The Effects of the Environment on a Business: Analysis of Internal, External and Competitive Environment of Ryanair

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Ryanair was founded in 1984 and is a low-cost airline which headquarters are in Swords, Dublin, Ireland. Dublin and London Stansted airports are their primary operational bases. Carrying over 130 million customers each year, they’ve been voted Europe’s Number 1 airline. Ryanair connects 216 destinations in 37 countries, with more than 2,000 daily flights from 85 bases, on a fleet of 430 Boeing 737 aircrafts. As well as this, they have 240 more Boeing 737’s on order. This will allow Ryanair to lower fares and reach numbers as high as 200 million customers each year. Ryanair has a team of over 13,000 well-trained and highly skilled staff in the aviation profession which means Ryanair can deliver Europe’s most on-time flights, and a 33-yer safety record which is industry leading and key part of their success.

The Internal, External and Competitive Environment of Ryanair

PESTLE

The PESTLE analysis is an effective way to analyse key features of the external environment. It is a strategic framework used to see how external factors impact a business.

Political

Uncertainty surrounding Brexit will be challenging in the business environment

Due to the UKs geographical location being key in the airline network, the UK has the largest aviation industry in Europe. Around 80% of all North Atlantic traffic passes through the UK or Irish-controlled airspace. Having unfavorable outcomes from Brexit could cause negative impacts on not only Ryanair but also other low-cost airway operations in the UK. There is a high possibility that the UK won’t remain in Open Skies agreement with the EU, so until the final terms are decided, uncertainty will occur. Therefore, Ryanair will have to focus on growth away from the UK until Brexit is complete.

Terrorist attack risks will have negative effect on the demand for air travel which will impact Ryanair

There has been an increase in terrorist attacks in the recent two years, especially targeting countries such as the UK, France Germany. Due to this intelligence agencies and governments have increased their efforts to combat these. The increased risk of being caught in an attack has already affected tourism, although only in a small manner. If these attacks are to continue, the affect it has on the tourism industry will increase and this will cause the demand for air travel to decrease, impacting Ryanair.

Economical

The lower value of the GBP after Brexit will put pressure on fare prices

If a recession was to occur after the UK completes its leave from the EU, the earning potential for low-cost airlines earning potential would decrease. There is a close correlation between the demand for leisure travel and economic performance. However, fewer travelers can help shorten security queues and more flights will leave on time. During the last recession in 2009, there was a 13% decrease in the number of people using UK airports.

Oil prices being $50 a barrel is expected to remain

Due to rising fuel and labour costs, carriers are facing growing pressure. Jet fuel prices are expected to rise about 25% this year, as a result of strengthening crude oil prices. These have increased because of the booming global economy and increased geopolitical tensions such as Brexit and the withdrawal from the Iran nuclear deal by the US.

Airport charges and extra costs

Ryanair’s extra prices on travel fares are calculated by referring to the airport taxes/charges and government taxes payable by Ryanair on the specific itinerary. Examples of these fees, taxes and charges are:

UK Air Passenger Duty – This tax is charged on each passenger on all flights that depart from UK airports.

Passenger Service Charge/ Airport Tax – “This is a charge made by the airport authority to an airline for the use of the terminal, runway, emergency services, security facilities etc. In some cases, this charge also includes the cost of passenger and ramp handling at the airport. This non-refundable charge is made on a per passenger basis and varies from airport to airport.” (Ryanair.com, 2019)

If these charges were to increase, Ryanair would have to increase their prices to be able to cover the costs.

Social

Generation Y have higher disposable incomes

The middle classes growth in disposable income and lifestyle changes has been the main attribute to low-cost airlines’ expansion. Generation Y travellers can afford multiple short-trips each year. Compared to travellers from previous generations, millennials expect to not have to pay a premium for a high level of customer service and prefer services that supply online services and technological based solutions to manage itineraries.

On short-haul routes, consumers prefer high speed rail to airlines

Travelling by train is much simpler than travelling by plane as it is a largely uninterrupted experience. You don’t have to put your electronic devices on airplane mode or have your seatbelts fastened. Trains are also a lot safer and baggage isn’t often lost. Due to this, people are opting to get the train rather than small, short haul flights. The Eurostar to France is a lot busier than flights to France from airports. This is causing the railway market to expand and increase in profits. This could have implications on Ryanair who are mainly short-haul flights.

