Strategic Management Issues in Low Cost Airlines

Low cost airlines have been a trend nowadays anywhere in the world. There are many airlines which have adopted this plan and have become more successful because of this. The low cost airlines have the benefit over the top quality airlines because of the fact that they can never get their costs to a point where they can make a profit at low fares in bigger markets. Among these low priced airlines that are around nowadays is Ryan air. The Irish air travel company Ryan air is the first low-cost, no-frills European airline to own any impact.

Ryan air began procedures in July 1985, flying between Waterford in the southeast of Ireland and London's Gatwick airport. Three brothers, Catlan, Declan and Shane Ryan were the founding shareholders of Ryan air, which was set up to provide low-cost no-frills services between Ireland and London. Now, Ryan air, using its rapid expansion occupied a most wanted position in its field, being "Britain's most liked airline". Ryan air presently has a team greater than 7, 000 people and expects to transport around 73 million people in fiscal yr 2010/11.

1. 3 Current Strategic Positions:

To assess any organisations tactical position certain factors have to be assessed. Included in these are those below as well as the environmental research which follows later in the article.

1. 3. 1 Market Segmentation:

Ryan air lay down claim to their market portion by stating these were 'Europe's first no frills air travel', www. ryanair. com. Ryanair have made strategic decisions predicated on increasing their competitive edge, the key one becoming involved in bringing in customers at both ends of the routes. Haberberg and Rieple (2001), support this by displaying that Ryanair's key way to obtain revenue from dating back to ten years ago has been around enticing people from France, Italy and Scandinavia. This has had the benefit of increasing their market show as well as the added bonus of creating a well recognised brand across European countries.

1. 3. 2 Prescriptive, Emergent or Something Unique?

'A prescriptive corporate and business strategy is one where the aim has been described in advance and the main elements have been developed before the strategy commences. an emergent corporate and business strategy is one whose final objective is unclear and whose elements are developed during its life, as the strategy proceeds'. Lynch (2000)

As is shown above by Lynch (2000) the two recognised strategy models are really different, however they are the two dominant strategy approaches as stated by Dennis Foster in his lecture on Taking care of Strategic Change (2006).

It is safe to discover immediately that Ryanair will not stay uniformly with either strategy. However certain aspects or functions could certainly stick to one or the other as they are sections that define the carrier all together and then for an organisation of Ryanair's size different parts would have different aims and goals underneath a main umbrella strategy for the company.

For example any planning performed by Ryanair for new routes or planes would follow the prescriptive model as the target would have been defined beforehand and elements such as fund will experienced to possess been decided before any purchasing runs ahead.

On the other hands emergent strategies may maintain place for things such as training and development where elements can be discovered along the way for example if an issue arose where staff needed more health insurance and safety training then the training program could be redirected.

Ryanair, as already stated, follows neither tactical approach religiously and has a technique unique to their organisation, which includes recognized their needs and goals. However their method of proper management isn't unique alone as the majority of organisations will tailor ways of suit their business' own personality.

1. 3. 3 Competitive Advantages:

Their main competitors are service providers including Easy Jet, BMIbaby, Take a flight Be and Thomson Journey most of who try to attract potential customers by emphasising their low cost seat tickets. This makes your competition in this market segment fierce as to be able to own most affordable fares, costs must be held to the very least.

Ryanair continues to be the lowest cost flight in European countries. The firm handles to maintain its cost authority despite the presence of other low priced airlines in Europe. The source of competitive advantage of the company is its ability to operate a vehicle down costs to support low fares while at the same time remains profitable. That is done through:

Fleet Commonality

The airline's fleet is made up of Boeing 737, the most frequent aeroplanes being flown in the present. Due to fleet commonality the firm is able to cut on costs in obtaining spares and maintenance services.

Contracting Out of Services

Other than Dublin Air port where the company maintains its personnel and services, Ryanair agreements out plane handling, ticketing, baggage handling and other functions to third gatherings. The firm can obtain competitive rates and multi-year deals at resolved prices, limiting exposure to cost increases. Third party service outsourcing also limits Ryanair's direct contact with employee relations duties and potential disputes.

