Advanced Strategic Management

University Degree Business and Administrative studies

Advanced Strategic Management S.I.D.# 0574220/1

Task A-

Introduction

Ryanair Europe's Leading Low Fares Airline is an with headquarters in and its biggest operational base at in the . It is 's largest . As of 2007, Ryanair operates 516 routes across 26 countries from 26 bases. Ryanair has been characterised by rapid expansion, a result of the of the air industry in Europe in 1997. Ryanair is the third largest airline in Europe in terms of passenger numbers.

Ryanair has grown massively since its establishment in 1985, from a small airline flying a short hop from to , into one of Europe's largest carriers.

Ryanair was founded in 1985 by Cathal and Declan Ryan (after whom the company is named), Liam Lonergan (owner of an Irish tour operator named Club Travel), and noted Irish businessperson , founder of and father of Cathal Ryan and Declan. The airline began with a 15-seat aircraft flying between and with the aim of breaking the on - flights at that time held by British Airways and Aer Lingus.

In 1986 the company added a second route – flying - in direct competition to the / duopoly for the first time. Under partial EU Deregulation, airlines could begin new international intra-EU services as long as at least one of the two governments gave approval (the so-called "double-disapproval" regime). The Irish government at the time refused its approval in order to protect , but Britain, under 's pro-free-market government, approved the service. With two routes and two planes, the fledging airline carried 82,000 passengers in one year.

Passenger numbers continued to increase, but the airline generally ran at a loss, and by 1991 was in need of restructuring. was charged with the task of making the airline profitable. Ryan encouraged him to visit the USA to study the 'low fares/no frills' model being used by . O'Leary quickly decided that the key to low fares was to implement quick turn-around times for aircraft, "no frills", and no business class, as well as operating a single model of aircraft. O'Leary returned - convinced that Ryanair could make huge inroads into the European air market which was at that time dominated by national carriers which were subsidised to various degrees by their parent countries. He competed with the major airlines by providing a "no-frills", low-cost service. Flights were scheduled into regional airports, which offered lower landing and handling charges than larger established international airports. O'Leary as Chief Executive did a publicity stunt where he helped out with baggage handling on Ryanair flights at Dublin airport. By 1995, after the consistent pursuit of its low-cost business model, Ryanair celebrated its 10th birthday by carrying 2.25 million passengers.

With plans to buy an additional 112 aircraft from Boeing the phenomenal growth is planned to continue. It is forecast that by 2008 Ryanair will have 118 planes in operation with an option to increase this number further.

Vision:

To be Europe’s Leading Low Fares Airline

Objectives:

Number 1 For Customer Service

Strategic Fit

Strategy is about matching the activities of the organisation to the environment and to the organisation’s capabilities. Strategic fit focuses on optimising performance by identifying and understanding critical success factors, threats and opportunities in existing markets and then ensuring that resource capability matches critical success factors and enables taking of opportunities and protecting against threats in existing markets. The benefits of good strategic fit are cost reduction due to economies of scale and the transfer of knowledge and skills. The most important strategy of Ryanair is their low-cost, ‘no frills’ strategy, which is strongly on the basis of cost reduction. Therefore, Ryanair seems to hold a very good market position and is said to be strategically fit.

PEST Analysis of Ryanair’s External Environment

Figure 1: PEST Analysis of Ryanair

SWOT Analysis of Ryanair’s Environment

Figure 2: SWOT Analysis of Ryanair

Critical Success Factors of Ryanair

A starting point for understanding strategic capability, is understanding what customers value. When the company has some features that distinguish them from other organisations, they are more likely to have success. These are known as Critical Success Factors (CFS’s). CFS’s are those product features that are particularly valued by a group of customers and, therefore, where the organisation must excel to outperform competition. The following are the CFS’s of Ryanair:

Innovation
Low-fare tickets
Punctuality
Ryanair’s website
Resources:

Financial resources
Physical resources
Human resources

This is a preview of the whole essay

Figure 2: SWOT Analysis of Ryanair

Critical Success Factors of Ryanair

Innovation
Low-fare tickets
Punctuality
Ryanair’s website
Resources:

Financial resources
Physical resources
Human resources

Michael O’Leary and the unique cost-cutting policy

Porter’s Five Forces Analysis

Figure 3: A graphical representation of Porters Five Forces with reference to Ryanair’s industry

Options

Continuation of low cost strategies- Cost Leadership- Michael Porter’s Generic Strategy
Investment in modernised fleet, which leads to less expensive maintenance: will become more uniformed with only one model (737-800), also newer planes will require less maintenance. Ryanair will use the introduction of a new fleet of Boeing 737-800’s “next generation” aircraft as an opportunity to rejuvenate the image of the airline. There is a perception that because Ryanair is a low-cost service, it is also a low quality service. To correct this perception Ryanair will launch an exceptionally intense marketing campaign (radio, newspapers and television). They will also include a modernising of their staff’s ‘look’ as well as their fleet. A newer more fashionable uniform will be selected. It will be a relatively inexpensive exercise in the long term that which would help enormously in improving the public’s perception on Ryanair. It will emphasised that the “upgrade” will not be followed with an increase in fare prices- Bowman’s Strategy Clock- Strategy # 4- Differentiation- without price premium
Try to expand the European markets to accommodate more European countries and also open new markets, servicing parts of North America, South America and the Caribbean- Bowman’s Strategy Clock- Strategy # 3- Hybrid

Michael Porter’s Generic Strategies

Option: Continuation of low cost strategies- Cost Leadership- Michael Porter’s Generic Strategy

For Ryanair to obtain a sustainable competitive advantage, Michael Porter suggests that they should follow either one of three generic strategies.

Strategy 1: Cost Leadership.
Strategy 2: Differentiation
Strategy 3: Niche strategies
Are you ‘Stuck in the middle?’

Figure 4: An illustration of Michael Porter’s Generic Strategies with the strategic options to be undertaken.

Source:

Cost Leadership:

One of the strategies that Ryanair should pursue in order to enhance its growth and development prospects is that of Porter’s Generic Strategy- Cost Leadership. This strategy involves the organisation aiming to continue to be the lowest cost producer within the airline industry. Option 1: Continuation of low cost strategies- Michael Porter’s Generic Strategy- Cost Leadership could be done in the following ways:

Increasing profits by reducing costs, while charging industry-average prices.
Increasing market share through charging lower prices, while still making a reasonable profit on each sale due to reduced costs.

Bowman’s Strategy Clock

The 'Strategy Clock' is based upon the work of Cliff Bowman (see C. Bowman and D. Faulkner 'Competitve and Corporate Strategy - Irwin - 1996). This is an appropriate way to analyze a company's competitive position in comparison to the offerings of competitors.

Figure 5: An Illustration of Bowman’s Strategy Clock with the strategic options to be undertaken.

Source:

As with Porter's Generic Strategies, Bowman considers competitive advantage in relation to cost advantage or differentiation advantage. There a six core strategic options:

Strategy 1 - Low price/low added value (No frills) - Likely to be segment specific
Strategy 2 - Low price - Risk of price war and low margins/need to be a 'cost leader'.
Strategy 3 - Hybrid - Low cost base and reinvestment in low price and differentiation
Strategy 4 - Differentiation

Without a price premium

Perceived added value by user, yielding market share benefits

With a price premium

-Perceived added value sufficient to bear price premium

Strategy 5 - Focused differentiation - Perceived added value to a 'particular segment' warranting a premium price
Strategy 6 - Increased price/standard - Higher margins if competitors do not value follow/risk of losing market share.
Strategy 7 - Increased price/low values - Only feasible in a monopoly situation
Strategy 8 - Low value/standard price - Loss of market share

Option 3: Try to expand the European markets to accommodate more European countries and also open new markets servicing parts of North America, South America and the Caribbean- Bowman’s Strategy Clock- Strategy # 3- Hybrid

Ansoff Matrix

This well-known marketing tool was first published in the Harvard Business Review (1957) in an article called 'Strategies for Diversification'. Marketers who have objectives for growth use this. Ansoff's matrix offers strategic choices to achieve the objectives. Ansoff's matrix is one of the most well know frameworks for deciding upon strategies for growth. There are four main categories for selection are shown in the following diagram.