Consumers are willing to spend more on ancillaries if ticket cost is less

Extra ‘hidden’ prices are the main way Ryanair makes money. For example, customers print off their own boarding passes online but there is a fine if the boarding pass is: printed out in bad quality, the page is damaged, or part of the page is missing. This charge could be as high as £45 per person if they’ve forgotten to check-in online. Ryanair charges the most for food and drink out of all the British and Irish airlines. A bottle of water costs £2.99 which is a high price. Passengers are willing to pay these extremely high prices for ‘other’ services if they believe they got a really good deal on the fare price. In their mind, if they’re paying as little as £1 for a plane ticket, they’ve got themselves a good deal even if the extra prices add up to high amounts such as £50.

Controversial Advertising

Ryanair sparked a lot of controversy when their advertisement was said to “encourage binge drinking as normal behaviour”. The advertisement was captioned with ‘To all Leaving Cert and A-Level students: plan your dream summer holiday now so you have something to look forward to. Book on Ryanair.com in between ‘studying’ tonight. This could be you.’ This created a lot of negative publicity around Ryanair with charities that help those with drinking problems such as Dual Diagnoses Ireland and drinkware branding it as “irresponsible” and “triggering to those struggling with drinking issues”. Ryanair brushed off the comments and didn’t publicly apologise which caused further upset.

Technological

Improvements to digital platforms such as mobile and website will enhance customer experience

Airlines that can use digital channels in their distribution and marketing strategies will survive the social changes occurring in the airline industries as shown in growing evidence. Past generations weren’t as bothered about technology but for Generation Y, technology is highly important. They want to stay constantly connected to their social networking and airlines modernising to allow this is a key part to them reaching their target audience. Furthermore, increased use of social media has given airline companies an opportunity to gain a better and more detailed understanding of their customers’ behaviour by analysing customer data which is voluntarily shared on digital platforms such as Facebook.

Legal

Ryanair could be in lawsuit by European Commission over receiving state aid at certain European Airports

The European Commission is investigating if Ryanair received illegal state aid from regional and local authorities in France. As reported by Ms Vestager, Ryanair received a substantial amount of payments from the Association for the Promotion of Touristic and Economic Flows after promoting Montpellier as a tourist destination on their website. The EU law bans state aid to businesses where it changes normal commercial competition and gives them an unfair advantage.

Brexit may cause Ryanair to have to comply with dual, UK and EU regulations

The low-cost airlines will be affected by Brexit because their cheap flights are thanks to the EU since they created the single aviation area. There has been freedom for airlines to fly across Europe and opportunities for cross-border investments by European airlines. Brexit could mean renegotiation of these agreements and if competition is reduced, fares could increase. Having to increase fares means Ryanair could become no longer low-budget friendly.

Environmental

EU regulation on emissions for airlines may increase costs for Ryanair

The EU has passed legislation which means airlines have to operate under the E.U Emissions Trading Scheme. If Ryanair goes over the granted CO2 allowances, the extra amount needs to be procured from the market or auctions are to be held by government agencies. If the EU changes the allowance grant, Ryanair will need to improve their environmental efficiently further to reduce emissions.

Frequent heatwaves cause concern

Heatwaves are becoming a frequent occurrence which is causing concern for the industry as the temperatures are often reaching above aircraft maximum ground operations temperature. Due to this, airlines may have to seek an alternative operations strategy to adjust to climate change. There is a growing distress about the low-cost airlines such as Ryanair’s contribution to carbon emissions.

Maintains the lowest emissions among its competitors

Ryanair operates with a young fleet of Boeing 787 aircraft which has a fleet age under 6 years. Due to this, it maintains the lowest emissions among its competitors. Unlike other major airlines, Ryanair has only has one class of aircraft which helps them to reduce their maintenance cost. Ryanair has ordered the new aircraft and it’s due to be delivered in the next 3 years. It will be fitted with CFM LEAP 1B engines and Advanced Technology scimitar winglets as well as other lightweight materials. This will help them reduce fuel consumption further which will be a major strength for Ryanair as it will become one of the most environmentally friendly airlines.

