An Introduction for Ryanair

INTRODUCTION Background in Brief Ryanair was established by the Ryan family with a staff of 25. Its first route was launched in 1985 with a 15-seat aircraft ferrying passengers between Waterford in Ireland and London. In 1986, Ryanair launched its route from Dublin to London to challenge British Airways and Aer Lingus, the two dominant airline carriers on that route, by offering fares at lower prices. With two routes in operation, Ryanair carried 82,000 passengers in its first full year of operation. By 1993 Ryanair has carried over 1 million passengers.In 1995 Ryanair overtook Aer Lingus and British Airways to become the biggest international scheduled route carrier in Europe. The Organization Today Ryanair now operates more than 1,500 flights per day from 57 bases on 1,500 low fare routes across 28 countries. It connects 178 destinations and operating a fleet of 305 new Boeing 737-800 aircraft. In 2012, Ryanair had a team of more than 8,500 employees and carried over 78 million pas sengers. Ryanair’s main business is to provide â€Å"low-fare-no filling† airline services.Ryanair also offers various ancillary services including in-flight sale of beverages and food, car hire services, internet-related services etc. To expend its network, Ryanair, which already owns 29. 82% of Aer Lingus in 2012 announced its intention to acquire Aer Lingus by making an all cash offer of â‚ ¬1. 30 per share for its entire share capital. Ryanair recorded a profit of â‚ ¬503 million in 2012 fiscal year, increased 25% compared with year 2011 despite a â‚ ¬367 million rise in fuel costs. Revenues rose 19% to â‚ ¬4325 million as traffic grew 5% to 75. 8 million passengers. Ryanair’s return on equity (ROE) is increased from 12. 7% to 16. % in fiscal 2012. In addition, the company’s free cash flow is increased from â‚ ¬-610. 9m to â‚ ¬702. 7m due to high net income and reduced capital expenditure. Mission Ryanair' mission is to â€Å"become Europe’s most profitable lowest cost airline by rolling out our proven ‘low-fare-no-frills’ service in all markets in which we operate, to the benefit of our passengers, people, and shareholders†. To emphasis its focus on low fares, low frills, the CEO has stated, in response to criticisms of Ryanair's sub-standard customer service, that â€Å"any worthwhile passenger service commitment should involve commitments to low prices and high punctuality†.Ryanair has the cost minimizer's aim of generating the most benefit to both its shareholders and its passengers through offering the lowest fare service. It offers customers the choice of exactly which services they want to pay for rather than forcing them to pay a high price for the bundle of services the airline wants to offer, as legacy carriers usually do. Passengers benefit from paying less money by selecting and purchasing only the services they need. As a result, Ryanair is able to attract more cus tomers, which helps Ryanair to grow its market and profits. Goals and Objectives Generate greater passenger traffic through offering low fare services. †¢ Expand the air passenger market and network by opening up new bases and routes. †¢ Capture a larger market, such as by entry to the US airline market. †¢ Gain additional profits through increasing passenger traffic while keeping its cost base low. †¢ Maintain its low cost leadership position through continued cost efficiencies. Stakeholders There are many stakeholders involved in Ryanair’s business. As Table 1 shows, they have different expectations toward and demands on Ryanair. TABLE 1: Organizational Stakeholders Stakeholder Group |Group Demands / Attributes | |Product Market | | |Competitors |They want to carry more passengers at higher fares and would like to reduce Ryanair's market share. | | |They would like regulation to force Ryanair to offer travel agent commissions. | |Travel Agencies |They would like to organize Ryanair staff. | |Customers want the lowest fare price, and luxury services at no extra cost. | |Trade Unions |Boeing, Airbus would like to Ryanair orders at list prices. Airports would like regulations allowing | |Customers |them to charge higher fees to airlines, and to collude on capacity management. | |Suppliers |Legislators want to avoid high levels of controversial public complaints, and want higher airport and | | |route taxes. | | | |Government | | |Capital Market | | |Shareholders |Shareholders want to see Ryanair’s