Strategic Analysis Of Ryanair Competitive Advantage Management Essay

Strategic Analysis Of Ryanair Competitive Advantage Management EssaySince its inception in 1985, Ryanair has grown to constrain the commercialize leading European baseborn-cost airline. This paper is an analysis of the Ryanair case study (OHiggins, 2007) and seeks to evaluate the sustainability of the dodge employed by Ryanair. It in some(prenominal) case seeks to identify argonas for procession and make recommendations given up the available information. It result do this by first discussing the current strategy and death penalty. An analysis of the environment will then be carried knocked out(p) through a PESTEL analysis to identify the salient influences likely to impact on future strategy and a contextualisation of the aviation industry through the occupation of Porters five forces. This will be applied to the Ryanair case to see how this might have informed their current business and warring strategy and their position in the market given the opportunities and thre ats revealed. The paper will then proceed with an evaluation of stakeholder management as a start point to the evaluation of the sustainability of the current strategy and recommendations on the direction and future strategy the airline might adopt. The conclusion summarises the whole piece.Ryanairs Strategic PostureFrom the case, it loafer be seen that Ryanairs corporate strategy is iodine of harvest-feast and expansion and its business strategy through which it seeks to gain competitive advantage is cost leadership. This is reflected in its conside proportionalityn of the markets it chooses to operate in and its assistant offering.From the case, it is unequivocal that the targeted market segment consists of European price sensitive customers and Ryanair positioned itself as the cheapest short haul airline. To achieve this, the airline follow a low-price strategy which is contingent upon maintaining a low cost operation whilst achieving operating efficiency in order to satisf y customers. Ever decreasing be was Ryanairs mantra (Johnson et al, 2008699) showing that much focus was given to keeping be and thus prices low and not necessarily on achieving operational efficiency, a fact confirmed by the results of the poll by TripAdvisor. It is for this terra firma that Ryanair constantly examined every area of its operations seeking areas to implement cost reductions or eliminations. These initiatives includethe rationalising of its fleet to minimise staff training, aircraft maintenance and provoke costsintroducing a web-based self service for passengers for ticketing, check-in and priority boarding purposes to reduce the need for client facing staff and printing costscharging passengers for checked in luggage to encourage travel with fewer bags and improve on speedsticking to point to point (P2P) routes so as to eliminate passenger budge costsservicing single short-haul routes to reduce the need for value added services to passengers.utilising secondar y and regional airports to reduce airport charges.The CEO Michael O Leary also quite an frequently vocalised his criticism of airport authorities and other systems curiously in areas that would have a negative impact on costs.The airline was also specially focused on generating ancillary revenue enhancements hence its constant seeking of areas to charge its passengers for any value added service like baggage, onboard meals and even for the use of a wheelchair. The policies adopted in this regard are those which had the most impact on their customer service. The underlying premise being that they positioned themselves as offering transportation and customers must don the cost of any other service they require.The airlines strategic direction includes a mix of market penetration through which it seeks to increase its market share in its existing markets using its low fare offerings and market development by moving into other viable European markets sticking to its policy on P2P r outes. on-going PerformanceThe evidence of the success of this strategy in its basic form can be seen in the financial results and in the fact that the airline has the high upest market share of European low-cost carriers in boundarys of passenger numbers. (exhibit 2 of the case study) and in their reputation of having the best fares (OHiggins, 2007).Financially, the strategy is clearly working for them. non only have they increased their revenue, they have also succeeded in reducing their costs thus giving them a higher profit margin social class on socio-economic class. put back 1 in the appendix shows that there was a 28% increase in total operating revenues from Apr 2005 to Mar 2006, however by September 2006 (half of the neighboring fiscal year) the airline had already generated 74% of the full year revenue of the previous year. duck 3 (in the appendix) also shows that their expenditures in parity to total operating revenues also reduced thus resulting in a higher oper ating profit margin. This is a confirmation that not only were they carrying more passengers, their cost reducing policies were also working for them to improve their profit margin. Exhibit 1c in the case shows that some of these areas include