Ansoff's Product/Market Matrix

Figure 6: An Illustration of Ansoff Matrix and where the strategic options fall in terms of this matrix

Source: www.marketingteacher.com

Market Penetration

Option 1 falls under the Market Penetration Segment of Ansoff Matrix, since it seeks to continue to market existing low cost products to existing customers. This means increasing the organisation’s revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product would not be altered and the organisation does not seek any new customers.

Product Development

Option 2 falls under the segment of Product Development according to the Ansoff Matrix. This is where Ryanair will market their newest investment, more mordernised fleet (new product) to existing customers. Here the development and innovation of the fleet replace existing ones. Such products are then marketed to existing customers.

Market Development

Market Development is the segment which option 3 falls into according to Ansoff Matrix. Here, Ryanair would try to open up new markets in the countries of Europe which they do not currently service and also extend to the Americas (both North and South) and also the Caribbean. This means that the product remains the same, but it is marketed to a new audience.

Implementation Methods of Options

The Following is a table showing the three options chosen above and the implementation method chosen for each option.

Figure 7: Table showing Options and the Implementation method proposed

Organic growth is the rate of expansion through increasing output and sales as opposed to , and take-over. Organic growth simply refers to the growth achieved by internal investments of the firm. This could be the day-to-day business of the firm or a division of the firm starting a new business from scratch. This is distinguished from growth by acquisition or merger, which involves an outside firm. The method of organic growth seems to be the most suited method of implementation for the options stated above. The benefits of this method are:

Cost Spread
Choice of Location
Latest Technology
No Inappropriate Cultural History

Task B-

Evaluation of Strategic Proposals

Figure 8: A Framework for the Evaluation and Selection of Strategies

Source: ARU Advanced Strategic Management Lecture Notes

In order to successfully implement the strategic options chosen in Task A above, they must first be evaluated for suitability, acceptability and feasibility.

Suitability is concerned with whether a strategy addresses the circumstances in which an organisation is operating- the strategic position. In addition, whether the options chosen are in line with the mission and objectives of the organisation. The following must be carried out in order to test suitability:

An examination of the resources of the organisation to determine whether the organisation possess the key resources (critical success factors) to pursue the option
Analysis of the external environment of the organisation to determine whether the option is suited for the organisation
Determination of whether a competitive advantage would be obtained and if the option would lead to a good financial performance.

Acceptability is concerned with the expected performance outcome of the strategy. A financial risk analysis is done here and the effectiveness of the impact on the following:

Stakeholders
Shareholders
Employees
Bankers
Customers
Suppliers

Feasibility examines the following:

Internal constraints which would restrict the implementation of the option and also the weakness that would constrict the option
Would the option improve performance level within the resources?
What resources are possessed and additional requirements to pursue the options
Commitment from managers and human resource and the physical constraints e.g. industry-rights and air-space legislation.

Suitability -

Life Cycle Analysis

Figure 9: An Illustration of the Life Cycle Analysis showing Ryanair’s position

Source:

Due to the number of years of existence, servicing of a number of European countries, the acquisition of increasing market share and good brand image, Ryanair is said to be at its Maturity Stage based on the life cycle analysis above.

Ryanair being in the position of maturity which it currently is in, with the continuation of low cost strategies, could serve as a booster to increased sales and therefore profitability in the future. Although Ryanair has the lowest cost base of any of its competitors, the Company can continue to lower its cost base as it matures.

