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EXECUTIVE SUMMARY
Ryanair is the Europe’s leading low-cost air carrier. It is widely known and is a prefered choice for cost conscious air travellers. Over the past few years, it has embarked on aggressive expansion plan. Ryanair is not spared from global economic condition, and also the changing customer expectation. To ensure sustainability, it has to react towards the changing business environment and to be more receptive towards internal and external customer needs. Besides that, Ryanair needs to continue investment in technological advancement to be cost competitive.
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1.
BRIEF OVERVIEW OF RYANAIR HOLDINGS PLC.
Ryanair Holdings Plc., Europe’s largest operating low-cost airline based at Dublin, Ireland. The company was established by three brothers from the Ryan family - Cathal, Declan and Shane Ryan in the year 1985, with an initial investment of
₤1
million and 25 staff. With a single airplane, a 15-seat
Embraer Bandeirante turboprop aircraft, the airline began its operations in July 1985 on its scheduled routes between Ireland and United Kingdom and utilized secondary airports to save cost. By late 1985, the airline entered the Dublin-London market and competed with British Airway (BA), Dan Air and Aer Lingus.
Michael O’Leary, was appointed as the CEO of Ryanair in 1993. Being a charismatic leader emulated the business strategies of Southwest Airlines and developed the low-cost model further. Ryanair Holdings Plc was incorporated in November 1996, and listed its shares on the Dublin and NASDAQ stock markets in May 1997. On January 2000, Ryanair launched the ryanair.com. With a fleet of modern technological aircrafts to in-flight mobile services, Ryanair has revolutionized the European air travel industry, serving 800 routes (Exhibit 1) from 32 bases (Exhibit 2), a record of close to 42.5 million passengers in a year (Exhibit 3), making it the biggest low cost carrier and the number one in Europe.
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2.
OVERVIEW OF SWOT ANALYSIS
The SWOT analysis is a simple framework for generating the Strengths, Weaknesses, Opportunities and Threats of an organization. SWOT is a two
prong strategy; analyze the internal force through the strengths and weaknesses, and the external force through opportunities and threats.
Figure 1 : Illustrative diagram of SWOT analysis
The strengths are the resources the organization that are usually capitalized for planning a strategy or developing a competitive advantage. These strengths usually comprise of a reputable brand image, a good leadership, strong customer database or any other features that may add value to the organization. The absences of these strengths are viewed as weaknesses. Weaknesses are the negative aspects such as lack of marketing expertise, poor quality of goods and services and damaged reputation. These factors are usually within the organization’s control and can be improvised with proper organization and business strategies. The opportunities reveal the possible chances of an organization gaining profit and growth, some of which are a developing a new international market, business expansion to international market or a merger with a new entity.
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Threats are the negative conditions that are beyond the control of an organization, making it vulnerable to operate. Some of the examples of threats are political unrest, terrorist attacks, recession, and change in government policies. But these can be overcome with the presence of substitute recovery plans for the organization.
3.
SWOT ANALYSIS ON RYANAIR
The SWOT analysis on Ryanair can be classified into various segments, as illustrated in Figure 1.0 below. Ryanair’s opportunities were capitalized using its strengths, while eliminating the weaknesses and threats.
Figure 2 : The various segments of Ryanair SWOT
Strength
The major strength of Ryanair was its financial strength gained through its profits over the past 14 years being in the Low Cost Carrier (LCC) industry. This enabled the company to gain first mover advantage, especially in the case of airplane procurements, whereby Ryanair makes deals based on their own bargaining conditions, likewise in the case of Boeing. The airline has relatively set high barriers to the new entrants of the similar industry in UK. In other words, there will be an immediate price war if a competitor is penetrates into the existing Low Cost Carrier (LCC) route. Page 4 of 23
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Preempting potential competitors has to either offer better value or lower fare than Ryanair, which relatively lead to pain of losses to the competitor. Throughout Ryanair’s experience in the LCC industry, the company has nurtured phenomenal brand awareness in UK through its ‘no frills’ and low fare policy that leads to higher seat capacity, thus enabling it to maintain its position as a market leader in its industry. Another strength of Ryanair is the remarkable track record for its high service performance. Ryanair was voted the best airline in Europe by the Association of European Airlines (AEA) in terms of best punctuality, low baggage loss and least cancellations (breakingtravelnews.com) (Exhibit 4). Ryanair’s has implemented a hub-to-spoke system that simplified its network of routes, making the flight operation more efficient. This system eliminated terminal delays and gave way for more frequent flight with faster turn-around and a reasonable punctuality. The airline operates the largest travel website in Europe. Ryanair.com, encourages online bookings and check-in since the time it was introduced in March 2006. It enables its customers to enjoy benefits on the majority of Ryanair routes. Privilege was given to passengers traveling with hand luggage and a European passport, whereby they will be able to bypass queues at airport check-in at boarding gates, on to of a 9% reduction in its average fares.