Strong focus on environmental initiatives

Any global company needs to focus on their carbon footprint as well as environmental conservation. This is even more important in the aviation sector. Online ticketing is now widely used by many businesses including trainlines and Ryanair was the first to change to this option. They also focus on being environmentally friendly in their offices by using solar power, LED lighting and recycling programmes. They launched a new Environmental policy in March 208 which aims to make the airlines ‘plastic free’ within the next 5 years.

Corporate Culture

“Corporate culture is the shared values, beliefs and norms of a business that affect every aspect of work life.” (tutor2u, 2019)

The readers of the magazine ‘Which?’ has recently voted Ryanair the worst of the 100 biggest brands in the UK market for their consumer relations. There was a vote against the top 100 British brands and Ryanair was voted as having the worst customers services. Only half of their customers were satisfied with the service they received from the business. Ryanair’s chief executive Michael O’Leary was said to “laugh off” the feedback and didn’t take it seriously. He instead insisted that Ryanair passengers have never heard of Which? and wouldn’t have had the time to do the survey. He was therefore implying that the feedback wasn’t accurate and didn’t show what “actual” Ryanair passengers thought about the airline and the service they provide. This shows there’s not a good environment within the airline.

Ryanair employs many of their pilots through temporary agency contracts as a mid to keep costs down. Due to the poor employment terms, pilots came together and wrote to those at the head of Ryanair asking for an improvement to be made. The group of pilots then called them a ‘disgrace’ after the company missed a deadline to improve employment terms.

Ryanair made an announcement that for a period of six weeks, they were going to be cancelling about 40-50 flights per day to “improve punctuality”, but they didn’t tell customers which particular flights in advance. The following day they said that when they were changing the holiday year from financial to calendar they “messed up” the holiday schedules of pilots. After this, stories had started to emerge that there was a shortage of pilots which the company completely denied. However, it was then said by Norwegian Air that they’d recruited 140 pilots from Ryanair that year. There was also another airline that said they’d hired 40 pilots with 32 coming from Ryanair. Ryanair decided instead of properly fixing the whole situation, they’d offer their pilots a bonus of £12,00 which as one-off if they’d agree to work extra hours as well as extra days and have a low level of absence due to sickness. This didn’t go down well with the existing pilots who saw it as an attempt to skirt around the real issue. The company then responded by saying they were going to cancel part of their pilots’ holidays.

Employees have now come together and even have secret invite-only Facebook groups which has gathered over 3,400 members. The group’s founder told the Guardian they’re “preparing an open letter to the company demanding improved working conditions”.

Ryanair’s employees don’t enjoy working for them and this shows in their customer reviews. Michael O’Leary and other high members of the company seem to ignore the issues just for the sake of keeping prices low, so they’ll make more profit. They seem driven by money rather than making valuable relationships with their workers and ensuring happiness within the company.

Corporate Social Responsibility

“Corporate social responsibility (CSR) is when companies integrate social and environmental concerns into their business operations and in their interaction with their stakeholders on a voluntary basis.” (tutor2u, 2019)

Having good corporate social responsibility can have a lot of positive impacts on a company such as: being a good member of society, help to recruit and maintain employees, lower production costs and improved access to capital.

Ryanair has a bad reputation when it comes to their Corporate Social Responsibility. They have had a load of issues with them posting misleading information of their website such as about their claim that they only contribute 2% carbon dioxide emissions. The claim breached rules on truthfulness due to it not explaining that it was based on global rather than UK emissions.

The airline lacks social responsibility, and this shows since they’re mainly concentrating on making profits rather than the welfare of their customers. As quoted by Michael O’Leary Ryanair “guarantee to give you the lowest fare. You get a safe flight. You get a normally on time flight. That’s the package. We don’t and won’t, give you anything more. Are we going to say sorry for our lack of customer service? Absolutely not. If the plane is cancelled, will we put you up in a hotel overnight? Absolutely not If a plan is delayed will we give you a voucher for a restaurant? Absolutely not”. This shows that to them so long as they’ve got their customers to their destinations, it doesn’t matter what service they receive before, during and after their flight. There are also allegations that the airline extorts customers by charging them for the use of toilet when on board, making payment for paying online and boarding luggage on board.

