Airline Strategic Planning During Economic Crisis

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Nothing has become a household name as the news of the economic downturn. Vocabularies in the money market which at some point were unfamiliar to many people are now as common as the alphabet. Business close-ups and mergers are increasing on day to day basis. In Britain for example, in the year 2008, pubs were reported to be closing up at a rate of 37 per month thanks to the economic crunch. In precision, every business is feeling the weight of the economic hard times. Consequently, most business organizations are putting in place strategic plans to help them not only to keep afloat but also to stand up and above their competitors. Every organization has put in place measures to ensure that their expenditures are minimized to the lowest point possible to ensure that they reduce the magnitude to which they cut into the profit margin (caterersearch.com).

Among the most affected industries are the airline industries. Several of them have been forced to close down due to their inability to offer services anymore as a result of too many expenses and the emergence of competition from low-cost airlines that are consequently eating into their customer base. Unlike the United States where ailing organizations got a bailout of $15 billion from the Bush administration, their European counterparts had to go it all alone to pull themselves out of the economic mess. Among the most conspicuous casualties was the Canada 3000. Operating as the second-largest courier service in Canada, the company, at a very short period was forced to close down with its jets grounded and eventually filed for bankruptcy. (Globe and Mail, 2001) other casualties included Sabena and Swissair. The once magnificent British airways were forced onto their knees almost succumbing to the pressure but later rescued by appropriate strategic plans under the management of CEO Rod Eddington. What are the main strategies in the modern airline industry and how have they been implemented in the recent past? In addition, have they withstood the test of time or failed miserably?

Strategy can be defined as “the direction and scope of an organization over the long term, which fulfills advantage in a changing environment through its configuration of resources to fulfil stakeholder expectations.”(Johnson et al, 2005) the most important clause being the long term aim of the organization. Three important elements play a role n ensuring the achievement of this objective of a strategy. These are the external environment of the organization, the resources of the organization and the organization’s objectives. It is through the operations of the organization that its resources can be sustained. With good control and maintenance of the resources, the organization can easily manage the external environment and thus manage to meet the objectives of the stakeholders. Therefore, operational management can impact greatly the success of any organization (Mintzberg, 1987).

The key issues in any strategy are its functionality, its consistency, and its contribution to the competition platform. In terms of the function, the strategy has to contribute positively to the objectives of the organization in terms of resource management, appropriate and affordable technology, and make use of the available skills. Apart from its function, the strategy has to be consistent between the different decisions of the different functional operations. Finally, the strategy should be able to put in place operations that will give priorities to enable the organization to have a competitive edge over others through highlighting opportunities and providing operational capabilities that are sustainable into the future (Mintzberg, 1987).

In recent times, the world has had a rough financial road. Several institutions succumbed to the phenomena but others, due to their strategic plans were able to stay on top. Ryan air was one of the institutions that were able to increase its customer base during this time of the credit crunch. The organization demonstrated a steady growth from inception but showed a great leap after they started to implement several of their strategies including the use of technology from the year 2000. With 5,358,000 passengers in 1999, Ryan air grew up to a passenger base of 30,946,000 in 2006. this is a notable leap owing to the fact that most of the seasoned airline companies were experiencing hard times with some of them collapsing. A little analysis of the strategic process can give the show the key elements that gave Ryan air a competitive edge and thus kept it not just afloat, but vibrant during economic hard times. (Ryanair.com)

According to Slack et al, there are five operations performance objectives. Cost, quality, speed, dependability, and flexibility are the operations performance objectives that Slack et al put forward. Although all these play a role in the long-term well-being of an organization’s strategy, a deep analysis is demanded before making the final decision. Since an organization can not easily achieve all these five objectives simultaneously, by making the operational decisions, the organization has to analyze the customer demand before resorting to which operational function objective has to be given priority. It is also crucial to understand that the success of a strategic plan of an organization does not strictly base on the excellent performance of all the five operational performance objectives but on how well the customers will value the competitive factor that the organization has put its concentration on in its process of strategizing. This is why Skinner came up with the concept of ‘Trade-offs’. He explained that the identification of a single operational task and setting up clear competitive priorities was all that the organizations needed to attain success in their strategy (Mintzberg, 1987).

In this respect, Ryan air’s success story has its roots in basing its strategies on the cost. This meant that all the decisions made by the organization had to have their roots sin in terms of cost. This included all aspects and stages of travel starting from before flight services to after flight services including the in flight services. It is here that the role of technology is viewed as very vital in the contribution to the success of Ryan air. Through the decision to cut off the expense of middlemen commissions by starting to sell tickets directly to customers, Ryan air was able to witness a big influx of customers and thus maintained a raising graph in terms of customer base. This was done through the use of the Internet to sell their tickets. In 2000, Ryanair launched a website. This led to an influx of passengers that after only three months, it was clear that the airline was receiving 50,000 bookings every week. This made it the only source that was providing affordable fares online in all of Europe. This did not only market the airline but it also saved the company a lot of money that could have otherwise gone to the agents in terms of commissions. (Ryanair.com)

In addition to this, the airline started a program of ticketless traveling. Through this concept, customers were able to travel without tickets as their booking information and all other travel details were posted to them. This reduced the cost in terms of reduction of distribution, issuing, and preparation of the millions of receipts that were required. This did not only convenience the customers but also it gave the employees easier work as there was no more checking of millions of receipts and reconciling a million receipts. This made work easier and faster (Ryanair.com).

