Ryanair Strategic Analysis And Recommendations For The Future

Ryanair Strategic Analysis And Recommendations For The Future Ryanair is the first budget airline in Europe. Based on the case study of Ryanair by Eleanor OHiggins, a role of a management consultant is assumed to conduct a strategic analysis on the company. The report consists of the initial Environment Analysis conducted on Ryanair prior to the detailed strategic analysis that will be conducted in the future in order to provide the company with strategic recommendations for the future. The Environmental Analysis conducted consists of both an extensive analysis on the external environment and the internal environment. The external environment analysis is conducted in order to identify the nature of the environment Ryanair operates in and its impact on the strategic situation of the company. Through PESTEL, External factor and Industry analysis conducted, rejection of Aerlingus offer and rules and regulations imposed by governments etc. are recognized as the critical external environmental factor affecting Ryanairs strategy. An analysis of the internal environment through Value Chain model and SWOT analysis reveals the key issues hindering the strategic success of the firm; poor customer service and human resource problems. While this initial environmental analysis is used to assist the strategic analysis that is to be conducted on Ryanair, the importance of taking necessary actions regarding the critical issues is highlighted, CONTENT EXECUTIVE SUMMARY 1 CONTENT 2 1INTRODUCTION 3 2 OVERVIEW OF RYANAIR 4 3 CRITICAL ISSUES 5 4 EXTERNAL ENVIRONMENT ANALYSIS 6 4.1 MACRO ENVIRONMENT ANALYSIS (Appendix 1) 6 4.2 INDUSTRY ANALYSIS (Appendix 2) 8 4.3 EXTERNAL FACTOR ANALYSIS (Appendix 3) 8 5 INTERNAL ENVIRONMENT ANALYSIS 9 5.1 VALUE CHAIN ANALYSIS 9 5.2 SWOT ANALYSIS 11 Strengths 12 Weaknesses 12 Opportunities 12 Threats 13 6 CONCLUSION 14 7 RECOMENDATIONS 15 8 REFRENCE 15 INTRODUCTION Ryanair is the first budget Airline in Europe inspired by the U.S Budget Airline, Southwest Airlines. The report is based on the case study by Eleanor OHiggins, University College Dublin, and Republic of Ireland in 2007. The case by Eleanor OHiggins is based on the Strategy of Ryanair against the backdrop of the European airline industry and the burgeoning budget sector. The case discusses the opportunities and challenges faced by the industry and the firm. Leadership of Ryanairs CEO, Michael OLeary is highlighted. I will be assuming the role of management consultant identifying strategic management issues of the company. According to the contract between my consultancy firm and Ryanair my role is to conduct a strategic analysis of the environment, the industry, company in order to recommend new strategic initiatives and areas of improvement for the senior management team of Ryanair. Therefore an environmental analysis consisting of a macro environment analysis, industry analysis and internal analysis is carried out initially, in order to conduct detailed strategic analysis and provide recommendations in the future. 2 OVERVIEW OF RYANAIR Ryanair was founded in 1985 by the Ryan family to provide scheduled passenger airline services between Ireland and the UK, as an alternative to the then state monopoly carrier, Aer Lingus. Initially, Ryanair was a full-service conventional airline, with two classes of seating, leasing three different types of aircraft. Ryanairs objective was to maintain its position as Europes leading low-fares airline, operating frequent point-to-point flights on short-haul flights, mainly out of regional and secondary airports. The heart of its strategy was based on providing a no-frills service with low fares designed to stimulate demand, particularly from budget-conscious leisure and business travelers, who might otherwise have used alternative forms of transportation, or who might not have travelled at all. Company Vision- To firmly establish itself as Europes low fare, schedule passenger airline through continued improvements and expanded offerings of its low fare service.(Ryanair, n.d) Company Mission- To become Europes most profitable low cost airline by rolling-out proven low fare, no-frills service in all markets in which we operate to the benefit of passengers, people and stake-holders. (Ryanair, n.d) 3 CRITICAL ISSUES The critical strategic issues faced by Ryanair can be identified as follows based on analysis; Poor Customer Service where the customers are unsatisfied and face episodes of dissatisfactions due to the poor services provided by the unfriendly staff of Ryanair has been identified as the critical issue that can be identified by reading the case. The high insurance charges and the lack of services regarding safety terms, lack of comfortable seating and other facilities has lead to this negative word of mouth spreading with regard to customer dissatisfaction which is clearly identified. The other main issues that can be recognized can be unwillingness and failure to recognize unions where Ryanair is also fired for providing poor working conditions for its workforce. In July 2006 the Irish high court found out that Ryanair had bullied pilots and forced them to agree to a new contract, pilots had to pay à ¢Ã¢â‚¬Å¡Ã‚ ¬ 15000 for retraining on a new aircraft if they left the airline. In 2006 pilots of Ryanair lodged a pay claim stating that there is significant difference in take home pay between Ryanair and Aer Lingus pilots it also claimed that training pilots were working for nothing. Understanding that employees and the customers are the factors that decide the success of the company Ryanair should solve these critical issues. 