Ryanair assignment - analysis and enviromental concerns

4. SWOT Analysis

Following from the environmental and industry analysis and the Porter’s 5-forces analyses above and their effects on Ryanair, we provide below a summary of the Strengths, Weaknesses, Opportunities and Threats of Ryanair.

5. Why Has Ryanair been successful this far

i) Tight Cost Control & Operating Efficiency

According to Thompson, Strickland et al (2008), “a company's strategy consists of the competitive moves and business approaches that managers employ to grow the business, attract and please customers, compete successfully, conduct operations, and achieve the targeted levels of organizational performance.”

Ryanair’s business model and approaches have enabled it to achieve low operating costs - about 40% lower than Aer Lingus (Nwagbara, 2011), enabled them to achieve low customer services costs, lower airport access fees as well as lower labour or personnel expenses. These tight cost control strategies which essentially are the tendons or nerve system carrying the overall activities have enabled Ryanair to obtain efficiency in operations to compete successfully with well-established legacy airlines to achieve a profitable level of performance.

ii) Competitive Advantage & Growing Customer base

When commenting on effective and successful strategic planning of an organisation and how a company can achieve competitive advantage, Thompson et al (2008) stated that a “company achieves sustainable competitive advantage when an attractive number of buyers prefer its products or services over the offerings of competitors and when the basis for this preference is durable”. For more than one-and-half decades Ryanair’s business strategy has enabled it attract a stable customer base. Ryanair has grown from being a faltering airline to a strong and formidable airline that has challenged the status quo, grown in profitability in the period of even general recession or turbulence in its industry.

iii) Effective Management of the 4P’s

Ryanair has increased its customer base by employing a good management of the 4P’s - price, promotion, place, and product. The price of air travel is “no longer a privilege for the rich, it’s even affordable for migrant workers going abroad in search of job” (Skeels, 2006). Ryanair has used online distribution of ticket (as part of its 4Ps management) to eliminate intermediaries and distribution costs. It has also eliminated queuing and frustrations by travellers. This has widened Ryanair’s profit base, (Nwagbara, 2011), and thus contributing to its success.

iv) Responding or Adapting to Change

Thompson et al (2008) also stated that, “a company's strategy evolves over time as a result of changing circumstances and ongoing management efforts to improve the strategy. This condition makes the task of crafting a strategy ‘a work in progress’, not a one-time event”. Since there are a number of airlines competing with each other, over the years Ryanair has modified its business model/strategy on several occasions to add offerings that are unique to allow them stand out of the competition.

v) Creating Ancillary Income Sources

It has introduced new product offerings on its flights to create more differentiation, for example the creation of ancillary income sources. Cavendish (2006) underscores how Ryanair makes profit outside its main source of income of flying airplanes. Activities at Ryanair’s website include sale of life assurance, travel insurance, online gaming and advertising & marketing to generate additional revenues and also create closer relationship with the over 15 million customers that visit the website every month (Air Scoop, 2007). Ancillary revenues alone generated more than €110.5m in 2003 and €149.6m in 2004. In 2007 more than 42 million passengers contributed to ancillary revenue in excess of €362m, and that works-out to €8.50 per passenger carried by Ryanair, (ARAC, 2008). This ability of Ryanair to quickly adapt to change has kept its basic model still attractive, viable and profitable.

vi) Ability to Establish Model as Money-Maker and also Adopting a fluid Flat inexpensive Structure

Thompson et al (2008), elucidate that a “company's business model explains the rationale for why its business approach and strategy will be a money maker. In the absence of the ability to deliver good profitability, the strategy is not viable and the survival of the business is in doubt”.

This situation is the reverse of the Ryanair experience, as it has shown the ability to continue to use its business model to deliver good profitability over the years. For example, the flat management structure of Ryanair has enabled it to have lower overheads and also enabled it to respond rapidly to changing circumstances because management is closer to where the action is. This allows close monitoring of the business model to ensure its viability and profitability both in the short and long run.

vii) Ryanair Establish itself and Model as a New Market and New of Way Travelling

Thompson et al (2008) also stated that “a winning strategy must fit the enterprise's external and internal situation, build sustainable competitive advantage, and improve company performance.” Ryanair has been able to make its model a winning strategy and open up travel in Europe. Thus Ryanair’s LCC model (‘an enterprise’s internal situation’) has been able to fit the external situation of Europe and has become accepted as the “new Europe”, - “a new way of travelling”, (O’Leary, 2006 as cited by Underhill, 2006); and also as observed by Christensen (2003) “a model that allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money.” 

