Strategic Analysis Report

PREREQUISITES FOR SUCCESS.

What do Customers Want?

How does the Firm Survive Competition?

Analysis of Demand

Analysis of Competition

Who are our customers?

What do they want?

What drives competition?

What are Its main dimensions?

How intense is competition?

How can we obtain a superior competitive position?

CRITICAL SUCCESS FACTORS

Ryanair Case Introduction.

Since its foundation in 1985, the airline Ryanair has followed a very successful cost leadership strategy. Thirty years later, Ryanair carried 101.4 million passengers by 2015, becoming Europe’s largest airline.

In 2017, Ryanair offered more than 1,800 flight routes, an increase from 1,100 flight routes in 2010. It operated in over 200 airports across 33 countries. It carried 129 million passengers with over 2000 flights per day and a fleet of 400 Boeing 737-800 aircraft. The number of staff grew from 7,000 to 13,000 between 2010 and 2017. The annual revenues grew from around €3 billion in 2010 to over €6.5 billion in 2017. Ryanair wants to continue expanding, and has 400 new Boeing aircraft on order.

Unlike other airlines, Ryanair eliminated cost at every step, among other measures:

· Ryanair focused on secondary airports with lower airport charges (e.g. in London: Stansted airport instead of Heathrow and Gatwick airports);

· Ryanair eliminated free services to passengers (e.g. no free food);

· Ryanair paid lower salaries to staff (e.g. it did not allow trade unions);

· Ryanair entered into contracts with third parties in order to reduce passenger and aircraft handling costs;

· Ryanair eliminated payments to travel agents by selling directly online;

· Ryanair lowered the cost of buying and maintaining aircraft by relying on one type of aircraft (the Boeing 737-800).

However, sometimes cost-cutting zeal goes a step too far and can backfire badly. Ryanair reported in 2009 that its onboard toilets would become coin-operated, forcing passengers to pay £1 or €1 per visit. The plan was retracted and may never materialize after it attracted negative media attention and became a popular joke. The plan to charge for toilet use was to be introduced with another plan to remove seats and introduce standing room on its aircraft. The plan was to remove toilets as well as a row of seats from the back of the plane and leave one coin-operated toilet at the front of the plane. This would free space for standing room and hence more passengers.

The plan to introduce standing room was put on hold pending the go-ahead from the European Aviation Safety Agency (EASA), and the plan was never implemented. Ryanair’s plan would require EASA to rewrite its rules which state that ‘a seat (or berth for a non-ambulant person) must be provided for each occupant who has reached his or her second birthday.’ Analysts believe that Ryanair went a step too far, but there is also a widespread belief that the two plans were no more than a highly cost-effective publicity campaign by Ryanair to highlight how far it is willing to go to cut costs in order to remain the cost leader.

Ryanair’s business model worked well for short-haul flights in Europe, but the company was hoping for a long time to bring its business model to the United States – the largest aviation market in the world. This would include the cheapest seats at $10 and business class seats for those willing to pay. In 2015, the Ryanair board even approved plans to move ahead with trans-Atlantic flights—a logical progression given the airline’s steady growth, but the company reversed the decision three days later.

But Ryanair’s competitive advantages stem from short flights, which allow for more daily flight segments per airplane. ‘They wouldn’t be able to replicate their massive short-haul cost advantage on long-haul flights’, said Seth Kaplan, a managing partner at trade journal Airline Weekly. Furthermore, since 2015, the trans-Atlantic market saw a surge of low-cost airlines such as Norwegian Air, WOW Air, WestJet Airlines Ltd., and Air Canada’s discount Rouge unit. Should Ryanair follow these airlines to enter the market for trans-Atlantic flights?

In the meantime, the company faced severe problems with its staffing. In September 2017, Ryanair was forced to cancel more than 2,000 flights because not enough cockpit crew were available to fly its aircraft. The sudden announcement of cancellations unsettled millions of customers who were kept in the dark about which flights were affected, and threatened to damage to the Ryanair brand. 315,000 passengers were affected by the cancellations.

Ryanair has been able for a long time to cap the salaries to pilots. However, pilots have always been a powerful force at airlines, and have been in increasingly short supply in recent years as capacity surged on cheap fuel prices. It takes three years of costly training, and a slowdown in 2014 of Boeing 737 deliveries—the planes Ryanair flies— has made it tougher for pilots to accrue the hours needed for promotion to captain. In addition, Ryanair has about 5 pilots per plane, nearly one fewer than its rival EasyJet, analysts estimate, and lacks the partnerships and alliances that might have eased the strain. An already stretched pilot corps was further strained by about 140 Ryanair pilots who left Ryanair to join the low-cost rival Norwegian Air.

Amid the shortage of pilots, the European Union’s top court announced in September 2017 that it was illegal for Ryanair to employ all of its crew members on Irish labour contracts. This practice previously allowed Ryanair to circumvent costs from additional holiday and sick pay and national insurance charges in some jurisdictions where its staff are based. This change meant that Ryanair was suddenly forced to reduce a year’s worth of vacation into nine months, something Ryanair was unable to do given the need to accommodate training days and stand-by shifts as well as actual flights.

Ryanair promised higher salaries to its pilots, and it will spend as much as 30 million euros ($36 million) on recruiting, including offering signing bonuses of about 10,000 euros for new captains. However, the dispute with its pilots continued. In December 2017, Ryanair faced its first ever strike by pilots, as pilots in Germany from the trade union ‘Vereinigung Cockpit’ held a four-hour walkout and threatened more strikes in 2018. Already before the strike, Ryanair promised that it will recognise pilot unions for the first time in its 32-year history in order to avoid a Christmas strike. Chief executive Michael O’Leary said: ‘We have written today to these unions inviting them to talks to recognise them and calling on the to cancel the threatened industrial action planned for Christmas week’. This was a major u-turn for the airline, as previously Ryanair insisted that any discussion of pay and working conditions should be discussed through management-controlled ‘employee representative councils’.

Is Ryanair’s competitive advantage being eroded?