market and profit increased. |Banks |Banks want Ryanair to make loan payments in full on time. | |Leasing Company |They want Ryanair to lease more planes, i. e. expand routes. | |Organizational Market | | |Employees |Employees want higher income and better benefits | |Managers |Managers want to effectively use the human and capital resources of the company to meet the goals and | | |objectives set by top executives. |Top Executi ves |Maintain Ryanair’s cost-leadership position to gain profit while looking for more opportunities to | |(Michael O'Leary) |further expand its market | EXTERNAL ANALYSIS General Environment Demographic Segment: Airline travel passengers are mostly aged 18 to 65. Among them, passengers of age 25 to 55 years account for almost 75% of the total. The ageing of the post-1945 baby boom generation has reduced the numbers in the older higher income segment of this demographic.The resulting tendency is for a greater proportion of air travellers to be younger and less affluent and more oriented toward lower cost transport as opposed to seeking a luxurious flying experience. Political/Legal Segment The political and legal issues that concern Ryanair include regulations of regional and national governments and the European Union (EU), various legal actions, terrorism and security. Because many airlines are fully or partially owned by national governments, the airline industry has been affected by political regulation of both operation and ownership.For example, the EU regulations charging all airlines for their carbon emissions, and the rules on flight and duty time limitations, both increase the operating costs of Ryanair. Furthermore, O'Leary's ambition to start an ultra-low cost transatlantic airline using Aer Lingus planes and US airport landing rights has been blocked by the European Commission's Merger Office. The Commission has refused to allow Ryanair to go ahead with purchase of control of Aer Lingus. In addition, the threat of terrorism has increased insurance and security costs in the airline industry. Economic SegmentThe global economic recession and fuel price increases have greatly affected the European airline industry. The recession has impacted the purchasing power of consumers. Ryanair’s low cost strategy has enhanced Ryanair’s ability to compete in these conditions. Through offering low fares, Ryanair enables airline passengers to continue travelling despite the economic crisis. The floating exchange rate also has a direct effect on Ryanair’s profitability. Ryanair collects fares in various currencies and has its expense mainly in US dollars for fuel and in Euros for labour.In addition, the number of airline passengers could decline if their national currency loses value. Ryanair uses futures and options to hedge its fuel price, foreign exchange risks, and financing interest cost. The price for 90% of Ryanair's forecast fuel requirements for fiscal 2013 is hedged. Hedged prices for 2013 are significantly above 2012 prices. Socio-cultural Segment Due to changes in traveller’s behavioural  and psychological patterns, the European airline industry has changed from traditional patterns.People’s perspective towards air travel has been changed by the low cost revolution of air fares in Europe. Air travel is no longer being seen as expensive and is now accessible by low income people. Consequ ently passenger traffic in the Europe airline industry has increased. Ryanair's initial routes from Ireland to England were intended to provide a service to ethnic Irish people who had migrated to England to work due to lack of jobs in Ireland, but who still had most of their family in Ireland and wanted to visit often. Technological SegmentAdopting advantageous technologies has helped Ryanair constantly reinvent its processes to maintain its low cost advantage. For example, by using its online booking system, Ryanair reduced its distribution costs by eliminating travel agency commissions. Better technology has also allowed other transportation industries to cut costs such as the innovation of lower fuel consumption cars and high speed trains. These changes both increase the competitiveness of the substitutes for airline travel and also increase the complementarity of airline and other travelling tools.Global Segment Globalization increases the demand for international air travel. T here are an increasing number of people travelling between counties for work