Under support activities- the procurement, the purchasing power of the company enables negotiation of favorable deals with suppliers. However, these demand large and growing volumes based on passenger numbers. Although growth is slowed down new planes has been ordered aiming to double the fleet by 2009. Ryanair keeps good buyer-supplier relationships which ensure reliability and low-cost procurement of services. Many functions of the company are contracted out. Under human resource management, Ryanair aims to control its personnel cost by continuously improving the productivity. The staff is working under big pressure set by an overhead person and most commonly with feelings of dissatisfaction. The technology development factor of the support activities indicates that Ryanair uses its website (www.ryanair.com) to monitor bookings and to see how full planes are, all minute by minute. Also, the company uses its internet site as the major part of the business, which saved them about $6 million a year on an average.
Resources and capabilities are the fundamental building blocks of a firm’s strategy. The resource-based view presents a perspective of competition that portrays the value of a resource or capability as derived from the dynamic interplay of market forces. While the market and environment establish external constraints and pressures, a firm’s response through resource allocation and capability development become a source of competitive advantage. The resource-based perspective views a firm as an organization that has a bundle of protective resources and capabilities. Resources are tangible and intangible assets a firm uses to choose and implement its strategies. Capabilities are the skills a firm uses to bring its resources to bear. Ryanair’s tangible resources include all Boeing 737 airplanes the company uses, as well as the company’s headquarter building in Dublin and all other buildings the company uses. Part of the tangible resources also are all of the supplies, food, drinks and duty-paid products company holds in inventory, as well as fuel. Intangible resources contain bigger part of the business. They include all the intellectual capital, like expertise and accumulated knowledge, experience, skills, abilities and talents that every employee in Rayanair possesses. Here I could include also the company’s brand recognition, customer loyalty, investors’ confidence and the good reputation. Charismatic personality of the company’s CEO- Michael O’Leary is part of the organizational culture under the intangible resources.
The capabilities of Rayanair are:
- The lowest airfare rates, simple processes (no frills), large brand awareness, clear offer (focuses on particular market segment), the innovative strategies on cost cutting, and quick turnaround time
- Learning curve (early entrant), accumulated much knowledge/experience, outstanding marketing and PR skills of the CEO O’Leary
- The company ability to bargain and get beneficial deals with suppliers; the efficiency and high turn-around rate, fast luggage handling and high punctuality
- The ability to think strategically and assertively and to act on it: acquisition of Buzz
- The expansion of new hubs and new added routes
- The ability to control and cut costs, which are crucial to survive and succeed in the industry!
- The ability to build and sustain brand (loyalty).
Ryanair’s current financial objectives, strategies, policies and programs are clearly stated in their Annual reports and financial statements for 2008, which I have attached in the separate file. These financial objectives seem to be consistent with Ryanair’s mission, objectives, strategies, policies of low fares, as well as with internal and external environments. There was an increase in profit after tax of 33%, which was because of 7% increase in average fairs, so profit margin was 19.66%. There was an increase in fuel costs by 50%, and staff costs rose 32%. The operating margin decreased by 1% (to 21% from 22%), which lead to an increase in operating profit by 28% compared to 2007. Total operating revenues increased by 32%. Maintenance costs increased by 12%, marketing and distribution costs increased by 71%, and aircraft rental costs increased by 23%. (Ryanair Holdings PLC, 2007). From this financial analysis, I could conclude that costs are increasing, but profit is also increasing leading to gains in the company. The statements are calculated in Euros, and there could be some differences based on the floating Euro/US Dollar exchange rates. In addition, this financial analysis supports Ryanair’s past and pending strategic decisions, based on being a low fare air carrier. Ryanair’s profit margin in 2007 is 19.66%, compared to EasyJet with 8.47% (2007), Air Lingus with 8.19% (2007) and British Airways with 5.48% (2007). If most companies in the same industry report decrease in profits, Ryanair’s financial performance indicates that the company is in competitive advantage. (Ryanair Holdings PLC, 2007)
Analysis of Strengths and Weaknesses
Strengths and weaknesses are the major internal characteristics of firms, derived from the SWOT analysis. Firms within an industry generally have different strengths and weaknesses, and those differences often have a strong bearing on which firms win competitive interactions.
Ryanair strengths are:
- Brand name: Ryanair through its 24 years in the Low Cost Carrier (LCC) market has developed a very well recognized brand name.
- Benefits from low airport charges: These aid the low cost base Ryanair benefits from.
- Has first mover advantage on regional airports (e.g. Charleroi): Acts as a barrier to entry
- Internet site (94% bookings) : Lowers the cost of distribution as over the phone bookings are more costly. Eliminates the need of travel agents.
- High seat density.
- All Boeing aircraft: A uniform fleet saves on maintenance and training costs.
- Fast turn-around.
- High Service performance: Punctual, high rate of flight completion, low baggage loss, which give a good image of the company’s reliability.
- Modernized fleet which leads to less expensive maintenance: Will become more uniform with only one model (Boeing 737-800), also newer planes will require less maintenance.
- High aircraft utilization: Ryanair flies its planes for longer thus generating more revenue from its assets.
- Fuel and other risks hedging.
- Small headquarters
- Point to point flights: No hub and spoke, lowers cost as no through services required
Ryanair weaknesses are:
- Prone to bad press: Rayanair is perceived as arrogant and the slightest incident with the scandal commercial gets a lot of press coverage.
- Niche market: Restricted expansion possibility.
- Distance of some regional airports from advertised destination: Over time customers may find this a big inconvenience.
- Poor service: Ryanair decreased the number of flight attendants per flight, which decreased the service quality.
- Ryanair is extremely sensitive to changes in charges (increase in fair value)
In conclusion I would like briefly to summarize the strengths and weaknesses I mentioned above. Ryanair carries out its routine checks and repairs on its aircraft using its own engineers which means that some maintenance costs are included in the staff cost. Also the company has cost advantage, because of its ability to achieve 25 minutes turnarounds and therefore can run two more flights a day in its schedule than rivals such as British Airways. Their use of secondary airports means that they are able to negotiate deals with the airports, in contrast to larger airlines unwilling to split their operations between two or more airports. Ryanair does not pay dividends to its shareholders. All profit is reinvested back into the business, which means a higher profit margin. Ryanair is unable to expand its home market industry, because of airport taxes. Passengers having their own luggage carried at their own risk could mean a loss of reputation if any major scandal is to occur in terms of loss of luggage. Increasing its fleet could mean that it might incur more losses.
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