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After five years difficult at its creation, the company had quickly decided
to reshape its strategy. This operation has saved the firm, but has also
created one of the most powerful European airline company, based on a
successful American model. To understand why Ryanair is actually in this
leading position today, it is important to know what the three elements of
its strategy were at the beginning.
Furthermore, its financial strategy has been removed in the early 1990s
due to important loss. Therefore they have decided to cut costs as much
as possible and tried to save money every line of its business. This case
shows that this strategy has been a success because the firm has
promised its investors to distribute €2bn cash by the end of 2007.
• Threat to entry
Ryanair has been the first Airline Company in Europe to adopt a budget
strategy that leads the company to where it is today. Nowadays it appears
very difficult for new entrants to compete with the Irish company on the
same level. First of all, Ryanair has acquired too much experience on the
market and has learned how to compete with its rivals by offering the
most competitive prices. Then, the airline industry requires enormous
investments to start in the business which remains very difficult the
possibility to directly compete by prices. Ryanair still has an economic
advantage over new entrants.
• Threat of substitutes
When appear the desire to travel, customers have got several choices in
their mean of transport. They can decide to take the car, the bus, the boat
or the train depending on the nature of the trip. Here again Ryanair has
got another competitive advantage in term of price/performance ratio.
Plane is faster and now cheaper thanks to Raynair strategy, and can carry
travelers nearly everywhere in Europe. Main advantages of other
transportation methods reside in their flexibility (mainly car and bus) and
their luggage capacity.
Suppliers can have an importance into company’s results. Firstly, they are
just two main plane producers in the world and Ryanair has decided to
purchase only one kind of plane to reduce maintenance costs. That gives
to plane sellers a certain negotiation power. Also, fuel prices have got an
important influence for airline companies. In 2006 fuel costs represented
35 percent of the company operating costs; therefore the company is very
vulnerable to every fuel variations. Furthermore, M. O’Leary has declared
that fuel prices will never be reflected into tickets, so they must have to
handle other operating costs to maintain low prices.
• Competitive rivalry
The CEO can argue that, company’s own poll shows that frequent
customers are mostly satisfied by services that are provided. It is true that
thanks to its idea of online check in, because passengers carry themselves
their luggages and due to their point to point delivering strategy Ryanair
excels in some area. They lost very few luggages and on board services
are not free but have got good quality, and this is what customers expect
from an airline transport.
Like almost all the low-cost companies in Europe Ryanair has followed the
Southwest model, said Doganis (2006, p. 164), but more successfully than
others. Being a leading company is not the definitive goal of Ryanair and
its CEO but being sustainable on a long term is. In its position and to
achieve its objectives, the company as to constantly evolve, inovate and
defend its competitive advantages.
Even if M. O’Leary is not the founder of Ryanair the image of the company
is directly associated to its CEO. It is true that M. O’Leary personality and
his escapade have made him a non common entrepreneur with constant
new ideas and inventions. He has successfully applied a budget airline
strategy in a very cautious European market dominated by big traditional
companies. To arrive at his end M. O’Leary had, and is still, fighting very
hard against competitors but also against governments and airports to
make his project viable. This is mainly why M. O’Leary is virulently linked
to the company and always take extreme positions in favour of this one,
he is still managing the company as a family business despite its
international size. He had created something that did not exist in Europe,
had made this strategy evolve over years, he is probably very proud of
this; but even if he tries to put forward the management team, this one
does not really have a large power. Within this organisation only
stakeolders can give their advice because they succeed to obtain the
distribution of dividends by the end of 2007. The power/interest matrix
that follows shows the involvement of each actors.
Sustainabilty of Ryanair’s strategy in the future
With or without M. O’Leary Ryanair as got to prepare the future and the
strategy to adopt to maintain or even increase its leading position.
Anyway, the company should continue what it does the best, it means low
cost tickets; but also probably complete its strategy with new orientations.
To analyse the future of the company it is necessary to understand where
the market is going and how it will evolve thanks to a PESTEL analyse.
• ppolitical
In the past Ryanair already had some issues with governments, because
those one often protect their national companies and even if the Irish
carrier had succeed to get into a lot of markets it still have some problems
to solve if it wants to become global. The European Union has probably
helped to carry people all over Europe, nevertheless some countries are
still very protective. Furthermore, evolution of security control, mainly to
fight against terrorism lead the company to be very careful and attentive
to future governments’ decisions.
• EEconomic
Airline companies are very attentive to fuel prices level, furthermore when
they are low cost oriented, because those one have a direct impact on the
revenue. During the last oil crisis Ryanair had nevertheless increased its
benefits, mainly because the market was deeply growing; but in the future
the company should be more reactive and more efficient if it does not
want face difficulties. Fotunately, the company, thanks to its results, has
got cash reserve that can permit to face such a crisis or even an economic
downturn.
• SSocial
Travel sector is still an increasing market, where low cost airlines are
largely represented, this is mainly due to international students or more
generaly young persons that want to travel at the lowest price. But in
Europe population is ageing and retired people represent an attractive
market for the future, and the company can for example plan to organise
all inclusive low cost travels for these persons.
• TTechnological
• EEnvironmental
Environmental warming is one of the biggest issue for the future and
transport industry is very criticized for its ontribution to environmental
pollution. Ryanair can play a leading role in this fight, because of its very
young fleet they can outline that they are less fuel consuming and less
noise polluting; thanks to that they have the possiblity to attract
customers that want to travel in a more “environmental friendly” way.
• LLegal
Conclusion
But as described by McGee et al. (2005, p. 210-1) a cost leadership
strategy can also get some risks, because the main weakness of Ryanair is
its image and its focus European market. If another company is able in the
future to provide the same sevices but give a better image to customers,
Ryanair will may lose its market share.