Internal Analysis of "Ryanair-The "Southwest"of European Airlines" case
Stanislav Boyadjiev
BUS-450
Prof. Voyer
05/23/2009
Assignment I
Internal Analysis of “Ryanair- The “Southwest” of European Airlines” case
Introduction
Ryanair was founded in July 1985 by the three brothers, Catlan, Declan, and Shane Ryan, with the financial assistant of their father Tony Ryan. As a beginner commercial carrier, its operations began with 25 staff and a single 15-seat turbo-prop commuter plane between Waterford in the southeast of Ireland and Gatwick Airport, the second busiest airport in London after Heathrow. Later on, regulatory authorities permitted the Ryanair Airlines to have at least four flying flights a day on Dublin-London route, with more seating capacity. Nowadays, Ryanair, with its rapid growth, occupies the most sought position in its own field, being “Britain’s favorite airline” and the oldest-low cost air carrier in Europe.
The goal of my internal analysis on Ryanair is to focus on resources and capabilities as internal sources of uniqueness that allow firms to beat the competition. This analysis is often called the resource-based view of the firm. By theory, a firm gains an advantage by obtaining valuable and rare resources and developing the capability to utilize these resources to drive customers toward their products and services at the expense of competitors. As a result, firms with superior resources and capabilities enjoy competitive advantage over other firms.
Value Chain Analysis
Firms make products or provide services by engaging in many different activities. The basic structure of these activities is embodied in the firm’s value- chain. Value-chain activities are of two types: primary activities and supportive activities. Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and services. Support activities include human resources, accounting and finance operations, technology, and procurement. All the activities –primary and support are potential sources of competitive advantage or disadvantage of any firm.
In Ryanair case, parts of the inbound logistics are Ryanair’s low-cost deals, negotiated against promise of large and growing volume of business. Also, they include dependency on suppliers to deliver fuel as well as food, drinks and duty-paid products to be sold on-board; they need to be stored, handled and controlled upon delivery. The other important element of the primary activities includes the operations. Ryanair fast turnarounds of 25 minutes are the company’s core competencies. This is the most important cost advantage that enables high aircraft utilization. More frequent departures of two more per day than competitors with few planes, increases Ryanair’s revenue. Point-to-point flights mean no interlinking with other carriers. Raynair offers direct non-stop journeys, avoiding the cost of providing through services for connecting passengers and delays caused by late arrival of connecting flights. Ryanair uses the standard model plane- Boeing 737, which means that company, is able to obtain spares and maintenance services on favorable terms, to limit the cost of staff training and to offer flexibility in scheduling aircraft and crew assignments. A relatively young fleet reduces maintenance, spare and fuel costs. Also, Ryanair placed resources to strengthen its core business such as satellite television, Internet service and arcade game, so the passengers can enjoy the trip. For outbound logistics, Ryanair uses isolated secondary airports, which often require further transport arrangements for customers. Also, some destinations are so geographically obscure that they can’t support regular services to customer, as evident on some Scandinavian routes for example. This limits the level of market share Ryanair can achieve. EasyJet does the opposite and flies to big cities, but then have to pay higher landing charges which are reflected in their higher prices. However, using regional airports saves costs as charges are lower, facilities cheaper and Ryanair can negotiate favorable deals. It also enables fast turnaround times, and more on-time departures as the airports are less congested. 95% of Ryanair’s flights are punctual compared to 88% for EasyJet. As I already mentioned, under primary activities are also marketing and sales. Ryanair considers branding virtually irrelevant as it believes that price is most important to customers. This reflects on company’s image which isn’t always so good in the press. In contrast Southwest Airlines, contribute a large part of their success to theirs well established brand values, and EasyJet has won awards for its brand. Ryanair invested resource to establish website for passengers. It made passengers more convenient. Spending on advertising and promotions to expand its market is reduced as most advertising takes place on the website. There promotion is also used to sell excess capacity, such as two-for-one offers, which creates market awareness. Over 90% of bookings are made directly, either on the website or through reservations centers. The website saves on staff costs, agent’s commission, while significantly contributing to growth. Travel agencies are used on a small scale as necessary when opening new routes in unknown markets. Under services, Ryanair’s virtually no-frills- lower costs considerably. The company enables fast turnarounds and offers very low ticket prices. But with less flight attendants, usually only two per flight, compared to five for the competitors, the quality of the services drops. The philosophy of Ryanair is that for passengers the price is more important than the quality. The low quality services could damage the brand name and this could lead to business reduction.