4 EXTERNAL ENVIRONMENT ANALYSIS External Environment analysis in conducted to analyze the nature of the environment the firm operates in. It identifies the forces in the environment affecting the firm and its degree of impact. It also identifies the opportunities, threats and challenges faced by the company. The external environment analysis for Ryanair consists of a macro-environment analysis, industry analysis and external factor analysis. The macro environment scans and indentifies the general environment factors that can have an impact on the organization whereas the industry analysis focuses on the competitive situation of the company. 4.1 MACRO ENVIRONMENT ANALYSIS (Appendix 1) The macro-environment is composed of major external and uncontrollable factors that influence an organizations decision making, and affect its performance and strategies. These factors include the Political, Economical, Social, Technological, Environmental and Legal forces (PESTEL). These forces do not change frequently, but when it does, it has a major impact on the organization. The PESTEL analysis looks at the general environment in which the organization is operating in and helps to realize the risk associated with the market growth or decline. PESTEL is the abbreviated form of the following factors respectively Political factors that can be identified that will have a great impact on Ryanair are; Aer Lingus rejection to amalgamate with Ryan Air, security measures and restrictions, stable political situation and the new EU regulation compensation law. Economical factors include the depreciation of US Dollar, availability of efficient substitute transport methods and also reduction in distribution costs from customers adapting to online check-ins where identified as the factors that has high influence regarding the economical influence. Social factors are important to be identified as firms to be aware of these factors because they can directly affect the way the organizations manage the operations, more importantly human resources and marketing. Technological is also playing a vital role as many new advances in technologies can affect the way businesses are carried on. Technological developments represent a real opportunity for the skillful people who can understand and apply them appropriately and the key factors identified that would have a high influence are environmental- friendly aircrafts and availability of online transactions. Environmental factors for Ryanair include noise level controls, global warming, green house gas effects and corporate social responsibility policies and environmental protection laws. 4.2 INDUSTRY ANALYSIS (Appendix 2) The second stage of the external environmental analysis is to assess the industry environment and the aim of this analysis is to identify those factors that could contribute to or affect the industry profitability. To aid in the industry analysis, Porters Five Forces Model will be used. Porter developed a technique analyzing five forces that affect industry profitability known as Five Forces Model. These forces shape the industry and increase the intensity of competitiveness, and therefore, the profitability and attractiveness of the industry. This model helps to indentify the dynamic factors of the industry and the market to compete effectively. 4.3 EXTERNAL FACTOR ANALYSIS (Appendix 3) The EFAS table is one way to organize the external factors into the generally accepted categories of opportunities and threats as well as to analyze how well a particular companys management responds to the specific factors in light of the perceived importance of these factors to the company. The factors which were identified as important were put in to this table to determine if they were opportunities or threats for Ryanair. According to EFAS, the key threat imposed on the company is the current political and legal factors and the increasing oil prices. The customer attitudes towards Ryanair is positive and the friendly environment of aircrafts which are seen to be key opportunities that can help lessen the effects of threats faced by the organization. 