Strategic position of the company can be analysed with help of Porters Generic strategy, Companys culture. It identifies how the business operations and functions impacts on the carrier's customer relations and leaderships with regard to their overall strategy.
Followed by critical analysis of strategic direction of company by using Ansoff Matrix, and Strategic clock and evaluating its feasibility, suitability, acceptability, sustainability.
Ryanair an international air carrier was established in 1985 in Dublin headed by Tony Ryan. The company launched its first service that year with daily flights on a 15-seater Bandeirante aircraft, operating daily from Waterford in the southeast of Ireland to London Gatwick Ryanair is an Irish airline competing in the fairly recent development of the European budget airline industry. They are one of the key players within the market, and perhaps the most profitable. Ryanair started off as full-service conventional airline, with two classes of seating, which are business class and economy class. Then in 1990 when O'Leary took office, the company under his supervision changes its business model dramatically, implementing cost-leadership strategy, using aggressive and innovating outsourcing strategy, and market segmentation focus. Ryanair started to become the first European low fares in the 1995 this restyle of the company was built on the model of the Southwest Airlines, the highly successful Texas based operator. They prefer point-to-point service rather than interline services. Their customers have to pay for all additional services. They use their aircrafts like a retail store. They focused short-haul flights and their fleet quality is high.
Strategic Position
In the emerging need of the timeliness and accuracy, Ryanair managed to cope with the changes in the technological innovation and promoted the use of the internet and databases to accommodate all of the existing and target customers. Based on increasing their competitive edge and attracting customers at both ends of their routes Ryanair have made strategic decisions like strategy to keep cost down, high human capital productivity, market dominance by size, maximising use of internet, ancillary services, and focused criteria for growth. Strategic position for Ryanair can be seen with the help of these models:
Environmental Analysis
Macro environment
Detailed macro- environmental trends affecting aviation industry are given with the help of PESTEL analysis (Appendix I). With first deregulation the aviation industry faced strategic pressures like airline closures which created gap in market that benefitted Ryanair, as it restyled itself into Europe's first no frills, low fares carrier, it made use of first mover advantage by negotiating very good rates with secondary airports and locking in landing slots at these airports. After 1997 there were no legal barriers and flights can operate freely on any route within Europe. The advancement in technology and use of the internet opened doors to new opportunities where customers can directly communicate in a cost efficient manner. Economic crisis is affecting the industry and customers are looking for cheapest possible ways to travel. "Sars" has shown that an epidemic can have a heavy influence on the airline business. The World Health Organisation (WHO) has already forecast a global epidemic within the next years. This will certainly have a larger influence onairline industry business.
Micro environment
Porter's Five Forces and SWOT analysis (Appendix II) shows Ryanair took advantage of being based in Europe's fastest growing economy. To keep its carrier cost low Ryanair accesses underutilized/secondary airports throughout Europe that helps it keeping carrier cost low that avoids huge gate and landing charges of major airports and avoids congestion that improves turnaround. Airline industry has no control over rising fuel costs, so they purchase hedging while market value can fluctuate anytime. Airports such as Luton and Stanstead do have the upper hand, and can demand higher landing charges from low-cost carriers as BAA has monopoly status. Through internet booking commission of travel agent can be deducted and can help Ryanair to take the opportunity to gain increase in ancillary revenue through their website.
Cultural web
Corporate culture can have a huge impact on an organization's work environment and output.
Routine: using its own engineer for maintenance of planes to save cost.
Symbols: Ryanair symbolises low cost
Power structure: Michael O'Leary is the head, power is distributed from directors to managers and operational employees.
Control Systems: performance related pay structure, employee share option scheme.
Organisational Structure: hierarchical
The Paradigm: Ryanair provides no frills service with low fares, and it has become self enforcing and self sustaining culture.
According to Handy we can define the culture of Ryanair as Role Culture.
As in Ryanair co-ordination is by a narrow band of senior staff. The authority of position power is legitimate. System effectiveness depends upon adherence to principles rather than personalities.
Porter's Generic Strategy
In Ryanair, generic strategies that had been used are the company offers the cheapest fare than its competitors in the airline, its main strategy is cost reduction. Ryanair provides no frills service with low fares designed to stimulate demand. It focused on a narrow customer segment which includes Irish and UK business people providing cheap means of travelling. The company expanded to continental Europe and had to focus on critical success factors to survive. Indeed, when one considers Porter's original framework, Ryanair's generic strategies are :
Differentiation
Cost leadership
Focus
Michael O'Leary ruthlessly decided to pursue cost leadership. For satisfying both internal and external customer's strategic option can be used by the company. As the number of competitors will increase Ryanair had to decide which strategy it would stick to. The supply chain and changing decision frames of customers has a significant role in improving strategies with regards to differentiation. Ryanair makes price the big differentiator and it compensates for the fact that it flies from secondary airports to secondary airports that may be slightly further from main centres that the major airlines and major airports. It supports its price differential by chartering rather than owning its whole fleet, outsourcing many operational services. Ryanair understood that there is a point at which travelers will trade off benefits for price.
