Individual Reflective Essay

Ryanair

0. Executive Summary

This report looks to investigate one of Europes largest Low Cost Airline: Ryanair. Throughout this report we will be analising the strengths and weaknesses in Ryanairs strategies, as well as seeking to provide insite into the environemental challenges Ryanair is faced with. Based on this analisis we will be offering recommendations for Ryanair to evolve its strategie in an attempt to give them better strategic sustainbablity, in order to keep thriving in the ever evolving and complex airline industry.

We will start by analising Ryanairs competitive positioning in the european airline industry, using porter's five forces Model, as well as the PESTEL analisis. This will enable us to understand the external competitive forces in which Ryanair is operating. We will then study Ryanairs internal strategies, using Porter's Value Chain Analisis and the VRIO framework in order to understand how Ryanairs is able to offer some of europes lowest airline prices. Additionaly we will analise Ryanairs Corporate social responsibility and how that affects its success.

Finally, based on this analysis, further recommendations will be explored with respect to ryanairs future direction, its sustainability and the extention of their strategic position.

These recommendations include:

1. Improving their values and making sure to have integrity in order to gain stakeholder respect and loyalty

2. Look at diversification into the air cargo industry in order to mitigate there seasonal differences in earnings, reduce revenue risks (and restart the organisations life cicle) Comment by Gemma HUNT: unless ed adds this in his recommendation we need to take it out Comment by Gemma HUNT: not sure how to say this is pretty words

2. Introduction

As we enter a post-pandemic world, the return of international travel is imminent with summer 2021 providing the ideal opportunity for the airline industry to return to pre-Covid-19 operations. This strategic report aims to analyse Ryanair’s position, capabilities and performance within this industry, to better grasp and assess the organisation’s strategic successes as well as its failings as exposed by the pandemic. Based on analysis throughout, further recommendations will be presented concerning Ryanair’s future plan of action - this will specifically target the organisation’s approach to sustainability and the extension of their strategic positioning to limit the impact of unforeseen circumstances.

Based in Dublin, Ireland since its formation in 1984, Ryanair is Europe’s largest low-cost airline. Before the Covid-19 pandemic, Ryanair carried 149 million guests on over 2,000 flights, connecting over 240 destinations in 40 countries across Europe and North Africa (Ryanair, 2021). As suggested by the organisation’s mission of ‘offer(ing) low fares that generate increased passenger traffic while maintaining a continuous focus on cost containment and efficiency’, Ryanair strives to provide the lowest fares in the airline industry, to the extent revenue from airfare sales barely even covers the cost per passenger each flight (Asquith, 2020).

Ultimately, Ryanair’s success is underpinned by its strategic focus as cost leaders (Porter, 1985). As illustrated in Porter’s Generic Strategies (Figure 1), Ryanair delivers a competitive advantage-based on costs and a broad competitive scope. In particular, Ryanair targets price-sensitive customers in Europe, who don’t expect any ancillaries in addition to the core service of flying. Furthermore, Porter (2004) argued that a low-cost strategy can 'yield the firm above-average returns in its industry despite the presence of strong competitive forces', as is the case in the airline industry.

(Figure 1: Porter’s Generic Strategies)

Despite Ryanair’s strong market positioning in the European aviation industry, in an ever-changing business environment, an organisation needs to be adaptable and durable when both current and future challenges materialise. As such, following a thorough external and internal investigation into Ryanair’s low-cost focus strategy, we will eventually identify, analysis and recommend how Ryanair will be able to strengthen further this grasp on the European airline industry in a turbulent, post-pandemic world.

3. External

3.1. Porter’s Five Forces

Porter’s Five Forces Model (Figure 2) is used to identify and analyse five competitive forces that form an industry, as well as identifying a firm's strengths and weaknesses (Grundy, 2006). Hence, the model is universally used to realign organisational strategy to its competitive environment.

