RYANAIR CASE STUDY ANALYSIS
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1. Strategy of Ryanair
Overview of the Company
Ryanair started in year 1985 with only 57 staff members and with one 15 seater turboprop plane from the south of east of Ireland to London-Gatwick which carried 5000 passengers on one route (Harrison, 2002). In 1986, inspired from the story of David and Goliath the company go after the big guys for a slice of the action and end up smashing the Aer Lingus or British Airways high fare cartel on the Dublin-London route. The staff increased from mere 57 to 120 staff members and the plane carried for about 82,000 passengers on two routes. In 1989, the company employed 350 staff and their average maximum passengers increased to 600,000. In 1990-1991, the company has 700,000 passengers.
However, despite of the increase of passengers, the company is not so good in managing cost that the company has lose its money. A new management team is brought in to sort it out and re-launch as a “low fares or no frills” airline, closely modelling the Southwest Airlines model in the U.S. And in 1994, Ryanair bought its first Boeing 737 aircraft which carried over 1.5 million passengers. In 1995, Ryanair is the biggest passenger carrier on Dublin-London route, the largest Irish airline on every route being operate and carried 2.25 million passengers in the year (Harrison, 2002).
In 1997, the EU air transport deregulation allowed the airline for the first time to open up new routes to Continental Europe with over 3 million passengers on 18 routes carried. Ryanair launched services to Stockholm, Oslo, Paris and Brussels and took time out to float Ryanair plc on Dublin and NASDAQ Stock exchanges. The company was awarded as Airline of the Year in 1999 by the Irish Air Transport Users Committee.
In 2000, they announced the launch of 10 new European routes for the summer 2000 after much deliberation and watching others burning money. The company has also jump onto the internet with the launch of their new online booking site and in just 3 months the site is taking over 50,000 bookings a week. By 2001 there are more than 1500 employees working for Ryanair and more than 10 million passengers are carried to 56 cities in 13 European countries. The company has opened Frankfurt-Hahn in 2002 as their second continental European base and announce a long term partnership with Boeing which will see the company acquiring up to 150 new Boeing 737-800 series aircraft over an eight year period from 2002-2010.
The booking in their web accounts have increased to 94% which has probably has something to do with opening another 26 routes. In year 2003, the company is characterised by rapid expansion and the start the year by announcing that the company has ordered an additional 100 new Boeing 737-800 series aircraft to facilitate the rapid European growth plans (Binggeli and Pompeo, 2002). They acquired Buss from KL M in April and re-launched 13 buss routes in May. In February they opened their first base in Italy at Milan-Bergamo and launched their Stockholm Skavsta base in Sweden with six new European routes. In all 60 new routes are added throughout 2003 to bring the company a total of 127 routes. By 2004, the company is named as the most popular airline on the web by Google and they launched their 10th and 11th bases in Rome Ciampino and Barcelona Girona and continue to add more routes to their already extensive network. The company has also passed out British Airways to become the UK’s favourite airline in United Kingdom and throughout Europe (Binggeli and Pompeo, 2002).
Critical Success Factors
Although the company had encountered different problems, specifically in line with its cost structures, the company had been able to survive and grow in the marketplace. Ryanair implement different marketing strategy to make the company survive in the competition and to be able to gain competitive position in the airline market. It is said that the company was regarded recently as the most punctual airline between Dublin and London. And because of the strategy of the industry, Ryanair is now recognised as the second largest airline in United Kingdom and Europe’s largest low-fares airline having a network of over 57 routes in 11 countries and served by a fleet of 31 Boeing 737-200 and -800 aircraft with over 1,400 staffs and personnel.
In order to position itself in the marketplace the company continuously concentrates on driving own its costs to offer the lowest fares possible and remain profitable. In addition, Ryanair offer minimum standards of service and very low prices for point-to-point, short haul flights. The goal of Ryanair is to meet the needs of travelling at the lowest price. The Critical Success Factors (CSFs) are as follows in airline industry: the strategic focus of having the lowest prices, being reliable within the marketplace, comfort and service and frequency.
It is noted that low-cost companies concentrate on this first critical success factor by trying to offer the lowest prices. Although Ryanair has eliminated extras such as in-flight meals, advanced seat assignment, free drinks and other services, it still prioritises features which remain important to its target market. Such features include frequent departures, advance reservations, baggage handling and consistent on-time services.
Cost Reduction Strategy
To achieve its goal of having a competitive position in the airline market, Ryanair uses a cost reduction strategy. Such cost reduction strategy relies on five main aspects like fleet commonality, contracting out services, airport charges and route policies, managed staff costs and productivity and managed marketing costs. In terms of fleet commonality, the company used only one kind of plane which limits the cost for staff training, maintenance services and facility of obtaining spares, facility in scheduling aircraft and crew assignment. With their purchase of aircraft Boeing 737, Ryanair has been able to gain capacity and reduces the average age of fleet which means savings on maintenance costs and avoiding the fit of European Union-conform equipment on old feet.