marketing costs/scheduled revenue down by 15%, airport costs for passengers down by 7% and average staff costs down by 5% and from 2005 to 2006. In the same period, passenger numbers had increased by 26%. Ancillary revenues account for approximately 15 to 17% of revenue generated.The profitableness ratios for Ryanair (table 2 in the appendix) shows a gradual increase in net operating margin. However, return on total assets and return on shareholders equity (ROE) remained constant.MACRO ENVIRONMENTAL FORCES PESTEL abbreviationThe following PESTEL analysis identifies the key drivers for change in the macro environmental (external to the industry) factors identified in the case. Each of these macro environmental factors can influence Ryanairs strategy by being either an opportunity (O), a Threat (T) or both (B) and thus the level of success they attain.PoliticalG overnment support for interior(a) carriers (T)Increasing need for security (T)Government policies and regulations e.g. The EU regulation on compensation of inconvenienced customers (T)EconomicMarket growth especially with expansion of the EU by addition of more countries (O)The volatility of fuel prices and currency exchange rates (B)Socio-CulturalChanges in passenger expectations and attitudes e.g. rising passenger expectations of some form of value added service even with the lowest prices (T)Long security checks and luggage restriction overdue security concerns leading customers to choose alternate travel methods like trains (T) scientificTechnological advancements e.g. more fuel efficient engines with reduced carbon emissions.(B)EnvironmentalPollution issues e.g. concerns on greenhouse gases and carbon emissions and their impact on the environment (B)Energ y function concerns (B)LegalLabour laws in differing countries affecting things like uniformity of employee contracts (T)Specific country legislations e.g. preferential airport rights for some carriers like Air France and the French airports.(T) strict health and safety regulations (T)MICRO ENVIRONMENTAL FORCES (INDUSTRY ANALYSIS) PORTERS FIVE FORCES ANALYSISThis analysis will disembodied spirit at the overall competitiveness of the industry citing examples from the case for clarity. bargain Power of SuppliersFuel There are quite a number of aviation fuel suppliers however given the volatility in fuel prices, square relationships need to be built in order to maximise the value of hedging contracts thus making supplier power high.Ryanairs fuel cost was 37% of its operating costs in 2006, 8% more than in 2005 (OHiggins, 2007). The airline will have to hedge their fuel costs. This requires experience and knowledge (OHiggins, 2007).Aircraft Power is also high here due to high switchi ng costs there being only 2 dominant players Boeing and Airbus. The capital requirements are also high in aircraft acquisition.Ryanairs fleet commonality policy to use only Boeing 737 planes might give them a cost advantage but it gives Boeing high power over Ryanair.Since pilots and cabin crew are all trained based on Boeing aircraft, switching costs for Ryanair to use Airbus or any other aircraft manufacturer are very high as staff would have to be trained again.Bargaining Power of BuyersThis is relatively high due to low switching costs as price is the major driver and customers can easily switch to another low-fare airline.Threat of New EntrantsLarge initial capital investment in aircrafts is the main barrier in this industry. Unit costs for new entrants will be higher than for turn overed airlines because of experience curve do (Johnson et al, 2008), not only in terms of investment in non-current assets, but also the services provided by aircrafts suppliers. Other threats to new entrants include plans to tax aviation fuel indoors the EU by 2010, the proposed emissions trading scheme and legislation on customer compensation with a delay or cancellation of a flight.Experience curve effects give Ryanair cost advantage over any new entrants due to established relationships and existing contracts e.g. Ryanair and Boeing.Threat of Substitute ProductsTrains are an alternative means of transportation. This is especially critical to the short-haul and low fare airlines because evolutionary train technology is continually making train travel faster and more comfortable, and its price/performance ratio (Johnson et al, 2008) are perceived to be higher.Competitive RivalryThe case posits that the budget or low- cost airline segment is attractive based on the long number of entrants and rivals. However, of note is that as many as 50 went bankrupt indicating that getting in is easier than staying in. This indicates that competitive rivalry is extremely high and surv ival and advantageousness is based on establishing competitive advantage over rivals (MBA SAB Course Outline).The strategic groups map below illustrates Ryanairs positioning in the market based on competitive strategy.Low cost/No frills Mid Market/ Hybrid Full ServiceWithin the strategic group, airlines which do low-cost and no frills are competing with distributively other. Mobility for airlines to move between groups is low. Therefore, competitive rivalry should be considered within this context.Large number of new entrants and rivals