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3. Value Chain Analysis

3.1 Primary Activities

3.1.1 Inbound logistics

• Low-cost deals are negotiated against promise of large and growing volumes of business.

• Dependency on suppliers to deliver fuel as well as food, drinks and duty-paid products to be sold on-board
• These need to be stored, handled and controlled upon delivery

3.1.2 Operations

• Fast turnarounds (core competence), 25 minutes, is the most important cost advantage as it enables high aircraft utilization. More frequent departures (two more a day than competitors) with few planes increases revenue (key linkage).
• Point-to-point flights mean no interlinking with other carriers. Ryanair can offer direct non-stop journeys, avoiding the cost of providing through services for connecting passengers and delays caused by late arrival of connecting flights.

• Use of standard model plane, Boeing 737, means that Ryanair is able to obtain spares and maintenance services on favorable terms, limits costs of staff training and offer flexibility in scheduling aircraft and crew assignments.
• A relatively young fleet reduces maintenance, spare and fuel costs.

3.1.3 Outbound logistics

• Use of isolated secondary airports often requires 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.

3.1.4 Marketing and Sales

• Ryanair considers branding virtually irrelevant as it believes that price is most important to customers. This is reflected in its not always so good image in the press. Southwest, contributes a large part of its success to its well established brand values, and EasyJet has won awards for its brand (Brand Strategy 2001).

• 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.

3.1.5 Services

• Virtually no frills lower costs considerably, enable fast turnarounds and very low ticket prices.

• A very basic product is offered and Ryanair now plans to remove the last frills.

• The low service damages the brand which leads to reduced business. For instance, Ryanair was taken to court for charging disabled passengers £18 for wheelchair usage, and is known for transferring passengers to later or alternative flights without notice.

3.2 Support activities

3.2.1 Procurement

• Purchasing power enables negotiation of favorable deals (core competence) 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.

• Buying decisions mostly during recession when prices are down

• Good buyer-supplier relationships ensure reliability and low-cost procurement of services (many functions are contracted out).

3.2.2 Human Resource Management

• Ryanair aims to control its personnel cost by continuously improving the productivity. In fact in 2004 the calculated productivity passenger booked per employee increased by 21% which corresponds to 10.049 passengers per employee.
• The staff is working under big pressure set by an overhead person and most commonly with feelings of dissatisfaction.

3.2.3 Technology development

• Ryanair uses its website to monitor bookings to see how full planes are minute by minute. If numbers fall prices can be slashed immediately to attract buyers thus increasing the load factor.

4. Conclusion

The aim of this report was to carry out a value chain analysis of Ryanair, From this it became evident that the organization operates in a complex environment with fast changing influences that affect its business both beneficially and unfavorably. It also enabled identification of some of the sources of Ryanair’s competitive advantage: core competencies, key linkages and the superior cost performance compared to its closest competitor. Overall, the report is conducted to gain an insight into how Ryanair have structured their activities to remain competitive in the market.

5. Bibliography

1. Thompson, J, L. (1997) Strategic Management. International Thompson Press: London.

2. Porter, M, E. (1985) Competitive Advantage. Simon Schuster Inc: New York.

3. Lavarack, M & P. M. Brown. (1992) Benchmarking: Learning from Best Practice. Business Studies, Vol 5, No.2.