Weaknesses
Although, Ryanair is one of Europe’s the most successful airlines, yet some o f its major weaknesses has impaired its viability. The weaknesses of Ryanair can be segmented into five aspects, i.e. organization culture, decision making process, customer services, corporate social responsibility (CSR) and regulatory compliance.
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1. Organization Culture
10
2. Decision Making
8
3. Customer Service
6
4. Corporate Social Responsibility (CSR)
6
5. Ryanair.com
4
6. Regulatory Compliance
4
Source : O’Higginns
Figure 3 : The weightage on some of Ryanair’s weaknesses
One of the major weaknesses of Ryanair is its poor organization culture. There are various factors influencing these criteria. Trade unions were not allowed in the organization to deter bargaining terms and conditions, and other legal aspects pertaining to the employees’ rights. The overly emphasis on achievement outcomes has lead to negligence to its employee welfares, resulting to employee’s poor quality in work performance. In a press statement by the International Transport Workers’ Federation (ITF), the employees were overworked to a point of exhaustion (work 12 hour days without breaks), and had to pay for their uniforms, training and the water they need to drink on flights (itfglobal.org). These factors have lead to employees’ exasperation and hindered them to deal with their customers in an unpleasant manner. Ryanair has also projected a bad corporate image due to its CEO, Michael O’Leary. Being classified as an arrogant personality, the decision making has been biased to status quo; i.e. no changes done to the business decision based on the unpredicted and volatile economic situation. To accomplish his ambitions and goals, O’Leary favors his personal hostile ambitions towards his customers and competitors.
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This has lead to various critics by the regulatory authorities, competitors and general public resulting to court rulings and bad press; but yet he was inconsiderate about it and went on with his agenda. In the aspect of customer relations, Ryanair’s cost cutting efforts has resulted to annoyance and inconvenience to its customers. There were high complaints especially in the case of charging customers even for the basic needs such as oxygen mask (Exhibit 5), its reluctance to take responsibility of lost baggage, discriminating the disabled and refusal to provide services to the disabled or older passengers (O’ Higgins). One example was in the case of a disabled passenger, Bob Ross, where he was charged £18 to use a wheelchair at Stansted Airport, in Essex (news.bbc.co.uk). Exhibit 6 highlights the other cases pertaining to Ryanair’s customer service. Some of the other shortcomings were due to its advertisements, which is either misleading or offensive. In most cases the adverts provided false information, especially in the case of its ticket fares with hidden charges; and its destinations which mentioning ‘main city location’, while actually operating from remote locations (http://en.wikipedia.org/wiki/Ryan_Air). There were also advertisements which had offensive elements to degrade its competitors, one of which is in the case of Sabena Airlines whereby the ad projected a picture of the Manneken Pis, a famous Belgian statue of a urinating urchin, with a punchline stating, "Pissed off with Sabena's high fares? Low fares have arrived in Belgium." (Exhibit 7) (Irishtimes.com – 5 May, 2001). Opportunities
The opportunities for Ryanair came in various forms, varying from the air industry deregulation, new routes, entry to the US domestic market and Ryanair Direct. De-regulation of the air industry by the European Union (EU) in the year 1992 opened new dimensions for the airline. Taking advantage of this Ryanair launched its services at Paris, Charleroi and Stockholm. The company earned huge profits enabling it to place an order for 45 units of the new Boeing 737800 series fleets. Page 7 of 23
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This was a big order worth $2 million. The company introduced a new business model in Europe, new services to new markets and low fares to 300 million people that were being explored by the high fares of flag carriers. These were not possible with the previous regulation that restrained capacity, fares and routes. (Case studies: SAS Airline & Ryanair) The enlargement of the European Union has also increased in new destinations and therefore this lead to better company performance of Ryanair. Countries in Eastern Europe were becoming an attractive destination and airports were pursuing Ryanair to bring its low fare service to their communities. This has ensured a sufficient number of new market growths are made available for Ryanair for the next five years. Another potential prospect for Ryanair was when United States (US) opened up its restricted routes (trans-Atlantic routes) to Ryanair and