Introduction
Low-cost airlines are a trend worldwide nowadays. Many airlines have adopted the low-cost airline strategy and achieved success. Compared to premium airlines, the advantage of this strategy is that minimizing costs enables the company to make profits in competitive and bigger markets.
Ryanair is one of the low-cost airlines. It became the first low-cost airline to succeed in European airlines. Liam Lonergan, Christopher Ryan, and Tony Ryan founded Ryanair Limited, Europe’s low-cost airline, in 1985. Its headquarters are located in Dublin Airport, Ireland. The airline operated as a passenger airline between Ireland and London, eventually becoming a global aviation company.
The main competitors are EasyJet, Wizz Air, DFDS Seaways, and Aer Arann (Ryanair, 2012, p. 20). However, Ryanair has a robust business strategy that enables it to strive for market leadership in the airline industry. The airline employs a strategy of offering low fares to stimulate demand for its services. The airline targets business and leisure-conscious travelers. Ryanair’s key objectives are to provide the best customer service, establish the most significant routes among European airlines, and achieve unprecedented development and growth levels (Hill & Jones, 2012, p. 170).
This Ryanair report analyzes the airline’s strategic capabilities, thresholds, core resources, and competencies. The airline can maintain the lowest airfare rates, strong brand awareness, improved strategies for cost reduction, a quick turnaround time, a clear focus on market segments, and the potential to apply simple processes in its operations. The company has a variety of resources to ensure a competitive advantage. Its human resources include more than 2,700 employees (Ryanair Holdings plc, 2012, p. 4).
The airline has a stable financial position, in which the Ryan family, creditors, shareholders, and investors collectively commit their finances to the company’s success. The airline operates from secondary airports, has its headquarters, and maintains an aircraft fleet, making it an efficient operation. The airline invests in skills, knowledge, talents, and abilities in its processes. These strategies have enabled Ryanair to grow rapidly, earning the title of “Britain’s favorite airline” (Mennen 2010, p. 2).
However, the airline faces challenges from increased pressure from trade unions, European expansion, and new European regulations in the industry. Europe abolished free duty sales and climate protection charges, leading to additional costs for the company. The company is facing difficulties in managing the changes in economic conditions because of its low-cost fare strategy. The company is attempting to cope with the increases in fuel prices, depreciation of the U.S. dollar, high demand for substitute products such as high-speed trains and cars, and changes in regional subsidies, while still maintaining low-cost fares for its customers (Harvey & Turnbull, 2010, p. 240).
The airline must keep pace with the changes in lifestyle and travel patterns of its customers to remain relevant in its target markets. The company targets the market segment of business and leisure travelers, limiting its market potential. The company is focusing on this strategy and has no plans to change it. This strategy may become less effective in the future due to increased activity on the grey market. The company will need to invest in technology to address these challenges, particularly on the internet, to increase ticket sales and enhance customer convenience in accessing the airline’s services (Kahawatte 2010, p. 17).
Competitive Strategy
Ryanair successfully employs a cost reduction strategy, but it also applies other Porter’s generic strategies to remain relevant in the marketplace. The company leverages its strengths to survive in a competitive market. The airline has become a target and is admired by many organizations and people who need recognition in the business sector. Organizations in the airline industry effectively and efficiently adapt to market conditions by employing generic strategies to create competitiveness. The generic strategies organizations use include differentiation, cost leadership, focused differentiation, and cost focus, and these strategies are applied differently by companies operating in the industry (Hoffman, 2007, p. 9).
Ryanair offers the lowest fares among its competitors in the airline industry. The airline concentrates on a narrow customer segment, including the United Kingdom and Irish leisure and business travelers who cannot afford major airlines. The airline has created opportunities for low-fare travel designed to raise demand for no-frills services. The airline utilized low fares to penetrate the European airline market and focused on key success factors to survive in the competitive environment.
