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Ryanair – the Low-Fares Airline

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Ryanair – the Low-Fares Airline

Ryanair is one of the low cost airlines in Europe with its headquarters at Dublin airport in Ireland. The company was established in 1985, flying between Waterford and London. Its initial founders were Tony Ryan, Liam Lonergan and Christy Ryan (Calder, 2002, p.12). It has other operational bases at the London Stansted Airport.

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On the other hand the company operates between Europe and Morocco across1100 routes (Calder, 2001, p.23). Ryanair was mainly established to break the duopoly that had been created by Aer Lingus and British Airways. In 1997 the company went public to be able to fund its expansion program (Calder, 2002, p.15).

It has also been expanding from 1997 after the deregulation of the air industry. The company prides itself as the third largest airline carrier in Europe in terms of passengers. In addition, the company has seen its revenues rise from € 231 million in 1998 to € 843 million in 2003 (Calder, 2002, p.2). Before this, the company had its own share of problems especially in 1991 when it ran into losses. This prompted a restructuring program that was to be driven by Michael O’Leary (Calder, 2002, p.16). In 2008 the company was involved in a second Aer Lingus airlines takeover bid.

The company has a long term mission to continue giving low cost airline services to the market. This is through enhanced services to the customers. It also plans to continue expanding its fleets to take care of the ever expanding market. In the long run the company wants to ensure that its traffic grows considerably for maximum profitability.

Its main objective is to deliver what passengers want like; real commitments on pricing, punctuality and key services (Calder, 2002, p.22). Therefore, it will be able to offer the lowest fares at all times on all routes that it operates. To enhance this, the company will try to minimize the number of passengers facing delays in airports. In extreme cases it plans to notify passengers of any delays, diversions and cancelations.

Company’s current situation

From 2006 the company’s net profits have been increasing due to the increase in fleets and new routes. Its passenger numbers have been growing by 25% over the last decade. In 2007, the company’s stock price rose by 50% after its profits exceeded analyst’s expectations (Creaton, 2007, p.19). As an expansion strategy the company was able to launch a second takeover bid of Aer Lingus. Earlier on in 2003 the company had acquired its ailing competitor Buzz from KLM (Creaton, 2007, p.13). This was able to double the company’s fleet of airplanes from 33 to 66 and in the process created 1000 new jobs (Creaton, 2007, p.16).

From 2009 the company had plans to offer United States bound flights for about 10 Euros (Creaton, 2007, p.11). Since February 2010 Ryanair has been pressurizing Stansted to offer it a low landing fees (failure to which it moves its operations to another base) (Creaton, 2007, p.12). In March 2010 the airline terminated a contract with OnAir for the provision of on-board mobile phone services. As a result, the company has invited bids from other in-flight communications providers to provide on-board mobile phone services (Creaton, 2007, p.33).

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It has also been lobbying with the Irish government to remove the tourist’s tax that has laid the tourism industry back. The company is currently doing well as its profits stand at €319 million (Creaton, 2007, p.17). Its largest bases are the London Stansted with 106 routes and Dublin with 79 routes. Currently the company operates the newest, quietest and cleanest fleets in Europe. In addition, their fleets have an average age of 2.8yrs (Creaton, 2007, p.14).

Environmental and European airline industry analysis

PESTEL analysis

In looking at the pestle analysis there have been some external macro environment factors that have affected the way business operates. Most of these factors have been beyond the control of the business but are supposed to be considered. Prior to entering the market the European airline industry was overregulated. In 1997 there ware deregulations in the airline industry that allowed it to move ahead (Creaton, 2007, p.23).

The UK government charges a high air tax which has affected the company and forced it to cut back on its winter schedule (Ruddock, 2007, p.18). This is bad for the industry and there have been some consultations to come up with a solution. On the other hand, Dublin airport has come up with some new changes that will be effected in the airport for the next five years (Ruddock, 2007, p.10). This has not gone down well with the industry players and is set to redefine the way business is conducted.

