Strategic Management Approaches of Ryanair for Competitive Advantage

Introduction

The current dynamic and rapidly changing nature of the business environment has made the ability to achieve and maintain high productivity and performance a major challenge for many organisations. Firms seeking to gain and maintain a competitive advantage consider internal and external factors crucial in driving performance (Kraja and Osmani 2015). This paper considers the strategic management approaches adopted by Ryanair in order to remain competitive.

Summary of the Assignment Case Study

Ryanair is the most successful and largest low cost airline in Europe (D’Alfonso et al. 2011). It has continued to demonstrate a significant growth rate even when other companies in the airline industry experience losses and struggle to survive. Ryanair’s 2019 financial report shows an increase in traffic grew by a margin of 9% to more than 142m guests, average airfares decreased by 6% which totals to €37, and revenue increased by 6% which reflects a increase in revenue to €7.6bn with ancillary revenue increasing by a margin 11% per individual guest (Ryanair 2019). Ryanair seeks to continue growing its traffic, growing its revenue and cutting airfares.

Exploration of the business problem

The past few years have witnessed significant turmoil in the airline industry. Cash flow problems have become unsustainable specifically between October and February, which has become a recurrent problem for the European airline industry (IATA 2019). In addition, there have been considerable rise in fuel prices; for example, jet fuel prices rose to $95a barrel from the previous $60 a barrel. Cash flow pressures have also been witnessed particularly in 2018 as the dollar value increased by 10% against the Euro resulting to an increase in aircraft costs in Euro terms for the European airlines. Further, economic conditions and business confidence has continued to deteriorate as a result of Brexit, Turkey’s currency crisis and the wider trade problems which have seen passenger traffic slow by more than 3% (IATA 2019). Firms have continued to use pricing strategies in order to remain competitive and the result has been lower fares, which given the high oil prices lead to a decline in revenue in the airline industry. These challenges have led to the failure of different airline companies including Azur, Primera, Germania, Samll Planet, Cobalt, VLM, Wow and Flybmi (Ryanair 2019). Other airlines such as Thomas Cook and Alitalia are restructuring for re-sale purposes. Fuel prices remain high therefore more airlines are likely to fail in the coming months.

Impact of potential strategic solutions

Despite the situation and failures in the European airline industry, Ryanair has continued to grow in revenue and profits. This implies that Ryanair has very strategic actions that have seen its success. This section uses the Porter’s Five Forces and SWOT analysis to explore how Ryanair has managed to maintain its competitive advantage.

An Analysis of Ryanair’s Porter’s Five Forces

The bargaining power of suppliers is high against Ryanair. There are two manufacturers of airplanes namely Boeing and Airbus a duopoly that to high aircraft prices. Boeing is the supplier to Ryanair and being a loyal and a big customer, Boeing sells to Ryanair at rates lower than the standard market rates (Moreno-Izquierdo et al. 2016). Additionally, Ryanair has shown interest in purchasing from Coma, which is a new Chinese company which further increases its purchasing power towards Boeing.

The bargaining power of customers is high against Ryanair. Customers want to pay low fares resulting to lack of customer and brand loyalty in the low-fare airline industry. Additionally, the industry has zero switching cost in that customers can just click on the website of the rival and purchase a ticket. Strategically, Ryanair continues to widen the cost gap of its airfares and those of the competitors (Ryanair 2019).

The threat of substitutes against Ryanair is low. There remains no significant alternative to high-speed travelling other than the high-speed trains but the fares remain higher compared to those of low cost airlines. Strategically, Ryanair provides a comparison of its fare rates and those of train over a number of routes thus influencing travellers to continue using its services (Nwagbara 2011).

The threat of new entrants is low against Ryanair. There are several factors that make it expensive to enter the airline industry including capital requirements, access to distribution channels, and economies of scale. Strategically, Ryanair continues to build its expertise and extent its economies of scale, which further bars new entrants while outperforming those in existence (Gayle and Wu 2013).

The competitive rivalry for Ryanair is high. The deregulated airline industry makes entry easier. Additionally, the number of low-cost airlines operating in similar routes as Ryanair is quite high including easy Jet, Wizz Air, and Go among others. However, Ryanair has strategically increased its fleet size and impeccable customer service to drive out competition (Barrett2016).