Ryanair employs a cost leadership strategy to increase passenger volume and meet consumers’ needs and wants. However, Ryanair has suffered losses during its operations, with some of its management officials being fired at some point (McGinn 2004, p.E14). This means that the airline needs strong management that can focus on costs.
The new management, led by Michael O’Leary, focused on establishing American Southwest Airlines to achieve cost leadership. The strategy became successful when the NASDAQ and the Dublin Stock Exchange recognized the airline for its improvement. This means that Ryanair must utilize Porter’s generic forces, focusing on cost leadership and differentiation. The challenge to this strategy is that the airline has to engage in high-risk ventures to survive. The competitors can easily emulate Ryanair’s strategy and segment, making it difficult for the company to generate sufficient profits to sustain its business (Burrell 2011, p. 1023).
Ryanair controls service charges and airport access to offer terms that create competitive costs. The airline management believes that maintaining a record of consistently delivering high volumes of traffic growth to customers at the airports enables negotiations for favorable contracts with other airports. The airline prefers spending less on gate locations and outdoor boarding than on jetways to reduce the airport charges. Reducing the fees for airport access reduces the expenses of flights for customers.
The airline is committed to providing quality maintenance and ensuring the safety of its customers and employees. The airline hires, trains, and maintains its pilots, maintenance personnel, and cabin crew to ensure the quality management of its operations. The airline hires competent contractors to ensure the heavy maintenance of the airframe, perform ratable repairs, and provide engine overhaul services to satisfy its customers. However, the airline faces stiff competition from more than 60 new entrants on the Irish routes in the low-cost airline sector (Barbot, 2006, p. 198).
Innovation Strategy
Ryanair hires qualified and competent maintenance personnel, maintains its aircraft to the standards of the European industry, and trains its employees to prioritize the safety of its customers. The airline does not extend its low-cost fares strategy to maintain control over its fleet, quality, and training. Ryanair maintains low-cost fares by eliminating unnecessary functions in its airline services and products and investing in core functions, such as safety maintenance.
Ryanair expanded its in-house maintenance capability by adding light C, such as the base building at Glasgow in Scotland, to a new two-bay hangar facility. This facility is designed to inspect 737-800 aircraft from the Ryanair fleet. This facility began operations in 2006, employing more than 180 people and costing the company £10 million in the U.K. (Mulqueen 1999, p. 28).
The airline invests in technology and innovation to enhance service delivery to its customers. Customers can easily book flights on the airline’s website, Ryanair.com, thereby improving the company’s market share. The online services help avoid airport queues, save time, and reduce customer costs by making it easy for passengers to book tickets online, check flight information and company details, and clear their luggage online. The airline also avoids congestion in the main airports and chooses to issue regional and secondary airport destinations to attract customers and reduce airport charges, including aircraft parking fees, landing fees, noise surcharges, and passenger loading fees (Stabe 2005, p. E20).
Ryanair began operations with 57 employees in 1985. The company operated a 15-seater turboprop plane that carried passengers from Ireland to London, accommodating 5,000 passengers on a single route. The company acquired subsidiaries of major airline companies, including KLM and British Airways. This expansion strategy helped the company increase its employee count to 3,400 and passenger numbers to approximately 35 million.
Deregulation in European air transport operations allowed Ryanair to open 18 new routes, targeting more than 3 million customers in continental Europe in 1997. The Irish Air Transport Users Committee awarded Ryanair as the airline of the year in 1999 (Malighetti, Paleari & Redondi 2009, p.195). The airline has overcome losses and stiff competition despite the low-cost airline strategy. The airline’s performance improvements are due to the company’s ability to adapt to global marketing management trends.
The company has developed expertise in utilizing information technology to support its marketing and management operations. The IT technology provides competent service procurement, including ticketing and booking services, in online e-marketing. Thus, the use of innovation in this airline enables the company to maximize the range of services that can satisfy customers (Sparaco 2011, p. 15).