Airport Charges and Way Policy

Airport charges include landing fees, passenger launching fees, aircraft auto parking fees and sound surcharges. In order to reduce these fees, the company avoids congested main international airports and chooses extra and regional airport terminal destinations which are incredibly considering increasing passenger throughput.

Staff Costs and Productivity

In order to control employee reimbursement costs, the firm implements a performance related pay framework. Although the company provides lower labor costs, the employees can earn additional pay or remuneration bottom part on the performance.

Marketing Costs

In order to lessen marketing costs, the organization trim its rate commission rate to travel agents. The firm's main advertisement tools are newspaper publishers, radio, television and its own company website.

2. 0 Exterior analysis:

For success within the airline industry, a knowledge of the exterior environment is vital. This section seeks to highlight the positioning of the industry, specifically looking at opponents and examining Ryan's capability to meet current and future difficulties.

2. 1 PESTLE Analysis

In Pestle examination we check out macro exterior factors for companies, which are very very important to identify their strategies. You can find 6-core elements of Pestle analysis. They are Political, Economical, Social, Technological, Legal and Environmental options. We are able to examine these factors in the air travel industry to understand Ryanair's future exterior threats and opportunities.

PESTEL Factor

Key Points

Implications for RYAN

Political

Heavy regulation (AEA, 2009).

Compliance is vital if Ryan desires to continue procedures.

Increased security scheduled to past terrorist risks (DFT, 2008).

Sufficient security procedures should maintain place to ensure consumer self confidence and competitive edge is taken care of.

Economic

Global financial crisis:World progress is projected to just over 2 percent in '09 2009 (IMF, 2008). Pound weakens especially from the Euro.

Possible decrease in the quantity of business travel as companies are reducing costs and using substitute method of communication such as teleconferencing.

Oil prices: declined by 50 % since their peak retreating to 2007 levels. Decline in petrol price = strengthening of the money (IMF, 2008)

Fluctuations in essential oil prices and exchange rates will directly influence Ryan's cost foundation.

UK consumer spending found its sharpest decline for 13 years between July and Sept 2008 (Channel 4, 2008).

More extreme competition

Social

The UK comes with an aging people (see appendix 3) (Country wide Reports Online, 2008).

Potential chance of growth as older decades havemore time to spend on leisure activities such as international travel.

Increasing unemployment (Kollewe and Sager, 2008).

Increased bargaining power as an workplace.

Technological

A recent survey revealed that 34% of online consumers plan to use price-comparison sites more in 2009 2009 (NMA, 2009).

Increased consumer consciousness and therefore bargaining electricity.

Online arranging services and check-in is becoming increasingly used by the flight industry.

Ryan must ensure that they continue to be current with these technical advances whilst avoiding becoming excessively reliant, as this might isolate certain consumer marketplaces (i. e the elderly) who don't feel safe using such technology.

Environmental/Ethical

Noise pollution control buttons, and energy utilization regulates (DFT, 2008).

New legislation (e. g. Climate Change Monthly bill) enforcing tighter environmental regulation may increase operational costs each year.

Limited land and for growing airports - Extension is difficult at Heathrow as it would bring about a damage in the London's Green belt area. (BBC Reports 2006)

Limited capacity=>utilisation of capacity.

Consumers have become increasingly 'green' plus more aware of environmentally friendly impact of these actions.

Failure to adopt a environmental strategy may lead to a detrimental effect on the Ryan's reputation and income.

Cancellations of plane tickets and loss of baggage (Channel 4, 2008).

Such ethical issues can have a detrimental effect on reputation if remaining unresolved.

Legal

Recognition of trade unions and commercial action e. g. Cabin Team strikes.

Good employee relations are crucial if Ryan would like to avoid commercial action and interrupted operations.

Open Skies Agreement (AEA, 2009)

Opportunity for Ryan and its competitors to readily transport aircraft between your European union and US.

