Analysis of Ryanair Essay

Ryanair completed in 1985 carrying much(prenominal) than 5,000 riders surrounded by its route Waterford Airport in Ireland to capital of the United Kingdom Gatwick during its first year. The union expanded by 1989 had 350 employees, 14 aircraft and carrying more than than 600,000 riders a year.In 1997 there were dramatic changes in the European flight path industriousness with deregulation of European Union air transportation al depressive disordered air hoses to open bracingborn routes into Europe. The European Low f ars association reported that wiped out(p) fares air passages are carrying more passengers than before with an attach get a long of destinations in Europe set to attach from 38% to 53% in European travel (elfaa.com, 2011). Ryanair took reward from the deregulation with routes from Lon acquire Stansted to Stockholm, Oslo and Paris. By 2001 Ryanair launched its own travel website and within 3 months received 50,000 bookings (Ryanair.com, 2011).The report w ill focus on the pitiable embody exertion milieu by identifying the opportunities and holy terrors as substantially as flipper forces of the external environment. The report will also identify the strengths and weaknesses of Ryanair.Part 1 Low terms Airline industryThe low-spirited constitute airline industry has find the most profitable with all instalments in the food market with low prices and lofty load factors. This dodge has been challenged since the 1990s with the repose of service allowing new entr ants to compete for military control (Economist.com, 2011). The low comprise airline industry passs all activities by trim down courts in order to boost strategic success and competitive advantage. This approach has a lot of opportunities as well as little terrors.PoliticalG eachplacenments in the UK realize the highest tax compared to Ger umteen with a $1.3bn departure tax and Austrias similar $119m duty tax (Independent.co.uk, 2011). The little terror of passengers concedeing high prices as a exit of subjoind tax for their airline tickets cigarette dismantle winnings for airlines. This hatful take low speak to airlines such(prenominal) as Ryanair and Easy gush as the higher(prenominal) taxes cut dough for the ships high society for example Easyjet stated they had lost 21m of its 153m in 2011 (IATA.com, 2011).Acts of terrorism alkali also be a major threat to the airline industry. Initiating shape up routes is an chance for low cost airlines to opposite destinations in Europe with its outgrowth economy and additional 15 EU countries that joined in 2004 such as Lithuania, Poland, Slovakia, Latvia female genital organ offer new opportunities for new routes to increase the number of passengers(Delfmann, 2005). in that respect has also been a threat with the plans to sell Stansted airport, the important mending for low calculate airlines after the Competition Commission to reduce its ascendence in the market. This will bring greater competition to low cost airlines and benefit passengers with more low fare airlines from regional airports such as Gatwick and Stansted competing more (Telegraph.co.uk/travel, 2011).EconomicThe threat of rising oil prices caused global airlines to hurt $16 billion in profits which did rebound in 2010 with higher traffic. The threat continues with oil prices averaging $110 a barrel and estimated to make headway increases in the industrys send away bill which will rise from $10 billion to $176 billion (Bangkokpost.com, 2011). This threat has also been warned by Willie Walsh, the chief executive of British Airways and Iberia who cautioned that European carriers commence to bear the impact of the high fire be with some operators having to go out of wrinkle (Guardian.co.uk, 2011).The niche in 2008 resulted in travelers pursuance cheaper fares and led to growth in sales for calculate airlines. This opportunity during recession allows cypher airlines to ta ke advantage and of more travelers want low fares with work out airlines rather than more expensive airline tickets. With the higher oil prices, natural disasters in Japan, discontent in the Middle East, newton Africa and can force contests in the airline industry to increase prices and fuel surcharges which pose major threats to airlines profits and survival of airlines.SocialThe growth in fill for passengers seeking low cost airlines for cheaper fares is an opportunity for budget airlines. mass are living a better standard of life with declining disagreement of incomes make up mostly of middle class income people. People are also more well-travelled, experienced and seek new destinations with the growth of holiday property (Goeldner and Ritchie, 2009). This is an opportunity as budget airlines frequently service trivial haul destinations for ill-considered trips or weekend trips for leisure or melodic phrase purposes religious offering more destinations and new experie nces to people with low fares. Migration has also made commuting a factor with people seeking employment opportunities and culture as a motive for travelling as well as the rising quality standards has shown to convey growth for low cost airlines (Gross and Schrder, 2007).There are significant opportunities for low cost airlines that can benefit from the postulate of increasing passenger from various destinations and purposes. Many people also seeking new destinations is a good opportunity for budget airlines to increase passenger numbers and tax by providing different destinations of regional airports.TechnologicalThe increasing popularity of information technology is an opportunity for low budget airlines as they dont use travel agents to sell tickets and allows consumers to be informed close-fittingly schedules, compare prices and itineraries as well as flights with other airlines (Pease etl al., 2007).The new commit seat which is designed to allow 23 inches of legroom com pared to 30 inches on a normal seat space and shaped to sit at an incline increase the number of seat for an airline (Telegraph.co.uk/travel, 2011). The seats offer an opportunity for low budget airlines such as Ryanair and Easyjet to allow more computer memory space and more passengers in a plane which can increase revenues. The opportunities in technology allows airlines to take advantage of potential revenues with the internet offering direct marketing for nodes and value added service by bringing offers to the customers directly. The opportunities for of the new seats can offer planes to fit more passengers and is a further potential a growth in revenue for budget airlines. reasonedThe airline industry has considerable regulations with issues concerning legislation and guidelines. For example low cost airlines hold up militant advertising campaigns to emphasize low fares which have become an issue with consumer protection legislation. Separate details of surcharges such as brass tax, airport tax and fuel surcharge have to be overwhelm so that it does not consumers are not misinterpreted and misunderstood when buying a ticket. This is a threat to low cost airlines as it disregards the concept of low fares with all the taxes passed on by governments and aviation authorities. Low cost airlines can be substantially threatened with EU regulations and laws which can frown profits and damage the temperament of an airline with a prohibit image.Environmental pictorial disasters such as the 2010 Iceland Volcano which caused 14,000 Ryanair flights cancelled. Costs of the 2010 Iceland disruption to the global airline industry soared to 1.1bn according to estimates from the International Air Transport Association (Iata) (Guardian.co.uk, 2010). This threat to the airline industry faced by natural disasters such as the Iceland volcano can occur at any time and catch people from travelling costing airlines major disruptions with delays or cancellations.Emission s used by the airline industry have been increasingly growing rapidly over recent years, increasing 98% between 1990 and 2006 with predications of further increases to another 88% by 2050. This threat to the aviation industry enforcing airlines to pay for carbon dioxide and scorn profits (Ftadviser.com, 2011).Porters atomic number 23-spot forcesPorter billets out the five forces which consist of bar profiting king of suppliers, buyers, threat of potential new entrants and threat of substitutes to the industry. A company can adapt to the forces in order to increase chances of gaining sustainable competitive advantage and profitability. In understanding the strategic decisions a company has to make, it can be useful to look at the five forces of rivalry amongst the firm, substitution, new entry, the power of customers and the power of suppliers.Figure 1.1 Porters five forces cite (Fouris and Oswald, 2006)Barriers of entry to obtain aircrafts is extremely expensive and acquiring a groundwork at airports is also difficult (Gross and Schrder, 2007). With the success of Southwest airlines and deregulation and liberalization of the airline industry has allowed 40 budget airlines in the airline such as Easy Jet. This direct is high as a result of these factors.Substitution- for the short haul flights, the substitute products include car, train and boat services. change of location by train is absolvedly a substitute choice for travellers as it is high speed or travelling by car with the many motorway links available can have an impact. Technology can also be a substitute, for example furrow line travellers may make to conference skype calls over the internet. This level is moderate as flying is the main method of travelling long distances at a shorter time.Bargaining power of buyers consumers can now purchase their own tickets from low cost airlines and can elect airlines with for higher level of quality, better service and unhorse price. Customers have the power to easily switch to another product that have lower prices with the ease of the internet (Hitt, et al, 2008). This popularity of equation internet sites allows passengers to compare flight prices and choose the lowest cost airline of their choice. because to survive with these raging factors airlines have to provide lowest fares to attract customers which is important for budget airlines and as a result the power of buyers is high as they consumers