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Contents 1. Introduction ..................................................................................................................................... 12. Strategic position analyses ............................................................................................................ 12.1 Environment analysis ................................................................................................................. 12.1.1 PESTEL analysis .............................................................................................................. 12.1.2 Porter’s five forces framework ........................................................................................ 32.2 Strategic capability analysis ...................................................................................................... 42.2.1 Cost efficiency .................................................................................................................. 42.2.2 SWOT analysis .................................................................................................................. 53. Strategic choices of Ryanair .......................................................................................................... 63.1 Business level strategy .............................................................................................................. 63.1.1 Strategy clock ................................................................................................................... 63.1.2 A competitive advantage over years ............................................................................... 73.2 Corporate level strategy ............................................................................................................. 84. Strategy evaluations ....................................................................................................................... 94.1 Suitability ..................................................................................................................................... 94.2 Feasibility .................................................................................................................................. 105. Conclusion .................................................................................................................................... 10References .......................................................................................................................................... 11 1 1. Introduction The jungle of business in the airline industry has been reinforced by the introduction of aninnovative idea — the no- frills carriers, which is becoming customers’ new favourite. Mintel (2008)noticed those budget airlines have among the chief drivers of intra-European travel growth theseyears.Among low cost airlines, Ryanair, the largest budget airline in Europe (Evans, Campbell, &Stonehouse, 2003, p.375), is one of the most successful cases. Since its first take-off in 1985,Ryanair has experienced numbers of strategic modification according to both its environment andown capability changes, up till nowadays the company’s full flight. This essay is divided into two parts: the first half will examine Ryanair’s environment and strategiccapability, and the second half will identify the strategies Ryanair has chosen with regards of theanalyses done previously. The focus is mainly on the period between 2006 and today and somecrucial moments for Ryanair are also mentioned. 2. Strategic position analyses In Part 2 of this essay, analytical tools are used to analyse the environment and capability ofRyanair. In the first half, the macro and immediate environment are identified through PESTEL and Porter’s framework analyses; in the second half, cost efficiency direction and a SWOT analysis are given to find out Ryanair’s organisation capability. 2.1 Environment analysis2.1.1 PESTEL analysis Finlay (2000) sees the “remote environment” as crucial to business that it is “a model of thoseelements in the environment” that may affect the business’s decision making but it is beyond the influence of the business. As to the macro-environment of the company, a PESTEL framework isutilised to list the influences from the outside.Johnson et al. (2008, p.55) has quoted that the framework consists of six main elements, namelyPolitical, Economic, Social, Technological, Environmental and Legal. Among those factors thisbudget airline is more likely to be influenced by some “key drivers” (Johnson, Scholes, & Whittington,2008, p.56). For Ryanair, such environmental factors have a higher impact on the strategy theorganisation made, such as the government regulations, environmental concerns, and as the lowcost is the key success secret of Ryanair, the company is also vulnerable to the fuel price changes.Figuring out the fact that the no- frills had been stuck in “soaring fuel cost” and “im pending EU Emissions measures” embarrassment, Mintel (2007) questioned whether they should keep prices low. Political Political issues are concerned with the role of government, and this factor is one of the key driversRyanair should take into consideration.The British increasing air passenger duty for short-haul flights and similar tax in Ireland is predictedto cause the passenger numbers fall (BBC, 2009). The air passenger duty, set to rise in November2009 and 2010 respectively, has become another main concern of Ryanair (Mintel, 2009). Also theever rocketing airport charges worsen the situation for Ryanair. 