Many new airline companies entered in the European markets after the new rules and regulations were passed by European Union. Some of the organisations were not able to survive in the market and they were declared bankrupt. But some of the companies were successful and among them, Ryanair is considered to be one of the most profitable airlines in Europe. The size of European markets was increased when ten more countries were given membership to join European Union in the year of 2004. It was the high quality skills and the potential of the management team directed by a very experienced leader, Michael O'Leary that the organisation was able to reach and exploit opportunities in the huge markets. Today, Ryanair is one of the major airlines in Europe with 37 bases and 950+ low fares routes across 26 countries, connecting 150 destinations. The organisation has adopted the low-cost business model which enables the company to offer low air-fares to attract maximum number of passengers and maintaining low operating cost. The organisation was first listed on the Dublin stock exchange in the year of 1997
2). PESTLE ANALYSIS OF RYANAIR.
Pestle analysis is used to scan the competitive business environment which affects the business of the organisation.
2.1) Political - political factors includes the role played by the political party in power in the economy. One of the largest airlines of Europe, Ryanair was against the decision of European parliament to include airline industry in European union emission trading system from 2012 onwards. From 2012 EU has decided that, flights will be charged 50 euro in accordance to the cost of passenger tickets. One of the major reasons for the top management of the Ryanair to condemn the decision of additional taxes because it will significantly reduce the competitiveness from the European markets and it will also impact the business of Ryanair. Ryanair considered the additional taxation policy on airline industry would be unfavourable because it will not help them in reducing the emissions levels and the environment.
http://www.ryanair.com/en/news/ryanair-condemns-european-parliament-decision
According to the Ryanair, the decision of the government of United Kingdom to increase airport passenger duty to £10 will have a significant impact on British tourism. It will further impact the potential growth of the business of Ryanair as the number of passenger will be reduced.
http://www.telegraph.co.uk/finance/newsbysector/transport/5835678/Airline-tax-is-hurting-tourism-warns-Ryanair.html
2.2) Economical - the economic factors includes the influence of interest rates, inflation rates, national growth rates on the business of the organisations. Rising international fuel prices affected the trading conditions for Ryanair. The fuel bill for the company increased 93% to €367 million when the international prices of oil increased from $61 to $117 per barrel. The profit margins were significantly reduces 85% annually to $33 million and the share prices of the company dropped by 25%. But the revenue of the Ryanair increased by 12% to $1.2 billion in the first quarter due to the increased number of passengers.
http://www.businessweek.com/globalbiz/blog/europeinsight/archives/2008/07/from_publically.html
http://www.ryanair.com/en/news/q1-profit-falls-85-percent-to-21m-euro-fuel-up-93-percent-as-traffic-grows-19-percent-to-15m
The professionals working in the top management of the Ryanair were in the favour of extensive recession because it helped the organisation to increase the number of passengers and it also supported the company to maintain its strong position within the markets. The purchasing power of the consumers was significantly affected due to the financial crisis in the economy and that's one of the major reasons for the passengers to switch from expensive airlines to low-fares airlines.
http://www.telegraph.co.uk/finance/newsbysector/transport/4434595/Ryanair-expects-to-benefit-as-recession-deepens.html
2.3) Legal - legal factors includes the rules and regulations for mergers and trade. It also involves the legislation for the protection of employment and discrimination. The court of Belgium rules that the dismissal of the three former employees of Ryanair was unethical and unacceptable because the Belgium employment laws were broken. The lawyers representing the organisation claimed that the sacked employees were employed under Irish contracts which enable the company to dismiss the employees after completing one year of trial period. But the court of Belgium was in the opinion that the sacked employees were entitled to the protection under the employment laws of Belgium because they were based at the Charleroi and the trial period is of 6 months according to the law system of belgium.
http://www.independent.co.uk/news/business/news/ryanair-loses-crucial-eu-dismissal-case-529595.html
The government of Ireland is not in the favour of the merger between Ryanair and Aer Lingus. The government believed that it will have a major impact on the airline industry and monopoly in the markets would not be in the best interest of the Irish consumers. The merger will also influence the various airport policies and connectivity to Ireland.
