Strategic Analysis of the UK Low-Cost Airline With Focus on Ryanair

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Table of Contents

Introduction
Porters Five Forces Analysis of the UK Low-cost Airline Industry
UK Low-cost Airline Industry PESTEL Analysis
Strategic Analysis of the UK Low-cost Airline Ryanair
Ryanair SWOT Analysis
Ryanair Value Chain Networks
Strategic Capabilities
Ryanair’s Future
Conclusion
Reference List

Introduction

This report provides a detailed strategic analysis of the UK low-cost airline industry. It focuses on Ryanair Company. Moreover, it evaluates Ryanair’s current strategy and position in the industry, and how it is managing its strategy to stay competitive in the industry. To analyze the general UK low-cost airline industry, porter’s five forces analysis and PESTEL analysis models were used to study the market environment. On the other hand, SWOT analysis was used to analyze the internal environment of Ryanair Company.

Porters Five Forces Analysis of the UK Low-cost Airline Industry

Bargaining power of the suppliers

The main suppliers of commercial planes include Boeing and Airbus Companies. However, new suppliers such as comic and others from china have emerged. This provides the UK low-cost airlines with a variety of suppliers from where to buy spare parts and commercial aircrafts (Porter, 1980). This gives Ryanair, easy Jet, Go and Buzz more bargaining power. In addition, high levels of competition among airports increases the airlines’ bargaining power in their business relationships with the airports (Hubbard, Rice & Beamish, 2008).

Customer’s Bargaining Power

Customers in the UK low-cost airline industry enjoy high bargaining power. This is because most airline companies are aiming at decreasing their flight fare due to stiff competition from aggressive competitors.

Customers have relatively high bargaining power because they can switch between airlines without incurring additional costs (Porter, 1980). Customers enjoy support from Civil Aviation Authority making them have a commanding voice in the industry.

Threat of Substitute Products

Substitute products that compete with the airline industry in general include railway networks, sea transport, coach transport, and car rental firms. Those substitutes are insignificant for UK low-cost airlines because their tickets cost more than the airlines’ flight tickets. Moreover, the UK low-cost airlines’ time and cost advantage outweighs the flexibility and comfort of cars and trains travel. In addition, cars and trains cannot form an alternative means to air travel on international routes due to long distances (Mirko, 2004).

Threat of New Entrants

Threat of new entrants is low because of the existing potential barriers associated with market entry. The barriers include economies of scale, high capital requirements, and access to distribution channels/airports. Competition for airports makes it difficult for new players to find suitable airports for landing and take-off (Dobruszkes, 2006).

Existing Competition

Easy Jet, British Airways, Air Berlin, Buzz, and Go, MyTravellite, and Ryanair are the major players in the industry and they rival each other. In fact, easy Jet overtook Ryanair as the leader in the industry in 2002 (Porter, 1980).

UK Low-cost Airline Industry PESTEL Analysis

Political Environment

Has low impact on low-cost airlines within Europe due to political stability.
Outside of Europe especially in Middle East, political factors have high impact due to political unrest and instability.
EU abolishment of duty-free sales provides opportunities for low-cost airlines’ operation.

Economic Environment

Has low impact on low-cost airlines’ business performance due to economic stability in Europe.
Outside of Europe it has high impact on low-cost airlines’ performance due to instable economy and underdeveloped market.
Likelihood of fluctuations of the oil prices, environmental restrictions, and congestion would affect profitability.
High insurance and security costs due to high risks of terrorism.
Introduction of single currency in Europe provides a bright future for low-cost airlines.

Social Environment

Has high impact on the industry due to changing consumer demographics and consumer preferences.
Increase in the ageing population who has more disposable income to spend on air travel (Dobruszkes, 2006).
Increase in travelling lifestyles and business travelling increases the customer base, especially budget conscious customers.

Technological Environment

Advanced wireless technology infrastructure enhances internet marketing, and satellite televisions.
It enables the airlines to offer online booking and advertisements.
This makes their website one of the most used websites (Lawton, 1999).

