Todays airline industry presents a different picture than it did prior to the events of September 11, 2001, with more passengers flying low-cost carriers, fewer empty seats, and a smaller workforce. The terrorist attack to “ World Trade Center “ didn't hit just these two towers. We can easily realize the world has changed a lot after 9/11. Mainly, the international positioning of countries in politic, economic and social situations have changed. In business sector, some of players have been deleted from the world arena and some new players have entered the game because of political, social and economical results of this tragedy.
Apparently, after 9/11 the biggest change was seen at “Airline Industry” in business sector. Everything has started exactly the same day with that tragedy. All airplanes at all airports -mainly in US- were grounded for 3days. Only this proves us the huge difference between the day before and the day after 9/11. Customer reaction was also fast. People did not want to fly and because of that most of the airlines had to cancel their flights so ticket refund increased.
In chaotic situations like 9/11 or recession times if you reverse sector weakness into opportunities you will gain highly competitive advantages in the sector. But how did airline companies take advantage of 9/11? The simple and the visible effective solution were reducing their cost. For example they preferred to buy cheaper airplanes. But for differentiation you should do something more, which the other companies hesitate. Some companies started offering what other companies ceased and also some of them could see the potential in using market niches that the other companies aborted or did not consider profitable. Best example for that is Ryanair. After 9/11 they added capacity, purchased 50 new aircrafts. They cancelled only 16 of 1,800 scheduled flights the week after. They did some seat promotions.
After all, airline companies should have chosen their way to heal their business. At those days, mainly 2 useful strategies were visible.
Ryanair international air carrier was established in 1985 in Dublin just with 57 workers and just one 15-seated turboprop plane, fly from south east of Ireland to London-Gatwick. It is now the largest low cost airline in Great Britain and Europe and has modeled its operations (since 1991) on the very successful Southwest Airlines (US) Low Cost Leadership model. (Ryan Air Official Website) Ryanair's CEO, Michael O'Leary, is an accountant by training but a combative entrepreneur by inclination. He has angered trade unions, government officials and competitors with his "bare knuckle " tactics but has achieved dramatic growth and profitability in the very competitive airline industry. The main strategy of this very strong branded company is reducing all of their costs. They prefer direct booking via Internet. They have very simple ticket price structure and their check-in procedure is ticketless. They prefer country's secondary airports, which are charging lower than primary airports. They use their aircrafts more efficient. They prefer point-to-point service rather than interline service. Their customers have to pay for all additional services. They use their aircrafts like a retail store. They focused short-haul and their fleet quality is high.!
British Airways was established in 1924 as Imperial Airways and served in that name until 1935. Their slogan is “The world's favourite Airline”. BA is the biggest airline company with the over than 550 destinations. Company aims to provide superior service for the complete flight experience from air to ground. British Airway provides diversity service passenger air, cargo air and corporate travel (BA Official Web Site)
They have very strong brand name and their fare structure is very complex. They are in connection with travel agents and they prefer to use primary airports. In short haul they have lower utilization. One of the most important part of their service is Interlining. They have mixed fleet and they have business lounges. For more details to compare these two companies we can use the swot analysis of them;
RYANAIR
Strengths:
Ryanair passenger number growth and load factor growth: FY06 to FY09
Weaknesses
Threats
Ryanair operating profit margin FY06 to FY09
BRITISH AIRWAYS
Strengths
Weaknesses
Opportunities
Threats
We can easily realize that during this economic condition Ryanair has very strong cards on its hand. Which are mainly about the cost. You don't pay anything except the ticket price before you use this service/facilities at Ryanair. If you buy ticket from British Airways your ticket cost includes everything like your food, drink, toilet whether or not you use them. British Airways has to reduce their service cost in some way to reach the success. After economic downturn if Ryanair keep its customer on its hand, British Airways will be struggling.