http://www.flightglobal.com/articles/2009/01/22/321503/irish-government-rejects-ryanair-bid-for-aer-lingus.html
2.4) Technological- technological factors includes the high quality of air engines and technologies required for security checks. Ryanair had signed the deal with GuestLogix for improving the on-board retail systems. The new technology supported the employees of the Ryanair in managing the sales transactions efficiently and effectively. It also helped the organisation in introducing new products and meeting the demands of the customers. The new technology also benefited the Ryanair by maximising revenues and it further helped the company to continue with their low prices of the tickets.
http://www.trend-news.com/default.asp?newsid=3934
2.5) Environmental - environmental factors includes the noise pollution control, weather and climate change affecting the business of the organisation. Ryanair purchased modern airplanes which are well-equipped with latest and sophisticated technology. Ryanair uses the Boeing 737-800 model which helps to reduced fuel burns and carbon emissions by 45 percent.
One of the Ryanair flight from Bournemouth to Lanzarote was diverted to the island of Fuerteventura due to the bad weather conditions. The passengers were shocked because there was no employee from the Ryanair at the airport and they had to make their own arrangement for the accommodation and travel.
http://news.cheapflights.co.uk/2010/02/ryanair-passengers-%E2%80%98abandoned-on-wrong-island%E2%80%99/
The company also makes sure that their airplanes are well-equipped with winglets which help in reducing noise levels by 6.5 percent. Ryanair does not provide newspapers, magazines, drinks and food for free to the customers. So it allows them to reduce the huge amount of waste from the airplanes.
http://www.ryanair.com/en/about/ryanair-and-the-environment.
2.6) Social- the number of passengers travelled with Ryanair was more than 60 million in the year of 2009.The percentage of passengers travelled with Ryanair for visiting friends and family was 38% and the remaining percentage of passenger travelled with the same airline for the purpose of business and leisure was 19% and 41% respectively.
PORTER'S FIVE FORCES.
The five forces framework helps the top management of the organisations to understand the level of competition in the industry and its profitability.
THE THREAT OF ENTRY- the extent of entry barriers of any industry determines the level of threats of entry. It is difficult for any individual to start a business in airline industry as it requires the huge amount of money. However, the number of players in the European airline market has increased. The new rules and regulations passed by European Union have significantly changed the earlier structure of the European markets as it allowed the airline companies of any member state to extend the network of routes in other Member countries. So the entry barriers have been reduced to some extent.
http://www.eurofound.europa.eu/eiro/2005/08/study/tn0508101s.htm
POWER OF SUPPLIERS - Boeing and Airbus are considered to be main suppliers of aircraft to many airline companies around the world. The power of suppliers in the European airline industry is high because there are number of players in the European airline market and only two suppliers.
POWER OF BUYERS - - The organisation was able to increase the number of passengers by offering air tickets at low price. The customers are more sensitive towards the ticket prices because of the recession. The customer loyalty towards the Ryanair is low.
THREAT OF SUBSTITUTES - The availability of substitutes affects the degree of competition in the markets by offering similar goods and services. Passengers can travel by trains or cars if their scheduled flight are delayed or cancelled due to bad weather conditions. People in Europe prefer to travel by trains because they are able to avoid long-queues and security check-up at the airport.
http://www.theage.com.au/travel/traveller-tips/the-need-for-speed-europes-trains-beat-planes-20091008-gokp.html
COMPETITIVE RIVALRY- - the number of players in the airline industry of Europe is high. After the new rules and regulations were passed by European Union, many airline companies of Member state extended their business operations in the European airline markets which has increased the competitiveness and accelerated the degree of rivalry.
According to the new agreement (open skies) between European Union and the government of United States of America, airlines companies of Europe and America can extend their business operations in each-others market which will further increase the competitiveness in both the markets. So Ryanair can expect more rivals in the future because the organisation has already showed an interest in flying to North America.
http://news.bbc.co.uk/1/hi/business/7318455.stm
STRATEGIC GROUP ANALYSIS.