Legal environment

Low-cost airline industry has few legal wrangles amongst themselves. This makes it to incur a lot of legal expenses.
Legal issues make the management to divert its attention from the business to courts. This negatively impacts the performance and reputation of the companies (Lawton, 1999).

Strategic Analysis of the UK Low-cost Airline Ryanair

Ryanair is an Irish ultra low-cost airline that was founded in 1985 by Christopher Ryan, Liam Lonergan and Tony Ryan. It was named after Tony Ryan. Ryanair mainly operates between London stansted and Dublin airports. The founders of Ryanair established it with an intention of offering low-cost services to its customers between London and Ireland (Graham & Shaw, 2008).

The UK and the Ireland governments signed an agreement that allowed free traffic between them after Ryanair airline was founded (Graham, & Shaw, 2008). Therefore, it began its operation with a fourteen seater aircraft that operated between Waterford and Gatwick airports.

The company gained customer loyalty quickly because of its low-cost fare prices throughout its routes. As a result, it acquired another two 24 seater aircrafts to meet its operational requirements. By 1987, Ryanair had overtaken older airlines in the UK airline industry. Therefore, it became the leader in the industry being the biggest airline offering low-cost fare in the whole of Europe. Its fare was 20% less than that of its competitors (Dobruszkes, 2006).

Ryanair remained the leader in the industry until 2002 when Easy Jet, overtook it and snatched the leadership position that Ryanair had enjoyed for many years. Consequently, Michael O’ Leary the CEO of Ryanair and his managerial staff decided to formulate and adopt competitive strategies to bring back the airline to the top while still maintaining its low-cost fare price business strategy (Graham, & Shaw, 2008).

Ryanair SWOT Analysis

Strengths

Large route network

This makes Ryanair to pre-empt potential competitors on the same route (Witcher & Chau, 2010).

Brand name

This enables it to take leadership in the industry and gain customer loyalty.

Strong Financial base/Resource

It enables it to defend its routes
It enables Ryanair to operate under lower-than-average load factors for prolonged time, but still make profits.

Unscheduled Revenues

Ryanair generates additional revenue from other activities such as on board entertainment and sales, and outside aircraft sponsorship.
It has also managed to achieve revenue and profits by venturing into low-cost enterprises based on commission.

Cost Leadership

Ryanair is the leader in cost leadership due to its ability to cut costs across the organization.
The airline has a large market share that enables it to make profits despite offering low-cost fare prices.

Weaknesses

Cost structure

Old aircrafts consume a lot of fuel and entail high maintenance costs.
Currency fluctuations make oil prices unpredictable exposing Ryanair to the risk of losses.
The aircrafts are not utilized maximally because they operate fewer hours as compared to competitors (Lawton, 1999).

Poor customer service

Ryanair does not care so much about its customer care services.
Majority of the customers are not satisfied with the services, but only get attracted to Ryanair because of low-fare prices.

Reputation

Ryanair has poor reputation because it has antagonized many constituents such as trade unions. This negatively impacts on the airline’s image in the market place.

Opportunities

Sell of ancillary products

It increases revenue generation to strengthen its financial base and improve profitability.

Popular website

that can be used to sell complete tour packages
Can be used to advertise other products to gain extra income.

Threats

Oil price fluctuation

The fluctuation of oil prices threatens the profitability of the airline because Ryanair offers lower average fare prices.

EU Legislation

Changes in the EU legislation policies concerning airport fees may affect Ryanair operation.
Change of contract negotiation policy for the airline and publicly owned airports would increase the airline’s operating costs (Walsh, 2011).

Air Disaster

Air accident is a catastrophe that threatens airline service delivery.
Aircraft accidents could potentially affect the airline’s business.