There is a cruel competition in flight industry. Especially, after market meltdown in 2008 your competition has become crueler. Companies have to battle with recession also and in this monetary situation we can easily see lots of threats in sector. If you reverse these threats to the opportunities you'll be one step further in your competition. Ryanair is the most suitable company to gain advantages from the modern world. With this project we clarified the questions, which frequently asking for their future strategy and their position's of the future competition. That's why; they have began to corporate social obligations.

2. 2 Porter's Five Forces

Before starting to write examination of the Ryanair predicated on Porter's five pushes I should write some special information about Ryanair or all low priced airlines. The primary characteristics of these companies are suitable for reducing costs. Because it is clear that the most competitive - maybe just one- aspect of these is their low fares.

For Ryanair, their aircrafts seat density is very high and they like just one airplane types (Boeing 737-800). All of their bookings are via Internet so they earn huge amount of money because of no sales commissions. They haven't acquired any frills such as free food or haven't received any air-mile promotions. They always favor secondary airports.

Actually these all I mentioned previously are had pointed out at their S. W. O. T. research in strengths part. In my opinion we can use every single aspect from S. W. O. T. examination of Ryanair whenever we are authoring Porter's Five Forces analysis of it.

This analysis has five-core factor. These are

1. Bargaining Ability of Suppliers

2. New Entrants

3. Threat of Substitutes

4. Competitive Rivalry

5. Bargaining Ability of Customers

Bargaining Electricity of Customers

Ryanair customers are highly price delicate. It is very easy to change their airline which is not related to high cost. Within this century customer's understanding of the price tag on service is high and there is absolutely no customer commitment for Ryanair. Despite the fact that there is absolutely no customer loyalty, bargaining ability of customers is low. Ryanair is the cheapest airline for those Europe areas and customers are -especially in recession times- highly price hypersensitive.

New Entrants

It is very hard to be new in flight industry. There are lots of barriers to entry. You should take the trip authorizations. The capital that you'll invest in this sector is high. Additionally it is hard to have a place current competition and also hard to find suitable airports for your plane tickets. In my point of view in short time period there will not be any threats of new entrants against Ryanair even though some existing companies are changing their strategy and minimizing their solution price (Lufthansa).

Threat of Substitutes

As I mentioned before there is not any brand devotion of customers and Ryanair preferred customer relationship is "not-close relationship". If their customers find better way to visit they will not feel any hesitation to decided to go with it. So the threat of direct and indirect substitutes is high and the most crucial point will there be are no switching costs for the clients.

Competitive Rivalry

The market is highly competitive. Most of Ryanair's cost advantages can be copied immediately. In Europe it seems like there is an arrangement between Ryanair and Easyjet about not to compete head to head. However if any company does decide to compete on the same basis as Ryanair it will be highly essential for Ryanair. There will be heavy pressure on prices, margins, and therefore on success.

2. 3 Bowman's Strategy Clock

Bowman created his "Strategy Clock" in "The Essence of Competitive Strategy" publication. With this strategic model he illustrates company's competitive position in comparison with their rivals. For him the true advantage of companies being achieved cost and differentiation. His strategy clock has 8 options.

First two options are about the reduced price. First option is totally low priced low added value however the second item totally going to be a "cost head" without nurturing its value. Second item has the threat of price battle and low margin.

Third option is a cross types option. Mainly the low cost however, not the lowest price. The most important difference between second and the third option is within third option reinvestment in differentiation.

Fourth option is approximately differentiation. For option five the biggest difference is the differentiation is highly centered. It identified added value to a 'particular section' warranting a premium price.

Rests of your options are failure options. At option six the purchase price is increased however the value is standard. Option seven is worse than option six. In option seven you can see increased cost with low principles. It is only possible in monopoly situation. Latter is option 8, which is the reason loss of market share. Because your low value has a typical price.

Ryanair had dramatic changes during last ten years period time which was flabbergasted its challengers. Their profitability rose within a brief period of your time. Their low-fares strategy without frills and punctuality in journey service helped their high success period and it brought a substantial value on the growth.