Ryanair will use the introduction of a new fleet of Boeing 737-800’s “next generation” aircraft as

an opportunity to rejuvenate the image of the airline. There is a perception that because Ryanair

is a low-cost service, it is also a low quality service. To correct this perception Ryanair will launch an exceptionally intense marketing campaign (radio, newspapers and television).

They will also include a modernising of their staff’s ‘look’ as well as their fleet. A newer more fashionable uniform will be selected. It will be a relatively inexpensive exercise in the long term that which would help enormously in improving the public’s perception on Ryanair. It will emphasised that the “upgrade” will not be followed with an increase in fare prices.

Eastern Europe is fast becoming a hotspot for tourists and business travellers alike due to the continuing expansion of the E.U. Ryanair however, does not serve any of these popular destinations. Other low-cost airlines have set up there already, such as Sky Europe, but not all routes have been exhausted. There is still plenty of opportunity in this area.

The above options would all contribute to Ryanair’s maturity and to the achievement of greater profits in future.

Value Chain Analysis

Figure 10: An Illustration of Ryanair’s Value Chain

The main core competencies of Ryanair are:

Their unique cost cutting policy
Robustness
Culture

The implementation of option 1: Continuation of low cost strategies, takes into consideration all of Ryanair’s main core competencies. Low cost strategy is really the cutting of costs using Ryanair’s unique cost cutting policy. In terms of robustness, Ryanair’s competitors can try to imitate them but if not implemented in the correct way, could prove detrimental to Ryanair’s competitors.

Option 2: Investment in modernised fleet, which leads to less expensive maintenance: will become more uniformed with only one model (737-800), also newer planes will require less maintenance. This option will require a great amount of finance (investment) in order to be successful. Ryanair being such a large organisation, with profits in excess of £300 million in 2007 and having a high level of dominance in the European market, this option proves to be the most suitable of all three.

Option 3: Try to expand the European markets to accommodate more European countries (Central Europe) and open new markets servicing parts of North America, South America and the Caribbean. This option will require a large amount of financial investments into the American and Caribbean Markets. Even though Ryanair may possess the financial capabilities to finance this option, they might not possess the cultural aspect of management to venture into this drastic change of culture between the Europeans and the Americans and people of the Caribbean. There may also be legislations in these countries, which may hinder the success of setting up and success of Ryanair.

The most Suitable strategic option to be implemented is Option 2: Investment in modernised fleet, which leads to less expensive maintenance: will become more uniformed with only one model (737-800), also newer planes will require less maintenance.

Acceptability

Option 2: Investment in modernised fleet, which leads to less expensive maintenance: will become more uniformed with only one model (737-800), also newer planes will require less maintenance...

The returns from this option will yield almost one and a half times the amount of profit generated from sales in the year 2007.

This option falls under the Ansoff Matrix as Product Development. This segment of the Ansoff Matrix carries with it a medium or low risk.

Product development typically aims to follow changing needs of customers. With the implementation of the modernised fleet, customers will be satisfied and know to themselves that Ryanair provides them with a service which is like no-other, they will be assured that they are getting the best-quality service there is for a low quality price. They will also be greeted with fresh new faces (uniforms) of employees and will be treated with the best customer services possible.

The shareholder will now benefit from shares valuing much more than its present value. Bankers will also benefit because with the heavy costs incurred with this undertaking, Ryanair will need some sort of financing means and this is where bankers will benefit.

This option will require Ryanair to invest heavily in acquisition costs but this is a small price to pay for all the rewards, which it will bring. Not only will this option improve the public’s perception of Ryanair, but also increase profitability of the Airline.

All of Ryanair’s stakeholders is directly linked to the airline’s operations and are a vital part of the growth and development process of the company

Feasibility

The implementation of Option 2 would be successful due to the fact that Ryanair possess all the resources needed for this undertaking.