(Figure 2: Porter’s Five Forces)

Threat of New Entrants (Low):

Having traded for over 35 years, Ryanair have established itself as a strong brand in the low-fare budget airline industry. Henceforth, the level of threat of new entrants can be deemed a low priority to Ryanair. Due to the high costs of entry, the aviation industry is extremely expensive for new competitors to enter the market with the purchasing of assets such as planes or jets and advertisements typically vastly expensive (Rita, 2019). Furthermore, the additional cost of training staff and pilots are added to the high expense of a newly entered organisation into the aviation industry. Bagdanskas (2019) further mentions that the development of low operational cost airlines takes experience and significant economies of scale.

Threat of Substitute Products (Low):

The threat of substitute products stems from the expansion of railway networks, sea transport, car rental and coach transport. Despite excellent railway networks throughout Europe, the prices of train tickets are significantly higher than the initial fare of a flight. On average, it costs approximately £50 to fly London to Amsterdam (Skyscanner, 2021), whereas via rail, fares typically cost £120 - a 240% increase (Trainline, 2021). Additionally, it takes 7 hours to get from London to by road, whereas it only takes an hour by plane; hence, the threat level of substitution products is deemed low in this aspect.

Bargaining Power of Suppliers (Low - Medium):

The two-leading manufacturers of commercial aircraft are Boeing and Airbus. As stated by Ryanair (2020), Ryanair continues to purchase all aircraft from Boeing, primarily operating the Boeing 737-800. As such, Ryanair have established a long-lasting contract between themselves and Boeing throughout trading, with Ryanair, Boeings highest purchasing customer in 2005 throughout the 9/11 period. Additionally, Boeing also provides Ryanair with various products, spare parts and technological support (Müller, 2011). Operating such a healthy relationship between the two organisations, the bargaining power of suppliers is deemed low to medium in this aspect.

Bargaining Power of Buyers (High):

The bargaining power of buyers is considered high in the low-fare airline industry. The demand for similar services and products is high, with airlines lacking consumer loyalty. In relation to low-cost seeking consumers, consumers tend to be fickle and more inclined to purchase from airlines that offer cheaper fares rather than remaining loyal. As such, if Ryanair’s fare prices were higher than their competitors, they would lose the majority of their demand.

Competitive Rivalry (High):

The number of competitors in the low-cost airline industry operating similar routes to Ryanair is high. Competitors include easyJet, Wizz and others. As previously mentioned, consumer loyalty for low-cost airlines is minimal and rather driven by the price of fares. However, on many routes, Ryanair can drive out competitors due to their experience and large economies of scale. Having said this, the number of competitors in the industry is extensive. During the Covid-19 pandemic, many European flag carrier airlines such as British Airways, Air France and KLM, are currently receiving financial help from their respective governments. As such, competitors are provided with an unfair competitive advantage, reducing prices without lowering costs - hence, creating an unfair competitive environment for Ryanair.

PESTLE:

Pestel analysis is a strategic tool that analyses the macro environment of an organisation which focuses on political, economic, social, technological, legal and environmental factors that impact the company. This analysis will critically evaluate macro aspects of Ryanair.

Political & Legal:

Operating in different European countries, Ryanair are subject to several authorities that can have a major impact on the organisation’s efficiency and profitability; authorities include the Department of Transport, the Irish Aviation Association, the European Commission and the European Aviation Safety Agency. As such, Ryanair is expected to follow several unique travel and aviation rules implemented by these different authorities and countries. Furthermore, Ryanair must take into consideration the different attitudes towards labour markets and new regulations. More recently, Ryanair decided to cut flights on German routes given the introduction of an ‘eco tax’ which would significantly reduce profit margins (Buyck, 2010). During the Covid-19 pandemic, Ryanair must also operate accordingly to the movement restrictions implemented by governments to avoid operation delays and losses.

Economic:

Despite CEO Michael O’Leary stating ‘in a downturn there are a lot of positives for a company like ours’, time showed that this is far from the truth. European travel restrictions during the Covid-19 pandemic caused Ryanair to lower its schedule to only 1% of normal level flights, causing major cash burn and financial loss. The load factor has also decreased as Ryanair welcomed 0.04 million passengers in April 2020 compared to 13.5 million in April last year (ltd, 2020) . Additionally, during the fiscal year of 2009, Ryanair reported its first loss in 20 years of enduring success, which was influenced by the credit crunch, a 60% increase in fuel charges and its 29.8% stake in Aer Lingus (Milmo, 2009). Despite Michael O'Leary's statement, the efficiency and profitability of Ryanair will always be subject to economic conditions.

