1. Assessing Ryaianir’s failure and success (performance overview) 1. 1 For any firm to be successful, it needs to take into account the following choices of competitive arena, culture, resources, value chain, capabilities, competences and synergy (Cole 2000).
Therefore, by analysing Ryanair’s financial performance from 1999 to March 2003, we consider the firm to have grown from strength to strength. By looking at Ryanair’s load factors from 1999-2003, we have seen that the firms load factors have increased each year (This can be viewed in figure 1).
This shows Ryanairs passengers have increased as the business has grown.
(compare with easy Jet load factors).
Figure 1 Key statistics 1999 2000 2001 2002 2003 Scheduled passengers 4. 3 5. 5 7. 4 11. 1 15.
7 Number of aircraft operated at period end 21 26 36 41 54 Number of employees at period end 1, 203 1, 388 1, 476 1, 531 1, 897 passenger per employee at period end 4, 035 3, 963 5, 037 7, 244 8, 296 (Source: Ryanair financial reports 1999, 2000, 2001, 2002 & 2003) 1. 2 After conducting further analysis, we viewed the operating profit from 1999-2003, which have increased from 57. 8 million in 1999, to 239. 4 million in 2003 (this can be viewed in the figure 2 below).
This shows that Ryanair is succeeding in gaining more customers each year by offering a superior service. Figure 2 1999 2000 2001 2002 2003 Operating Profit 295.
8 370. 1 487. 4 624. 1 842. 5 Net Profit 57. 8 72.
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5 104. 5 150. 4 239. 4 Earnings per Share (In euro cent) 27. 47 21. 62 29.
61 20. 64 31. 71 (Source: Ryanair financial reports 1999, 2000, 2001, 2002 & 2003) 1. 3 Ryanair uses various financial measures to assess its performance and does not just rely on one. The following three measures have been used to assess the performance of Ryanair: ROE (Return on capital employed), profit per employee, ROE (Return on equity), to measure performance and earnings per share… Figure 3 1999 2000 2001 2002 2003 Return on Capital Employed 25.
63% 24. 34% 25. 32% 27. 62% 31. 40% Return on Equity 0. 020% 0.
016% 0. 016% 0. 015% 1. 93% Profit Per Employee 0. 048 0.
052 0. 071 0. 098 0. 126 Earning per share (EPS) n / a 0. 11 p 0. 15 p 0.
21 p 0. 32 p (Source: Ryanair financial reports 1999, 2000, 2001, 2002 & 2003) Figure 3 shows one significant downturn in the ROE figures in 2002, where ROE decreased by 0. 01%. , but it has not had any significant impact on the firm. All measures remained stable and increased each year.
One significant region, where performance can be measured is in terms of EPS. Shareholders funds at June 30 2000, increased to 5. 16 million compared to 4. 17 million at June 20 1999. Furthermore, figure 3 shows an increase in EPS each year especially in 2003, where it increased by 0. 09 p compared to 2002.
This shows that Ryanair is thriving in terms of its financial performance. For this reason it is able to take care of its shareholders and give them a vigorous return in their investment. 1. 4 We can place these results in context by competing with those of easyJet, another European “No-frills airline.” It is clear that on almost all measures easyJet is outperforming Ryanair. 2.
Assessing Ryanair’s environment and Competitive Advantage SWOT Analysis (a detailed SWOT Analysis can be viewed in Appendix 4) 2. 1 A SWOT analysis is a very important tool in adding a company to find out who their main competitors are and what threat they may pose upon a firm. By analysing Ryanair case study (Haberberg and Rieple 2001), we identified Ryanair could be facing competition on three fronts: from other low cost operators, low-cost divisions of large international airlines and surface transport. 2. 2 Strengths – Ryanair has much strength as it’s a No 1 European Airline. One of its main strengths is to offer exceptionally low airfares compared with its competitors.