5 INTERNAL ENVIRONMENT ANALYSIS The internal analysis aids in discovering the strengths, resources, capabilities and activities that the organization possesses in order to perform better than their competitors and those that add value to customers. To indentify the key strengths, weaknesses resources and capabilities of Ryanair, the Resource-Based View and the Value Chain Analysis will be used. 5.1 VALUE CHAIN ANALYSIS The vale chain is a set of activities that the organization undertakes or organizes to deliver the product to the customer. A value chain has two broad categories: primary activities and support activities. Primary activities represent the sequence of activities inbound logistics, operations, outbound logistics, marketing/sales and service through which raw materials are converted into benefits enjoyed by customers. Support activities are those tasks that contribute or assist the firms primary activities and include -procurement, technology development, human resource management and infrastructure. A value chain analysis performed for Ryanair is shown in appendix 04. Each activity executed is value-adding to the organization and its customers. 5.2 SWOT ANALYSIS Strengths Company reputation first cheapest budget airline in the European industry Innovative cost reductions Use of new environmental- friendly aircrafts Substantial market growth Largest web site in traveler industry 5thmost recognized brand. Labor force of diverse cultures to better serve customers No fuel charges imposed on customers Work-life-balance practiced to prevent overflying for pilots and unnecessary accidents. Establishment of a safety committee. Weaknesses Refusal to recognize unions Decreased customer satisfaction Poor customer services no refund for cancellations, no accommodation provided for flight delays, etc. Over dependency on Michael OLeary Opportunities By merging Ryanair with Aer Lingus it gives them better advantages such as being more efficiency in the industry, will be able pay to lower tax and operation cost as well as will be able fly to more destinations. By choosing Sub-Main Airports to reduce Airport Charges Rather than choosing main air port and paying more money to them. It facilitated the introduction of new consumer oriented innovative Service. Threats While new service was introduced it was rejected 72% by poll readers of the Financial Time. As well as passengers have resisted paying à ¢Ã¢â‚¬Å¡Ã‚ ¬8 to rent a games and entertainments console, probably because it was not worthwhile for short flights. Keeping the staff training and aircraft in a fleet commonality makes the Ryanair in a probable condition Due to noisy environment customers will avoid choosing Ryanair mean time it would be only a second choice for them. Gurdidian Newspaper say that insurance fee Ryanair charge from each passenger is very much high. Such shocking news avoids customers to book their own ticket. 6 CONCLUSION The external environment analysis is conducted for Ryanair in order to assist the future strategic analysis assuming the role of a management consultant. Both the external and the internal environments of the company is critically analyzed using tools such as PESTEL, Five forces model, Value Chain and SWOT analysis. The critical issues facing Ryanair can be identified as poor customer service and human resource management issues. With regard to Ryanairs external environment, the following forces can be identified as having a critical impact on the firm; rejection of Aerlingus offer and rules and regulations imposed by governments etc. According to the Value Chain Analysis, Ryanairs core competency and critical success factor is identifies as its low cost. SWOT Analysis further confirms that and also points out the weaknesses such as poor customer service and inefficient human resource practices which may eventually prove to be costly for Ryanair and hinder the effectiveness of its competitive advantage. 7 RECOMENDATIONS The environmental analysis is used as an initial analysis for the detailed strategic analysis which will provide recommendations to Ryanair. However based on the environmental analysis some initial recommendations can be made. The critical issues facing Ryanair is identified as poor customer service and human resource management issues. It is important that Ryanair attends to these critical issues immediately. Therefore Ryanair could Recognize labour unions; be more people oriented to improve employee relationships and encourage career development in order to efficiently manage their Human Resource in the future and there by achieve high employee commitment leading to a successful workforce. Improve the customer service they offer while minimizing cost. This could be achieved through improving the quality of training given to frontline employees and managing through a TQM (total quality management) 8 REFRENCE Beamish, H. R. (2008). Strategic Management. (3rd edition). New South Wales, Australia: Pearson Education Australia. BusinessDictionary.com (2009). Retrieved August 20, 2009 from http://www.businessdictionary.com/definition/macro-environment.html Hill, C. (2007). Strategic Management: An integrated Approach, (2nd edition.). Australia: John Willey Sons Australia, Ltd. Hubbard G. et al. (2008). Strategic Management. Pearson Education Australia. OHiggins, E. (2004). Ryanair Report. Wheelen T. L. Hunger J. D., (2000). Strategic Management and business policy. 7th edition.