Porter's Five Forces Analysis of the RYANAIR
Before starting to write analysis of the Ryanair based on Porter's five forces I should write some special information about Ryanair or all low cost airlines. The main characteristics of these companies are designed for reducing costs. Because it is obvious that the most competitive - maybe just one- side of them is their low fares. For Ryanair, their aircrafts seat density is very high and they prefer just one aircraft types (Boeing 737-800). All of their bookings are via Internet so they earn huge amount of money because of no sales commissions. They haven't got any frills such as free food or haven't got any air-mile promotions. They always prefer secondary airports.
Actually these all I mentioned above are had mentioned at their S.W.O.T. analysis in strengths part. In my opinion we can use every single details from S.W.O.T. analysis of Ryanair when we are writing about Porter's Five Forces analysis of it.
This analysis has five-core element. These are
Bargaining Power of Suppliers
Ryanair's main aircraft supplier is Boeing and we know that there is just one other possible supplier for aircraft. It is Airbus. It is obvious that if you change your aircraft supplier, the cost of switching will be very high. You should retrain your staff; you should change every information' about your aircrafts. Ryanair is highly dependent the fuel prices. It is obvious that oil prices will affect their cost directly. So it is very big threat of their strongest side. Generally regional airports have little bargaining power if they are heavily dependant on one airline but day by day their bargaining power increasing because of the competition between low cost airlines. Besides of those regional airports, bigger airports have very huge bargaining power.
Bargaining Power of Customers
Ryanair customers are highly price sensitive. It is very easy to change their airline and it is not related to high cost. In this century customer's knowledge about the cost of service is high and there is no customer loyalty for Ryanair. Even though there is no customer loyalty, bargaining power of customers is low. Ryanair is the cheapest airline for all Europe destinations and customers are -especially in recession times- highly price sensitive.
New Entrants
It is very hard to be new in airline industry. There are lots of barriers to entry. You should take the flight authorizations. The capital that you will invest in this sector is very high. It is also hard to take a place current competition and also hard to find suitable airports for your flights. In my opinion in short time period there will not be any threats of new entrants against Ryanair even though some existing companies are changing their strategy and reducing their ticket price (Lufthansa).
Threat of Substitutes
As I mentioned before there is not any brand loyalty of customers and Ryanair preferred customer relationship is “not-close relationship”. If their customers find better way to travel they will not feel any hesitation to chose it. So the threat of direct and indirect substitutes is very high and the most important point is there are no switching costs for the customers.
Competitive Rivalry
The market is highly competitive. Most of Ryanair's cost advantages can be copied immediately. In Europe it seems like there is an agreement between Ryanair and Easyjet about not to compete head to head. However if any company does decide to compete on the same basis as Ryanair it will be highly crucial for Ryanair. There will be heavy pressure on prices, margins, and hence on profitability.
Porter's Generic Strategy
Ryanair's main strategy is cost-reduction. It is the strongest side of itself. We can also use Porter's Generic Strategies to position Ryanair in the market place. Accordingly, a company positions itself by leveraging its strengths. By applying these strengths we can write three generic strategies:
Cost leadership strategy is based upon a business organizing and managing its valueadding activities so as to be the lowest cost producer of a product within an industry
(Campbell, 2002)
For Ryanair, these three strategies had been utilized. Firstly, they offer the lowest cost than its competitors. They have also become a focuser because their customer segment was narrow which include UK business travelers who could not afford to fly full fare airlines.
No frills service with low fares, which designed to stimulate demand, is the main purpose of the company. At the beginning they did not aim to offer the lowest fare on the market. However, Europe expansion and the economic recession forced the company focus on critical success factors to survive. Nowadays, Ryanair utterly shifted generic strategies to become more of a cost leader. Ryanair has restyled itself and become to the first European low fares, no frills carrier.
In 1985, Ryanair scheduled passenger airline services between Ireland and the UK. By the end of 1990 and despite a growth in passenger volume, the company had experienced some trouble and had to dispose of five chief executives, recording losses of IR£20 million. They had to fight survive and the new management leading by Michael O'Leary, decides to change the company strategy on the model of American Southwest Airlines.