the other new rivals. A new long haul flight will be launched to cater the trans-Atlantic route, offering a fare as low as $12 for one-way. The "Open Skies" deal, took effect towards end of March 2008, allowing Ryanair to serve close to five to six destinations in US from its 23 bases in Europe. (USA TODAY - 12/4/2007) Canada being present for potential businesses in international trade has opened up an opportunity for Ryanair to establish themselves as a low cost carrier and also to partner with companies within Canada to offer the same low-cost air fare they offer in their home base – Europe. Therefore, this could be a great place for Ryanair to capitalize on the airfare market, and expand into the U.S as well. (terpconnect.umd.edu) The low cost based policy continued to find new opportunities, one of which is Ryanair Direct (a call centre) to encourage customers to book their seats directly with the airline. This is in regards to improvise on the Customer Reservation System (CRS) and to do away with the travel agents have cost associated to the sales of ticket for Ryanair. In other words, Ryanair was charged by the travel agents for booking done through CRS and a fee imposed for every ticket sold. Besides enabling a save in the costs by eliminating travel agents’ commissions of 7.5%, the website was also used to sell travel insurance, accommodation and car hire. Page 8 of 23
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Threats
Ryanair has been continuously facing fierce operating challenges. This is because the company operates in a highly competitive marketplace. The competitors has commenced their own ‘no frills’ charter services and have reacted by introducing fare cuts on short routes, flying larger aircraft with one passenger class, reducing in-flight service, internet bookings and weekend offers. Mainstream airlines also intend to follow the budget airline model to be executed on international routes. (O’ Higgins 2004). Technological advancement had a reversed implication to Ryanair. Internet and credit card usage was still at an infancy stage especially in Eastern Europe. (Economist 2004c:69).The rapid development in telecommunication may result in lesser need a business travel. Meetings can be held via video or teleconferencing, thus eliminating the need for physical presence in a location. Terrorist attacks were an unpredicted threat to Ryanair. This was evidenced in the case of the terrorist attacks on United States and London. This caused a drop in the air travel as the consumers were apprehensive about security and a raise in the insurance coverage due to a third party liability from “acts of war” or terrorism. This resulted in Ryanair seeking other options such as government or self insurance, which relatively resulted to cost increase and revenue drop. (Ryanair.com) Threat also came in the form of a drop in the fuel price. Ryanair’s strategy of fuel hedging provides extensive protection against unpredicted fluctuations of fuel prices. However, the current drop in the fuel price, resulted in them dipping onto its cash balance to finance the differences, thus affecting its margin (Oxfordbridgewriters.com). The change in government policies such as an increase in the air passenger taxes results to a higher air travel cost. This may lead passengers to seek for alternative mode of transport such as high-speed trains and buses for their travel needs, therefore causing a drop in air travel demand.
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4.
RECOMMENDATIONS
TO
OVERCOME
THE
WEAKNESSES
AND
THREATS OF RYANAIR
People relation is an important aspect to determine Ryanair’s success. Internally, it leads to improve the morale of their staff especially taking care of their basic needs and welfare, listening to their positive and negative feedbacks as well as getting them involved in making recommendations and decisions. This leads to greater sense of belonging and whole hearted participation in Ryanair’ business. Externally, Ryanair need to be more customers focused. This is through meeting the basic expectations of an air traveler. Being too cost focus will lead to negative perceptions over Ryanair’s commitment towards its travelers. Creative pricing to bundle in some of the individual items charged separately such as oxygen mask and wheelchair will help eliminate undue critics. Being attentive too problems faced by the customers will also help to bolster its image. Most of the threats faced by Ryanair are external and beyond their control such as terror attacks, fluctuating bunker cost as well as weather. Maintaining a good cost management system such as having a young and healthy fleet of aircrafts will ensure good asset utilization, in terms of constantly ensuring good load factor and profitable routes. This will enable them to react fast and better against external threats by realigning their network according to market demand.
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5.