Strategic direction
The Strategy Clock
The strategy clock is based on the work of Cliff Bowman. Bowman's strategy clock offers effective framework to evaluate and determine the company's competitive status by means of using various options. The requirements for this strategy are basically cost reductions in all the area of the firm and in its value chain, efficient scale facility. The real advantage of companies being achieved cost and differentiation. Ryanair's low-fares strategy without frills and punctuality in flight service helped their high profitability period and it brought a significant value on the growth. In 2010 they had around 204% increase in their revenues . The high level competition needs efficient strategy to gain advantages and at the same time high profit. We can put Ryanair's strategy in different options in Bowman's Strategy Clock and can be placed between options 1 to 5. Their strategy never got placed in failure part of the clock. These days Ryanair can be placed at options 1, 2 in the clock as it operates on the strategy of low cost. To become a stronger company all they need to do is to keep the same prices but give better services to customers. In my opinion, hybrid strategy is best amongst all others. The dramatic changes happening within Ryanair Airlines is due to executive strategic management planning. One of which changes was the rise of profitability within a short period of time. The effective implementation of low-fares strategy, no frills and punctuality in flight service brought a significant value on the growth of Ryanair Airlines and challenged its competitors. Options one to five in strategy clock show Ryanair business strategy wherein the emphasis on implementing low price value, low cost base products, and reinvestment in low price and differentiation.
They expanded and entered Morocco and Europe.If they expand in European market it would be beneficial for them
Ansoff Matrix
Igor Ansoff presented a matrix that we are using to focus on the Ryanair's present and potential products and markets. It is important for Ryanair to decide on the appropriate market segment to target as this will subsequently determine its generic strategy. It's using cost leadership strategy to compete with other airlines. Ryanair seems to successfully attract and penetrate the markets by offering services in flights in a most affordable and reasoning price like no frills, schemes. As, Ryanair is the leading carrier across Europe, it forces them to expand to get known internationally that requires divergence of employees and culture. Ryanair with its operations in various locations and destinations have diversified people and management in which they operate.
CriticalEvaluation
Sustainable:
Ryanair can enter into the Cruise lines market with its no-frill, low-fare strategy which could help it to increase its market share.
Acceptable:
Low cost strategy being imitated/ followed by the airline industry.
Feasible:
It is still number one in low fare airlines.
Sustainable:
It has a good brand name and high market value.
Ryanair being low cost fares airlines introduced new business model (cost leadership) in a different context. Michael O'Leary is one unique resource for Ryanair as he is leading the company in aggressive and innovative way. Deal to penetrate in USA could be a great opportunity for Ryanair. They use single model aircraft which reduces their maintenance cost. They have got unique resources both tangible and intangible like very high market capitalisation, the company provides various ancillary services and engages in other activities connected with its core air passenger service. These include non-flight scheduled services, the in-flight sale of beverages, food, and merchandise, and internet-related services. As part of its non-flight scheduled and Internet-related services, the company distributes accommodation services and travel insurance through both its website and its telephone reservation offices. Ryanair has been able to produce high volume for airports and this fact has negotiated favourable access fees. The company reduced fees by choosing secondary airports. Ryanair also sells bus and rail tickets onboard its aircraft and through its website.
Recommendations
Low price, value for money and efficiency are core values of Ryanair. Those core values should not change regardless of environmental turbulence. This means that cost reduction and other profit sources than travel fares are important factors in Ryanair's strategies since they cannot compensate its expenditures by increasing travel fares.
Ryanair should allow other company to advertise its airplane cabins. This should offer to the other external company to advertise customers during all the flights long for a fee, sell advertising space on their website.
Other changes might be to increment the catering and to introduce ancillary services such as television and internet services on flights implementing strategic alliance and to attract more people to come back they should offer schemes for next onboard.
They should improve Customer perception of Ryanair by providing good customer services, and making alliances with hotel groups in order to offer a complete package.
Succession planning: A leader who is not as polarizing and rebellious as Michael O'Leary could be a good replacement as Ryanair further expands. A softer image projected by a new leader could help Ryanair mend its relationship with Irish and EU officials
Offering long haul flights.
Improve its oil hedging & currency trading practices: Improving its hedging practices could protect Ryanair's expenses against unforeseen increases in oil prices. As oil is traded in US dollars in the international market and Ryanair's income is solely in Euros, Ryanair need to improve its policy of buying US dollars to pay for aviation fuel.
Offering Business class additions.
O'Leary's leadership could improve in Developing Human and Social Capital as he does not seem to pay attention to the individual employee, except state that they are one of the best paid in the low price airline industry. In the long run, Ryanair could experience low morale in the work if enough attention is not paid to develop and nurture employees.
CONCLUSION
Ryanair is currently blooming among the low fare air lines in the European market. They have a unique strategy of low fare airline in the European market. Michael O'Leary and his company Ryanair have exhibit in being successful in the past and known to be not second best to anyone. It follows Role culture, focus on cost-leadership. For Ryanair to flourish, it would be required to develop a unique differentiation strategy and need to start planning for life after Michael O'Leary s, if Ryanair is to achieve an everlasting sustainable competitive advantage in today world of turbulence and instability business environment. Ryanair's low price strategy is perfect fit for them.
Reference
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6. Bloomberg Businessweek(2011) Ryanair Rising Ireland's discount carrier is defying gravity as the industry struggles[online] available from < http://www.businessweek.com/magazine/content/03_22/b3835074_mz014.htm> [13 February 2011]
7. Ryanair(2011) About us [online] available from < http://www.ryanair.com/en/about> [7 February 2011]