The company has a website that attracts and maintains approximately 14 million passengers a month. The web has improved efficiency in booking, increasing the number of accounts by 94%, covering 26 routes. The company focuses on rapid expansion, increasing its investment in aircraft. For instance, in 2003, the company ordered 100 new Boeing 737-800 series aircraft.
The company also bought these aircraft to match Europe’s rapid growth plans in the industry. Google confirmed that Ryanair had the most popular airline website in Europe. The company’s innovation strategies have led to British Airways becoming the preferred airline in Europe and the United Kingdom (Warnica 2011, p. 42).
Turn (2012, p. 44) identified that Ryanair’s innovation strategies aim to reduce operational costs, which are essential for lowering fare prices, creating a competitive advantage, and achieving the company’s objectives. Ryanair agreed with InveseoMedia to install advertising on the seat backs in its fleet in the next five years. The company targets more than 40 million passengers in its advertisements to create a successful venture. The screens will also provide in-flight entertainment to passengers, improving their satisfaction with the company’s services.
The company has expanded the range of services offered in its fleets, beyond ticket sales, to include mail, cargo, and baggage transportation. These additional activities help improve the company’s revenue through innovation investment. The company eliminated the frills that yielded little return on investment and threatened to compromise the company’s profits.
The company had to be careful to avoid losses in the future. The company reduced the number of travel agents because of the introduction of the internet for booking. Customers can book flights directly on the company’s website from anywhere in the world. The company is eliminating the use of tickets by introducing quotes of references and passports. The company eliminates food and drinks on flights to reduce operational costs and reinvest in product innovation.
The company’s ability to enhance innovation has contributed to improved satisfaction and consumer behavior in purchasing its services. The technological advancements vary from management, products, and services, providing an overall internal complexity and uniqueness necessary for the company’s survival in the global airline industry. However, the company has been criticized for lacking creativity and emulating Southwest Airlines’ innovation strategies. The Chief Executive Officer (CEO) of Ryanair, Michael O’ Leary, challenges these criticisms because Ryanair focuses on an innovation strategy by creating unique and high-quality customer services while maintaining low fare prices (Gillette 2010, p. 60).
Ryanair’s innovation strategy is creating value for its products and services. The company aims to create commercial value, reduce costs below those of its competitors through a low-cost fare strategy, raise profits, and eliminate unnecessary fares from passengers’ expenses. The company generates most of its revenue from ancillary services, where it raises charges while retaining the ticket sale prices. This helps the customers manage their travel needs and wants. The company employs this strategy carefully to avoid tarnishing its brand image.
The revenue varies with the services and products that the airline provides. Ryanair eliminated food and beverages, assigned seats, and call center reservation support to lower its fare prices as low as possible. However, it expanded its products and services to include car rentals, hotel accommodations, and travel insurance, generating high revenues. The company provides in-flight entertainment, including magazines and in-flight entertainment services, at no additional cost to customers. This free offer by the company attracts and retains customers to the company’s services, making Ryanair a popular choice in Europe (O’Connell & Williams, 2005, p. 264).
Future Strategy
Ryanair engages in acquisitions and mergers to implement an essential corporate-level strategy in the market. These mergers and acquisitions will enable the firm to grow and thrive in the 21st-century market. The airline aims to acquire new market entrants to ease competition, enhance capabilities, and create a competitive advantage. The airline has determined that acquiring Buzz will be necessary for its success. Ryanair will handle more customers through its services in the added subsidiary, thereby improving its market share and profits (Binggeli & Pompeo, 2002, p. 93).
Ryanair sacrifices services and processes to commit to low-cost airfares. The airline’s management retains a low potential source of competitive advantage regarding human resources. The airline has a low value for its employees. It fails to keep pace with market changes in terms of creating a competitive advantage through high investment in human resources. Employees create a competitive advantage by introducing rapid technological innovations in a rapidly changing environment, driving sustainable business growth. Ryanair needs to strategize on managing its human resources to enhance its competitive advantage and survive in a competitive market (Dunn 2012, p. 40).