OVERVIEW OF PEST ANALYSIS
PEST analysis is a tool used to identify the external macro-environment that’s affects an organizations operation. The PEST is an acronym for Political, Economic, Sociocultural and Technological.
Figure 4 : An illustration of a PEST Model
The PEST analysis helps to determine market growth or decline, business position, potential and guidance for the business operations (Kotler : 1998), thus being effective for business and strategic planning, marketing planning, business and product development and research reports. PEST also ensures that company’s performance is aligned positively with the powerful forces of change that are affecting business environment.
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6.
TECHNOLOGICAL ANALYSIS ON RYANAIR
The technological environment on the whole does not have an adverse impact on the company, but has been an added advantage to it in the aspect of cost efficiency. The biggest success for Ryanair was the conversion British Airways Booking System (BABS) host reservation system to Skylight Systems by Accenture in January 2000. The Skylights system enabled the Ryanair customers to reserve and book their air tickets through ryanair.com. These strategic marketing application has helped Ryanair in terms of reduction in its operating cost, improve its sales performance and total consumer patronage,
eliminate travel agents
commission, and streamline labor functions in the aspect of eliminating front desk personnel. The airline has also moved into offering in-flight mobile phones services on their regular routes across UK airspace. The usage of mobile in flights was generally being banned due to its signal being interference to the onboard communication and navigation system. But the new technology that was specially designed for Ryanair by a Swiss communication company, OnAir, was able to weaken the signal from the phones and transfers calls, texts and e-mails through a satellite (Exhibit 8) (BBC, UK – 19 February, 2009) . Another innovation of Ryanair was the implementation of an electronic device to assist the cabin crew in selling merchandise on-board. The technology was rolled in the Ryanair’s fleet on April 2008 onwards and this has enhanced the onboard sales service, enabling them to introduce more products. (REUTERS – 4 January, 2008)
The aircraft technology has also been an added advantage to Ryanair through its investment in the “next generation” aircrafts and engine technologies. The new Boeing fleets have minimized noise, fuel and CO2 emissions, thus enabling the company to achieve the combination of: numerous fuel saving commercial measures. (Ryanair.com) (2,824 words)
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APPENDIX
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EXHIBIT 1 :
SOME OF RYANAIR’S ROUTES
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EXHIBIT 2 :
RYANAIR’S DESTINATIONS
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EXHIBIT 3 :
PASSENGER GROWTH FROM YEAR 1995 TO 2007
The numbers from the latest financial year (ended 31-Mar-2009): • • • •
•
Operating revenue from continuing operations rose 8.5% to EUR2.94 billion; Passenger numbers rose 15% to 58.5 million; 18 net new aircraft (year-end fleet of 181 B737-800 aircraft); Six new bases at Alghero, Birmingham, Bologna, Bournemouth, Cagliari, and Edinburgh; 223 new routes, for a total of "800+" routes with "1,200+ daily departures" (the airline has apparently lost count).
Source : RyanAir.com
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EXHIBIT 4 :
THE CUSTOMER CARE STATISTICS FOR THE SECOND QUARTER OF 2009
Source : RyanAir.com
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EXHIBIT 5 :
FEE IMPOSED FOR EMERGENCY INSTRUCTION CARD AND OXYGEN MASK
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EXHIBIT 6 :
SOME OF THE OTHER CASES INVOLVING RYANAIR’S DISABALED PASSENGERS
YEAR
DETAILS
2005
Airline was criticized for ejecting nine blind and partially sighted passengers from a flight at Stansted, because the group meant the plane would be carrying more than the four disabled passengers permitted by the airline's safety regulations. (http://www.mnddc.org/news/inclusion-daily/2005/10/101405ukairacc.htm)
2005
Ryanair was forced to pay Bob Ross £1,336 in damages after charging him £18 to use a wheelchair (http://news.bbc.co.uk/2/hi/business/4114399.stm )
2006
Refusal in providing a sick cancer sufferer with a wheelchair. (http://archives.tcm.ie/irishpost/2006/08/30/story4561.asp)
2007
A 14-year old with a broken leg being forced to stand for two hours on a flight, despite the boy being in pain. http://www.shortnews.com/start.cfm?id=61961
2007
Ryanair ordered a group of visually impaired passengers to disembark from a flight before take-off on the excuse that the flight had exceeded the permitted number of "mobility-impaired" passengers and refused to pay compensation required by law, claiming that they had disembarked voluntarily. Ryanair paid compensation before court proceedings took place. (http://www.timesonline.co.uk/tol/travel/news/article2293457.ece)
2008
Paul Heath left to lift disabled wife, Jo Heath Refusal onto plane after RyanAir cabin crew and handling agent refused to offer assistance. (http://www.dailymail.co.uk/travel/article-610634/Ryanair-left-lift-disabled- wife-plane.html)
Source : Wikipedia
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EXHIBIT 7 :
THE MISLEADING AND OFFENSIVE ADVERTISEMENTS OF RYANAIR
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EXHIBIT 8 :
THE IN-FLIGHT MOBILE SIGNAL TRANSMISSION
Source : http://news.bbc.co.uk/2/hi/technology/7899446.stm
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REFERENCE a)
1.
