Due to the Internet revolution, Ryanair set up its own booking website () in 2000, which was resulted from an intended strategy to cater customers’ needs of convenience in travel planning.
Later in 2003, Ryanair acquired Buzz, an airline which based in London Stansted Airport, for the intention of expanding Ryanair’s network across Europe. Ryanair also intended to take over its competitor Aer Lingus in 2006, however Aer Lingus rejected and it became an unrealized strategy.
Analysis of Macro-environment
Before analyzing the macro environment, it is essential to accurately identify the environment Ryanair is operating in. As Ryanair’s flight routes are restricted to European destinations only, it can be concluded that Ryanair is operating in the European airline industry.
When analyzing the macro-environment of Ryanair, a PESTLE approach is adopted. Five factors (political, economic, social, technological, legal and environmental) will be investigated. The table below summarizes some of the main trends and changes the aviation industry is facing. The sign at the end of each bullet point illustrates whether it could have a positive or negative impact on Ryanair. A ‘+’ sign illustrates a positive impact whereas a ‘-’ sign illustrates a negative impact. Neutral impacts are illustrated by ‘+/-’ sign. Further elaboration could be found in Appendix I.
Porter’s five forces model applied to the European airline industry
Risk of entry by potential competitors – Quite high:
Even though some established companies try to build brand loyalty by offering memberships and advantages to their customers and advertising, the service provided is not very different from one company to another, especially for domestic flights. Customers are price sensitive and their switching costs are quite low: it’s easy to compare the different prices, especially with the Internet, and therefore switch airlines. Moreover, the recent deregulation and privatization of the airline industry in Europe have increased the risk of entry by potential competitors and therefore the competition between the airline companies. However, the fact that some customers are reluctant to fly with a company they’ve never heard of before can slightly increase the barriers of entry, as well as the fact that there is still a high risk associated with capital investment required to enter the airline industry.
Bargaining power of suppliers - High:
There are a limited number of powerful suppliers in the airline industry (Boeing and Airbus are the dominant suppliers) and their products are vital for the industry, which represents a threat. Moreover, fuel supply is also a vital commodity for the airline industry and is subject to fluctuations: increasing costs can be a threat for the industry.
Bargaining power of buyers - Medium:
The customers have an indirect bargaining power because they can’t directly negotiate the price proposed by a company but can however switch from one airline company to another very easily, especially for regional flights for which the same routes are covered by many different airlines. Moreover, customers are often price sensitive and can easily compare prices in the Internet (especially with the websites that provide an overview of the different prices offered by different airline companies).
Threats of substitutes - Low:
The substitutes (such as traveling by train, car, bus or boat) are not very close, especially for long-distance flights: even though they are sometimes less expensive, there are also much less convenient and don’t represent a big threat for the airline industry.
Intensity of rivalry among established firms - High:
In the Europe’s fragmented airline industry, the competition between companies is fierce: the transmission from a regulated environment to a deregulated during the past ten years has lowered the entry and exit barriers and therefore encouraged established companies to create alliances in order to compete against emerging low-cost carriers (LCC). Indeed, the increased bargaining power of price-sensitive customers associated with high fixed costs and powerful suppliers have resulted in an intense rivalry and lower profits within the airline industry.
Reference
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"About Us." Cheap Flights - Book cheap flights to Europe with Ryanair. 2010., n.d. Web. 23 May 2012. <http://www.ryanair.com/en/about>.