The Ryan family founded Ryanair in 1985 and it is the first budget airline in Europe. In this case study I will analyze the external and internal factors in order to identify strategic issues that Ryanair and other companies from the airline industry are facing. My role will also demand me to make a strategic analysis of the company, industry and the environment and I am also required to identify future trends and to provide information on how future trends may impact the airline industry and Ryanair Company.
“To firmly establish itself as Europe’s low fare, schedule passenger airline through continued improvements and expanded offerings of its low fare service”.(Ryanair, n.d).
Ryanair, was founded in 1985 by Christopher Ryan, Liam Lonergan (the Irish Travel Agent, Club Travel) and the well-known Irish businessman Tony Ryan, founder of Guinness Peat Aviation. The airline debuted with a 14-seat Embraer with the Bandeirante turboprop, which flew between Waterford and London Gatwick Airport, in order to break the London-Irish duopoly, the only ones that launched flights at that time, owned by British Airways and Aer Lingus.
Among low cost airlines, Ryanair, the largest budget airline in Europe (Evans, Campbell, & Stonehouse, 2003, p.375), is one of the most successful companies. Since its first flight in 1985, Ryanair has experienced several strategic modifications.
This case study is divided into two parts: the first half will examine Ryanair’s environment and its strategic successful rate, and the second part will identify the strategies Ryanair has chosen with regards of the analyses done previously. The focus is on the period between 2006 and the present day. Some important moments for Ryanair are also highlighted.
2. Strategic position analyses
In the second part of this case study, analytical tools are used to analyse the environment and capability of the Ryanair Company. In the first part, the macro and immediate environment are identified through PESTEL and Porter’s framework analyses; in the second part, cost efficiency and a SWOT analysis are shown to find out Ryanair’s organization capability.
2.1 Environment analysis
2.1.1 PESTEL analysis
Finlay (2000) sees the “remote environment” as essential to business that it is “a model of those elements in the environment” that may disturb the business’s decision making but it is beyond the influence of the business. As to the macro-environment of the company, a PESTEL scheme is utilized to index the influences from the outside. Johnson et al. (2008, p.55) has quoted that the scheme will be contained with six main elements, namely Political, Economic, Social, Technological, Environmental and Legal. Among those factors this budget airline is more likely to be influenced by some “key drivers”(Johnson, Scholes, & Whittington, 2008, p.56).
For Ryanair, these environmental factors have a bigger impact on the strategy the organization made, such as the government regulations, environmental concerns, and as the low-cost is the key success secret of Ryanair, the company is also sensitive to the fuel price changes. Figuring out the fact that the no-frills had been stuck in “soaring fuel cost” and “impending EU Emissions measures” embarrassment, Mintel (2007) questioned whether they should keep prices low.
Political problems are concerned with the role of government, and this aspect is one of the key drivers Ryanair should take into attention. The British increasing air passenger transport for short-haul flights and similar tax in Ireland is anticipated to cause the number of passengers fall (BBC, 2009). The air passenger duty, set to rise in November2009 and 2010 respectively, has become another main concern of Ryanair (Mintel, 2009). 2005’s new EU regulation of passenger coverage for delays or cancellations is also expected to make Ryanair allocate huge spendings. Box and Byus (2005) stated that as a non-union operation company basednin Dublin, the trade union pressure from the local government was rather big.
The company has to bring prices down to attract more passengers; at the same time higher costs trim its profit from 2008, especially since the recession period. Ryanair has been constantly calling on government to make sensible reduction in duty collect on airline including tourist taxes (BBC, 2009). Security concerns have dramatically increased since September 11th, 2001 attack. The strict and complicated check-in process is the other way around with Ryanair’s quick check-in strategy, aiming to bring costs lower.
Economic aspects are also amid the key drivers for Ryanair. Being a low cost airline, the susceptibility to cost factors like fuel prices, exchange rates, puts Ryanair in the situation of economic challenges when making strategies. As shown in the case (O’Higgins, 2008), Ryanair’s fuel costs “represented 35 percent of operating costs in 2006”, while the company promised not to pass the fuel surcharges onto passengers, the pressure of cost savings has to be sustained by other spheres of operation within the organisation. The firm said in BBC news that high fuel prices had been a “drag on profitability”(BBC, 2006). In addition, the turbulence and instability of fuel prices has been a problem since early. During the year of 2008 and 2009, Ryanair has engaged in the hedging, however, the poor use of this strategy is said to cause £92 million in the last quarter of 2008 (Robertson, 2009). Moreover, the fact that the denomination of oil price is in US dollars, exchange rate variations, especially during the depreciation period of UK Sterling in 2009 and 2010, will no doubt compound the risk for Ryanair. Mintel (2009) statistics shows the third quarter of 2008 witnessed the hit of recession of budget airline. It seems that Ryanair has tried to find ways to cut staff costs. I have noticed websites feedbacks from the staffs that shows complain about the poor working environment and low average pay.
As to the Social aspects, the continuous increasing travel lifestyle and international student trips are two main ones. Mintel (2010) finds out the short break abroad has been a trend for UK people. Ryanair has added opportunities to those with tight budget to flight abroad, and its low prices and different destinations across Europe have made itself an approved choice for international students, and even home country students also like to choose it for short trips.
A research shows about 800,000 UK households have a second home abroad in 2006, achieving an increase of 45% compared to June2004 (Kirby, 2006). However, the recession also effects people’s travel lifestyle: Mintel also finds fewer trips was taken in 2009 than previous years, while about three quarters (71%) claim to cut down spending, Ryanair had planned to ground numbers of its aircraft in early 2009 due to passenger number fall and fuel prices (Bond, 2008)