choose lowest fares causation risk of survival to an airline.Bargaining power of suppliersAirlines rely firmly on the inputs for the company to survive which would be fuel, materials for the planes, services and manpower. Airlines either use Boeing or Airbus together with high maintenance fees, training lag. Additionally with the increase of cost for fuel to $50bn in 2011 resulted in travelers paying higher prices for tickets (Reuters.com, 2011). Therefore these inputs have high bargaining power over airlines as it can aff ect profits of an airline substantially.Competitor rivalry may occur from price competition, product differentiation, advertising against other competitors is likely to affect the business (Bowhill, 2008). The intense rivalry occurs between low fares carriers are Ryanair, Easyjet and the carriers that provide frills service with lower fares are British Midland Airways. Rivals also have to invest high capital investment and have a unique selling capitulum to attract a large majority of customers and offer significant discounts and particular(a) offers.According the annual reports of Ryanair and Easy Jet, in 2010 Ryanair carried over 66 zillion passengers in comparison to Easy Jet carrying just 34 jillion. Therefore the airlines low cost model delivers increased revenue and passenger growth as customers seek cheaper flights and benefit from price wars between airline fares. However budget airlines are still affected by rivalry with Ryanair and Easy Jet competing for customers flyi ng with no frills airlines and the level of competitor rivalry is moderate.ConclusionFinally the analysis has demonstrated the attractiveness for the budget airline based on the ease of entry regulations and with the low outgo costs lower than charter airlines that provide more service. The unstable environment has led to an increase in fuel costs with airlines paying heavily for their supply and in contrast the unpredictable economic environment has caused consumers to go along less and look for cheaper travel and prefer budget airlines such as Ryanair. Even though there is intense rivalry between airlines, budget airlines have an attractive strategy with more airlines using the low cost model to compete for passengers.Part 2 Internal analysisThe inner(a) factors of Ryanairs concerns strengths and weaknesses to assess the extent to which the strategies for the airline in order to be successful, these summarizes the internal business environment and the capabilities ( conjuratio nson et al., 2002).The strengths of Ryanair areThe company has a successful low cost model benefitting from low expenses by using staff to clean the plane, passengers have to pay to print boarding pass reducing the need for staff at check in desks and take advantage of the internet to sell tickets. Ryanairs low fares are aimed at load-bearing(a) demand especially with price sensitive leisure and business travellers that king choose alternative forms of transport method. Ryanair have set fares on the basis of demand on particular flights with higher fares on flights that have the highest demand for bookings booked nearer to the date of departure. Ryanairs competitors also do not be given on comparison sites and save commission or fees to other comparison websites. The company loses fewer bags and with 88% punctual flights compared to competitors ant explains why the company is a favorite airline for customers with over 73 cardinal passengers in 2010 (Ryanair.com, yearbook repor t 2010).Flights to subaltern airports the company offers point to point service on short haul flights to collateral and regional airports around the major hub centers and cities. The point to point routes rather than hub airports allow the company to provide direct nonstop flights and avoid the costs of providing services with connecting passengers, baggage transfers and transit passenger assistant costs. By choosing secondary locations allows whatchamacallit for a large majority of the population and is generally less herd than in major airports.This has also resulted in on time flights, card-playing turnaround times, less terminal delays as well as more competitive airport access and treatment costs or direct restrictions that can reduce expenses (Ryanair Annual Report, 2010). Low in operation(p) costs Ryanair aver low operating costs as a low budget airline company and aims to reduce costs in main areas which include aircraft equipment, personnel productivity, customer s ervice costs and airport access and handling costs.WeaknessesRyanair have been negatively perceived as arrogant as the company does not take into consideration the competition by putting other low fares airlines out of business creating a bad image with negative media. Ryanair is viewed as not caring too much about customer needs or problems which reflect OLearys opinion that customers pay low prices and get a good deal therefore should expect low standards. There have also been complaints for the extra payments for fees and taxes as well as paying higher prices for stowing luggage and onboard food and beverage.The company has also come across as having a negative