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In addition, Ryanair has a strong customer service base which enables it to distribute No 1 service to its customers all year around. For example, in June 2003 Ryanir was No 1 for punctuality, least amount of bags lost and fewer passenger complaints. 2. 2 Weaknesses- one major weakness identified, as they increase destination flights, parts of the air transport infrastructure, such as air traffic control and ground transportation will become more congested. This may increase delay and may pose a threat to safety to both employees and customers. Another weakness which we identified is the restriction on night flying which can produce congestion and delays at other times.
This may mean that Ryanair services could be postponed. (a list of other weaknesses can be viewed in Appendix 1).
2. 3 Opportunities- one of the main opportunities in the near future, could be to expand into Ireland as it continues to be the only country in Europe to miss out on extraordinary traffic and tourism growth. For example, this could a major success, in the case of social and economic trends that increase the spending power of groups like elder people, in Ireland.
2. 4 Threats- an immense threat that could destroy No 1 position for Ryanair, is the price of oil which could lead to a decrease in profit. Another major threat is high speed rail links which may have an impact on some short haul flights, for example to France. One of the main threats identified, could be the emergence of new no frill airlines which could affect the rapid growth of Ryanair. Therefore, they need to continue to offer excellent service to their customers and bring down the cost of flights.
This way it will maintain its No 1 position. 3. Macro environmental factors – PEST (Far Environment- Analysing competition) 3. 1 Political and legal factors – Over the year’s political issues have been a major concern for Ryanair.
Airports have been privatised or are run by private sector firms on behalf of public sector owners. In the early days, airline industries were heavily regulated in the following ways: (1. ) Which airlines were designated to fly a particular route (usually one or two from each country).
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(2. ) What fares can be charged. (3.
) How many seats could be sold? (4. ) Which airports could be used? But all this changed in 1993, when the airline industry de-regulated in Europe. (Regulations imposed can be viewed in Appendix… ).
3. 2 Ryanair may face the following political / legal issues in the near future: (1.
) Deregulation as the market increases in size, therefore economies of scale may arise. (2. ) The inclusion of the Ball ken states will make them more stable and accessible to tourists which will increase the demand for such destinations. (3. ) Move towards a federal government for the EU will likely mean attempts to create heightened competition on a Europe- wide basis. (4.
) Ryanair is now able to operate a base out of any European country. This will give them opportunity to expand into new markets. (5. ) Airports in the UK (Stanstead, Heathrow, Gatwick) have local noise restrictions, only can operate at certain times of day and night. These restrictions may cause curtailment of service on increases in operating costs and could limit Ryanair’s ability to expand its operating of affected airports. (6.
) Slots- currently, only 4 airports served by Ryanair, London Stanstead (one of its primary bases of operations), London Gatwick, Turin and Manchester, are regulated by means of “Slots” allocations which represent authorizations to take off or land at a particular airport with specified time period. Therefore, any future proposals that might create a secondary market for allocation of slots or allow trading of slots among airline could create potential source of revenue for certain types of Ryanair’s current and potential competitors, many of which Ryanair’s current and potential competitors, many of which have many more slots allocated at present than Ryanair. 3. 4 Economic- Economic activity is the major force behind the demand for travel in general, and the demand for air transport in particular. As Ryanair operates globally, exchange rates are very important in determining what prices can be charged within each country it operates. The following table shows: Figure 4 IR lb PER lb IR lb PER US$ Q 1 1999 1.
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1619 0. 7116 Q 2 1999 1. 1978 0. 7456 Q 3 1999 1. 2026 0.
7507 19-Jan-00 1. 2788 0. 7781 2001 1. 2662 0.
6946 2002 – 0. 666 2003 Q 1 – 0. 6239 2003 Q 2 – 0. 6176 The above table shows the exchange rates that affect the buying power of consumers. In 2001 the exchange rates decreased compared to 19 Jan 2000.
This could be due to September 11 th out break. But this is proved to be an advantage for Ryanir as low exchange rates mean Ryanair can compete in different markets more effectively. Economic outlook for the Future for Ryanair: 1. Public expenditure is a major factor in the prosperity of any industry. As personal disposable income increases, more and more people will be willing to travel with Ryanair. Furthermore, although annual GDP growth slowed between 2001/02 to 1.