The airline industry has always been hit by high fuel prices that have in most occasions found the companies unprepared. These high prices have always prompted the airlines to employ cost cutting measures to remain operational. On the other hand it is not easy to tell when the prices will be up. This puts the industry in a very tricky position.

Five Forces analysis

These have been the forces that have determined the competitive intensity in the industry with a long term bearing on the attractiveness of the market. The airline industry in Europe operates as a free market and as such has attracted a lot of companies to operate in it. There is a high threat of new entrants in the market which has made it very competitive (Ruddock, 2007, p.28).

It can be said that there is a high intensity of competitive rivalry. This can be explained from the high number of low cost airlines that have entered the market (Creaton, 2007, p.21). Furthermore there have been more online activities as booking of tickets can not be done by agents (as it was the case initially). In addition, it can be noted that the industry is having a powerful competitive strategy that demands innovativeness to remain afloat.

Because every airline wants to have a large market share there is a high threat of substitute products and services from new market entrants. This can be explained from the perceived level of product differentiation across all the airlines in the market whereby they target different customers.

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Customers can be said to be sensitive and they will continue to dictate the way business is conducted (Creaton, 2007, p.20). Most of them are more enlightened and need ultimate satisfaction from the products and services that they are offered. This therefore continues to force companies to be vigilant with the products and services that they offer. The suppliers like airline manufacturers have always had an impact on business. This is in relation to the fleets that they have manufactured; they are supposed to meet customer’s expectations.

Scenario Analysis

Scenario analysis will help the airlines to make good decisions by looking at the outcomes and implications of these environments. All these forces have had a long term effect on the overall air industry. As matter of fact the airlines are supposed to be well versed with all the legislations that governments and authorities put in place as they will ultimately affect and define the way they conduct business. Most of the legislations have been crafted without the involvement of the industry players and must be well analyzed to put the business on the right path.

From the case study it has been noted that competitors have been increasing especially in the low cost airline business. As much as the companies will continue providing low cost services they are supposed to enhance their quality. This is because the customers are more enlightened on what they want and will demand more from the companies. In addition, since the companies operate globally they have to satisfy diverse and distinct expectations from the customers.

Ryanair’s strengths and weaknesses

The company’s strength has been in the provision of low cost services which has enabled it to have a commanding lead in the market. It has continued to give low cost airline services to the market through enhanced quality to the customers. In addition the company has continued to expand its fleet and traffic to other markets. These fleets have ensured that they cater for the ever expanding number of customers.

On the other hand, the company has one major weakness from the way it carries out its advertising and publicity campaigns. These strategies are not healthy for the business and are likely to be costly for the company in future. This is because most of them are controversial and may attract penalties or even destroy good customer relations in the market. The company also has a weakness from its assumption that it has all the market to itself.

Evaluation of Ryanair’s strategy

The company’s strategy of being a low cost airline has been good as it has continued to record good profits. As a matter of fact the company prides itself as the third largest airline carrier in Europe in terms of passengers. In addition, the company is currently doing well as its profits stand at €319 million. This market strategy is sustainable as long as the company deals with the few weaknesses (that it has).

Recommendation

Although the company has grown considerably, it needs to review some few aspects. For instance it needs to review its advertising strategy and approach. There are also some occasions where the company has contravened the industry expectations. An example is the wheelchair problem it experienced in some airports. This is likely to portray them as inhuman to their customers. Finally, although the company is a low cost airline it needs to emphasize on quality.

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Reference list

  1. Calder, S. 2002. No Frills: The Truth Behind the Low Cost Revolution in the Skies. London: Virgin Books.
  2. Creaton, S. 2007. Ryanair: The full story of the controversial low-cost airline. London: Aurum.
  3. Ruddock, A. 2007. Michael O’Leary – A Life in Full Flight. Dublin: Penguin Ireland.

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