STRATEGIC CAPABILITY OF RYANAIR
"Strategic capability can be defined as the adequacy and suitability of the resources and competences of an organisation for it to survive and prosper" (Johnson, 2005). It's important for organisations to have the required business knowledge and quality skills to survive and ensure success in global business competitive environment. Strategic capability is considered to be one of the major components of strategic management which concentrates on delivering the goods and services that customer value. Its necessary for an organisation to have a good strategic capability because it will help in achieving sustainable competitive advantage.
THRESHOLD RESOURCES AND COMPETENCES.
Threshold resources include tangible resources and intangible resources. The physical resource of Ryanair includes aircraft, building, office equipment and computer software. In order to keep the aircraft maintenance cost as low as possible and the development of employees by giving them proper training, Ryanair has adopted the policy of fleet commonality. The company uses the modern and sophisticated aircraft developed by Boeing which are more environmentally- friendly and produces 50 percent less emissions. Ryanair is operating its business in European airline markets by flying 737-800 Boeing which has the capacity to accommodate 189 passengers in one class.
The organisation is also considered to be one of the most financially strong companies in the European budget airline industry. The net profit margins after tax for the Ryanair increased from € 401.4 million to € 480.9 million in the year of March, 2008. Since the company was listed in the stock markets, they also utilize the funds of shareholders for expanding their business operations.
http://www.ryanair.com/doc/investor/2008/q4_2008_doc.pdf
The number of employees working in Ryanair was increased from 700 to 3500 in the year of 2006 because the company was doing very well in the markets. The workforce of Ryanair consisted of 25 different nationalities belonging from different parts of the world. Ryanair has chosen to use TopClass e-learning solutions designed by WBT systems for managing training programs of all the pilots and crew members online. It will support the organisation to improve the quality of workflow activities through good reporting system. It also enables the senior management to check the history of individual training and status.
http://www.delta.ie/news/Companies_116.htm
According to the agreement between Northgate HR and Ryanair, the organisation will provide software solutions to the Ryanair for its various HR services needs including recruitment, payroll, health, training and development. Such software systems enhance the productivity and performance levels of the organisation.
http://www.personneltoday.com/articles/2006/07/18/36460/ryanair-to-use-northgate-hr-software-in-240000-deal.html
Passengers willing to fly with Ryanair can book their tickets online by log into the official websites or they can also book the tickets by calling directly to the Ryanair call centres.
Passengers also required to check-in online by paying £5. Such steps enable the organisation to save money and time.
http://www.telegraph.co.uk/travel/travelnews/4972915/Ryanairs-online-check-in-policy-QandA.html
UNIQUE RESOURCES AND COMPETENCES.
Ryanair as an organisation has adopted low cost business model which enables them to succeed towards the strong position in European budget airline industry. The strategy of the organisation was to offer tickets on low prices by focussing on the cost. Ryanair uses secondary airport which had contributed towards their success as it helps them to save cost and avoid heavy charges laid by primary airports which are very congested. For example, Ryanair uses the airport of Charleroi which is 60 km away from Brussels main airport. The organisation also implemented point to point routing because enables them to exclude the cost involved in passenger and baggage transfer.
http://findarticles.com/p/articles/mi_m0ZCK/is_26_10/ai_63137239/
The cost of the fuel is one of the major parts that are represented in the operating cost. The organisation follows the policy of not imposing the fuel surcharges on the passengers. The international prices for oil are unstable which forces the organisations like Ryanair to buy the fuel in large quantities at risky prices to meet the future demands. The organisation also reduced its cost by not allowing their own employees to charge their personal mobile phone from the office.