The higher level competition needs effective technique to gain advantages and at the same time high profit. In various times we can put Ryanair's strategy in various options in Bowman's Strategy Clock. But all of them can be located between options 1 to 5. Their strategy never located in failing part of Bowman's clock. Mainly, nowadays Ryanair devote the clock is between options 1-2, which is mainly about low price. We may easily realize Ryanair is a good example for this option. If they can secure their price and gives higher appreciated service they can certainly have a place option three and they'll be best company in the competition. For me, hybrid strategy is the most preferable strategy in the clock that's the reason Virgin Airlines choose this program. If Ryanair improvements their least expensive price strategy with a standard service they easily will be the strongest company in your competition.

3. 0 SWOT Evaluation:

Strengths

Ryanair has been known as Europe's first low-cost, no-frills air travel brand. This fact alone credits is the business's strongest feature. Ryanair started in time 1985 with only 57 workers and with one 15-seater turboprop plane from the south of east of Ireland to London-Gatwick which carried 5000 passengers using one road. In 1986, encouraged from the storyline of David and Goliath the business go after the best fellas for a slice of the action and wrap up smashing the Aer Lingus or British Airways high fare cartel on the Dublin-London course. From therein, Ryanair's lower fares offering increased their market share rapidly bringing on the establishment of low-cost subsidiaries of proven airline companies such as English Airlines and KLM.

The 'low-cost, no-frills' strategy resulted to a rapid increase of customers and enlargement of their operations, wherein the personnel increased from mere 57 to 3, 400 staff members and almost 35 million passengers. In terms of operations, the European union air carry deregulation allowed the air travel for the very first time to open up new routes to Continental European countries with over 3 million individuals on 18 routes transported in 1997. Ryanair also launched services to Stockholm, Oslo, Paris and Brussels and took periods to float Ryanair Holdings plc on Dublin and NASDAQ Stock exchanges. The business was granted as Flight of the entire year in 1999 by the Irish Air Transfer Users Committee. In 2001, while virtually all traditional flight companies experienced loss and stiff competition, Ryanair, being truly a low-cost air travel became more than just profitable by recording 26 percent in working margins - results that the previous only dreams

about. In June of the following season, Ryanair made a market capitalization amounting to 4. 9 billion euro ($4. 82 billion), breaking the information of 45 percent more than the mighty British Airways that has 20 times greater in terms of revenue.

Ryanair offers the sophisticated and able technology that can cater to the fast changing global marketing management styles. They have core competence in its use of information technology that can support its management and marketing procedures. Thus, adding to its innovations operating providing among the list of wide range of clientele. Its IT facilitates skilled procurement of services (e. g. bookings and ticketing) in e-marketing or online aspect. After building its website in January 2000, it became one of the busiest sites in the united states with 14 million impressions a month. The scheduling in their web accounts have increased to 94% which includes probably has something to do with opening another 26 routes. In year 2003, the company is seen as a rapid extension and the start the entire year by announcing that the company has ordered yet another 100 new Boeing 737-800 series aircraft to assist in the rapid European growth plans. The business is named as the utmost popular airline on the web in 2004 by Google. The company has also passed out Uk Airways to be the UK's favorite airline in United Kingdom and throughout Europe. In amount, Ryanair's strengths recovery on the company's dedication to low fares, deep-seated management, and determination to address managerial troubles and marketing developments (e. g. competition, development, and IT solutions).

Weaknesses

Despite of the increase of individuals, the business is not good in managing cost that the business has lose its money. At this time, there were immediate and deliberate mechanisms that were implemented to address such weakness. Such cost reduction strategy depends on five main aspects like fleet commonality, contracting out services, air-port charges and option policies, managed personnel costs and output and handled marketing costs. Ryanair, in spite of its strategies has other problems that provide as weaknesses too. Among the problems is terms of controlling customers or target market. Studies say that Ryanair accumulates 'hidden' taxes and other fees, restricted customer services, and deceiving advertisements. Furthermore, another problem is ensuring quality service. According to the consequence of poll conducted by BBC including air travelers in 2003, 56 percent of respondents said that the airline brought on them 'the biggest head pain' in conditions of services and customers. Also, in 2007 Ireland's Commission rate for Aviation Legislation recorded a complete of 60 percent of most complaints accumulated by the commission. There's been great number of bad promotion for the company, thus, creating a negative impression to the air travel brand. The business is confronted with different unsolved issues because of insufficient proper decision making in several areas of recruiting particularly in relation to trade union policies.