in this industry, with Ryanair and EasyJet having 55.8% market share. Competition among the other low-fare airlines could be vivid due to similar size (OHiggins, 2007), but there is difficulty challenging these big two.Lack of featureificant differentiation between low-fare airlines, and business mode can be learnt and copied easily resulting in high pressure on price competition, which in turn constrains profitability (Johnson et al, 2008).Negoti ations to maximise the benefits of the fuel price hedging will require lots of experience. The airline which is better able to hedge its fuel price will gain competitive advantage over the others in this regard.STAKEHOLDER witness WITH RYANAIRConsumersThe results of the 2004 poll by Trip Advisor showed Ryanair was voted the worlds least favourite airline by customers. The lowest votes were in service quality specifically,, complains against Ryanair ranys in flight eon and poor leg roomlegrom, Johnson et al, 2008. Otherm consumers about the airludewcurity, poor luggageowever scored well onRyanair was scored as the best fares. airline.ShareholdersGenerally, Ryanair has a lower price to earnings ratio than its peers like Easyjet. This can be seen in the fact that ROE remained fairly constant. There is however no information in the case on if Ryanair kept to its promise to remedy the mooring of failing to distribute a huge cash pile to investors.ownEmployeesThey had several unsettled industrial disputes with their employees. Their employees were not allowed to have unions to represent their interest. There were complaints of staff been bullied to sign contracts against their will and there were legal actions against Ryanair for employee contract misconducts. There were complaints of poor pay and working conditions from employees. All this despite the airlines claim that their average pay was higher than any other major European airline.MediaThe press criticized the airline for excessive insurance charges, poor treatment of customers whose flights were cancelled, obsessive focus on price and profit with dismiss to customer service. Chief of these was on, itstreatment of physically challenged passengers and charges instituted for facilities (wheelchairs) taken on board by them.for pGovernments and Regulatory BodiesRyanair had ongoing verbal battles and pending litigations with regulatory authorities. The Norwegian Consumer protective covering authority had fined Ryanair sixty four thousand Euros for charging customers excessive administration fees for handling ticket cancellations. The CEO Michael OLeary had certainly put himself in the bad books of several EU commissioners who thought him arrogant, abrasive and irritating.EVALUATION THE SUSTAINABILITY OF RYANAIRS STRATEGYteam we think that the stra the short and long term and long term areis quite re will ever be that segment of customers that will seek the lowest priced offerings. However, there is nd it also has a much scopeforof flexibility and agility to rious areas of the macrond micro environmentmicroenvironment especially in light of the cnstantly cons of customers. The implication of the current strategyies is quite evident in the case study, which reflect that even though thacro factors were least favourable for the connection, it still however company performed performed beyond the expectations of the sharer profits.One of the key strengths of the company was in the appointmen t of CEO Michael OLeary as CEO., whplayed a vital role not only in understanding the dynamics of of the lines industrybut also ensured implementation of the strategy and ensuing ed key stra the company efectively. However, even though there was an indication that he was watchful to leave in 2008, there is no evidence in the case to suggest the grooming o an equally capable successor to take Ryanair to the next level.Indis should be an area of serious consideration.The sustainability of the strategy in terms of low prices is quite obvious. However, innovation and agility is very important for the rom fe as other firms may try to capture the market by adopting the same low price strategy but adding with some degree of dentiation to improve on customer satisfaction. It can be seen in the case study that the Ryanair approach is not customer centric., This is a potential thret in the future given that customers are becoming more demanding in their expectations from service providers.whi ch can be considered as the public image of the company. Due to this over period company may have the image in public.RECOMMENDATIONSRecommendations are based on the key opportunities and threats identified in the macro environment and the issues identified with its stakeholder management and the suggestions on enhancing the sustainability of its strategy.Ryanair should continue with its growth and expansion strategy due to the market growth. The 30 aircrafts to be delivered from September 2006 is a great start to this. It should also continue with its market expansion as EU member states increase and stick to its point-to-point strategy.If fuel prices continue to rise, Ryanair should adopt charging a middling surcharge in order to offset some of the expense especially is all the other airlines are doing this. Fuel surcharges