2005’s new EU regulation of passenger compensations for delays, cancellations is also expected to bring Ryanair a hugespending annually. Box and Byus (2005) mentioned that as a non-union operation company basedin Dublin, the trade union pressure from the local government was rather big 2 The company has to cut prices to attract more passengers, at the same time higher costs trim itsprofit from 2008, especially since the recession period. Ryanair has been continuously calling ongovernment to make sensible reduction in duty levied on airline including tourist taxes (BBC, 2009).Security concerns have jumped to the top agenda of government since September 11 th , 2001 attack.The strict and complex check-in process is the other way around with Ryanair’s quick check -instrategy, aiming to lower costs. Economic Economic factors are also among the key drivers for Ryanair. Being one low cost airline, thevulnerability to cost factors like fuel prices, exchange rates puts Ryanair faced with variouseconomic challenges when making strategies.As shown in the case (O’Higgins, 2008), Ryanair’s fuel costs “represented 35 percent of operatingcosts in 2006”, while the company promised not to pass the fuel surcharges onto passengers, thepressure of cost savings has to be shoulder by other spheres of operation within the organisation.The firm said in BBC news that high fuel prices had been a “drag on profitability ” (BBC, 2006). Inaddition, the turbulence and instability of fuel prices has been a headache since early. During theyear of 2008 and 2009, Ryanair has engaged in the hedging, however, the Botching use of thisstrategy is said to cause £92 million in the last quarter of 2008 (Robertson, 2009). Moreover, thefact that the denomination of oil price is in US dollars, exchange rate fluctuations, especially duringthe depreciation period of UK Sterling in 2009 and 2010, will no doubt compound the risk forRyanair.Mintel (2009) statistics shows the third quarter of 2008 witnessed the hit of recession of budgetairline. It seems that Ryanair has tried to find way to cut staff costs. I have noticed websites its staffsbuild to complain about the poor working environment and low average pay. Social As to the Social factors, the increasing travel lifestyle and international student trips are two mainones.Mintel (2010) finds out the short break abroad has been a trend for UK people. Ryanair hasprovided those with tight budget with opportunities to flight abroad, and its low prices and varieddestinations across Europe have made itself a preferred choice for international students, and evenhome country students also like to choose it for backpack trips. The foreign property ownershiptrend will also help the increasing traffic. Illustratively, a research shows about 800,000 UKhouseholds have a second home abroad in 2006, achieving an increase of 45% compared to June2004 (Kirby, 2006).However, the recession also effects people’s travel lifestyle: Mintel also finds fewer trips was taken in 2009 than previous years, while about three quarters (71%) claim to cut down spending, Ryanairhad planned to ground numbers of its aircraft in early 2009 due to passenger number fall and fuelprices (Bond, 2008). Technological Ryanair has also never ceased to technologically improve the efficiency to cut cost. It calls itself “Europe’s greenest airline” and as shown on Ryanair official website, their efforts of fuel emissions,noise, and waste reduction have resulted in a leading status comparing with other major airline firms. Ryanair’s 100% online service is a good way to cut cost, and a free online check-in systemlaunched in 2006 is encouraged to save check-in time. Environmental 3 The Environmental factors for Ryanair are concerned with noise, and pollution controls, and energy consumption controls. It is stated in the case (O’Higgins, 2008) that aviation represents 2.6 per cent of greenhouse gases emissions in the EU in 2006. With more environmentally-friendly aircraftdeveloped and introduced with less emission and more efficiency, Ryanair has tried to achievebeyond the general regulations of EU. It claims to reduce the fuel burn per 100 revenue passengerkilometres (PRKs) year by year as shown in Figure 1, resulting in less CO2 emissions by 4%.For the airline industry, the force majeure is another unexpected risk that may cause great losses, just like the 2010 volcano ash cancelation around North European countries. Figure 1 (Source: Ryanair official website)*Includes the adverse effect of a temporary use of inefficient aircraft acquired from Buzz. ** Estimate Legal The last factors are legal ones. Two main issues are Ryanair’s misleading advertising controversy and the flight security issues concerning pilots flying hours. One 2008 CNN news said the firm had been found guilty of transgressions over two years’ period. For security concerns, EU hasrestrictions on pilot flying hours to prevent dangerous fatigue. Ryanair does business on point topoint flights with quick turnaround; it has to ceiling this hour limit for its pilots to achieve efficiency(Weston, 2002). 2.1.2 Porter’s five forces framework The impact of the firm’s immediate environment of the surrounding compe tition is of greatimportance for strategy making, and cannot be ignored (Johnson, Scholes, & Whittington, 2008,p.60) . Porter’s five forces is utilised to evaluate the total attractiveness of Ryanair’s industry, i.e. the low cost airline.Barriers to entry the industry are those obstacles the new entrants have to get over to competesuccessfully. The budget airline industry requires a solid financing back and experience is a plus forsuccess. Also, the economies of scale are a barrier, as the low fares and high efficiency operation