Internet References
BBC News, Ryanair allows mobile phone use, - Viewed on 12 August, 2009 http://news.bbc.co.uk/2/hi/technology/7899446.stm
2.
Bird’s Eye View, Strength, Weaknesses, Opportunities, Threat Viewed on 20 July, 2009 www.air-scoop.com
3.
Case studies: SAS Airline & Ryanair, New Boeing 737-800 series fleets - Viewed on 4 August, 2009 http://umu.diva-portal.org/smash/record.jsf?pid=diva2:140520
4.
Conduct A Strategic Analysis Of A Multinational Company (MNC) Or An International Company – Ryanair, PESTLE Analysis, Technological - Viewed on 4 August, 2009 http://www.oxbridgewriters.com/essays/business/ryanair-airports-strategy.php
5.
Funding Universe, Ryanair Holdings Plc , Michael O’Leary - Viewed on 13 August, 2008 http://www.fundinguniverse.com/company-histories/Ryanair-Holdings-plc-Company-History.html
6.
How Ryanair Has Exploited The Economic Theory Behind Airline Contestability And Deregulation, Ryanair’s Cost Advantages Viewed on 28 July, 2009 http://www.airneth.com/index2.php?option=com_docman&task=doc_view&gid=533&Itemid=15 .
7.
Low Cost or Low Ethics, Innovation Viewed on 1 August, 2009 http://stajano.deis.unibo.it/ResP2005-pdf/Ryanair.pdf
8.
Reuters, Ryanair picks GuestLogix in-flight sales devices, Electronic Device, - Viewed on 30 July, 2009 http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSL0456358520080104
9.
Ryanair Holdings Plc, European Airline Market Viewed on 28 July, 2009 http://www.ryanair.com/site/about/invest/docs/2003/20F_front_2003.pdf
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10.
Ryanair Plc, Government Regulations, SWOT – Analysis, Objectives and Long Time Vision Viewed on 28 July, 2009 http://solvay.ulb.ac.be/cours/alle/BuspPresRyanair04.pdf
11.
Ryanair SWOT Analysis: Addicted to growth, a great model for bad times, STRENGTH : Low fare super brand - Viewed on 31 July, 2009 http://www.centreforaviation.com/news/2009/06/03/ryanair-swot-analysis-addicted-to-growth-agreat-model-for-bad-times/page1
12. Ryanair, Critisicm and Complaints – Misleading Advertising Viewed on 5 August, 2009 http://www.hamblecollege.co.uk/hamblewiki/wp/r/Ryanair.htm
13.
Ryanair , Ryanair, Europe’s Greenest Airline, Fuel burn and CO2 emissions - Viewed on 30 July, 2009 http://www.ryanair.com/site/EN/about.php?page=About&sec=environment
14. Strategic Case Analysis : Ryanair, External Analysis - PEST Viewed on 12 August, 2009 http://www.essaycapital.com/samples/Degree_Case_Analysis_Harvard.pdf
15.
The Case of Ryanair – EU State Aid Policy on the Wrong Runway, The New Principles of the Commission for Assessing Subsidies to Airlines: A Critical Evaluation - Viewed on 4 August, 2009 https://www.uni-marburg.de/fb02/makro/forschung/gelbereihe/artikel/2004-13-GroetekeKerber.pdf
b)
Book References
16
Strategic Management Concepts and Cases by Peter Wright, Mark J. Kroll, John Parnel SWOT Analysis : Page 50 - 54
17.
Management, James A.F. Stoner, R. Edward Freeman, Daniel R.Gilbert,JR Macroenvironment Analysis
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