The next factor under the cost reduction strategy of Ryanair is contracting out services. In this manner, aircraft handling, ticketing, handling and other functions are contracted out by Ryanair to third parties. In addition, in order to limit their expenses engine and heavy maintenance are also contracted out whereas the staff of Ryanair carries out routine maintenance.
Another factor for the cost reduction strategy of the company is in terms of airport charges and route policies. Herein, Ryanair has made judicious choice of dealing with secondary and regional airports, where the traffic is not jammed and fees incomparably lower. Since Ryanair, is a true windfall for such airports, the airline company has a bargaining power which enables it getting favourable access fees. In addition, Ryanair provides only a point-to-point service, thus, it has no cost concerning connecting passengers. Moreover, the company pays special focus to on-time departures because it means maximising aircraft utilisation.
Managing staff costs and productivity is another factor used for reducing the cost for Ryanair. In this manner, the company pays its staff on modest salary but has set up a performance related pay structure which urges employees to maximise the number of sectors flown daily. This way, Ryanair both controls productivity and keeps staff costs down. Lastly, managing marketing costs is another factor that makes the company reduces it costs. Ryanair advertises mainly on it website with its logo “Ryanair.com, the Low-Fare Airline”. In addition, it is also advertised in national and regional Irish and UK newspaper, on radio and on television.
Porter’s Generic Strategy
Aside from it cost-reduction strategy, Ryan has also been able to use Porter’s generic strategies to position itself in the marketplace. Accordingly, a company positions itself by leveraging its strengths. Today, more and more people and organization are striving to be recognized in the business arena. With this objective, these organizations had been able to competently and effectively adapt to the situation in the market place by using generic strategies that enhanced their competitiveness. There are five different generic strategies that a business can choose.
These include cost leadership, differentiation, focused cost leadership and integrated cost leadership/differentiation. Each generic strategy helps the company to establish and exploit a competitive advantage within a particular competitive scope (Hitt, Ireland & Hoskisson 2003). By applying these strengths, three generic strategies are resulted: cost leadership, differentiation and focus (Johnson & Scholes 1997). The strategies used by the company include cost leadership, differentiation strategy and focused differentiation.
Cost leadership strategy is based upon a business organising and managing its value-adding activities so as to be the lowest cost producer of a product within an industry (Campbell, 2002). Cost advantage may achieve in terms of how product or services is designed or in terms of its quality. Differentiation strategy is based upon persuading customers that a product is superior to that offered by competitors (Campbell, 2002). The value added by the uniqueness of the product or services may allow the company to charge a premium price for it. However, the danger associated with differentiation may include imitation by competitors and changes in customer tastes.
Focus-differentiation strategy is aimed at a segment of the market fro a product rather than at the whole market or many markets (Campbell, 2002). The successful way using focus strategy is to tailor a broad of product or service development strengths to a relatively narrow market segment that they know very well. The risk may include imitation and changes in the target segments. In the case of Ryanair, these three generic strategies had been utilised. First, the company offers the lowest cost of fare than its competitors in the airline. On the other hand, Ryanair has also become a focuser because it concentrated on a narrow customer segment which include Irish and UK business people or travellers who could not afro to fly major airlines.
The main goal of the company is to provide a no frills service with low fares designed to stimulate demand. At the time, it did not aim to offer the lowest fare on the market. However, the company expanded to continental Europe and had to focus on critical success factors to survive. Nowadays, it can be said that Ryanair has shifted generic strategies to become more of a cost-leader not only in terms of passenger volumes but being the lowest cost operator in the airline industry.
Ryanair has restyled itself and shifted from a full service conventional airline to the first European low fares, no frills carrier. In 1985, it provided scheduled passenger airline services between Ireland and the UK. By the end of 1990 and despite a growth in passenger volume, the company had experienced some trouble and had to dispose of five chief executives, recording losses of IR£20 million. Ryanair had to fight to survive and the new management team, headed by Michael O’Leary, decides to restyle the company on the model of successful American Southwest Airlines.
Indeed, when one considers Porter's original framework, Ryanair's generic strategy used to be unclear: it situated itself somewhere between a cost leader and a focuser, although we can consider it was closer to a focuser. The problem with such niche strategies is that they involve a number of risks, the most obvious being that the niche can get saturated and competitors invade the segment. As long as Ryanair was the only European no frills airline, it did not have to distinctly define its strategic position. It used to try and mix focus and cost leadership and was muzzy about which one it wanted. But as soon as competitors started blooming, it had to decide which strategy
it would stick to. This was the very strategy of Michael O'Leary: he decided to ruthlessly pursue cost leadership. This strategy was a success and by 1997, Ryanair was floated on the Dublin Stock Exchange and on NASDAQ.