are becoming widely accepted by customers who are aware of the volatility of its prices and how it affects airlines. The term reasonable is used as they need to do this whilst still offering the lowest prices available for passengers. They could also carry out Public enlightenment campaigns to inform stakeholders of their challenges with airport, fuel and other charges to gain sympathy.Continue with the acquisition of new fuel efficient and environmental friendly aircrafts which will in the long run reduce their indebtedness on the soon to be proposed emissions bill. It will also improve on their public image with regards to CSR issues.Continue to challenge unreasonable taxes levied by Governments but in a more consultative manner.Reduce its focus on generating ancillary revenue but instead focus on costless or low cost initiatives to improve customer perceptions and thus satisfaction. In this regard the airline should also segment the identified opportunities to generate ancillary revenues and assess the long term impact on the company e.g. not charging wheelchair passengers for the use of their wheelchairs could have been used to impr ove the image of the company in terms of customer care reform their relationship with employees and employment conditions (pay, benefits and cut down restrictions) to reduce staff turnover which will further reduce staff costs in the long run. declare resources to improve their public and brand image, this can be outsourced to professionals.Engage in cheap advertisement like providing promotional tickets for Journalists and regulatory bodies to see the improvement in their operations. This will improve both their brand and public image.Perhaps the biggest recommendation is in the grooming of and eventual appointment of a new CEO with a more charismatic personality than Michael OLeary whose first priority would be the settlement of outstanding litigation and improving the airlines relationship with stakeholders. One whose outlook is that outright opposite is not the only way to manage expected or required change.ConclusionAccording to Grant (2010), on performance diagnosis if profit performance is un comforting then there is a need to identify the sources of poor performance in order to take corrective action. However, with the Ryanair case, it is obvious that there is satisfactory profit performance and this may lead to a form of inertia with regards to addressing other issues which in the long run could lead to losses. Ryanair will have to look into the future identifying factors that would threaten its performance or could even create opportunities for increased profit. According to Grant (201049), there is a need to look into the ultimate drivers of profitability and to ask pertinent questionsWhat will be happening in the industry in terms of competition and customer demand?Which companies will possess the capabilities needful to establish competitive advantage in tomorrows markets?Grant (201065) also posits that the prerequisite for profit is the creation of value for the customer. We have been limited in the case due to a lack of information on whether or not Ryanair uses a equilibrise scorecard to set and evaluate performance targets as the 4 elements of the balanced scorecard will ensure that they have a well rounded implementation of their strategy in every area of their business and would also establish targets and provide a mode of evaluation consistent with their strategy. This would tie in current policies and all recommendations made into one cohesive document for the company.AppendixTable Revenue comparison for Ryanair 2005 to 2006Currency is EurosHalf-year to 30 Sept. 2006Proportion of Half year to Full yearFull year to 31 Mar 2006Growth or Decline vlyFull year to 31 Mar 2005Operating revenuesScheduled revenues1,092,10276%1,433,37727%1,128,116Ancillary revenues164,32163%259,15336%190,921Total operating revenues1,256,42374%1,692,53028%1,319,037Source Johnson et al, 2008 p. 696Table Profitability Ratios for RyanairColumn1Half-year to 30 Sep. 2006Full year to 31 Mar 2006Full year to 31 Mar 2005Profitability Ratios realiz e Operating Margin26%18%21%Return on Total Assets7%7%7%Return on Equity14%15%16%Formulae UsedProportion of half year to full year (%) = x ascorbic acidGrowth or Decline vly = x 100Net Operating Margin(%) = x 100Return on Total Assets (%) = x 100Return on Equity (%) = x 100Table Common-size statement analysis for Ryanair expenses 2005 2006Currency is EurosHalf-year to 30 Sep. 06Expense as % of RevenueFull year to 31 Mar.06Expense as % of RevenueFull year to 31 Mar.05Expense as % of RevenueTotal operating revenues1,256,4231,692,5301,319,037Operating expensesStaff costs113,8449%171,41210%141,67311%Depreciation71,6226%124,4057%110,3578%Fuel and oil337,04227%462,46627%265,27620%Maintenance, materials and repairs21,3132%37,4172%26,2802%Marketing and distribution costs11,6081%13,9121%19,6221%Aircraft rentals25,3942%47,3763%21,5462%Route charges98,3848%164,57710%135,67210%Airport and handling charges139,09711%216,30113%178,38414%Other52,3124%79,6185%79,4896%Total operating expenses870,61 669%1,317,48478%978,29974%Operating profit -continuing operations385,80731%375,04622%340,73826%Source Johnson et al, 2008 p.696