1. Identify Ryanair’s current strategy (hint: this can be based on Porter’s three generic strategies) and provision of its justifications (hint: you can use value chain a ctivities for justifying it).
Company background Ryanair Holdings operates operates the first of all founded low cost scheduled passenger airlines in Europe. Starting in 1985 Ryanair followed the example of Southwest Airlines, introduced the low cost concept in Europe and became market leader in the low-cost air-line market by consequently saving costs. The company is headquartered in Dublin, Ireland, employs about 4,200 people, operates with a fleet size of 120 Boeing 737-800, carries approximately 35 Mn. passengers a year and had a turnover of 1,692.5 Mn in 2006 with a net profitability of about 10 % ,amounting to 169Mn. The main objective of ryan air is to firmly establish itself as Europe′s leading low-fares scheduled passenger airline through continued improvements and expanded o fferings of its low-fare service.′ (Ryanair Report 2007) Core business: “low cost flights” Ryanair offers low cost passenger flights within Europe. Europe. The airline serves short haul, point-to-point routes between Ireland, the UK and Continental Europe. Business philosophy: To keep the product as simple as possi ble. ticketless without any frills in one class without any seat – it i s simple air transportation from A Passengers travel ticketless to B. Ryan Air’s customer is anyone within Europe in the age between 15 and 64, who wants to save money and sti ll be able to travel by air to attractive destinations. STRATEGY OF RYANAIR Ryanair’s objective is to firmly establish itself as Europe’s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fares service. Ryanair aims to offer low fares that generate increased passenger traffic while maintaining a continuous focus on co st-containment and operating efficiencies. Two main categories of strategies can be identified as: 1. Generic (general) strategies, and 2. Competitive strategies. Ryanair Generic strategy The main types of generic strategies that organisations can pursue are: 1. Growth 2. Internationalisation/globalisation Internationalisation/globalisation 3. Retrenchment involves cutting back to focus on your best lines. i. e. concentrating on what you do best Michael Porter identified three g eneric strategies 1. Differentiation 2. Focus 3. Low cost
1
The current strategy of Ryanair is a strategy of cost focus. Also it can be called as a Low fair-no frills strategy. Their strategy is shown in their only marketing message: “lowest prices on the market & guarantee of no fuel surcharges”. The airline served a class of flyers who looked for f unctional and efficient service rather than luxury. It did not aim to satisfy all segments of the market. There are targeting a niche market. Ryanair is interested in the European price sensitive travelers who are aged 15 to 64. The airline's operational policies supported its strategy of cost focus by producing no frills products and production innovation using ecommerce technologies to minimize its operation costs Eg: Online book through Ryanair’s website. Only the travel is free. They will charge for all the other things. Growth Every organization has three directions growth, stability, and retrenchment. Ryanair’s strategy focus on its is growth. They have offered to acquire AerLingus to expand i ts business. Ansoff’s product/market growth matrix suggests that a b usiness’ attempts to grow depend on whether it markets new or existing products in new or existing markets.
Market penetration is a growth strategy where the bus iness focuses on selling existing products into existing markets Market development is a growth strategy where the b usiness seeks to sell its exis ting products into new markets. Product development is a growth strategy where a business aims to introduce new products into existing markets. Diversification is a growth strategy where a b usiness markets new products in new markets. Ryanair’s focus criteria of growth is Building on its success in the Ireland-U.K. market and its expansion of service to continental Europe, Ryanair intends to follow a manageable growth plan targeting specific markets. Ryanair believes it will have opportunities for continued growth by: (i) initiating additional routes from the U.K. or Ireland to other locations in continental Europe that are currently served by higher-cost, higher-fare carriers;-horizontal Integration (ii) increasing the frequency of service on its existing routes; product development (iii) starting new domestic routes within EU countries; market Development (iv) considering possible acquisitions that may becom e available in the future; AerLingus (v) connecting airports within its existing route network (“triangulation”);Penetration and (vi) establishing more new bases in continental Europe. Forward Integration Ryanair has planned its production of products and services. Ancilliary services from non-flight scheduled operations, car rentals, in-flight sales and internet-related services. Enhancement of Operating Results through Ancillary Services. Ryanair provides various ancillary services and engages in other activities connected with its core air passenger service, including non-flight scheduled services, the in-fl ight sale of beverages, food and merchandise and internet2