8% compared to a 2. 9% the previous year the economy is forecast to increase its growth rate in the short-term. In real terms GDP is expected to increase to 2. 5% between 2003 and 2004.
This will also increase consumer expenditure by 10%. This bodes well for the Ryanair and the airline market. 2. Currently nearly all of the G 7 economies are in or near to recession due to the adverse affects of travel of the IRAQ war and outbreak of Sars.
However, since predictions vary over the expected economic climate even for the next few months it is always difficult to ascertain demand. 3. Of all the airlines such as British Airways, the low cost airline (E. g. Ryanair, easyJet) ones are the best positioned to withstand recession, but perhaps their stock market- valuations are about to peak.
4. Continued rapid expansion remains Ryanair’s policy with new routes between the UJ and western Europe and new continental bases. The company is also planning a major new base at Stockholm’s Skavsta Airport to serve to expanding market for low cost within and outside Scandinavia. 5. In February 2003, Ryanair announced a plan to increase its existing orders for Boeing 737-800 aircraft by 22, bring its overall outstanding order book to 125 Boeing jets, with another 125 on option. Some of these will go towards replacing Buzz’s existing fleet.
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These plans are to be completed by 2008. 6. Competition from other low cost “no-frills” airlines could affect the economic climate of Ryanair if any of the new established low cost airlines are able to gain foothold in the market. 7.
Due to the affect of Sars and Iraq war and the threat of further terrorist attacks, insurance costs may increase. This could be a major disadvantage for Ryanair and other no frills airlines especially new emerging airlines. Other important economic factors relate to the supply of an demand for key inputs, such as oil. If oil consumptions decrease may affect the profitability of Ryanair as it needs oil in order to run its aircrafts.
3. 5 Social/Cultural- trends tend to have a life of only a few years, as consumer purchasing power changes over time. Ryanairs services are available all the time to its customers it does not change, unless customers who book regular cheap flights decide to switch to business class or one of their competitors because their circumstances have changed. E.
g. extra expenditure from a new job or prices of fares are cheaper else where. Furthermore, the public are generally quite friendly to the prospect of cheap flights, however they may feel begrudged where they see promotions found in news papers where flights are for lb 10 only to find that the actual cost is much higher for the particular time or day they wish to travel. Furthermore, one of Ryanair’s main aims towards its employees is to understand the group’s strategy, in order to gain commitment 5. The motivation and commitment of the employees is part of measuring performance. The groups’ policy is to provide training, career development and promotion opportunities which are available to all employees.
Therefore, Ryanair needs to keep its employees they are an asset, do not want them to go and work for one of their competitors cause they provide a better employment package. If on the other hand, competitors (e. g. easy jet) prices are lowered, then they will go and spend their extra cash with them. This highlights, that the firm needs to keep grip on their position as No 1. Ryanair considers the importance of effective communication with its employees.
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3. 6 Technological In the airline industry, many new technological factors have been introduced. In 2001, Ryanair introduced 10 new Boeing 737-800 series aircrafts, in order to upgrade their aircrafts in order to compete with their competitors. These aircrafts enabled Ryanair to employ the latest technology in terms of engine noise reduction and reduced level of fuel consumptions. This gave them advantage over easyJet who are using Airbus A 319 s. A significant factor in the low-cost / no -frills growth has been the growing popularity of the Internet, through the availability of swift and simple on-line booking and payment by credit card, in addition to the growing use of direct telephone reservations, has proved to be a god send for the low cost operators.
It has enabled them to bypass travel agents, and pass the savings on to the passenger. Mintel estimates that around two-thirds of all bookings come through the Internet, and the figure is likely to increase. Only a comparatively small number of tickets are sold directly at the airports or through a travel agent. Furthermore, the amazing success of Ryanair. com will continue to transform Ryanair’s business model. The internet development will enable Ryanair to gain large savings in sales, marketing and distribution costs.
For example, in the last 12 months 92% of sales have been taken through Ryanir. com. this has enabled Ryanir to reduce sales, marketing and distribution costs by 62%. Again like other low cost airlines whose average fares are being increased Ryanair has passed on these savings in the form of lower average airfares.