Opportunities

With the management system of the company and the talents that this has, Ryanair has bigger opportunities to still dominate and catch up with the competition in the European airline industry in terms of providing more quality service standard and at the same time conserving it low-cost no-frills strategy to its clients or have even an possibility to be the number one airline company in the complete region following its eventual application of its suggested plans in the foreseeable future. Another opportunity that may be attached to the company is it would gain more customers if they would be able to determine the latest styles in flight management and marketing to meet up with the demands of these target market. The constant initiatives of the business in diversification of its earnings resources also open up new opportunities to help make the business become stronger to outgrow all its rival companies. Such opportunities will include e-business development by tactical alliances as well as suppliers, leveraging the business's investment in the TOP NOTCH CLIENT SATISFACTION Systems, and other business opportunities in both non-core and core areas.

Threats

Operating in the best marketplace especially Western european flight industry, Ryanair is confronted with the inevitable risk of stiff competition. To get a company to succeed in global competition there is a continuous plan to develop services with higher quality than its opponents. New product and home based business development must be highly effective and productive, however that together will not ensure its competitiveness. The enlargement of its procedures to other areas means changing to the trade insurance policies and politics problems of the locality. The dynamic needs and demands of customers served to be a obstacle to the management. Furthermore, consumer behaviour and satisfaction based on the product/service procurement is also a risk. If the business will still be a vertically included corporation, the company may are unsuccessful in terms of management capacity. The department of the business may tend to have internal complexity. Also, fast paced technological advancement may be considered a danger to Ryanair all together. In conditions of the opponents, the company should be able to provide unique and even more technologically advanced services to be able to survive in the competition on the planet airline industry.

Future Strategy and Recommendations

Mergers and Acquisitions

Mergers and acquisitions have become one of the main corporate-level strategies in the new millennium. Merger and acquisition strategies are important to firm expansion and success in the 21st century. As Ryanair is growing it is expected that the business will acquire others such as Hype, in order to improve its capabilities and acquire more competitive benefit.

Strategic Human Resource Management

Ryanair, in its commitment to low-cost airfare have sacrificed its techniques and services. The recruiting of the business are not seen as a potential way to obtain competitive advantage. The company do not appear to value its people. There's a growing belief that a company's human resources is the main source of competitive advantage. Human resources or the business's people are one source of sustainable competitive benefit. Within a fast-changing environment where technologies and other strategies can be copied, it's the recruiting that bring a sustainable competitive edge.

Marketing Plan Strategies

Ryanair should has an in depth plan for its strategic steps on the market and also provide good customer services to the clients like insurance agencies discounted flights and value campaign to keep carefully the competitive edge at a stable method within its competitors and will need to focus more on the main competencies that allow Ryanair to nearly and properly designs suitable airline operations within the bracket of these marketing network services in a market standard-based perspective. Ryanair have to be goal focused and should never stop to refresh and change their marketing plan strategies from time to time in order to re-invent the performance process after the upgrading of rules and regulations mandated by the state of hawaii. Ryanair is to beat having less product differentiation and increase it that can realize your desire to revive income generation.

Operational Effectiveness

It is then suggested that Ryanair should outsources as many non-core functions as it can be that may abandon peripheral services such as catering or ground handling services and can be required to perform such activities as exterior specialist companies identified to be 3rd party revenue centers.

Recommendation

Based on above research, it is recommended that Ryanair consider the growth directly into haul market segments - specially the transatlantic routes which accounts for more than 60% of world's air travel. By moving in to the new market using its low fare strategy in conjunction with added service options the business can utilize its existing business with presenting complementary goods and services via its website its also recommended as this allows the company to help expand reduce its cost bottom per unit of customer.

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