Vincent Maureau        Erasmus        L.S.B.U

        Strategic Management – 2003/2004

RYANAIR CASE STUDY

Q1. “ Analyse of the competitive environment in the 90’s and of the main forces of change in the industry”.

This report aims to analyse Ryanair’s competitive environment and key competitors in the past decade, to understand what was its strategic position, as well as the factors that influenced its business policy. This is a basis to further analyse by providing a clear, understandable overview of the competitive and strategic landscape.

To reach that goal, we will use mainly two analytical methods: first and foremost, the Porter’s Five Forces Analysis (also called “Porter’s Diamond”) will enable us to carry out a graphic assessment of the competitive pressure on the industry. Then, the Strategic Group Analysis will provide a tool of comparison between the competitors as well as an evaluation of the market attractiveness, allowing us to locate Ryanair in its environment and to evaluate the viability of running this business. Last, but not least, we will sum up the key points of this analysis and highlight the main forces of change in this field of activity.

First of all, it is necessary to explain the followed methodology: After having collected information from the case and from other sources, I rated each categories and sub-categories out of five. The rating rule is the more pressure exerted on the environment, the higher the mark. Zero corresponds to a null pressure, five to an absolute pressure factor ruling the market by itself. In order not to overcharge this report, I won’t give the detail of the ranking but summarize it.

The first point to assess is the potential threat of new entrants, who could change the competitive equilibrium or disturb the competitors’ established strategies. The main positive factors are the numerous barriers to the set up of  “from scratch” new competitors. Indeed, the initial investment requires a huge financial support, even on a little scale. A strong expected retaliation threats any potential fast-growing competitor, as history shows a tendency from established competitors, specially national flag carriers, to a “kill the new-born baby” strategy, even by accepting to compete at loss while betting on their financial strength.  The best example is the common strategy they developed against low-cost carriers when they appeared to be dangerous by setting up low-cost subsidiaries operating at loss, with the strong support of the mother company in terms of global resources, business experience and networks, …(e.g. the lawsuit from Easyjet against B.A for unfair competition of its subsidiary “GO”). In addition, we must keep in mind that the market was in reality not so open that it was supposed to be in the 90’s: the “Grand-father rule” and the sky/airports congestion made it difficult to access to route and landing slots, and there was a hidden protectionism from governments who control airports and regulate sky traffic. There is also, among other factors, the importance of economy of scales (on purchase and bargaining) and experience curve (as the load factor and the planes’ rotation rate are some of the main profitability factors), the importance of a perceived standing in the brand image leading to a mistrust in totally unknown brand (for safety reasons but also because of the strong “reflected self-image” in the purchase), etc.  

There is also a possible reconversion from charter companies or regional players to take into account as potential new low-cost players: we shall not forget that Ryanair itself was a regional player before becoming the leader of the low-cost segment and the most profitable airline in the world. As an advantage for new entrants, there are the actions of the E.U. to liberalize the market but also an easy access to distribution channels, as physical outlets are mainly “multicards” travel agencies and as direct sale was already taking more and more importance in this sector of service.

This leads to an average mark of 3/5 for the threat of new entrants, examining 8 analysis factors.

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Concerning the bargaining power of customers, the two main factors are the relative absence of switching costs and the high implication of the customer in the purchase (high acuity), as it represents the uncompressible part of the travel, independently from the length of the stay abroad. In addition, there are often very few alternatives to the air transport for long journey, leading to a concentrated acuity on airlines. The high concentration of the offer is also an important pressure factor, as there is basically one flag carrier per country, 4 major European discounters and numerous national/regional players (especially in ...

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