4. Industry Analysis: with Porter’s five forces model (near environment) Michael Porter’s seminal article, ‘How competitive forces shape strategy’ (1979) introduced the five forces model for analysing an industry. It is as follows: (Source: M. E. Porter, 1979) 4. 1 The bargaining power of suppliers In most industries, including the airline industry, firms rely upon suppliers to ensure that their goods and services are available on time and at a high quality (Haberberg and Rieple 2001).
After looking at Ryanair, we established that they need supplies of aeroplanes, fuel and airport facilities, together with time slot’s during which its aircraft are able to take off and land at designated airports. Furthermore, if firms have a wide variety of suppliers to choose from suppliers have little power. On the other hand, if there are few a suppliers, then a firm has more power over their suppliers. Fuel prices are a major cost with no substitute, therefore powerful hold on airlines. That is because aviation fuel is largely undifferentiated, which means that one supplier is good as another as all suppliers offer similar facilities. In addition, price of aviation fuel is directly related to the cost of oil, as an individual company Ryanair does not have the power to alter this.
Another form of supplier is the quality of service that is offered to its customers by Ryanair and its competitors. Ryanair has to offer a better supply service compared to Easy Jet, in order for travellers to arrive at their destination in time for the start of the working day, and airlines that deliver this are more attractive than those that cannot. By looking at Ryanair’s 2003 annual report, they were at No 1 position for punctuality (02. 5% on time compared to Easy Jet 71.
7%), fewest complaints received (99. 24% of none cancellations compared to Easy Jet).
This analysis shows that Ryanair’s performance is exceptional compared to its competitors. Moreover, in the airline industry there are only two suppliers of aircrafts: 1. Boeing 2. Airbus Ryanair tends to purchase Boeing 737-800 aircrafts; these provide a cheap and reliable option.
One reason for using these types of aircrafts is because they are cheap for Ryanair to maintain than a mixed fleet, while easyJet uses Airbus. It’s clear from the analysis that suppliers powerful, as there are only a few suppliers in the market. The more Ryanair expands the more power it will possess over its suppliers. In relation to life cycle, the suppliers of fuel and aircrafts are at a mature stage of the life cycle they have a foothold in supplying to the aviation industry as there are no other suppliers to stop them from charging high prices as they have control.
4. 2 The bargaining power of buyers Buyer power refers to the extent to which an industry’s customers have the power to dictate prices, quality standards and other terms and conditions to the firms that are supplying them in determining buyer power behaviour, switching costs are used, which involves looking at the relationship between the firms in an industry and their customers. (Morden, T 1997).
No frills service- Ryanair offers its customers low fares, which are designed to stimulate demand, particularly from fare conscious leisure and business travellers, who might otherwise have used forms of transportation or would not have travelled at all. Furthermore, Ryanair’s no-frills scheduled service provides essential services such as frequent departures, advance reservations, baggage handling and consistent on-time service while eliminating non-essential “extras” such as advance seat assignments, multi-class seating, and access to a frequent flyer programme. Taking advantage of internet bookings- in 2000 Ryanair launched their internet site, which enabled customers to book flights at their own convenience through the web so no delays are experienced in booking flights.
This provides customers with fast and dependable service. This stage is still in the growth stage, as not many customers, have access to the internet to take advantage of this facility. But this could be strategy that Ryanair could build in order to encourage their customers to use the internet to book flights. (They could inspire customers by offering them a discount if they booked online).
Business class and Leisure- Ryanair has segmented its customer into two broad categories business and leisure. Business class offers customers the opportunities to travel on a first class service. In addition, leisure travellers are customers who look for low fares, e. g. “No-frills Airline”, such as Ryanair. Therefore, leisure travellers are usually visiting friends and family, who require low fares.
In 2003, Ryanair increased its passenger volume by 42% to 15. 7 million, compared to 2002 where there were only 11. 1 million passengers. This shows that customers tend to look for low air fares. By analysing all the above buyers, we came to a conclusion that buying power is high unless there is good evidence to the contrary.