http://www.thisislondon.co.uk/standard-business/article-23634924-ryanair-boss-keeps-losing-by-hedging-his-bets-on-oil-price.do
Michael O'Leary is a true business leader who has the ability to communicate effectively with other business partners of Ryanair. He went to the United States of America to study the business model of south-west airlines and came back with his own well-shaped business idea which makes him a perfect visionary. He had the ability to motivate and energise the employees of the company. He single-handedly built the company which recognised as one of the most profitable company in the European budget airline industry of Europe. Michael O'Leary was named as one of the top 'business stars ' in the year of 2004 by financial times.
http://www.timesonline.co.uk/tol/news/world/ireland/article592207.ece
The other competitive advantages of the Ryanair include the brand image and speedy turn-around time. The brand image of the organisation is good and many companies from the business world want to associate their products and services with the reputation of the company. The aircraft of Ryanair gets ready to fly again within 25 minutes after unloading the passengers at the airport. Faster turn-around time enables the organisation to increase the utilization of the aircraft.
http://news.bbc.co.uk/1/hi/8297211.stm
The performance levels of the European economy have a significant impact on the airline industry of Europe. There is a huge potential growth in European budget airline sector as the low cost airlines had 18 percent of the market share in the year of September 2006. The financial figures for previous year were 15 percent. Ryanair is one of the most profitable low cost budget airlines in the Europe. The organisation was able to maintain lead in the market by adopting the strategy that is compatible with their low cost business model. The ability of the top management of the Ryanair to determine the weak points in the strategy of their competitors help them to be at the stronger positions within the budget airline industry. The organisation was making money from the European markets as the total revenue increased from € 1,693 million in the year of March 2006 to € 2,237 million in the year of March 2007. Although the company faced some losses in the year of 2009 as the profit margins were reduced to € 775 million.
The top management of Ryanair decided to close the entire check-in desk from the airports to reduce the cost. All passengers will confirm their flight by log into the official websites of the organisation. Ryanair ensures the benefits have been shifted to the customers by offering lower price of the tickets.
http://news.bbc.co.uk/1/hi/business/7903656.stm
One of the major reasons that the company was able to maximize profit margins by reducing the electricity bill. The low cost carrier has restricted their own employees to charge their mobile phone from the office.
http://news.bbc.co.uk/1/hi/business/4467877.stm
According to American research group ideaworks, Ryanair was the most expensive airline in the European markets in terms of serving food and drinks on board for higher prices. Normal drinks like coffee and tea were very costly on board as the company was charging 35 percent more. The cost of small bottle of wine and sandwiches was also overpriced as compared to the main competitors of Ryanair such as easy Jet. The organisation was able to generate the amount of € 6o million in the year of 2007.
http://www.telegraph.co.uk/travel/travelnews/6204904/Ryanair-has-highest-charges-for-in-flight-food-and-drink.html
The organisation also arranges accommodation facilities for the passengers by tying-up with various hotels around the Europe which makes them to earn reasonable commission. Ryanair had signed an agreement with Expedia Private Label for five years to give accommodation services to its customers and they have agreed to common terms and conditions which provides the passengers with a wide range of hotels around Europe. The customers can book the desired accommodation by login into the official websites of Ryanair.
http://uk.reuters.com/article/idUKL2215940820070322
The company also had signed the deal with the car rental company hertz corporation. Car hiring has become a preferred option for the people on vacations because of the financial crisis within the economy have significantly affected the purchasing power of the people.
The partnership of both the company was able to make huge amount of money. According to the financial reports of the Ryanair, the organisation made € 22,972,000 euros through its exclusive partnership with the hertz corporation.
http://news.dealchecker.co.uk/Hertz-extend-Car-Hire-deal-with-Ryanair-24177121162.html
Ryanair has also signed an agreement with an advertising agency AD2ONE. The new partnership of the Ryanair will be helping to generate the money from the website through advertising. Both the business partners will be giving opportunities to the corporate world to associate their brands with Ryanair. The company was able to make € 37,063,000 euros in the year of 2007 through internet advertising.
http://www.independent.ie/business/media/ryanair-widens-its-scope-for-advertising-revenues-1653782.html
The company also charge its own passenger for using on board toilet for one poundS.
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