Ryanair Value Chain Networks

The airline’s value chain involves its good relationship with the UK public airports and its suppliers. This has enabled it to deliver its low-cost business strategy. Its ability to make and manage strong relationships with various suppliers such as Boeing, comic, and food/beverages ensures that goods are received on time and are of good quality to add value throughout its value chain (Lawton, 1999).

Ryanair’s strong relationship with Boeing enables it to obtain spare parts and maintenance services at affordable costs. This enables it to continue offering low-cost fare prices to its passengers. Furthermore, its workforce is well-trained to provide quality services to its customers.

Strategic Capabilities

The major business strategy that Ryanair has used over the years is the low-cost business model. This strategy has helped Ryanair to gain competitiveness and leadership in the UK airline industry. Ryanair has an advantage over its competitors because they are adjusting their prices to meet the market demand i.e. the customers demand for low flight fare. Moreover, Ryanair has qualified workforce that ensures that customers receive high quality services in the market (Gillen & Lall, 2004).

Ryanair’s Future

Ryanair should keep on pursuing cost leadership strategy because has helped it to stay competitive over the years. Moreover, it should continue to block its competitors from entering its operation routes. It should study its competitors’ growth patterns to distabilise them as in the case of GO in 2001 on Dublin-Scotland route (Lawton, 1999).

Ryanair should understand its customers especially the new clientele. Moreover, it should consider the customers’ needs as it continues to expand its operations throughout Europe. Ryanair should focus on opening branches in 10 new EU member countries to expand its operation.

Opening branches in new EU members is an opportunity for Ryanair to seize, because the airline markets have been regulated and the flight fare is very high to new EU member nations. Therefore, there is need for low-cost airline. However, Ryanair should balance it’s overly rapid growth to be able to penetrate the new markets with success (Muller, 2011).

Conclusion

This strategic analysis has identified the opportunities, strengths, weaknesses and threats that Ryanair is exposed to in the airline industry. The analysis has found that Ryanair offers the lowest flight fare across Europe. This company will continue to be the leader and enjoying competitive advantage as long as it keeps watch on its strategy.

Despite stiff competition from competitors, it has managed to sustain its position in the market due to its strong financial base and proper management. Ryanair’s lowest fares have made the company achieve competitive advantage in the airline industry in Europe. Its innovativeness has ensured its sustainability and will enable it to enter the future with success (Porter, 1980).

Reference List

Dobruszkes, F 2006, ‘An analysis of European low-cost airlines and their Networks’, Journal of transport Geography, Vol.14, no.6 pp. 249-264.

Gillen, D., & Lall, A 2004, ‘Competitive advantage of low-cost carriers: some implications for airports’, Journal of Air Transport Management, Vol.10, no. 3, pp. 41-50.

Graham, B., & Shaw, J 2008, ‘Low-cost Airlines in Europe: Reconciling Liberalisation and Sustainability’, Geoforum, Vol. 39, no.12 pp. 1439-1451.

Hubbard, G., Rice, J. & Beamish, P 2008, Strategic Management Thinking Analysis Action, Pearson education, Australia.

Lawton, T.C 1999, The Limits of Price Leadership: Needs Based Positioning Strategy and the Long-term Competitiveness of Europe’s Fare Airlines, Long Range, Oxford.

Mirko C.A 2004, ‘What Determines the Effectiveness of Barriers to Entry in Liberalized Airline Markets’, Journal of Air Transport Management, Vol.10, no.1, pp. 413-426.

Muller, C 2011, ‘Ryanair Case Study and Strategic Analysis: An Analysis on the Competitiveness and Low-cost Strategy of Europe’s Leading Low-cost Carrier Ryanair’, GRIN Verlag, Vol.7, no.3, pp. 345-350.

Porter, E. M 1980, Competitive Strategy –Techniques for Analyzing Industries and Competitors, The Free Press, New York.

Walsh, C.R 2011, Airline Industry: Strategies, Operations and Safety, Nova Science, New York.

Witcher, B.J., & Chau, V.S 2010, Strategic Management: Principles and Practice, Cengage Learning, Boston.

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