or to take vacations in foreign countries. Industry Environment Bargaining Power of Suppliers The bargaining power of Ryanair’s aircraft suppliers is relatively high. Because Ryanair wants very low prices and many special conditions on aircraft purchases, so Boeing has refused to extend their supply contract with Ryanair, and Airbus has not been interested to seriously negotiate with Ryanair.Moreover, the switching cost of changing supplier for Ryanair is moderately high due to the significant amount of expense needed in terms of pilot, mechanic retraining and spare parts inventories. Ryanair is reportedly negotiating to buy the new C919 aircraft being developed by COMAC, a Chinese manufacturer, due to its greater amounts of seats and the lower fuel consumption. This availability of this substitute increases Ryanair’s bargaining power with Boeing. Ryanair’s bargaining power with its sup pliers of airport services is high, due to the current overbuilding of regional airports.Bargaining Power of Buyers The bargaining power of Ryanair’s buyers is high. The competition in the European short haul airline market is very intense, and many airlines have cut their cost in response to deregulation and availability of new cost saving technologies. Though Ryanair offers travel fares to passengers at very low prices, there is low switching cost for customers to change to another airline. The lack of brand loyalty in the air travel market increases buyer’s bargaining power. Threat of EntryThe threat of new entrants in the European short haul air travel market is high due to the relatively low cost of entry and the commodity nature of the capital required. However Ryanair has achieved economies of scale which would be difficult for a new entrant to achieve. Ryanair has a large network which would require a moderately large capital investment to duplicate. Availabili ty of access to some routes is another barrier for new entrants due to the intense competition for primary routes and primary airport landing rights for some routes. Threats from Substitute ProductsThe threat of substitute products and services for Ryanair is relatively low. Substitute services of Ryanair include trains, ferries, cars, as well as other low fare airlines. However, according to the record, it was shown that usually the tickets of train, bus or ferry are more expensive than Ryanair’s flight tickets. According to Ryanair's 2012 financial report presentation, Ryanair's average ticket price including bag is â‚ ¬45 (2013Q3 â‚ ¬50) and its closest price competitor's average ticket price is â‚ ¬71 (2013Q3 â‚ ¬79). This shows the threat to Ryanair's from substitute low ost airlines is relatively low as they are unable to achieve Ryanair's economies of scale and offer similar fares. Competitive Rivalry The competitive rivalry for Ryanair in the airline marke t is high. Its competitors include Aer Lingus, easy Jet, Air Berlin, Whizz, IAG/British Airway, and Lufthansa etc, the carriers which also offering low fare flights. Many airline companies have lowered the prices of airfares to avoid losing more market share. Competitor Analysis An analysis of major competitors, Aer Lingus, Easy Jet and British Airways is shown in Table 2.TABLE 2: Competitor Analysis | |Aer Lingus |Easy Jet |British Airways | |Future Objectives |Aer Lingus focus on generating revenue per |Easy jet wants to build strong |British Airways want to become the | | |seat rather than maximization of load |number 1 and 2 network positions |world’s leading premium airline by | | |factor as well as more emphasis on |while maintains its cost advantage. offering the best customer services. | | |partnerships and connectivity. | | | |Current |Moving to discount airline model, focusing |Easyjet focus on primary airports, |British Airways focus on satisfied | |Strategy |on pr imary airport routes. Focus on serving|and especially slot constrained |customers.It provides high level | | |Irish travel to visit relatives in New |airports, to provide service on the|premium tickets and offers first class| | |York, Boston and Chicago areas of US. |top 100 routes in Europe |ticket holders access to premier | | | | |lounges. | |Assumptions |They assume that low fares are mbedded in |They assume passengers want |They assume that customers will like | | |the Irish market place. |convenience. |to pay more for a better and | | | | |outstanding service. | |Capabilities |Aer Lingus operates 43 planes with an |Easy Jet has 214 planes flying 605 |British Airway has a fleet of over 245| | |average age of 7. 