Social:

Incidents such as air accidents, pandemics and terrorist attacks can all have a major impact on customer demand and behaviour. Profitability will always depend on the consumer's perception of low-cost flights and the organisation's social status. For example, a single terrorist attack will have disastrous effects on the demand and status of the respective airline as well as the industry as a whole. In this respect, it is worth mentioning that Ryanair has had no accidents with casualties to date. Despite this, the Covid-19 pandemic has significantly affected the trust and demand of the consumers, leading to many concerns and thus, lower demand. Additionally, Ryanair must consider various social trends and factors such as demographics, class structure and culture by adopting specific approaches in a post-pandemic world.

Technology:

As for all airlines, Ryanair are required to have the latest and most efficient technology to have swift business processes and thus increase cost-efficiencies. Expecting a huge increase in demand in a post-pandemic world, Ryanair are planning to close a deal worth $17 billion with Boeing Jets by the summer of 2021. This deal may give Ryanair a greater competitive advantage however, organisational success will still rely on the global health situation. Constantly seeking new opportunities with the help of technological advancements, Ryanair are fully aware of the benefits of new technology. For instance, in 2004 Ryanair implemented the industry’s first paperless pilot training program (Personnel Today, 2004).

Environmental

All the industries may suffer by various environmental events and standards. Natural disasters will have a significant impact on the profitability of a company, especially in the industry of airlines. Although airline companies thrive to cut carbon dioxide emissions, it is clear that the global environment still suffers from it. However, Ryanair made a huge contribution by operating with a more fuel-efficient “green” fleet that releases less carbon emissions unlike the other companies. Despite the effort spent by companies to cut their carbon footprint governments are already contemplating to restrict the expansion of the airline industry, in order to overcome future environmental dangers (Ryanair, 2009). Finally, numerous experts and scientists warned that the peak oil production might be reached in a few years’ time and then the world oil supply would be subject to decrease unless new oil sources were discovered ( Beckman, 2005; Howden, 2007; Whipple, 2010).

Political & Legal

Government and several different authorities can have major impact to Ryanair’s efficiency and profitability. The authorities Ryanair is subject to are the Department of Transport, the Irish Aviation Association, the European Commission and the European Aviation Safety agency. As a result, the company is expected to follow several unique travel and aviation rules implement by different authorities and countries. Furthermore, Ryanair needs to take into consideration that there are specific differences in labour markets and legislation since the company operates in different European countries. More recently, Ryanair decided to cut flights on German routes given the introduction of a new “eco tax” which would significantly reduce profit margins (Buyck, 2010). During the pandemic, Ryanair must operate accordingly to the movement restrictions implemented by the governments to avoid operation delays and losses.

Economic

Despite the fact that the company CEO Michael O’leary made a statement that ‘in a downturn there are a lot of positives for a company like ours’ time showed that it is far from truth. European travel restrictions during the pandemic caused Ryanair to lower its schedule to only 1% of normal level flights, causing major cash burn and financial loss. The load factor has decreased as Ryanair welcomed 0.04 million passengers in April alone, compared to 13.5 million in April 2019. Furthermore, during the fiscal year 2009 Ryanair reported its first loss in 20 years of enduring success, which was influenced by the credit crunch, a 60% increase in fuel charges and its 29.8% stake in Aer Lingus (Milmo, 2009). This eventually means that the efficiency and profitability of the company is subject to economic conditions.

Social

Incidents such as air accidents, pandemics and terrorist attacks can have major impact on customer demand and behaviour. The profitability of the company will always depend on the consumers perception of low-cost flights and social status of the company. A single terrorist attack will have disastrous effects to the demand and status of the respective airline and the industry as a whole. In this respect it is worth mentioning that Ryanair has had no serious accidents with causalities to date. Furthermore, the coronavirus pandemic significantly affected the trust and demand of the consumers in respect to their airlines leading to many concerns and low demand. Additionally, Ryanair needs to consider various social trends and factors such as demographics, class structure and culture by adopting specific approaches in a post-pandemic world.