Ryanair has been able to build competitive advantage using this model of lower gross margins, targeting a niche market with simpler products and services, and improving company performance to become one of Europe’s largest and most successful low-cost carriers in terms of profits, number of flights and number of passengers flown (Air Scoop Newsletter, 2007).

viii) Excellent Execution of Business Strategy- Best Test of Managerial Competence

Thompson et al (2008) assert that “excellent execution of an excellent strategy is the best test of managerial excellence and the most reliable recipe for turning companies into standout performers.” Ryanair rolled out a model and excellently implement it with well-planned strategies, proving their managerial competence and excellence. All these explain why Ryanair thus far has been successful.

1.6 Conclusions and Recommendations

Ryanair is the only airline that has been focusing completely on the Low Price segment and has shown staggering growth rates of 30% and more. With excellent execution of the low cost model, they have achieved high profitability and have emerged as one of the clear winners. The key challenge for Ryanair in the next couple of years is developing a successful strategy for not only continue to win the war in the Low Price segment of air travel, but also to gain a solid position in the Value segment of air travel. Ryanair must also get strong hold in new non-European markets.

Chapter 2: Question 2

2.1 Environmental Changes and the Rising Costs.

The idea behind the low cost carrier concept revolves around cutting down costs in order to give consumers a low price product with the bare essentials, and also be able to undercut the price levels of legacy carriers.

When verifying Ryanair’s business model and analysing its future possibilities and threats, Allé and Schmitz (2004) pointed out that, “Ryanair’s strategy up to date has been the key factor in its huge success.”

Porter’s 5 forces competitive analyses and SWOT reveal that some of the low cost factors underlying the operational strength of the LCC airline are under threat. European court decision about state aid and anti-trust issues may make Regional airports gain bargaining power for “second round” renegotiation. It could also force local/regional authorities to remove a lot of the ‘sweet deals’ or the generous fees, levies and airport facility costs they used to give to Ryanair. This may make expansion more difficult as costs rise in the future, creating limited growth potential on the South European market.

Ryanair also faces potential increase in air traffic control charges as more planes fly in the sky, especially in the new regional airspace. Ryanair may also be powerless to prevent introduction of duty on fuel pollution or environmental charges. All these potentially can reduce the low cost advantage they once enjoyed. Since customers are very price sensitive, this could reduce their margins or growth potential as it relies on price stimulation.

2.2 Ryanair to Adjust Model to include More Differentiation and other ‘Soft’ Issues.

Ryanair must therefore modify its model and strategies to take care of these new changes. For example, Ryanair will have to combat some of the environmental issues with pro nature conservation moves. That means Ryanair will have to increase its CSR (‘soft’ moves) as the new way of life in its business model to lobby and limit anything that can negatively affect it.

          Also, due to the fact that there are a number of airlines competing with each other, some LCCs have modified their strategy in order to survive. In the United States, well established LCCs are adapting differentiation strategy as a move to drive out new LCC entrants to the market. Ryanair’s domination in the LCC market can continue but it will have to provide more product differentiation and expand into more popular routes, which will demand better service and good customer relations as additional new ‘value’ and ‘product differentiation’. This will require high employee retention which is key to customer satisfaction. The business philosophy here should be “smile, charge and serve”, (Air Scoop, 2007). Their current abrasive posture would have to change.        

In order to expand into more popular routes Ryanair has to do as follows:

1.  Increase the Frequency of Existing Routes

At the moment Ryanair has an average of 3.88 flights per day per route, (Air Scoop, 2007).  This figure is very low compared to EasyJet and traditional carriers. This means that Ryanair is losing out on business passengers who need more flexible timetables. If Ryanair were to increase the frequency on some of their routes they could effectively steal some passengers from the traditional carrier’s, thus increasing market share.

2. Ryanair to Remodel to increase Flights to Hubs

Instead of operating mainly from secondary airports, Ryanair must adjust model and increase flights from regional airports to hubs and vice versa. Their current few flights out of hubs and into hubs, from secondary airports is an indication that there is a demand from people to travel from hubs to secondary airports and vice versa, and that if Ryanair increases the frequency, it can eventually control and reduce the per-unit-cost.

3. Ryanair to Remodel to include The Value-Price Segment of the Economy Market

The economy segment can be divided into LCC and value-price segments. Ryanair is already the leader in the LCC segment, but would have to cater to the rapidly growing value segment for total domination in the economy segment. The value segment constitutes travellers interested to optimize time, comfort and price. This would mean preference for city-centric airports, convenient departure and arrival times, and basic service coupled with the willingness to pay little more for the comfort. Ryanair has to consider this in its model to move ahead of the competition.