3 years.Carries about 10 |routes serving 133 airports with 23|aircraft over 600 destinations | | |million passengers per year on 92 routes. |bases, which makes it the 4th |worldwide. It operates in engineering | | | |largest short haul carrier in |provides engineering se rvices to BA | | | |Europe with 8% market share. |and many other airlines. |General Notes |Aer Lingus is the lowest fare long haul |EasyJet focuses on low fares |It is the flag carrier airline of the | | |airline in Europe, partly due to having to |without removing the services which|UK & the largest airline in the UK | | |compete with Ryanair on 46 routes. |are standard on most airlines. |based on fleet size. | Analysis of Interaction of External Force In summary, the external environment provides Ryanair both opportunities and risks.Though some political issues limited its operation and the intense competition in the airline industry poses some threats to Ryanair, the company has great opportunities to grow. The demand for air travelling is increasing as the reduction in fares has expanded numbers of passengers who can afford air travel, and existing travellers are choosing low cost carriers due to the economic recession. Ryanair has put itself in the right position to generate pa ssenger traffic and market shares. INTERNAL ANALYSIS Resources Tangible ResourcesAirports: Ryanair has established distribution channels with low cost and uncongested airports, which enable it to deliver a 25 minute turnaround, which helps to create Ryanair’s competitive advantage. Not only secondary airports, Ryanair’s primary airports also delivered it a great value. Locations: More than 1,500 routes across 28 countries in Europe and North Africa to 178 airports (of which 57 are ‘bases’, where Ryanair bases aircraft and crew). Aircraft Fleet: Ryanair has a fleet consisting of a single aircraft type, the Boeing 737-800.The average age of its 305 aircraft is around 4 years, which is younger than the 9-11 years of typical European airline carriers. This gives advantages in terms of fuel efficiency, maintenance costs and customer perception. Ryanair also benefits from its planes higher seating capacity (189 seats per aircraft, compared with Easyjet’s 156 on A319s and 174 on A320s). Financial Resources: The financial resources of the company come from the Ryan family, shareholders, investors and creditors. In addition, Ryanair has a high cash flow balance, which enables it to make emergency adjustments or further investments.In addition, Ryanair has the Aer Lingus shares with a market value of â‚ ¬150 million which could be converted to cash. Organizational Resources: Very sophisticated and precise controlling and coordinating systems to allow high operational efficiencies including shorter aircraft turnaround times than competitors. Technological resources: Online booking and checkin system which allows near elimination of airport checking counter costs. Intangible Resources Human Resources: Ryanair employs approximately 8,388 employees, as of March 31, 2012, including 1,636 pilots and 2,867 cabin crew employed on a contract basis.Ryanair’s Brand Recognition: Ryanair has a strong brand image as a cost leader and no-fri lls carrier. Rights: The landing rights and airport terminal slot rights for Ryanair as well as the government approvals to fly each particular route. Innovation Resources: Ryanair's senior management team has a strong capacity to constantly innovate and to cut costs by negotiating with suppliers to pressure for supply cost reductions and to change service routes to drop high rising cost suppliers in favour of low cost suppliers. The senior management team has the capacity to innovate by nbundling the components of major airline service and offering the components individually allowing travellers to choose lower cost combinations. Innovative use of secondary airports distant form major cities allows Ryanair to profitably offer ancillary car rental and bus and accommodations services through the online booking and ticketing system. Capabilities Primary activities Inbound Logistics: Ryanair’s main supplier, Boeing, provided Ryanair discount reported as approximately one third o ff for purchasing aircraft.Ryanair outsources the labour, airport services, and employee training they need at low cost. Operations: Ryanair provides â€Å"low cost no frills† airline service. About 50% of Ryanair’s flight crew are contractors employed only when required. Ryanair uses uncongested airports and only makes point to point trips. Outboard Logistics: Ryanair has quick 25 minute aircraft turnaround times. Ryanair has developed an online booking, ticketing, and confirmation system which eliminated the role and margin of travel agents taking the Ryanair service direct to the traveller.Marketing and Sales: Ryanair has the biggest website in Europe which allows them to do the marketing- internet sales. They also generate ancillary revenues by selling products in flight and encouraging customers to buy alliance services such as hotel bookings, car rentals and travel insurance etc. Service: Ryanair provides limited free services to passengers, and a full variety of onboard and travel services is available to customers for purchase. Customers decide which services they want to pay for. Support ActivitiesManagement Information Systems: Ryanair has efficient MIS systems to minimize airport turnaround times and to very tightly control on-board fuel inventories to minimize the cost of carrying excess fuel carried any flight. Firm Infrastructure: Ryanair has 57 bases. The cost of Ryanair airports are low due to its use of airports are mostly uncongested secondly airports. Ryanair has only one type of aircraft (Boeing 737-800). Therefore, Ryanair only trains pilots to fly one type of plane, which cut costs of training employees.Human Resource Management: In order to reduce costs, Ryanair pays relatively lower salaries to employees than other airline companies. The employees are paid by the hour on contracts. Ryanair employees get no benefits from Ryanair, but pilots like Ryanair because they can build their hours of experience quickly and be promote d to senior pilot positions. Technological Development: Use of online booking by Ryanair reduced their costs. In addition, by introducing self-check service to the passengers, Ryanair was able to reduce staff and cost. Procurement: As Ryanair only provide services, they have to outsource the material they need, such as fuel and equipment as well as leasing some operated aircraft. Core Competencies Ryanair has the following core competencies based on the VRIO framework: | |V |I |R |O | |Fleet of 294 -737-800s |Very fuel efficient and |Boeing list price of $90 |No competitor has as large |Ryanair has organized a 1500| | |about 4years average age so|million per plane or $26. |a fleet of short-medium |route network and short | | |low maintenance costs |billion for a similar fleet|haul fuel efficient jets |turnaround times to maximize| | | | | |the flying time of the fleet| |Supply chain management and |Forcing irports to compete|Very costly to imitate the |Competitors try to do this |Or ganized to operate the | |operations management |on fees for Ryanair's |scale of Ryanair's |also but Ryanair does it |fleet of 737-800s on | |including MIS systems |business and forcing Boeing|operation of 1500 routes |better |whatever routes offer low | | |to reduce prices on their |between 178 airports, so | |costs | | |huge order of 737-800s are |smaller network operators | | | | |keys to Ryanair's low cost |have less bargaining power | | | | |structure |with airports | | | |O'Leary's strategic vision, |O'Leary's strategy is the |Not available in the market|There is only one O'Leary |O'Leary is dedicated to | |marketing strategy and PR |basis for the company's | | |building â€Å"ultra-low-cost† | | |profitability.His | | |airlines | | |controversial PR saves | | | | | |millions in advertising | | | | | |costs | | | | Performance: Ryanair’s performance compared with its main competitors: | |Ryanair |Easyjet |Aer Lingus |British Airways | |Revenue |US$6. 35B |GBP 3. 85B |â‚ ¬1. 39B |â‚ ¬16. 1 B | |Operating Margin |15. 3% |8. 1% |3. 94% |3. 2% | |Profit Margin |12. 54% |6. 62% |2. 44% |3. 49% | |ROA |5. 59% |4. 74% |1. 90% |3. 44% | |ROE |18. 99% |14. 58% |4. 07% |13. 21% | |Market Cap |US$11. 51B |GBP 4. 18B |â‚ ¬0. 679 B |US$ 6. 