It can be seen from the diagram below that over the years 2003 – 2007, there was more than two times growth in Ryanair’s revenue and more than 50% increase in profits. This proves that Ryanair’s profit generation will continue to grow inevitable over the next few years. This financial capability proves to be very crucial in implementation of this option.

Figure 11: Diagram showing Ryanair’s growth in revenue and profits generated over the period 2003 - 2007.

Source: Ryanair, Aer Lingus, Easyjet and AEA statistics Jan – Dec 2006

Over the past year, Ryanair’s growth delivered more and even better paying jobs for their people, as well as a significant number of promotions. Whilst their employees’ pay is amongst the highest in Europe, they manage their rosters to maximize productivity and maximizing employees’ time off. With the implementation of this option, Ryanair will continue to provide thousands of new jobs and many promotional opportunities for their people as their size doubles over the years to come.

With an average fare, which is 50% cheaper than any other major European airline, it is no surprise that Ryanair continues to grow strongly. In recent International Air Transport Association (IATA) airline rankings confirmed that Ryanair has become the world’s largest carrier of international passengers, making them the world’s favourite airline.

Air travel in general and low fare airlines in particular continue to be the target of inaccurate attacks from small section environmentalists that air travel is responsible for 2% of the world’s greenhouse gas emissions. A number of recent studies into environmental performance of European airlines have ranked Ryanair as the greenest cleanest airline in Europe. At Ryanair, every possible step to reduce the impact of passenger flights on the environment is taken. This is done by:

Flying Brand new more efficient aircrafts
Increasing the number of passenger flights
Ensuring that all aircraft systems follows all fuel and noise minimisation procedures

Both management and employees are committed to making this strategy a success. Management’s aim is that employees understand the strategy and are committed to Ryanair.

The motivation and commitment of Ryanair’s employees is key to their performance.

Management recognises the importance of effective communication with its people. Ryanair implemented a newsletter “The Limited Release” to all staff ensuring that employees are kept up to-date on the plans, issues and challenges facing the industry, and daily news bulletins are also issued. All staff benefits from extensive travel concessions in Ryanair and discounted travel with other carriers.

Due to these incentives and excellect working environment at Ryanair, employees exert a greater effort in making Ryanair a success.

Ryanair’s steady growth is being achieved in the most environmentally sustainable way through investing in the latest aircraft and engine technologies and adopting the most efficient operational and commercial measures that help to minimise the airline’s impact on the environment. Ryanair is currently the industry leader in terms of environmental efficiency and is constantly working towards further improving its performance.

Implementation Issues

In the implementation of the option chosen, the following implementation issues need to be considered and managed:

Financial- Ryanair seems to be in a financially stable position to successfully implement this option
Human Resources- Ryanair must ensure that their staff are properly trained in order to display and portray the company’s image
Legal Issues- Ryanair must take into consideration the legislation and legal restrictions and issues of the various countries in which they operate
Management of change- it must also be ensured that Ryanair’s managers possess the management skills in order to successfully manage change. Change is inevitable.

Based on the evaluation of the suitability, acceptability and feasibility of the options chosen for growth and expansion of Ryanair, it can be seen that the implementation of option 2 is most feasible and would generate the most returns in the future.

References and Bibliography

Johnson, G, Scholes, K and Whittington, R (2006) Exploring Corporate Strategy: Text and Cases. 7th Ed. FT Prentice Hall
Fottrell, Quentin. “The rise and rise of Ryanair”, June 6, 2004, at
“Ryanair’s Half Year Profits Rise 24% to Record €408M”, Press release dated November 5, 2007, Ryanair.com
Michael E. Porter (1985) “Competitive Advantage: Creating and Sustaining Superior Performance” pg. 33 the Free Press
Porter, M.E. (1979) "How competitive forces shape strategy", Harvard Business Review, March/April 1979
Professor Alex Scott MA, MSc, Phd. Edinburgh Business School Heriot-Watt University. Strategic Planning (2003)
ARU Advance Strategic Management Lecture Notes.
List of largest airlines in Europe