Technological

It is absolutely vital for an airline company to have the latest and most efficient technology in order to have swift business processes and increase cost efficiency. Ryanair is expecting huge increase in demand in a post-pandemic world, therefore, the company is planning to close a deal with BOEING jets worth $17 billion by the summer of 2021. This deal may give Ryanair a competitive advantage however the success of the company still depends on the global health situation. The company is constantly seeking new opportunities with the help of technological advancements and is fully aware of the benefits of new technology. For instance, in 2004 it implemented the industry’s first paperless pilot training program (Personneltoday, 2004).

3.Internal Analysis

3.1. Value Chain Analysis

(Figure #: Porter’s Value Chain)

In consideration of Porter’s value chain (Figure #) , Ryanair’s competitive advantage is achieved through its capability of minimising costs throughout operations. This section will specifically demonstrate the congruence between Ryanair’s primary activities and their low-cost focus strategy.

Inbound Logistics:

Ryanair’s inbound logistics align to their strategic goal through operating a single type of aircraft while prioritising secondary airports that offer competitive prices. The Boeing 737-800 accounts for 94% of Ryanair’s fleet size, whereas the preferred aircraft of British Airways and easyJet, the Airbus A320, only accounts for 26% and 56% of their respective fleets (Appendices #) ; hence, enabling Ryanair to limit the costs associated with training, maintenance and the purchase and storage of spare parts. Additionally, backed by consistent passenger growth, Ryanair have negotiated favourable contracts with secondary and regional airports such as London Stanstead (Appendices #), where limitations on the number of take-offs and landings commonly associated with primary airports are eliminated (Ryanair, 2020).

Operations:

Operations are an integral part of Ryanair’s value chain seeking cost minimisation through the use of an online check-in system while primarily targeting short-haul flights. At Ryanair, all passengers are required to check-in online, significantly reducing airport handling costs (Appendices #) , while increasing the perceived value of the service through minimalizing a passenger’s journey arrival to boarding. Furthermore, with an average flight duration of just under 2 hours (Ryanair, 2020), Ryanair eliminates the need to provide unnecessary ‘frills’ commonly associated with medium and long-haul flights - as such, Ryanair relies on income derived from secondary operations, otherwise known as ancillary revenues, as the core driver of growth and profitability (Asquith, 2020).

Sales & Marketing:

In essence, Ryanair’s marketing strategy is relatively simplistic with low fares tending to sell for themselves; yet, Ryanair has also successfully generated national coverage from legal and policy disputes throughout the organisation's longevity (Barrett, 2004). Ryanair’s controversial approach to marketing is calculated. Providing a fair price, cost-driven consumers tend not to hastily retaliate to controversy, hence the little to lose policy. However, when advertising is necessary, Ryanair predominantly focuses on digital marketing, with all other advertising operations carried out in-house at Ryanair’s Dublin HQ (Stewart, 2020), making for a more efficient, easier to manage process.

3.2 Corporate Social Responsibility

Generally, Ryanair is known for its poor reputation in terms of customer service and job satisfaction (The Guardian, 2014). Despite holding a strong position in the low-cost market, Ryanair’s greatest strength is arguably their greatest weakness, having a detrimental impact on alternative strategic outlooks. Through analysing Ryanair’s Corporate Social Responsibilities (CSR), this section will provide a greater understanding of the organisation’s ethical shortcomings, and the negative impact on future success.

Having looked at recent publications, Ryanair has looked to have made several positive engagements in CSR ideals. From an environmental perspective, Ryanair stated ‘it takes its environmental responsibilities seriously and will continue to improve its environmental efficiency to minimise emissions’ (Ryanair, 2020). As such, Ryanair has invested in a brand-new fleet of aircraft, the Boeing 737-Max-200, reducing fuel consumption by up to 16% on a per-seat basis compared to the Boeing 737-800, while further reducing operational noise emissions by 40% (Ryanair, 2020).

