Fuel prices in 2012 were projected to increase by forty percent compared to 2009 levels (§1.15). The airline industry, low-cost and conventional carriers alike are taking a heavy toll from the fuel price hikes, which have contributed to a surge in operating costs up to twenty-nine percent(§1.15). Ryanair, a low-cost carrier, wasn’t spared by the rising operating expenses that plagued the airline industry. Nevertheless, Ryanair’s position as the leading low-cost carrier and its strategies has turned the unfavourable macro-environment to its advantage. In the face of rising fuel prices and economic recession, the macro-environment appears to be favourable to Ryanair.
Many models are available in the analysis of economic entities. The question is: Which model is better suited to a certain situation? In analysing the macro-environment of Ryanair, the business model of choice would be the PESTEL model. The PESTEL model consists of six categories namely: political, economic, social-cultural, technological, environmental, and legal. These categories consider the external environment the firm under analysis, addressing the macro-environment of Ryanair through its categorising different factors.
Whereas the VRINE, five forces, and value chain models are focused specifically on industry environment rather than individual firms. Furthermore, the SWOT analysis is suited to examining the internal and external status of a firm, making it not as suitable as PESTEL model in analyising the purely external factors of Ryanair. Ultimately, the p-model and marketing process are used for implementing marketing strategy; which are irrelevant in the discussion of the macro-environment of Ryanair.
The political aspect of the PESTEL model reveals some unfavourable factors facing Ryanair. These factors include the future implementation of the European emissions trading scheme, the prohibition of single pilots in planes, and politicians that favour state run airlines. The economic category reveals increasing fuel prices and a global economy facing recession leading to shrinking consumption. The environment category shows the eruption of the Eyjafjallajokull volcano in Iceland, which led to the cancellation of numerous European flights. However the factors mentioned in the political, economic, and environment categories of PESTEL do not weigh heavily against Ryanair. The reasons being that the factors listed affect the entire airline industry as a whole, rather than Ryanair individually. The social-cultural factor exposes that the modern consumer is willing to accept basic service in return for cheaper fares regarding air travel. “…commercial air passengers are not delicate creatures whose repeat business depends on free pillows, blankets, and tea (§5.16).”
Ryanair’s low-cost policy is well adapted to this shift in trend by consumers after the global recession. The success of Ryanair’s low-cost policy is demonstrated through their passenger growth of six percent in 2013 (§3.15). In addition to the social-cultural, the technological category presents favourable aspects to Ryanair. The introduction of Chinese aircraft manufacturer, Comac; whose planes are ten percent cheaper than traditional airplane manufacturers, presents another opportunity at cost reduction for Ryanair (§11.17).
The PESTEL analysis illustrates both favourable and nonfavourable factors in Ryanair’s macro-environment. The political, economic, and environment categories do not present favourable factors, nevertheless their arguments are outweighed by positive factors of the social-cultural and technological factors. Through the PESTEL model one can determine that Ryanair’s macro-environment relatively favourable to it.
Courtney from Study Moose
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