related services. As part of its non-flight scheduled and internet-related services, Ryanair distributes accommodation services and travel insurance as well as car rentals through both its website and its traditional telephone reservation offices. Management believes that providing these services through the internet allows Ryanair to increase sales, while at the same time reducing costs on a per unit basis. The geographic markets that Ryanair is planning to cater is Frequent Point-to-Point Flights on Short-Haul Routes Frequent Point-to-Point Flights on Short-Haul Routes. Ryanair provides frequent point-to-point service on short-haul routes to secondary and regional airports in and around major population centers and travel destinations. In the fiscal year ended March 31, 2004, Ryanair flew an average of approximately 1.83 round-trips per route per day with an average route length of 491 miles and an average flight duration of approximately 1.2 hours. Short-haul routes allow Ryanair to offer frequent service, while eliminating the necessity to provide “frill” services otherwise expected by customers on longer flights. Point-to-point flying (as opposed to hub-andspoke service) allows Ryanair to offer direct, non-stop routes and avoid the costs of providing through service for connecting passengers, including baggage transfer and transit passenger assistance costs. Customer Service. Ryanair’s strategy is to deliver the best custom er service performance in its peer group. According to reports by the A ssociation of European Airlines and the airlines’ own published statistics, Ryanair has achieved better punctuality, fewer lost bags and fewer cancellations than all of the rest of its peer grouping in Europe. Ryanair achieves this by focusing strongly on the execution of these services and by operating from uncongested airports. Ryanair competitive strategy Competitive strategies are also important. Competitive strategies are conc erned with doing things better than rivals. To be competitive a firm shouldn't just copy the ideas of rivals. They should seek to out compete rivals. There are two main ways of being competitive. 1. By selling goods at lower prices than rivals. This is possible when a firm is the market leader and benefits from economies of scale. 2. By differentiating your product from those of rivals - which enables you to charge a higher price if desired. Ryanair emphasis is on being the low cost producer and is exemplified by 'no frills'. It focuses on short haul destinations and keeping its planes in the air as frequently as possible in a 24 hour period. The key elements of the generic strategy Ryanair plans to follow to position itself uniquely against competitors Low Fares Customer Service. Frequent Point-to-Point Flights on Short-Haul Routes Low Operating Costs Low and standardized Aircraft Equipment Costs. Personnel Productivity Low Customer Service Costs Airport Access Fees Taking Advantage of the I nternet Commitment to Safety and Quality Maintenance Enhancement of Operating Results through Ancillary Services Competitive Stage Justification Ryanair flew a fleet comprising entirely of Boeing 737s. This focus on standardization was a key feature in keeping the costs of the airline low, thus allowing it to offer low fares. Flying a standard fleet had the advantage of simplifying the maintenance function of the planes. The airline did not have to stock spares for different types of p lanes. As spares and other aircraft parts could be purchased in bulk, it resulted in economies of scale. It also reduced training requirements for the pilots and the cabin crew, as they had to only learn to operate a single type of plane... Ryanair Low Fares Strategy and Standardized Operational Model Advantages of using secondary or airports located outside city • •
•
• •
• •
3
• • •
Lower Wage bills Ryanair.com and Online booking of tickets Paid-for extras – Sources of additional revenue
Ryanair has maintained its competitive advantage over its competitors, by offering a highly differentiated product, which is a continuous lower fare. Therefore Ryanair has achieved a sustainable competitive advantage
Vision: Ryanair’s CEO, Michael O'Leary, has a vision of a world where the fare could drop to n othing as local communities would subsidize the airline to bring a steady traffic of business people and tourists to their region. Main Goal: To firmly establish itself as low fares , scheduled passenger airline through continued improvements and expanded offerings. Mission statement: Ryanair will become Europe′s most profitable lowest cost airline by rolling out the proven `lowfare-no-frills′ service in all markets in which we operate, to the benefit of our p assengers, people, and shareholders (Ryanair Report, 1997). Ryanair′s main object ive: To firmly establish itself as Europe′s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fare service.′ (Ryanair Report 2007), Goals and objectives for 6 years till 2012. To raise the market share within the low cost sector up to 40%. Fleet of 200 airplanes in 2012, To double the annual passenger transportation to 80 million by2012. To eliminate the rest of our costly call centers To base the distribution only on online booking. To quadruple its annual profit up to €1,230 billion in 2012. The position Ryanair plans to hold in the future Ryanair’s CEO, Michael O'Leary, has a vision of a world where the fare could d rop to nothing as local communities would subsidize the airline to bring a steady traffic of business people and tourists to their region.