Competitors like easyJet, Air Berlin, Basic Air are catering to the Value market segment and have established slots at some primary airports and providing basic cost effective services. Acquisition of Aer Lingus or a merger with a similar airline could enable it to obtain increased slots and facilitate quicker expansion into the value-oriented market segment without comprising its top position in the LCC segment, (Air Scoop, 2007).  

2.3 Expand into Central/Eastern Europe

Eastern Europe is fast becoming a hotspot for tourists and business travellers alike due to the continuing expansion of the E.U.  Ryanair must extend serves to these popular destinations, especially Russia.

Chapter 3: Question 3

3.1 Who is a Strategic Leader?

According to Finkelstein, Hambrick et al (2009), strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. Multifunctional in nature, strategic leadership involves managing through others, managing an entire enterprise rather than a functional sub-unit, and coping with change that continues to increase in this 21st-century competitive landscape. Finlay (2000) discusses three main characteristics of leaders:

• They must have a strongly held vision;
• They must be able to communicate that vision;
• They must be able to convert the vision into reality.

3.2 Vision of O’Leary

When O’Leary took over at Ryanair his vision was to model the carrier on Southwest airlines and create Europe’s first no frills carrier. O’Leary’s strategic leadership and ability to envision the future, influence behaviours and manage knowledge, create and commercialise innovation, is what has endeared him to many stakeholders. With these qualities, he has successfully driven a company forward to attain the highest feat in the industry.

O’Higgins (2004) when commenting on O’Leary’s leadership stated that “Ryanair is inextricably identified with its dynamic chief executive. He is credited as single-handedly transforming European air transport.”

3.3 O’Leary’s Leadership Style

Despite the airlines huge success with Michael O’Leary, his management style has always come under scrutiny; he is praised as well as criticised. O’Higgins (2004) argues that it is his publicity seeking antics which have earned him a high profile. His out-spoken character also brings him into the public eye. O’Higgins (2004) queries whether the company now requires more of a ‘manager’ than a ‘leader’ during an era of consolidation, since the company is no more in a change era.

As Rajan (2002) points out, ‘‘different leadership styles are needed to cope with different situations: for example, the autocratic style makes sense when an organization is in deep trouble and needs to achieve a rapid turnaround; that style would be counterproductive when the organization is in a growth situation’’.

This is the case with Ryanair; O’Leary’s style is in consonance with a leadership style being ‘‘fluid’’ to suit situations, (Browning, 2007). Debates could arise as whether O’Leary’s style would work in different circumstance(s), but there is no doubt that he has been a perfect situation match for the Ryanair transitional revolution.

Ryanair’s Marketing Director Tim Jeans (2003) as cited by Bowley (2003) revealed that internally, “there is an incredible energy in that place. People work very hard and get a lot out of it”. Certainly his vision has turned into a reality as Ryanair has grown and the ‘public’s insatiable appetite for bargain fares has continued to deliver record profits at Europe’s biggest no frills airline”, Davey (2006).

3.4 Finding Expression for O’Leary’s Leadership Style

O’Leary leadership style at Ryanair does not easily find expression in the characteristic criteria that Finlay (2000) described for a leader. His style does not fit rigidly into a particular criterion. The diagram below, adapted from Cook et al (1977) shows the types of leadership styles that Finlay (2000) believes to be the more dominant ones. One would place O’Leary in the ‘Enrolling’ criteria - i.e. High Task and High People orientations.

O’Leary is highly task orientated, concentrating on tasks such as cost cutting, aircraft acquisition and route development. He is also (arguably) highly people orientated, both with customers and staff. O’Leary easily gets people involved and empowers them to create strategic changes; from cost cutting issues, punctuality to many others.

At the same time however, because of his obsession with the task, he is poor in handling these same people and can be very abrasive and aggravate everyone, including even industry officials, customers and the media.

3.5 Conclusion and Recommendations

Ryanair should be wary of the fact that their CEO does not seem to enjoy smooth sailing situations and rather thrives well on adversity. Whilst some school of thought would value O’Leary’s relentless energy to thrive on adversity, Finkelstein et al (2009) however points this out as a danger signal. He concludes that O’Leary’s capacity to irritate may bring about conflict and change that could dearly cost Ryanair.

Since Ryanair is no longer in the era of adversity and has matured successfully from a market revolutionary transition, (which was effectively led by them), it is time to change for a ‘manager’ (Finkelstein, et al 2009), to consolidate their gains and position in the industry, (O’Higgins, 2004).

(Total Word Count: 4019 words)

4.0 References

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