Ryanair has a history of reacting badly to criticism and these means Ryanair would react to any criticism on its CSR issues either by avoiding similar issues in the nearest feature or by trying to justify the company’s stances on such issues.

Competition

Ryanair’s main competitors are EasyJet, Monarch, Jet2 and British Airways.

EasyJet has an annual revenue of $7.7bn compared to Ryanair’s which was $8.7bn in 2018. They have 14,000 employees.

The Effects of the Business Environment

Fiscal policy

Situational Analysis of Ryanair

5 C’S

The Five C’s of Marketing are the five most important areas of marketing. When marketing executives make marketing decisions, they should consider the five C’s of marketing. The five C’s stand for Company, Customers, Collaborators, Competitors, and Climate. The five C’s act as a guideline when we are creating a marketing plan or devising a marketing strategy.

Porters 5 forces

Competitive Rivalry – Ryanair has high competitive rivalry with other low-cost airlines such as EasyJet and Jet2.

Supplier Power – Ryanair’s supplier power is shifting from low to high as they only have use of regional airports. These are now getting clogged up. The shift of suppliers from Boeing to airbus is high. There is no control over oil prices so if they increase Ryanair wouldn’t have a choice about increasing their prices to cover the costs.

Buyer Power – Although Ryanair is the cheapest in the market, customers are price sensitive and will switch to another airline if they believe they can get a better deal. Therefore, buyer power is high.

The threat of Substitution – The threat of substitution against Ryanair is low because customers prefer the low prices they offer.

The threat of New Entry – The treat of entry is moderate because creating an airline requires a lot of legislation and investment, there are limited routes and no space in the airports.

How the Business Environment affects Ryanair

Situational analysis

Situation analysis is defined as an analysis of the internal and external factors of a business. It clearly identifies a business’s capabilities, customers, potential customers and business environment, and their impact on the company. A situation analysis is an essential part of any business plan and should be reviewed periodically to ensure that it is current.

Strengths

Weaknesses

First to launch low cost flights in Europe
Innovative Leadership
Size
Management focus
Brand perception
Seasonality of earnings

Opportunities

Threats

Improved customer service
Business travellers
New aircraft
Accident
Loss of focus
Competitive response

How the Market Structure and Influences on Supply and Demand Affect the Pricing and Output Decisions of Ryanair

Perfect/imperfect competition

Due to the high amount of low-cost short haul airlines, Ryanair is perfect competition. With competitors such as Jet2 and EasyJet also focusing on having the cheapest prices, there are multiple airlines for customers wanting cheap flights to choose from.

Supply/demand

Ryanair’s prices are based off the demand for the flight. A new system allows airline seats to be priced according to supply and demand and achieve high occupancy.

Price elastic demand means that demand increases when costs fall.

Price elasticy

Ryanair has high price elastic as the price of fares increase/decrease based of the demand for the flight. The more people that would want to travel on the particular flight, the more Ryanair can charge.

References

Ryanair.com. (2019). Official Ryanair website | Book direct for the lowest fares | Ryanair.com. [online] Available at: https://www.ryanair.com/gb/en/useful-info/about-ryanair/about-us [Accessed 22 Jan. 2019].
Ryanair.com. (2019). Official Ryanair website | Book direct for the lowest fares | Ryanair.com. [online] Available at: https://www.ryanair.com/gb/en/useful-info/help-centre/faq-overview/Making-a-reservation/What-taxes-fees-and-charges-may-be-charged-by-Ryanair [Accessed 31 Jan. 2019].
tutor2u. (2019). Corporate Culture | tutor2u Business. [online] Available at: https://www.tutor2u.net/business/topics/corporate-culture [Accessed 31 Jan. 2019].
tutor2u. (2019). Corporate Social Responsibility | tutor2u Economics. [online] Available at: https://www.tutor2u.net/economics/reference/corporate-social-responsibility [Accessed 31 Jan. 2019].

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