7 B | STRATEGYBusiness Level Strategy Ryanair follows a cost leadership strategy. By controlling the cost of operations, Ryanair has a low cost base, which enables it to offer the lowest fares to passengers with acceptable service across Europe. Corporate Level Strategy Ryanair has a low-level of diversification. Ryanair's dominant business is passenger transport, with ancillary revenue from its ancillary services. According to Ryanair’s 2012 annual report ancillary revenue accounts for about 25% of the total revenue, while 75% of revenue come from is major business, which is scheduled airline service. International Strategy Ryanair follows a global strategy.Ryanair offers standardized services to all passengers across Europe, while the strategic decisions centralized in headquarters office to achieve economies of scale. Ryanair does not customize its products to individual national or regional market demands. Cooperative Strategy Ryanair has cooperative or alliance relations with a broad range of hotel and other accommodation providers, as well as with airport car rental companies and airport bus transport companies. Ryanair offers the services of these companies through the Ryanair website and the companies rebate a portion of the revenue to Ryanair. SYNTHESIS Ryanair has the strengths, and weaknesses, and faces the opportunities and threats as shown in Table 3: Table 3: SWOT Analysis |Strengths |Weaknesses | |Customer Service |Low Fares: The advantage of Ryanair’s low cost base |Low Frequencies: Ryanair offers less frequent flights on some | | |allows it to offers the lowest average fares in |routes and often schedules departures at low demand times, | | |European shor t haul markets. It was report that |which may not be convenient to passengers, but provides lower | | |Ryanair’s fares are about 37% below those of easyJet. |costs and faster turnaround times. | | | |Brand Perception: Recently published surveys vote Ryanair to be| | |Unbundling Services: Unbundling of inflight services |one of the weakest brands in the European airline industry. | |allows Ryanair to expand the travel market by serving|Ryanair offers limited free services to passengers and the | | |lower willingness to pay customers, which supposedly |media portrayal of Ryanair is often of a mean and | | |is a large segment of Ryanair’s home market in |money-grabbing. | | |Ireland. | | | |Punctuality: Ryanair has the best punctuality | | | |compared to other airline companies, since Ryanair | | | |only offers point-to-point short haul service. | | |Financial Resources |Cash flow: According to Ryanair’s 2012 annual report,|Seasonality of Earnings: Many Ryanair ’s customers are vacation | | |Ryanair has Euro 3. billion in cash, which allows it |travellers who tend to travel in the July to September period | | |to make further investment. |so Ryanair’s earnings are highly seasonal. | |Network: Economies |Ryanair flies more than 1,500 routes across 28 | | |of Scale |countries in Europe and North Africa, 178 airports of| | | |which 57 are bases. It carried almost 80m passengers | | | |in year 2012 with a market share of 12%.It has the | | | |lowest cost per passenger, which is one third lower | | | |than its major competitor EasyJet. | | |Network: Secondary |Due to the use of secondary airports and its |Many secondary airports are many kilometres away from a major | |Airports |excellent operations systems, Ryanair has a 25 minute|city, which may cause travel inconveniences to passengers. | | |turnaround times, which allows the airline to | | | |maximise aircraft utilisation. | |Fleet |One type of aircraft, the Boeing 737- 800 |Fleet is not certified for transatlantic service expansion | | |Largest short haul fleet in Europe 305 aircraft | | | |Average age of fleet 4 years (9 to 11 years for | | | |competitors) gives better fuel efficiency, and lower | | | |maintenance costs. | | |Executive Management|Introduced a series of innovations to achieve low |Portrayed by the media as mean and uncaring. | |costs and economies of scale | | | |Eliminated check-in desks; put advertising on | | | |boarding passes and overhead bins; persuading | | | |passengers not to check in hold baggage | | | |World leading skill in negotiating low cost supply | | | |agreements | | |Management Systems |Highly efficient MIS and standard operating | | | |procedures to efficiently operate at lowest costs. | | | | | | | |Opportunities |Threats | |Customers |The CEO of Ryanair has talked of plans for a |Ryanair’s competitors may learn how to imitate its value chain | | |long-haul transatlantic service under a n ew company |and copy its operation strategy.In addition, by focusing on | | |named â€Å"RyanAtlantic†. Purchase of Aer Lingus is a way|efficiency, Ryanair may overlook changes in customer | | |of gaining landing rights at New York, Boston and |preferences. | | |Chicago airports, which are favorite destinations for|By using the cost-leadership strategy, Ryanair needs to carry | | |Irish people travelling overseas to visit their |the risks of losing competitive advantages due to the dramatic | | |relatives. In addition, Aer Lingus has transatlantic |change of technology. | | |certified aircraft. | |Supplier Competition|Ryanair has the opportunity to get a better deal on |Airport and navigation charge increases: Increased airport | | |aircraft ordering. Ryanair has indicated interest in |charges in Spain’s AENA airports and Italy's ATC airport will | | |buying the C919 aircraft as a strategy to negotiate a|boost the ex-fuel unit cost. | | |better deal with Boeing. |Air t ravel taxes: Increases in air travel taxes reduce the | | |Stansted Airport: Ryanair cut its flights at Stansted|demand of air travel.Airport travel taxes are charged | | |Airport as a result of increased airport charge |independently of ticket price and therefore make up a higher | | |increases, and offered that if the airport charges |percentage of lower priced short haul tickets. Ryanair's costs | | |are reduced Ryanair will reverse the reductions in |are affected proportionately more by these taxes than are its | | |service levels and frequency at Stansted Airport to |higher fare competitor's costs. | | |transport about one million more passengers per day |Fuel price and currency: The price of fuel is highly volatile. | |by using spare fleet capacity shifting some flights |The international oil market is priced in US dollars so fuel | | |and routes from competing airports to Stansted. |expenses are in US dollars. Ryanair does not have US dollar | | | |revenues, and therefore mu st hedge its US dollar costs against | | | |its British Pound and Euro revenues using futures, options, and| | | |currency swap. |Government |Regional or local governments build airport capacity |Possible regulatory backlash in response to bad publicity about| | |in excess of local flight demand to attract tourism |service levels | | |dollars provide an opportunity for Ryanair to obtain | | | |very low cost or subsidized airport services. | | SWOT Matrix | |Strengths |Weaknesses | |Opportunities |Low cost base and low fares help to attract passengers |Low flight frequencies reduce the appeal of Ryanair | | |and grow its market. services for some travellers | | |Ryanair’s strong cash flow enables it to make further |Low level of free services reduces the attractiveness of | | |investment in aircraft |Ryanair flights for some travellers | | |Ryanair's strategic negotiating ability allows it to take|Unfavourable publicity causes regulator resistance to | | |advantage of secon dary airport suppliers to provide air |Ryanair operations | | |services to major cities at low cost | | |Threats |Large pan-European network allows Ryanair to shift |Revenue seasonality with lower winter time cash flows | | |business out of regulatory jurisdictions which raise |could make fuel price fluctuations more problematic | | |travel taxes or airport fees |because fuel prices tend to have a seasonal peak during | | |Ryanair's expertise at hedging fuel and exchange rate |October to January | | |fluctuations allows it to minimize the impact of oil |Ryanair’s disregard for customer luxury and convenience | | |price fluctuations compared to legacy airlines |could worsen declines in customer numbers during periods | | | |of economic prosperity when higher income levels give all| | | |travellers more choices of travel service level. | SWOT Fit with StrategyRyanair’s cost leadership business strategy is built on (1) senior management’s strength at negotiating lo w cost supplier agreements, and (2) unbundling air travel services from basic transport fares to allow lower willingness to pay customers to choose lower cost service. The cost leadership strategy and ability to negotiate lowest cost supplier agreements also puts Ryanair in position to exceed competitors network scale and thereby achieve competitively superior economies of scale. Ryanair’s focus on cost leadership minimizes the negative effect that their disregard for customer inconvenience could have on a differentiated supplier. In summary Ryanair’s strategy is a good fit with its strengths, weakness, opportunities and threats. ANALYSIS OF ALTERNATIVESAlternatives 1. Shift to primary airports and move upmarket by focusing on primary airports and increased customer service levels and fares, competing more closely with EasyJet. 