From an employer’s perspective, Ryanair has shown further developments, finally allowing their employees to unionise at the end of 2017. Additionally, Ryanair endeavour to ‘deliver an outstanding combination of career development, world-class training, competitive pay, job security and stronger employee engagement’ while trying to portray themselves to their customers as caring and reliable, offering extremely good value for money.

Despite such positive statements, there is a cloud of negativity against Ryanair, claiming these to be the bare minimum, or worse, false and misleading. Examples of these include:

Firstly, the banning of Ryanair’s misleading advertisement campaign in 2019 claiming to be ‘Europe’s Lowest Emissions Airline’ by the Advertising Standard Authority (Advertising Standard Authority, 2020), despite having been included as the only airline in the list of 'Europe’s Top 10 Polluters’ by the BBC (2019).

Secondly, as of 2020, Ryanair’s management has been said to be slipping back to its old anti-union management approach, and fear-based culture (ECA Piloting Safety, 2019).

Finally, Ryanair continued to delay refunding customers for issues caused by the Covid-19 pandemic (Boland, 2020), further strengthening Ryanair’s tarnished approach to customer service.

Despite Ryanair claiming to have good intentions and respecting all rules and regulations, its poor reputation supersedes it. This has certainly not been helped by Ryanair perpetually pushing the borders of what is correct, with recent adverts such as ‘Jab and Go” (Advertising Standard Authority, 2020) during the Covid-19 pandemic which was extremely premature and misleading. Ultimately, such reputation stems from CEO Michael O’Leary - the outspoken voice of the organisation, portraying Ryanair as a solely profit-oriented company that cares little for the integrity of its actions

4. Strategic Options and Recommendations

· Quick introduction sentence to our recommendations

Having analised Ryanairs strategic strengths and weaknesses which are at the core of ryanairs future success. As well as looked into the competitive environment in which ryanair is positioned, and the potential threats to its success. We will be offering strategic recommendations which would improve Ryanairs strategic sustainability and ultimate long term success.

Recommendation 1: Improve company values

As previously seen one of ryanairs most noticeable mishaps is its poor reputation, this is an important issue as many potential customers actively avoid ryanair despite its low costs, due to their fear of being betrayed by ryanairs poor customer service. In such issues as being left to fend for themselves if flights are canceled or suddenly being asked to pay for unforeseen costs ( such as paying to use the toilet onboard). This loss of potential customers may not be significant now, as ryanair still manages to keep their prices extremely competitive. But if any issues do arise that may cause ryanair to lose out of their price competitiveness. Ryanair would have nothing to fall back on, in order to keep their customers. Comment by Gemma HUNT: ill reference this

Our recommendation is that Ryanair take proactive steps to improve their reputation. This can be done by evolving their values, and trive to have integrity. So far Ryanair claims to take many positive and ethical steps, but they do not have the integrity needed to follow throught with those statements. Integrity in all of their actions would allow stakeholders to start regaining trust in the organisation, and ultimately improving ryanairs reputation and stakeholder loyalty.

As previously mentioned, Ryanair’s greatest issue is its tarnished reputation, especially having come bottom of a Which? Survey of 100 popular British brands for the sixth year in a row (Asquith, 2019). Following issues such as being left to fend for themselves after flight cancellations or being asked to pay unforeseen costs, such as paying for the onboard toilet, many customers actively avoid Ryanair despite its low fares, often with the fear of being betrayed by its poor customer service. Due to Ryanair’s competitive advantage as a low-cost leader, the loss of potential customers may not be a critical priority now, yet they must be suitably prepared for if any issues arise that may impact their strength as a low-cost leader. If this was to occur, Ryanair would have little to fall back on to keep their customers.

Ultimately, we recommend that Ryanair take the proactive step to improve its reputation through evolving its values while striving to achieve greater integrity. In recent times, Ryanair has claimed to have taken several positive and ethical steps, yet often lack the integrity required to follow through with those statements. Achieving greater integrity would allow the stakeholder to regain the trust of the organisation, ultimately improving Ryanair's reputation and stakeholder loyalty.