According to Malighetti, Paleari, and Redondi (2009, p. 198), Ryanair should take the time to understand the nature of the market to create sustainable plans and strategic moves that improve its long-term performance. The strategies should provide quality services to customers and value promotional activities, such as offering discounted flights to attract and retain a substantial market share, thereby ensuring stability in the target markets. The airline should create and design effective operations with a standard perspective of expanding its marketing network services.
Ryanair should not stop adjusting its marketing strategies and plans periodically to enhance its performance and processes, ensuring business stability. The airlines should be goal-oriented to achieve success in their operations. The airline should seek to improve the mandate of rules and regulations offered by the state to reinvent its performance processes. Ryanair should enhance product differentiation to attract a broader market and increase revenue generation (Castillo-Manzano, López-Valpuesta, & Pedregal, 2012, p. 272).
Ryanair should outsource some of its non-core functions, such as ground handling and catering services, and focus on core functions, including external specialists, with the potential to establish independent profit centers. Ryanair will concentrate on an expansion strategy to increase its competitive advantage. The airline will initiate new routes to access larger airline operations and regional airports, which are essential for increasing market share, sales, and profits. The airline opened two continental European bases in Bergamo, Stockholm, and Milan, offering low-fare flights and 73 new routes, which increased the volume of passengers by approximately two million in July 2003. The company will develop its websites to attract and retain customers globally, creating opportunities for the airline to continue growing (Box & Byus 2007, p. 78).
The Ryanair airline has the potential to dominate the market with properly executed strategies in the future. In Europe, Ryanair and Easyjet dominate the low-cost carrier market. However, this represents only 2% of the European airline industry’s market share and is expected to expand to 14% over the next 5-10 years.
Ryanair needs to increase the frequency of the existing routes because the European low-cost carrier market is exhausted. The average number of flights on the airlines is approximately 3.8 per day per route. This is low compared to the traditional carriers of competitors and EasyJet. Making its routes more frequent can increase its market share by attracting passengers from competitors (Harvey & Turnbull, 2010, p. 238).
Ryanair can open new European routes to exploit the low-cost carriers’ unserved routes. The company must conduct research to identify viable routes with more than 32,000 passengers per year and routes where its strategies can be used to build competition and improve its market share. The company can expand its operations to smaller continental bases, such as Brussels, Dublin, and Hannover, to increase its target market share. This will reduce the company’s overreliance on London’s saturated low-cost market and create demand to improve profits. Ryanair can also expand its market to potential low-cost airline destinations, such as North Africa and Eastern Europe. The company must improve its customer service and continue to develop ways to reduce costs, attracting and maintaining customers that maximize the company’s profits (O’Sullivan & Gunnigle, 2009, p. 264).
The European Low-Cost Airline Industry in Five Years
Ryanair will continue to offer a variety of choice routes and the same services to its customers. The company will increase the frequency of its routes to increase market share. It will ensure low-cost fares for its customers and increase the chances of lowering costs even further. The company will charge additional call-center booking charges to encourage online reservations.
Ryanair will introduce a new fleet of 737-800 to improve the company’s image. The company will ensure that the improvements in the quality of services it provides to customers will not affect the fare prices. The company will negotiate to maintain contracts with suppliers and subcontractors, ensuring improved airline performance.
Ryanair’s capacity is expected to increase by approximately 50 planes over the next five years. This strategy is crucial for expanding the company’s market share and enhancing the quality of services to customers. The company will carry more passengers, increase the frequency of routes, and open new routes across Europe (McGinn 2000, p.E16).