The most outstanding strength for Ryanair is ultra-low cost for flights. Ryanair seeks to continue widening the gap between its fares and those of its competitors. Strategically, Ryanair chooses to fly customers in and out of small regional airports to further make its fees cheaper (Ryanair 2019). Other strengths include being the cheapest European low cost carrier, having the biggest market share among the low cost carriers, and a new and young fleet (Nortilli and Wong 2014).

Among Ryanair’s weaknesses are poor public perception and growth into congested markets. Some occurrences have tarnished the image of Ryanair; for example, in 2002 the company was accused of failing to provide wheelchairs for disabled persons at London Stansted Airport (Juric et al. 2015). However, Ryanair has continued to improve its customer service and build its public image.

Several opportunities are available for Ryanair. First, it should expand the market its services. Second, it should continue improving its public image. Additionally, Ryanair should consider purchasing planes that increase the comfort of passengers on board.

The main threats that Ryanair faces include high jet-fuel prices, stiff competition, and the policies enforced by the EU regulating bodies. Additionally, Ryanair continues to buy other companies such as Aer Lingus which has a different business model meaning Ryanair would require considerable management time resulting in loss of focus (Barrett 2016). Natural disasters are also a major threat for Ryanair but the company has strategically put on mitigation actions.

Conclusion

The aim of this paper was to explore the management strategies adopted by Ryanair to remain competitive in the airline industry. Ryanair is the largest low cost airline in Europe and continues to grow despite the tough economic times that have seen the closure of other airlines. In the 2019 financial year, Ryanair reported a traffic growth of 9% and revenue growth of 6% despite the economic crises in the airline market. At the same time, the economic turmoil saw the failure of some airlines including Azur, Primera, Germania, Samll Planet, Cobalt, VLM, Wow and Flybmi, which means that Ryanair is quite experienced to record growth in revenue and traffic. The paper shows that Ryanair has strategically managed the internal and external business environment to continue realising growth in performance. Externally, Ryanair is working on lowering the power of suppliers, providing buyers what they need (low cost flights), threatening new entrants through economies of scale, lowering prices so travellers considers it over substitutes, and widening the cost gap to outperform competitors. Internally, Ryanair is seeking to drive excellence in customer service, increase its market share, and extend its market. These strategies are aimed at making its more preferable to travellers.

References

Barrett, S.D., 2016. Ryanair and the Low-cost Revolution. In Air Transport in the 21st Century (pp. 163-178). Routledge.

D’Alfonso, T., Malighetti, P. and Redondi, R., 2011. The pricing strategy of Ryanair. Walsh, C., Airline Industry Strategies, Operations and Safety, Nova Science Publishers, Inc., Hauppauge, NY, pp.119-141.

Gayle, P.G. and Wu, C.Y., 2013. A re-examination of incumbents’ response to the threat of entry: Evidence from the airline industry. Economics of Transportation, 2(4), pp.119-130.

Juric, B., Smith, S.D. and Wilks, G., 2015. Negative customer brand engagement (pp. 278-289). New York: Routledge.

Kraja, Y.B. and Osmani, E., 2015. Importance of external and internal environment in creation of competitive advantage to SMEs. (Case of SMEs, in the Northern Region of Albania). European Scientific Journal, 11(13), pp.1-8.

Moreno-Izquierdo, L., Ramón-Rodríguez, A.B. and Perles-Ribes, J.F., 2016. Pricing Strategies of the European Low-Cost Carriers Explained Using Porter's Five Forces Model. Tourism Economics, 22(2), pp.293-310.

Nortilli, A. and Wong, K.C., 2014. A case analysis of the organisational behaviour of ryanair and its impact. Journal Contemporary Management, 3(1), p.73.

Nwagbara, U., 2011. Homing in on paradigm shift: Ryanair leadership in the age of expensive air travel. Kravis Leadership Institute, Leadership Review, 11(2011), pp1-8.

Ryanair 2019. Annual Report. [Online] Available at

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