008). So, it is recommended to the company to keep its current shares on hold in Aer Lingus while focusing on bid. According to the Financial Times, the bid of Ryanair in the Aer Lingus was not a good decision. At the time of bidding, Ryanair to take over Aer Lingus may have seemed like a good idea. But, as the time passes, it did not really make a strategic sense. Both the companies were account for 80% of all the flights between European countries and Ireland.  The company was focused to win over the company along with the increasing bids starting from 19.2% to 26.2% and 28% of shares (The Conversation, 2015).

Ryanair had wasted its lots of time and resources in trying to win over the Aer Lingus but in this process company got a bad name for itself in the business due to various public issues. Aer Lingus started to see a downfall in the business and announced the losses in various operations. In such case, all the offers were put forward by Ryanair in the market (Freeman, 2012). According to Michael O’Leary, CEO of Ryanair, when there was no any bid between Aer Lingus and Ryanair, the company had good position in the market as Aer Lingus was facing continuous looses in the market (Clark, 2012). So, bid of company with Aer Lingus does not make any importance for the business in the airline industry.

References

Azar, O.H & Brock, D.M., (2010), The development of strategy process research and the most influential articles and authors” in Handbook of Research on Strategy Process, F.W

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https://dealbook.nytimes.com/2012/06/20/ryanair-approaches-aer-lingus-for-a-third-time/?mcubz=0

Freeman, M., (2012), Poll: Should Ryanair be allowed to buy Aer Lingus, ccessed on 5^th September 2017 from

https://www.thejournal.ie/ryanair-aer-lingus-takeover-bid-poll-493631-Jun2012/

Hitt, M.A, Ireland, D. R., & Hoskisson, R.E., (2010), Strategic Management: Competitiveness & Globalisation, Concepts, Cengage Learning

Hoskisson, R.E., Hitt, M.A. & Ireland, R.D., (2008), Competing for advantage, Cengage Learning

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https://www.theguardian.com/business/2008/dec/01/ryanair-aer-lingus

Milmo, D., (2011), Ryanair snubs Boeing by announcing jet design pact with China’s Comac, The Guardian, accessed on 5^th September 2017 from

https://www.guardian.co.uk/business/2011/jun/20/ryanair-designs-chinese-rival-boeing-737

Muller, C., (2011), Ryanair case study and strategic analysis: An analysis on the competitiveness and low-cost strategy of Europe’s leading low-cost carrier Ryanair, GRIN Verlag

Palepu, K.G., Healy, P.M., Geek, E. & Bernard, V.L., (2007), Business Analysis and Valuation: Texts and Cases, Cengage Learning

Roosa, S.A., (2010), Sustainable development handbook, (2^nd), The Fairmont Press, Inc

Szymanski, A., (2011), The Competitive Analysis of Commercial Aircraft Industry, GRIN Verlag

The Conversation, (2015), British Airways isn’t chasing the rainbow with its Aer Lingus bid, accessed on 5^th September 2017 from

https://theconversation.com/british-airways-isnt-chasing-the-rainbow-with-its-aer-lingus-bid-36815

Walsh, C.R., (2011), Airline Industry: Strategies, Operations and Safety, Nova Science Publishers

Witcher, B.J. & Chau, V.S., (2010), Strategic Management: Principles and Practice, Cengage Learning