2. Expand secondary airports network, with the same customer service level but the lowest price. 3. Expand secondary airport network and upscal e the customer services with a bit higher price. 4. Expand Network to US through buying Aer Lingus. 5. Expand Network to US Irish destinations by buying planes, routes and airport slots. 6. Develop a greenfield network in a non-European regional market. Criteria for Analysis of Alternatives †¢ Increased Profit / ROE †¢ Financial Feasibility Maintain low cost leadership / Increase Economies of scale †¢ Government Issues Evaluation of Alternatives | |Government Issues |Profit/ ROE |Economic of Scale | Financial |Total Point | | | | | |Feasibility | | |1. Shift to Primary Airports (Increase |3 |2 |2 |2. 5 |9. 5 | |Price) | | | | | | |2.Expand Secondary Airport Network |4 |5 |5 |4 |18 | |(Low Price) | | | | | | |3. Expand Secondary Airport Network |4 |3 |3 |3. 5 |13. 5 | |(Upscale Services) | | | | | | |4. Expand Network to US through buying |1 |5 |5 |5 |16 | |Aer Lingus | | | | | | |5.Expand Network to US Irish |2 |3. 5 |4 |3 |12. 5 | |destinations | | | | | | |6. Develo p second Network in |3 |Short run: 2 |Short run: 2. 5 |2 |Short run: 9. 5 | |non-European regional market | |Long run: 5 |Long run: 5 | |Long run: 16 | Explanation of Evaluation: 1. Issues of government approval of new runs and cost of buying airport slots.As the primary airports will charge higher fees and tend to be more intensely competitive, the cost and fare price will be increased with a higher customer services level. The primary airport routes are served by many discount fare and major airline feeder service competitors 2. The lowest cost way to achieve additional economics of scale. 3. Shifts the company cost structure to a higher cost curve and may reduce its economies of scale. 4. Issue of European Commissions Merger office disapproval 5. Combination of regulatory issues and cost of acquiring transatlantic certified aircraft. 6. High start-up cost for a greenfield network and time required to build up revenue and profit. Recommended AlternativeBased on the evaluation, the best alternative for Ryanair is to continual to develop its network serving secondary airports, as it will generate more profit while and achieve greater economies of scale. Short Term Continue with company’s current strategy of expanding the network of secondary airports served. Maintain current levels of customer service and continue to emphasize the value of the levels of customer service provided to the Ryanair customer niche to avoid regulatory backlash. Long Term The secondary airport network in Europe will eventually be saturated by Ryanair’s expansion and to continue growing faster than demographic growth Ryanair will have to expand into other markets.The recommended alternative is to make greater accommodations to the European Commission Merger Office regarding routes where Aer Lingus and Ryanair currently compete in order to gain the Merger offices approval for Ryanair to buy Aer Lingus. This will allow Ryanair to expand to the US market with guaranteed prof its from the Irish traveller traffic visiting relatives in Boston, New York, and Chicago. Further the cost to buy the additional Aer Lingus shares to give Ryanair controlling a share in Aer Lingus is very inexpensive compared to other overseas expansion options. If the European Commission Merger Office does not give approval then Ryanair should consider development of an alternative regional network. IMPLEMENTATION Action PlanExpand the secondary airport network by expanding service to the Balkans, Macedonia and Morocco. |Time Line | |   |April |May |June |July | |Average fare: |Euro 50 |Euro 51 |2% |Low competition in new route area allows | | | | | |higher fare level | |Costs per passenger excluding |Euro 27 |Euro 25 |-7. % |Using excess plane capacity so reduces | |fuel: | | | |average fixed cost | |Revenue per passenger: |Euro 51 |Euro 51 |0% |Travellers in the new route area very frugal. | |Passengers per year: |75. 8 million |79. 6 million |5% |New route volume | |ROE: |16. 9% |18. 4% |1. 5% |Higher utilization of aircraft results in | | | | | |higher ROE | By meeting the figures in the Target column Ryanair will have succeeded in expanding its revenues, profits and economies of scale.