Ryan air also majored in its operational performance decisions on cost. Most of the performance activities had their sole objective as cost-cutting. In the front line of success, the organization had its priority in ensuring that its activities were streamlined. This was aimed at achieving efficiency. As a result, they opted to use smaller and less congested airports and secondary airports. This decision increased Ryan air’s operations as the turnarounds were made easier due to the less congestion in the secondary airports as a result of fewer air movements. Also, these airports reduce the cost of production as their landing charges are less compared to major airports in large cities. The quick turnarounds make good use of the plane as most of the time it is in the air. As compared to the British airways, Ryan air was able to make eight trips where British airways were making six (Ryanair.com).

In addition to the choice of airports, Ryan air opted to trade off all other luxuries that could increase the cost of production to dwell on the basics of their core business which was transportation. As a result, they ensured that transportation of their customers and goods was given priority. Their sole priority was arriving on time and providing the lowest possible airfare. True to the word, Ryan air was able to maintain a clean record in terms of on-time arrivals. They also were among the cheapest short-haul airline service. At some point, their prices went to as low as one pound. In addition to this, they did away with all onboard free drinks and entertainment. This to them was an increase in production and the interference of efficiency. Instead, they offered the same products but the passengers had to buy them. This increased their revenue and reduced time-wasting bureaucracies attached to the provision of free entertainment and drinks. (Velocci, 2002)

Ryan air also maintained the same class layout as the plane. Unlike other aircraft that had different compartments for different classes, Ryan air was not involved in these delicacies as this would interfere with their efficiency. There is no special treatment for special people and thus no bureaucracies, in turn, giving room to timely departures. In addition, the lack of compartments for the different classes leaves much space and thus the plane accommodates more people resulting in generating more income. (Shaw, 2007)

Ryan air, to streamline its performances also engaged in simple “point to point “flights. Most of their flights flew straight to their destinations avoiding connections. Also, Ryan air was not engaged in global airline alliances. This was a strategy that improved their punctuality, less cancellation, and less luggage loss record. Their straight-to-the-point flights reduced the inconveniences that come as a result of connection hitch-ups. This improved efficiency made them attract more customers because of their good services which reduced cancellations, and luggage losses. (ryanair.com).

The cost of operations can affect the profit margin in a great way. A good strategy should involve the management of the resources both physical and human resources. In this line, Ryan air has maintained a single type of aircraft. With years of experience as a result of using the same type, the organization has thus created an experienced workforce that will prove important in the maintenance and upkeep of the planes. In 1993, Ryan air made their first decision to replace the tired and old BAC1-11 jets with fewer Boeing 737 jets which were to be purchased directly from Boeing. In 1994, Ryan air buys a fleet of six Boeing which were being operated previously by Britannia, a UK charter company. In 1996, the company has accumulated a total of 12* operational 737 Boeings. In 2006, Ryan has retired all 737 Boeing 200s and they registered their hundredth Boeing 737-800s. With such a trend of identical models, the experience of handling them becomes undoubtedly improved. The human resource base becomes more experienced and thus an exceptional efficiency (ryanair.com).

A point to note is that not all scholars believe in Skinner’s trade-offices concept. In a different school of thought, an organization can make a good and successful strategic program without trading on other operational performance objectives. Ferdows and De Meyer (1990) argue that there can be cumulative operational excellence as a result of mutual enhancement of operational capabilities. Through their ‘sand cone’ model, Ferdows and de Meyer argue that excellence in one operational capability can lead to the excellence of another operational capability, and in turn, they build on one another. As result, the outcome is an organization’s excellence in all the operational capabilities and thus giving it a competitive edge over the other players n the industry. It therefore should be the ultimate goal of all organizations to attain the 4^th stage (Mintzberg, 1987).

According to their theory, at the base of the pyramid is quality. With good management of quality, dependability will take the second phase. The effort to enhance flexibility comes third while the organization continues to maintain the efforts to excel in quality and dependability. Finally, the cost is the final phase and the ultimate goal for any organization. Cost in this case is the ability of the organization to produce at the lowest possible cost. Quality is the capability to produce the products at par with the specifications and with the minimum possible errors. Dependability is the aspect of being in the position to deliver to the customers without faltering in the promises made concerning the products and services. Finally, flexibility is the aspect of being in the position to change the volume and time of production and the capability of changing the mix of the varying services and products being offered by the organization. Flexibility is also the aspect of the organization’s being in the position to invent and bring to the market new products and services (Mintzberg, 1987).