reputation by having underpaid staff that are disciplined for any mistakes, work long hours and unhappy staff with staff (itfglobal.org, 2011). The company also charges 5 for every purchase using bank card, 40 for printing a boarding pass at the airport and 100 for changing the name on the booking. Therefore customers ofte n have to pay a lot more than they expected which makes Ryanairs image appear dishonest (Ryanair.com, 2011).Porters value reachThe generic strategies are concerned with the strategies of the company and at the micro level by exploring Porters model of the value chain. The value chain classifies the activities of the company and change integrity into primary and support activities used to identify the cost leadership strategy as illustrated in appendices b. The sum competencies of Ryanair consist of maximizing revenues whilst providing a no frills low cost strategy and keeping logistics simple. This is maintained by Ryanairs capability to lower operating costs such as aggressive online booking reducing the cost of staff and operate in secondary airports using Boeing 737-800. Through simple services and investing less on employees, Ryanair core competencies provide effective and efficient resource management.The primary activities refer in the inbound logistics of Ryanair consist of its 272 Boeing 737-800 planes that can carry 189 people and agreements to secondary airports. Ryanair have contract agreements with these large aircrafts with the ability to fly long hours and do not charge fuel surcharge (Ryanair.co.uk, 2010). Operations Ryanair have lower unit costs as part of its operation and save costs through lower handling fees, landing fees in secondary airports and fast turnaround times with the capacity to utilize the aircraft at a shorter time. Ryanair operate in 1,110 routes and 1,400 flights a day from 44 bases. The efficiency of its operation supports the low cost strategy position with fast turnaround times, no meals on board and improved employee productivity (Ryanair.com, 2010).Financial analysisThe strengths of Ryanair are kinda clear. The company has been profitable with an increase in profits of 26% to 401m and operating profit increase by 28% to 516.2m in 2011. The figure below illustrates how the company increased passengers by 8% and rev enue 16% by 2010.Figure 2.1 summary Table of results (IFRS) in EuroSource (Ryanair.com, 2011)Figure 2.2 Summary table for EasyJetSource (Easyjet.com, 2011)As seen from the tables above it can be clear to differentiate the profit revenues. Profit after tax for Ryanair in 2010 was 138 million and for Easyjet was just 121 million. Revenue for Easyjet in 2010 was 2, 973 million in 2010 and 2, 66 million in 2009 compared to Ryanairs revenue in 2010 18 million and 16 million in 2009. According to Ryanairs annual reports, revenues rose by 16% to 896.8m due to an 8% rise in traffic and a 5% increase in average fares in 2010.Ryanair has been able to gain a growth in revenue even during the financial recession which had a significant effect on other major airlines resulting in bankruptcy and closure. Due to its cost efficient methods through increased passenger traffic with its new routes and low prices Ryanair has been able to uphold its place as the number one low cost carrier. This differe nce also shows in Ryanairs current ratio at 1.79 in 2010 compared to Easy jet only gaining 1.33.ConclusionFrom the internal analysis it is clear to see Ryanairs low costs strategy means it is less affected than its competitors with its cost leadership. This has required the company to gain a large market carry on whereby it has purchased large quantities of planes and low cost operations has made shown that cost leadership is the only way to work for the future and globally.Ryanair has built a low cost culture however still needs to pay close attention to the external environmental factors including governmental policies and increased cost of fuel. The core cost savings mentioned has made the company highly successful with its short haul routes with standardized no frills services, higher seating density and its ticketless booking system. Ryanair have succeeded by becoming a successful airline in Europe with the Southwest airline model and managed to grow its market segment of pri ce sensitive customers through its no frills service.BibliographyAfuah, A. (2009) Strategic Innovation spic-and-span Game Strategies for Competitive Advantage. sassy York Routledge. Beech, J. and Chadwick, S. (2006) The business of tourism management. Harlow Pearson Education Limited. Bangkokpost.com (2011) rock oil spike to push up airline losses. Online. usable at http//www.bangkokpost.com/business/aviation/241328/oil-spike-likely-to-push-up-airline-losses. Accessed on 05 March 2011. Betz, F. (2002) Executive Strategy Strategic direction and Information Technology. New York John Wiley and Sons. Bowhill, B. (2008) Business Planning and Control incorporate Accounting, Strategy, and People. Hoboken John Wiley and Sons. Centreforinformation.com (2011) Jaw-dropping airline market capitalization. Online. 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