Moreover, buyer power was low when Ryanair first started, and grow once customers established Ryanair also the sign of profitability indicated that they have matured into the industry. 4. 3 The threat of new entrants Haberberg and Rieple (2001) have suggested the height of barriers to entry determines the strength of the threat that new entrants pose to firms in an industry. In many firms there are many barriers to entry such as economies of scale and threats of retaliation which is also a potential barrier to entry. The threat of new entrants in the aviation industry is very lo w, due to increase in competition. Other operators will try to gain entry into the “no frills” airlines into European tourist countries such as France, Italy and Scandinavia.
It is probable, that they will be some failures, as not every entrant will be successful as Ryanair or easy Jet, and as the UK market is starting to look a little crowded, as more and more “new entrants” emerge. Furthermore, when low-cost operators enter a route, they expand traffic rather than take share from existing operators. For example, if easyJet enters a route that Ryanair already serves, Ryanair could be under threat to with draw from that particular route. After analysing the threat of new entrants in the market, we have come to a conclusion; the entrance into the aviation market is very low, due to the high costs involved in setting up e. g. purchasing aircrafts, fuel prices, and recruitment of highly skilled staff.
Another threat to entry could be the threat of retaliation. This could provoke Ryanair to cut prices or step up their marketing efforts to prevent the new competitors from getting a foothold in the market. Most barriers to entry are not affected by an industry’s progression through its life cycle. However, the transition from growth to maturity, and the resulting intensification of competition in an industry, is likely to reduce the threat of entry by making the industry less attractive, and try by making it more likely that Ryanair will take defence action against new entrants. 4.
4 The threat of substitutes Buyer power is strongly influenced by the availability of substitute products. If customers increase their power. The following are considered to be Ryanair’s substitutes: trains, ferries, other “No Frills” airlines. These modes of transport are no tenable threats distances too great except from London to Paris, which cam be reached by Euro Star. Customers will turn to substitute products, if Ryanair does not offer lower fares than their competitors or a flight to a certain destination. For example, a customer wants to go to a certain destination which Ryanair does not offer then customers will go by train or ferry and Ryanair will lose out.
In relation to the life cycle substitute products are considered to have an effect of Ryanair’s existing products / services in the market. Therefore, substitute products can make them uncompetitive, deriving it into the maturity or decline phase in its life cycle. 4. 5 The industry jockeying for position among current competitors The airline industry is a very competitive industry. Ryanair sells the lowest air fare tickets in the industry compared to its competitors. For a flight to Rome Ciampinio, leaving from London Stanstead it will cost you lb 69.
99, but if you look at easyJet its competitor they charge lb 91. 99 for the same destination. By analysing the prices of the same destination, it proves that Ryanair offers lowest fares in the market. Ryanir operates cost leadership and differentiation strategies.
The other strategy that it does not or is not able to implement is that of ‘Focus’ (Porter, 1980).
It does not maintain close links to its market, in order to do this. Ryanair sustains a cost leadership advantage over all other operators, as it only flies out of ‘uncontested, inexpensive airports’, which have by comparison much lower airport charges. At some airports such as Heathrow these charges can double the price of a ticket. While easyJet fly into Glasgow international and mainstream airports. The second strategy which Ryanir implements is differentiation.
Ryanair offers lowest prices in the market, which differentiates it from its competitors. How concentrated How fierce How global 5. Strategic Resources Strategic resources are those that make a particular difference to a firm’s strategic position – to its cost or differentiation advantage (Haberberg and Rieple 2001).
Resources consist of assets, capabilities and competences. Most organisations tend not to have a strategic resource, as strategic resources are very infrequent. For an organisation such as Ryanair to have a strategic resource, it needs to offer its customers something unique, that none of its competitors can offer.
By analysing Ryanair’s resources, we feel that they have no strategic resources, as currently Ryanair does not offer any service / s , which are not offered by its competitors (e. g. easy Jet).
Nevertheless, it may come up with a strategic resource for the future, which competitors will be unable to replicate and would be far too expensive for them to reproduce. 6. Value chain.