Ryan air’s case study can also show some aspects of this theory. With most of the airlines ailing from bad economic times, Ryan air was in the position to provide quality services in terms of time consciousness, quickness and simplicity. (Slack et al, 2004) with its website offering booking services that were so quick and simple, customers felt attracted to the airline as a result of their quality. Being the first airline with a website to providing the lowest fares in Europe, and having the recommendation of the least canceled flights and least lost bags including a record in their punctuality. The company’s effort to excel in quality, the base of the pyramid of excellence was evident. Their HR strategy was also favorable in the effort to ensure the perfect delivery of services. Their hiring was typically based on ability. Its workforce was made up of highly competent people. In addition to hiring, the supervisors had the obligation to provide mentorship to the newly employed workers with their likely strengths. (Soteriou and Chase, 1998)

Second to quality according to Ferdows and Meyer is dependability. Being the ability to deliver without faltering on the promises, Ryan air exhibit an effort to deliver as per their promise to the clientele. This is evident in their offered services. According to HRM strategy, Ryan air had its priority as customer satisfaction through the provision of basic requirement which is the provision of transport from one point to the other. The ultimate goal for Ryan air was to get its customers safely from one point to another, in good time, and at the lowest fares. the testimony of their dependability can be seen in their unfaltering provision of services by being the airline with the least number of cancellations, best in punctuality, and least lost luggage. (Soteriou and Chase, 1998)

After ensuring that adequate effort has been put in place to attain dependability, the third step according to Ferdows and de Meyer is aiming for excellence in flexibility. Being in the position to Changing the volume and time of production is what they term as flexibility. Ryan air has had an excellent time in this aspect. This is what made them excel in their campaign of superiority. It is evident that from its inception, Ryan air has had a steady increase in the customer base without failing to cater for them. From the year 2000 after the launching of their website, Ryan air experienced an increase of about five million passengers every year. This did not cause them a problem in the performance as they catered for their ever-increasing number of passengers by purchasing more 737 Boeings to cater to the increasing volume of their clientele. (ryanair.com) this shows their ability to change their volume and time of production. That according to Ferdows and de Meyer is excellence in terms of flexibility. Flexibility is also considered as the ability to change the mix of the different varieties of the services and products being offered. This can also be experienced in the case of Ryan air’s strategic endeavor to achieve excellence. In 2001, Ryan air chooses Brussels Charleroi Airport as their first continental base in Europe. Most of the competitors believe that the choice of Charleroi is poor as people would not use such a place. In addition, they predict that low fares in Brussels could not make it but in August, more than one million passengers use Ryan air. (ryanair.com) Flexibility also entails innovativeness and the ability to bring to the market new products and services. Ryan air was the first airline industry to provide a low-fare website all over Europe. It is the airline that provided a no-free service on board. This played an important role in the streamlining of their services and thus improved their efficiency and helped generate more revenue. It is also Ryan air that starts their same class flights. Unlike other airlines that provided different classes of passengers, Ryan air offered only one class on board. This helped create more space in the planes in terms of avoiding the compartments and also contributed to the efficiency of the services offered onboard (ryanair.com).

The decision by Ryan air to offer low fares to its clientele gave it an edge over its competitors like British Airways, Lufthansa, and Airfrance. The existing external environment needed such a strategy that had its foundation on cost. British Airways’ use of supersonic concords for high-class passengers had suffered a drawback after the twin tower terrorism attack that involved the same model of aircraft. Most of the frequent users of this plane perished. In addition, it is the same group of people that compelled others to use this type of plane, and therefore after perishing, the airline that provided such type of service suffered a setback. Most of the passengers developed a fear for this type of aircraft as they perceived that it was the target for the terrorists. this issue of terrorism gave an upper hand to Ryan air which was providing low-cost fares and thus terrorists could not target this group of people (Caves, R, 1962).

In addition to the terrorism aspect, the economic conditions as a result of the credit crunch had drastically changed the expenditure decisions of most European people. They had become more careful in their expenditure decision-making. Their budgets had been cut to cater to more important things as a result of inflation. Therefore, the provision of low-cost fares by Ryan air was the absolute need for the people. Economic had times had come hand in hand with escalating oil prices. While other airlines were rushing to increase their already high fares to cater for the fuel costs, Ryan air announced a guaranteed no fuel surcharge on fares. This was a clear indication that Ryan air had achieved the fourth stage of cost according to the sand cone model (Ryanair.com).

In conclusion, the economic crisis which resulted from the credit crunch could adversely affect the airline industry. It is only the correct analysis of the decision-makers in relation to their customer needs that can rescue the organization and keep it afloat. Although the concept of trade-offs can prove worthwhile, the cumulative concept by Ferdows and de Meyer looks more reliable as shown from the Ryan air case. Excellence can be achieved in all the operations performance objectives cumulatively and thus give the company a more successful general outlook. Ryan air thus proves that it is possible to excel in all the operations performance objectives as they have excelled in all four stages.

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Airline Strategic Planning During Economic Crisis

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