Ryanair’s success thus far.

Ryanair is an airline company that operates in a very competitive

European market, even if the Irish company is actually successful and has
been describe as “the most profitable airline company” in 2006 by Air
Transport World magazine, it has been quite difficult at the beginning and
took few years to reach the actual effective model.

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.

To finish, about Ryanair investment and resource strategy the company

constantly purchases new planes in order to get less consuming and
environmentally more respectful ones but also to improve their volume
capacity in term of passenger seats. As well they try to sell constant new
products or services on board, if some are successful and represent a
large amount of ancillary revenues; some others have been directly gave
up..

It is also possible to understand why Ryanair has been so successful thus

far thanks to a Porter’s five force framework.

• 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.

• The power of buyers

The airline market is very competitive with multiple choices offered to

consumers. For various reasons Ryanair is perceived as the worst travel
company according to Worldtrip Advisor enquiry, nevertheless its market
share and performances have continuously increased over last years. The
company explains these performances saying that customers choose it
because of various advantages such as few lost baggage, punctuality and
first of all for the price. Customers have got a very small bargaining power
because company’s defence is to say that they have the choice but they
will not find best prices elsewhere.

• The power of suppliers

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

Ryanair is situated in a market with various competitors, and the most

important is easyJet. Those carriers are just competing by price but where
Ryanair is still one ahead is due to its European radiation. The company
does not only serve one country but carry customers all over Europe. This
permits to carry much more passengers and also to take over heavy
investments faster; it means that the company can compete by prices
faster and more efficiently than others. Ryanair has got a strong
experience of the sector and its financial power makes it very difficult for
other carriers to compete with it.
The Irish carrier had successfully adapted an existing model to the
European market, and has created one of the most profitable airline
company. Is Ryanair model will be viable for the future, or will customers’
perception force this one to change its image?

How strategy of “no frills” meets customers’ expectation?

When in 1990 the company has decided to change its strategy due to its
important losses, the creator M. Ryan had the idea to explore a new
market: the budget airline market. That is how M. O’Leary, the actual CEO
of the company, went to Texas to study Southwest company strategy. But
implement a low cost strategy into a market and furthermore in Europe is
not an easy thing, and M. O’Leary has resumed that anybody can adopt a
low cost strategy but make profits and being sustainable is another
challenge.

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.

How well is it delivering its strategy in comparison with

competitors?
The airline market and furthermore the buget sector is at the end of its
growth in Europe over its life cycle and is starting its shake-out phase. Low
cost carriers are still increasing their market share, they won three points
between 2005 and 2006 from fifteen to eighteen percent of the market
share, which still represents an interesting growth. Nevertheless,
competitors are more and more numerous and Ryanair has to fight to
keep its competitive advantage.

On another way, Ryanair is very efficient about its staff management,

because on board workers have to be able to fill multiple tasks such as on
board check in, customers’ services, product sellers, clean the plane and
verify all the on board security. This performing staff permits to realise
several economies of scale and the system of commission payment asks
them a complete involvement. For Ryanair, staff is a source of economy
but also of revenue.
With those trials nearly everywhere where they are present, they are
fighting against biggest airports to reduce taxes they consider unfair, but
also against other companies to defend their interest or even against
States themselves when they think competition is unfair.

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.

Evaluation of the strategic leadership of Michael O’Leary

Initially the company has been created by M. Tony Ryan and was a classic
airline company only dedicated to travels between Ireland and United
Kingdom. M. Michael O’Leary just arrived in 1988 when the company was
still losing money, but he is the one that went to Texas to take the leaf out
of Southwest strategy. Thanks to that he took the leadership of the new
management team and that completely changed the spirit and the
behaviour of the company.

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

Technologically airplanes’ producers are always improving their skills in

term of fuel consumption and security. Ryanair enjoys these evolutions
because it gets one of the youngest fleet on the market. If these
investments are very heavy at the beginning they are efficient on the long
term due to a low fuel burn and less maintenance. This strategy must be
maintain for the future, to avoid reliability issues.

• 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

For an international company it is very important to have strong legal

competencies everywhere the company is present. Furthermore, countries
attempt to protect local companies and if Ryanair wants to continue to
extend its radiation all over Europe it should fight on court, like in France
for example where it has to fight against Air France privileges. It is also
important to underline the difficulty of mergers in the sector due to
protectionism, this is why the company has not bought Aerlingus but it
also has been the case for Air France that inteded to buy Alitalia. This can
probably be an obstacle to company’s future growth.

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.

If on an internal way Ryanair is able to provide new services that bring

ancillary revenues, the future is probably more focused on a external way.
If the company did not succeed to buy Aerlingus, it appears that its desire
is now to apply its budget orientation for long haul flights. This can be by
its own or thanks to an external growth even if the operation will probably
be harder than the buyout of Buzz in 2003. As Dagonis (2006, p.4-5)
explained, the airline industry is very cyclical and marginal, crisis in this
sector happens almost once in every decade, and Ryanair must have to
reinforce its position before the next one occurs.
 Bibliography
Johnson, G., Scholes, K. and Whittington, R. (2008), Exploring Corporate
Strategy: Text and cases, 8th edition, Pearson Education Limited.

McGee, J., Thomas, H. and Wilson, D. (2005), Strategy, Analysis and

Practice, University of Warwick.

Creaton, S. (2007), Ryanair, The full story of the controversial low-cost

airline, CPI Bookmarque.

Dagonis, R. (2006), The Airline Business, Routledge, London.

Porter, M. (1980), Competitive Strategy. Techniques for analyzing

industries and competitors, The Free Press, New York.