Objectives and Long Term Vision To have the largest amount of routes and the lowest fares of any European Airline without compromising our business model; to outperform every other carrier on all f ronts including quality of service. Ryanair also aspires to uphold a high level of growth We feel that Ryanair’s strategy up to date has been the key factor in its huge success. So to that end we would intend to carry on ap plying all of these strategies for the foreseeable future. As has been seen in the past in the United States there is only room for o ne or two major players in the low-cost airline industry. Southwest Airlines have approximately 50% of the market share in the states. In Europe 88% of the market is dominated by the two major players; Easyjet and Ryanair. However, within the European Airline Industry as a whol e the low-cost carriers only represent 7% of total market share, far less than the 25% of their American counterparts. Experts predict that the maximum potential market share in Europe is limited to about 14%11 in the next 5-10 years but that is only if Ryanair continue to limit service to Western Europe. Ryanair’s success to date has been partly due to the fast pace at which the industry has been developing and since this market will not grow as fast in the future Ryanair must seek other ways to expand in order to sustain their top performance. In order to do this several options must be taken into account. The options Ryanair have are as follows: 1. Increase the Frequency of Existing Routes The European low cost carrier (LCC) market is by no means exhausted. At the moment Ryanair have an average of 3.88 flights per day per route. This figure, compared to Easyjet and traditional carriers, is very low. This means that Ryanair are loosing out on business passengers who need more flexible timetables. If Ryanair were to increase the frequency on some of their routes they could effectively steal some of the passengers from the traditional carrier’s thus increasing market share. 2. Open New Routes in Europe There are many viable routes still un-served by low-cost carriers. In order for a route to be viable there must be at least 32,000 passengers per year. Research must be carried out to find viable routes before the competition. As well 4
as opening routes to un-served destinations, Ryanair can also open routes where the competition is a more expensive traditional carrier thus attracting customers with the cheaper, no-frills option. In 2002, 33% of routes were served by only one low-cost carrier, an increase of 33% on the previous year’s figures. 3. Develop Its Smaller Continental Operating Bases With the low-cost market from London saturated, Ryanair must look to their o ther operating bases to expand their network. Dublin, Brussels, Hahn, etc… can all be developed. Although there is not the same demand outside of London there is still sufficient demand to make a sizable profit 4. Expand into Central/Eastern Europe Eastern Europe is fast becoming a hotspot for tourists and business travellers alike due to the continuing expansion of the E.U. Ryanair however doesn’t serve any of these popular destinations. Other low-cost airlines have set up there already, such as Sky Europe, but not all routes have been exhausted. There is still plenty of opportunity in this area. 5. Expand into North Africa Routes to North Africa are also very popular for both tourists and North Africans who have immigrated to Europe. SN Airlines currently dominates the traffic from Brussels to North Africa but they are neither a low-cost airline nor a traditional carrier. By offering truly lowcost flights to these destinations Ryanair could easily capture this market share. Our aim is to seek out and start negotiations with potential airports in these countries. 6. Aggressively seek to take market share from the Charter Market The Charter market represents a huge 25% of overall European traffic. Ryanair must aggressively attack this market by heavily promoting D.I.Y. holidays instead of package tours. With the increasing popularity of the Internet and the decreasing popularity of Travel Agents, this is a market that must not be overlooked. Ryanair has already begun to provide small packages for its destinations and we aim to bolster this side of the business. 7. Customer Service Overhaul Ryanair has had a remarkable track record for its ‘tangible’ customer service (punctuality, flight completion et c) however the perception of the ‘softer’ side of i ts customer service has not always been good with much bad press. With this in mind Ryanair, while maintaining its strict rules and regulations, must make an adj ustment in this area. 8. Continue to find ways of reducing costs Although Ryanair has the lowest cost base of any of its competitors, we believe that the Company can continue to lower its cost base as it grows albeit at a lower pace. 9. Ryanair 100% online Ryanair will continue to use the internet as its primary point of sale. Over the next 5 years the aim is to have 100% of bookings via the internet so as to eliminate the costly call centres.
5
