Using Porter's model identify and analyse the generic strategy pursued by Ryanair throughout the period covered by the case.

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Q1. Using Porter's model identify and analyse the generic strategy pursued by Ryanair throughout the period covered by the case.

Porter (1998) suggests three generic competitive strategies that organisations can adopt and implement within their industry. These three strategies are: (1) Cost Leadership - where a firm seeks to be the low-cost producer in its industry, (2) Differentiation - where a firm seeks to be unique in its industry through features of its products that are highly valued, and (3) Focus - where a firm focuses on a segment in its industry using a low cost approach (cost focus) or a high differentiation approach (differentiation focus).

The case study shows that Ryanair was initially founded as an alternative to Aer Lingus, which was then the state monopoly carrier of Ireland. While plying routes between the UK and Ireland, Ryanair adopted a differentiation strategy, in which it was a full service airline with two seat classes and three different types of aircraft. The impact of the strategy was felt in five short years. By early 1990, despite a growth in passenger volume, Ryanair had accumulated losses of more than IR£20 million, and decided that a new strategy was necessary. Under the management of the newly appointed team headed by Michael O'Leary, it turned to the low-fare sector of the industry, which was under catered for at that time. Ryanair then changed its objectives and aimed to become Europe's "leading low-fares airline". According to Porter (1998), when a firm adopts a cost focus strategy, it "selects a segment or a group of segments in the industry and tailors its strategy to serving them". The case study shows that Ryanair wanted to target price conscious travellers. This strongly suggests that it adopted a cost focus strategy.

As a cost focuser, Ryanair was required to change its whole organisational culture to one which is much steeped in achieving the lowest cost possible, so as to provide a competitive advantage. It attempted to maximise productivity and lower cost in every aspect of its operations, from removing in-flight amenities to negotiating favourable rates for airport charges. Thus, Ryanair's strategy can be identified as cost focus. However, Porter's lack of definition of an "industry" while describing the generic strategies poses a few problems. It can be argued that although the low-cost sector constitutes to only 6.7% (see Exhibit 2, Appendix 1) of the whole market, it can be considered an industry by itself. If this view is taken, then Ryanair's strategy can be identified as cost leadership. The characteristics of an organisation adopting a cost leadership strategy is very similar to a cost focus one; Porter (1998) claims that "a low-cost producer...typically sell a standard, or no-frills, product and place considerable emphasis on reaping scale or absolute cost advantages from all sources.".

Ryanair has been consistent in pursuing its cost focus strategy. Its attitude towards achieving the lowest costs possible seems to be almost fanatical. It has managed to drive costs down by addressing levels in its value chain, for example negotiating better rates from its suppliers (Boeing and airports) In addition to the cost-cutting measures mentioned above, Ryanair has also lessened its dependence on travel agents by allowing direct flight sales through phone and its website. Competing on costs need not mean only achieving low costs. Maximising productivity in an operation area also constitute to saved costs. For example, the wages that Ryanair pays its pilots may be above the industry average, but since performance-related pay is used the pilots are more motivated and higher productivity ensues. Services like aircraft handling, engine and heavy maintenance that are contracted out to third parties also protects Ryanair from any potential industrial unrest, which can be very costly.
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The extent to which Ryanair has been successful in achieving true cost leadership under Michael O'Leary's management can be seen in Exhibit 6 (See Appendix 1). From 1999 to 2000, the Passenger Load Factor decreased from 71% to 67%, and Break-even Load Factor decreased from 58% to 54%. However, the "available seat mile" (ASM) has increased by 35%. This is contributed by the relatively short distances on intra-European routes. Expenses created by an increase in ASM are passed on to the customer in higher fares, so the average passenger fare from 1999 to 2000 has also increased from ...

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