Ryanair will increase the frequency of existing routes by adding three planes to the London Stansted route. This addition is because the route only operates at capacity during peak times. The company will add four planes to the London Luton route to provide a good alternative for maximizing opportunities on the route. It will add 10 planes to Dublin Airport to expand its business, and seven planes to the Spanish route to cater to the increased demand for low-cost carriers by leisure travelers. The company will allocate 25 planes to new routes in Europe, where approximately 10 new routes will be opened annually over the next 5 years (Ryanair: The world’s leading low-cost airline, 2012, p. 19).
Ryanair will expand its operational base in Eastern Europe and its continental network. The Eastern European market will have three bases, each with seven destinations, resulting in a 21-route network. The company will add more languages to its website to ensure quality services and effective customer communication. The company will ensure rapid growth to counter the increasing competition from low-cost carriers in the target markets.
The company plans to establish new bases in most European member states within the next five years. Two continental bases in North Africa will operate four destinations daily, resulting in a network of eight routes. The frequency of flights on these routes is expected to continue growing over the next five years, with a forecast of doubling the number of bases in the target markets (Burrell 2011, p. 1025).
Ryanair will enhance its investments in employee training and development. The company will retrain its front-line staff to help them better deal with customers and address the complaints they receive. The training will last for five years.
Ryanair plans to own its aircraft by 2025, thereby reducing its expenses on aircraft rental charges. Ryanair will increase its bargaining power to reduce handling costs by 0.5% annually. Introducing the Boeing 737-800 will reduce fuel consumption costs by 10% because the aircraft has better aerodynamic properties. The aircraft utilizes winglets and motors, which reduce fuel consumption.
However, the changes in fuel prices are unexpected and uncertain, and the company will adapt to these changes. In five years, the company will have reduced costs per passenger due to its reduction in overhead costs and economies of scale. This will help the company attract customers that will maximize Ryanair’s profits, ticket sales, and market share (Ryanair Holdings plc, 2012, p. 7).
Conclusion and Recommendations
Ryanair has successfully maintained a low-cost fare strategy. It is the lowest-cost airline in Europe, achieving this by maintaining a cost leadership position despite the entry of new low-cost airlines in its target markets. Its primary competence over its rivals is leading a low-cost airline that provides low fares to its customers. The airline uses this competence to achieve a strong revenue growth.
The airline’s competitive advantage is its ability to maintain low operational costs and remain profitable. This has been possible because the airline has attracted a significant market share and strong recognition in Europe. The company faces threats to its low-cost fare strategy because of increased fuel prices. It becomes difficult for the airline to increase fare prices or add fuel surcharges to offset the fuel price increases, meaning that these increases negatively affect the airline’s investments in revenue-generating capabilities.
The airline invests in market research to identify customer needs and wants and determine the best ways to satisfy them. Ryanair seeks to develop deals, services, and products that attract and maintain a substantial market share. This has helped the airline grow rapidly and thrive in its target markets. The airline forms long-term agreements with airports and standardizes the delivery of customer services throughout the organization.
Human resources are the most valuable assets in the company. It trains and develops its employees in their specialized jobs to improve their experience and skills in service delivery. The airline creates an impressive fleet that increases purchases of new carriers for business expansion.
The airline supports competent leadership and a culture of value creation. The airline ensures that its pilots are well-informed about changes in international flying regulations, enabling them to perform their jobs efficiently. Ryanair maintains a competitive advantage by utilizing macro and micro environments intelligently and staying informed about changes in the global business environment.
Ryanair should focus on expanding its operations into the cargo market. Airlines can be successful on transatlantic routes, which account for approximately 60% of air travel worldwide. This new market opportunity for Ryanair is suitable for maximizing profits using the low-fare strategy.
The airline will also be able to enhance service options, including complimentary services and products in business class. The services can involve improving the company’s website to enhance customer service efficiency and establish a customer base for the business. The airline should also make significant improvements in managing its low-cost fare strategies, such as lowering them as much as possible, to cater to the increase in new and existing customers by adopting this approach. Ryanair has a high likelihood of surviving and succeeding in the competitive European market.
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