Ryanair is an Irish airline founded in 1985 to provide scheduled flights between Ireland and the UK. It was initially a full-service and traditional airline with economy and business class seating. However, by the end of 1990 it had accumulated significant losses, despite growth in passenger volumes. This prompted the airline to restructure in the early 1990s to become the first low-fares and no-frills carrier in Europe. The model has successfully steered Ryanair to be one of the largest European airlines by capacity. It is the second largest airline in the UK market with 18% of market share (as of 2016), behind EasyJet. In 2016, it was the market leader in Spain and Italy, controlling 18% and 26% of the market shares, respectively (Ryanair, 2016). This report evaluates Ryanair's strategies including its value and supply chains. It also analyses the opportunities and risks associated with the company's strategies.
2. Strategic Evaluation of Ryanair
The success of any business boils down to the effectiveness of its strategies. Well thought out and executed strategies form the basis for creating, monitoring and measuring success (David, 2013). According to Hitt, Ireland and Hoskisson (2010), it is essential to monitor strategic implementation to ensure that the strategies meet the intended objectives. Ryanair reviewed its strategies in the early 1990s after accumulating losses in the first five years of operation.
2.1 Ryanair's Generic Strategies
Ryanair's primary generic strategy is cost leadership. This strategy (See Appendix 1) involves offering products and services with acceptable quality and features to a broad set of customers at a low price (Haberberg & Rieple, 2008). The objective is to charge the lowest fare in the industry. Cost leadership is based on the premise that lower prices attract more customers and boost the company's revenue (Hill & Jones, 2013). Ryanair is a low-fares airline targeting travellers who are price-sensitive. This has enabled the airline to raise passenger volumes and increase its profitability. In 2016, the company made a net profit of PS1.1 billion, despite reducing its fares by 13% (The Guardian, 2017). Although this strategy results in lower margins, it increases net profits through high volumes of sales.
The airline also uses focus differentiation without premium pricing. Focus differentiation involves providing unique services that serve a narrow market (Mintzberg et al., 2003). Its planes have no frills and no in-flight free foods. Thus, it targets price-sensitive passengers who do not value luxury, as well as regular travellers who do not carry heavy luggage.
2.2 Value and Supply Chain Analysis
See Appendix 2 refers to a series of activities involved in the sourcing, procurement and conversion of materials into goods and services, while the value chain (See Appendix 3) refers to all activities involved in creating or adding value to goods and services to enhance customer value (Haberberg & Rieple, 2008). Supply and value chains are interrelated and critical to the successful implementation of any of the generic strategies. Effective value and supply chains have contributed significantly to the success of Ryanair, which has configured its supply chain to support its cost leadership strategy (Mintzberg, Ahlstrand & Lampel, 2009).
The airline uses several strategies to reduce the cost of inbound logistics while maintaining the quality of inputs. It sources low-cost supplies, including aircraft, and low-cost suppliers to reduce acquisition and operating costs. For instance, it purchases all its aircraft from Boeing due to the significant discounts it has secured from the manufacturer. It uses its high bargaining power to buy modern aircraft at lower costs. The company also enters into agreements with various airports to reduce airport charges. This is important because airport charges are an airline's second largest expense. According to Kendall (2017), Ryanair's airport charge per passenger is lower than that of EasyJet, Vueling and Wizz Air. It also offers high-quality training to all its employees to improve service quality. These strategies positively contribute to customer value by enabling the airline to charge lower fares and provide top quality services (McGee, 2014).
Ryanair has streamlined its operations to reduce costs. For example, it operates with limited crews to reduce labour costs. Nearly half of its crew are contractors who are paid only when their services are needed. Its flights also do not have frills and do not offer passengers free in-flight food. Instead, Ryanair earns ancillary revenue from food sales during flights (Smith, 2017). The airline reduces operating costs by providing point-to-point flights along short-haul routes. It has also improved its website to enhance direct-ticket sales, and does not sell tickets through agents, thus cutting ticketing expenses and improving passenger convenience. Fuel costs are reduced through forward contracts, which protect Ryanair from fluctuations in fuel prices by fixing the purchase price (Gerrard, 2017). It has forward contracts for about 90% of its fuel requirements. Efficient operations are essential for a successful low-cost strategy (Lynch, 2012). The airline cannot sustain low-fares if it does not minimise its operating costs (Wells, 2013). Despite charging low fares, Ryanair has maintained profitability because its operations are efficient.
Ryanair is a service firm; hence, almost all operations are outbound logistics. It has invested in integrated management and control systems to improve the quality of customer service. It also uses low-cost marketing and sales strategies such as the internet.
2.3 Selection of Partners
Strategic partnerships are important since they enable a business to access additional resources and strengthen its weaker aspects (Johnson et al., 2014). Ryanair has several strategic partners offering support services to enable it to function effectively. Its primary selection criterion is cost since it has to operate at the lowest possible cost to sustain the low fares. The airline has outsourced some of the services to minimize its operating costs while maintaining the quality and efficiency of services its customers desire.Its partner selection is also guided by its vision of 'Always Getting Better.' It seeks partners that can help improve its processes for the benefit of its passengers. In 2015, Ryanair entered into a partnership with Vodafone for the provision of communication and IT solutions (Taylor, 2015). Vodafone supports ticketing, check-in, ground crews, in-flight crews and pilots with telephony on the airline's all locations (Taylor, 2015). The package also includes electronic flight bags replacing paper with iPads as well as electronic point of sale support. It would be costly for Ryanair to install and operate since it does not have the capacity. It also chooses partners that help it access new markets and increase its revenue. The airline has entered into negotiations with long-haul airlines such as Norwegian Air to offer long-haul flights for its customers (McGuire, 2017).
2.4 Ryanair's Strategy Clock
Ryanair uses a hybrid of low prices and differentiation, although its principal strategy is low prices. No frills means low prices with few value-adds. Nonetheless, most of Ryanair's customers perceive its services to be of high quality. The market segment where Ryanair falls is associated with low-profit margins but high volumes of sales. As shown in the figure below, Ryanair uses competitive strategies. The low-pricing strategy attracts large sales volumes which compensate the low profit margins. This strategy is supported through cost minimisation initiatives such as fuel hedging, airport agreements, low-cost suppliers, among other measures. Ryanair uses forward contracts to hedge against fluctuations in fuel prices (Powley, 2016). This is important since fuel cost is one of the most significant operating costs of an airline.
3. Opportunities and Risks Inherent in Ryanair's
With the flourishing development tourist industry, the competition among airlines has become fiercer and intensively competitive in aviation industry. It brings along with challenges and opportunity. The theme of 'serving' the customer and customer satisfaction is central to every formulation of the marketing concept (Morris, 1996). Firstly, the scope of target passenger and the range of their affordable price are both extended as people's living standard has constantly improved. On one hand, this provides an opportunity for Ryanair to increase long-haul routes and expand to business passenger market in further development. On the other hand, business passengers require higher service standard, which means Ryanair shall face the long-term contradiction with passengers on service provided, improving passengers' flying experience. Provided that the market is operating competitively, there will always be competitors that offer a higher perceived value for the same price, or the same perceived value for a lower price. The Three Fs (fantasies, feelings, and fun) will contribute to customer value (Morris, 2006).
In addition, it pushes Ryanair to improve its enterprise image among the public. Costs and differentiation have long been considered to be sources of competitiv...
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