Potential Models: Bowmans Strategic Clock; Ansoff Matrix

Recommendation 2: Diversify Strategy/ services

Due to the competitiveness of low-cost airlines in the current market, it is important for Ryanair to look at diversification strategies. Loredana (2017) mentions that diversification strategies are those that could benefit companies by allowing them to achieve better performance whilst reducing the level of risk. It is further mentioned that with diversification, it would allow the firm to expand due to the addition of new services, products and opportunities to new markets. Also, diversification is a good way to sustain an industry life cycle. Firms that implement diversification strategies during the growth or early maturity stage would allow them to stay within those stages (Baribieri, Perruchas & Consoli, 2020).

According to Spence (2013), most budget airlines often peak in earnings during seasonal periods such as Summer and/or Winter. Furthermore, in April 2020, there was a 74% decrease in commercial flights due to the COVID-19 pandemic (Petchenik & Leigh, 2020).Therefore to mitigate these issues, a recommendation that is proposed to Ryanair as a diversification strategy is to look into the Air Cargo industry. This would be beneficial towards RyanAir as they have existing assets for air cargo and also by diversifying, it would aid in the sustainability of Ryanair.

Having used Porter’s Five Forces to recognise the highly competitive nature of the low-cost airlines market, Ryanair could look at diversification strategies to limit the impact of unforeseen circumstances such as the Covid-19 pandemic. Loredana (2017) mentions that diversification strategies are those that benefit organisations by allowing them to achieve better performance whilst reducing the level of risk. Following possible market diversification, Ryanair may be able to expand due to the addition of new services, products and opportunities within new markets. Furthermore, market diversification is an excellent way to sustain an industry life cycle; those organisations that implement diversification strategies during the growth or early maturity stage would allow them to stay within those stages (Baribieri et al., 2020).

Spence, P. (2013). Ryanair issues profit warning as weakness in Autumn season appears. Retrieved from https://www.cityam.com/ryanair-issues-profit-warning-weakness-autumn-season-appears/

Petchenik, I., Leigh, G. (2020). Scraping along the bottom: April air traffic statistics. Retrieved from https://www.flightradar24.com/blog/scraping-along-the-bottom-april-air-traffic-statistics/#:~:text=Total flights down 62% in,second half of the month.

5. Conclusions (10%) - 300/400 Words?

This Report demonstrates that Ryanairs Cost leadership strategy has been extremely successful, and has enabled Ryanair to be one of Europes most successful low cost airlines. Yet in our analisis we have also seen the complexity of the european airline industry, as it is susceptible to many challenges that can radicaly change the competitive landscape (such as the COVID-19 pandemic).

These challenges can put Ryanairs ability to stay competitive into question. Having an organisational strategie mainly based on being cost leaders may not withstand future competitive challenges. This is why we have come up with strategic recommendations, aimed improving Ryanairs strategic sustainability by evolving Ryanairs brand, throught its cultural values to improve its reputations and stakeholder loyalty as well as diversifying its activities into new industries such as the air cargo industry.

Ryanair (2009) Annual Report 2009, [Online]. Available at: http://www.ryanair.com/doc/investor/2009/Annual_report_2009_web.pdf (Accessed: 16 February 2011).

Beckman, K. (2005) ‘Oil will be depleted sooner than the IEA expects’, Post Carbon Institute, [Online]. Available at: http://www.energybulletin.net/node/10857 (Accessed: 23 February 2011).

Howden, D. (2007) ‘World oil supplies are set to run out faster than expected, warn scientists’, The Independent, [Online]. Available at: http://www.independent.co.uk/news/science/world-oil-supplies-are-set-torun-out-faster-than-expected-warn-scientists-453068.html (Accessed: 20 February 2011).

Whipple, T. (2010) ‘The peak oil crisis: Some perils of 2010’, Post Carbon Institute, [Online].Available at: http://www.energybulletin.net/node/51712 (Accessed: 20 February 2011).