Ryanair's generic strategy used to be unclear. It situated itself somewhere between focuser and cost leader and it was closer to a focuser. They were not sure about which one they wanted. But as soon as competitors started blooming they had to decide their strategy. It was Michael O'Leary's strategy. He decided to ruthlessly pursue cost leadership.
Ryanair has the purest form of low cost airline in Europe. Ryanair boasts many No.1's:
So as we can see from the above representation Ryanair is the most radical low cost airline, it differs from the closest competitor on the graph (i.e. Easyjet) because it uses secondary airports to lower its cost base whereas Easyjet does not. Virgin Express is nearly stuck in the middle; it still offers seat allocations… Aer Lingus is an interesting case, as it has been gradually getting closer to the low cost model on its short haul flights. Ryanair comes out as the purest low cost carrier. Also in appendix is a comparison of Ryanair against other LCC and traditional carriers based on some key operational measures (Revenue, employee/passenger, revenue/employee…).
Bowman's Strategy Clock
Bowman created his “Strategy Clock” in “The Essence of Competitive Strategy” book. With this strategic model he illustrates companies competitive position in comparison with their rivals. For him the real advantage of companies being achieved cost and differentiation. His strategy clock has 8 options. First two options are about the low price. First option is totally low cost low added value but the second option totally about to be a “cost leader” without caring its value. Second option has the risk of price war and low margin.
Third option is a hybrid option. Mainly the low cost but not the lowest price. The most important difference between second and the third option is in third option reinvestment in differentiation.
Fourth option is about differentiation. For option five the biggest difference is the differentiation is highly focused. It perceived added value to a ‘particular segment' warranting a premium price. Rests of the options are failure options. At option six the price is increased but the value is standard. Option seven is worse than option six. In option seven you can see increased price with low values. It is only feasible in monopoly situation. Last option is option 8, which is the cause loss of market share. Because your low value has a standard price.
Like Porter's Generic strategies, Bowman's strategy clock offers effective framework to realize company's competitive status via using eight options. We can examine the business environment of Ryanair.
Ryanair had dramatic changes during last decade period time and this was flabbergasted its competitors. Their profitability rose within a short period of time. Their low-fares strategy without frills and punctuality in flight service helped their high profitability period and it brought a significant value on the growth. The high level competition needs efficient strategy to gain advantages and at the same time high profit. In different times we can put Ryanair's strategy in different options in Bowman's Strategy Clock. But all of them can be placed between options 1 to 5. Their strategy never placed in failure part of Bowman's clock. Mainly, in these days Ryanair place in the clock is between options 1-2, which is mainly about low price. We can easily realize Ryanair is the best example for this option. If they can secure their price and gives higher valued service they can easily take a place option three and they will be strongest company in the competition. In my opinion, hybrid strategy is the most preferable strategy in the clock that is why Virgin Airlines prefer this option. If Ryanair updates their lowest price strategy with a standard service they easily will be the strongest company in the competition.
PESTLE ANALYSIS OF RYANAIR
In Pestle analysis we investigate macro external factors for companies, which are very important for identify their strategies. There are 6-core elements of Pestle analysis. These are Political, Economical, Social, Technological, Legal and Environmental options. We can examine these factors in the airline industry to realize Ryanair's future external threats and opportunities.
POLITICAL FACTORS:
ECONOMIC FACTORS
SOCIAL FACTORS
TECHNOLOGICAL FACTORS
LEGAL FACTORS
ENVIRONMENTAL FACTORS
There is a cruel competition in airline industry. Especially, after credit crunch in 2008 the competition has become crueler. Companies have to fight with recession also and in this economic situation we can see lots of threats in sector. If you reverse these threats to the opportunities you will be one step further in the competition. Ryanair is the most suitable company to gain advantages from today's world. With this assignment we answered the questions, which frequently asking for their future strategy and their position's of the future competition. That's why; they have started to corporate social responsibilities. The biggest example for that their “Cabin Crew Charity Calendar”, which you can see at the very first page of this assignment.
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