Expansion strategy is another factor that enables Ryanair to position itself in the marketplace. The company has been known to be an airline which launches new routes since its operation begins. In addition, under the expansion strategy, company acquires Buzz in February 26, 2003. Such acquisition enables Ryanair to gain immediate access to11 new French regional airports and makes the company the largest airline operating at London Stansted Airport. In addition, the company continues to expand by opening two new Continental European bases with low-fare flights from Milan Bergamo and Stockholm. In the year, 2003, the company has been able to launch 73 new routes and carry over 2 million passengers in one month (July). In addition, the company website has been able to make the company position itself in the global market.
2. Strategic Options
The case study has provided the problems and issues encountered by the Ryanair, in spite of its strategies. One of the problems is in terms of handling customers or target market. In addition, another problem is assuring quality service. In this manner, the strategic option that can be used by the company for satisfying both internal and external customers and marketing environment is the use of total quality management. The industrial competitions in airline industry worldwide are at brisk, making companies in this field across the globe search for extensive strategic management procedures that would keep them in on the business world. The tasks of crafting, implementing, and executing company strategies are the heart and soul of managing business enterprise. A company’s strategy serves as the game plan management and is use to stake out a market position, conduct its operations, attract and please customers, compete successfully, and achieve organizational objectives. Thus, TQM as a strategy is certainly appropriate for such situation.
Total Quality Management is a philosophy of management that is driven by the constant attainment of customer satisfaction though the continuous improvement of all organizational processes (Robbins, 1998). It is a management philosophy that seeks to integrate all organizational functions such as marketing, finance, design, engineering, production, customer service, and others to focus on meeting customer needs and organizational objectives (Hashmi, 2000).
It is known that every organization’s primary purpose is to stay in business, so that it can promote the stability of the community, generate products and services that are useful to customers, and provide setting for the satisfaction and growth of organization members. From this perspective, it can be said that TQM strategy for achieving its normative outcomes is rooted in four interlocked assumptions: quality, people, organizations, and the role of the senior management (Wageman, 1995).
Total Quality Management is a planned procedure for satisfying internal and external customers and suppliers by integrating the business environment, continuous improvement, and come through with advancement, growth, and safeguarding the cycles while changing organisational culture. Furthermore, TQM is an array of management system throughout the organisation, geared to ensure that the organisation to continuously attain or surpass customer requirements. TQM places strong focus on process measurement and controls as means of continuous improvement (McNamara, 1999). Moreover, Total Quality Management is infinitely variable and adaptable. Although originally applied to manufacturing operations, and over the years only used in that area, TQM is now being recognised as a standard management instrument, just as applicable in service and public sector organisations like the airlines industries (Hashmi, 2004).
The Total Quality Management (TQM) philosophy of management is customer-oriented. Hence, the airline operations must be developed in order to steadily deal with the improvement of their operation through the ongoing participation of all employees in problem solving efforts across functional and hierarchical boundaries. TQM incorporates the concepts of service quality, process management, quality assertion, and quality perfection. Consequently, the airline company must be able to control all transformation processes with regards to their operations and services to better satisfy customer needs in the most economical way.
In order to apply the TQM to Ryanair especially to be used in its airline operations and services, the management of the airline company must be able to accept the whole concept of the improvement, which means that all the people of the airline company must agree that there is a need for a total transformation especially for the quality of operations and services that the industry will be offered. Furthermore, the management should be willing to participate to all the improvement, value each and every ones opinion in order to achieve total quality management and provide a total quality operations and services to satisfy their customers. Managers and experts disagree about how to effectively implement Total Quality Management to their organisations.
Eventually, customer satisfaction has always been regarded as the driving force behind quality improvement; others suggest quality management is achieved by internal productivity or cost improvement programs. In other applications, Total Quality Management is regarded as a technique to introduce the context of participative type of management (Schlenker, 1998). Thus, the management should be more straightforward to provide the potential role of applying the Total Quality Management to their operations and services.
In addition, since Total quality management is based on internal or self-control, which is embedded in every element of the work system (technology and people), the employees or the people behind the operation and services being offered to the passengers and customers of the airline must be able to determine the problems beforehand, to anticipate its occurrences.
Pushing problem solving and decision-making down in the Ryanair especially to their operations and services may allow people who do the work to both assess and take remedial action in order to deliver an operation or service that meets the needs of their customer. In applying total quality management to airline operations, they must be able to combine it with the core strategy of the industries; this does not mean that such airline companies must have total changes. It is important that in application of the Total Quality Management to the Ryanair operations and services they must also consider that an appropriate strategy should be used in order to employ a total quality operations and services that would satisfy all clients and customers.