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The purpose of this report is to assess the results of two inquiries regarding the competitiveness of the European airline industry, with a specific emphasis on Ryanair. Referred to as 'the low cost fare airlines', Ryanair operates within this sector (Seminar Case Study, 2013). The initial inquiry analyzes the competitive environment in which Ryanair functions, incorporating both the Airline Industry and Ryanair cases. This report commences with an introduction.The European Airline Industry is overseen by the Association of European Airlines, which collaborates with 31 popular airlines and has supported the industry for over 50 years.
To ensure continuous growth, the AEA partners with the EU Union.
Thanks to EU deregulation, Ryanair has been able to expand its passenger base and fly to more destinations in Europe. Consequently, Ryanair has gained rapid recognition and received international awards, such as Best Managed Airline and the 2009 FT-Arcelor Mittal Boldness in Business Award. (Seminar Case Study, 2013 p.p 618) PESTEL
The purpose of the question is to analyze the competitive landscape of the European Union industry that Ryanair operates in.
PESTEL analysis is a method used to determine the major external factors that significantly impact organizations.
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(JISC Study, 2012) The objective of PEST is to identify key influences from the external environment.
Take advantage of the present external factors impacting EU Airlines and organizations. Determine the potential future changes in external factors. This will allow you to capitalize on opportunities and find effective strategies to counter threats more effectively than your competitors. Political
The European Airline Industry and all other industries must be aware of changing government policies, as failure to comply could seriously jeopardize organizations.
In the EU industry, all airlines are charged a fee by the government for landing at airports.
The prices vary depending on the airport, number of passengers, and airport facilities being utilized. Rynair, in an effort to be cost-effective, strategically chooses to depart from airports located far from city centers, such as Gatwick and Luton (Rynair Official Website, 2013). Additionally, all airlines charge passengers a taxation fee for flying. This fee is typically included in the ticket price and varies based on factors such as the number of passengers, the destination airport, and the duration of the itinerary. The rise of "no frills" carriers has led secondary regional destination airports like Stansted to construct a second runway, resulting in significant changes to their airport charges (UK Civil Aviation Authority, 2005).
Based on the case study, various economic factors were addressed, such as the recession of 2008/09 that had a significant impact on the EU airline industry. This recession resulted in higher unemployment rates and restricted credit markets, leading to reduced consumer spending for both leisure and business activities (Seminar Case Study, 2013 p.p 625). Consequently, Ryanair experienced an increase in consumer demand but had to raise fares and decrease yields due to the recession.
If the recession continues, Ryanair may have to reconsider its business strategy because it does not have enough capacity for expected passenger growth. Changes in exchange rates can greatly impact an airline's profits. For example, when the value of the US Dollar and Euro decreases, EU Airlines and Ryanair can purchase more at lower prices. EU Airlines must consistently purchase fuel to ensure efficient service as this is their biggest expense. The price of oil has had a significant effect on Ryanair's income statement, especially in 2009 when they paid €1,257,062.
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Source: (Seminar Case Study, 2013 p.p 620). Social and environmental factors are primarily influenced by demographic trends, specifically the aging population and changing consumer preferences. These factors are difficult to measure and predict as they are closely tied to the price of the service. The aging population affects Ryanair's performance as it results in a shift towards land transportation, which requires easy access to central town/city areas for elderly passengers. Ryanair's consumers have a highly positive attitude towards the web check-in system, which has become a strong social factor in meeting consumer expectations (Seminar Case Study, 2013 p.p 622). Additionally, social factors such as terrorism and natural disasters lead consumers to resist flying and choose to stay at home, which has an impact on the entire EU airline industry. Technological.
Technology is essential to Ryanair's success and enables its Research and Development system to take advantage of the basic standards provided by its competitors. The company has embraced technology by using Skype for conference calls, saving time and money. The internet has also been a valuable tool, helping the organization avoid unnecessary expenses. Ryanair's "e'tailers' website" and web check-in facilities have been well-received by consumers, allowing them to save time and money. The Boeing 737 Airplane, with its advanced engines that produce fewer emissions and consume less fuel, supports Ryanair's cost reduction strategy. (Seminar Case Study, 2013 p.p 623) Environmental Factors
The European Union (EU) has become increasingly concerned about emission and noise pollution, leading to the implementation of the Emissions Trading Scheme in 2012 as a preventative measure for the aviation industry. Ryanair, as the world's most adversely affected airline, was predicted to face a deficit of 2.8 tonnes in CO2 allowance, resulting in an additional cost of €40 million. As a result, they have acknowledged the necessity of extending this scheme to include efficient carriers, despite their aircraft's minimal pollution levels (Seminar Case Study, 2013 p.p 626).
The EU Airline Industry abides by employment law and consumer protection law. The EU has implemented stricter regulations to ensure that consumers are satisfied with their flight investments. In 2005, a new legislation was introduced to guarantee full compensation to consumers for delays, cancellations, and denied boarding. This regulation applies to Ryanair as well, increasing their compensation to 250 euros based on the average distance of their flights. (Seminar Case Study, 2013 p.p 625-626) Ultimately, these measures aim to improve consumer satisfaction in the industry.
In conclusion, the primary issue for EU airlines and Ryanair is the high cost of oil. It has been demonstrated that the exorbitant price of fuel greatly impacts Ryanair's profits and highlights the industry's vulnerability to oil price fluctuations. Furthermore, advancements in technology have improved services for consumers in the EU Airline Industry. Ryanair's website allows customers to book flights, insurance, accommodations, and car rentals, contributing to their current reputation. By effectively managing both standard and extra-mile expectations as a low-cost airline, Ryanair has become efficient and successful in the long term. In response to consumer demands, EU Regulations have implemented stricter policies for airlines, providing customers with the ability to seek compensation for issues. The second question will examine Ryanair's business model, including its overall strategy, strengths, and weaknesses, and explore how the airline is able to achieve above industry average performance.
Customer Segment
Ryanair focuses on customers who are willing to pay a lower price for direct travel from point A to B, without any additional amenities. Customers understand that they will incur charges for any extra services required during the flight, including meals, drinks, and headphones. Although Ryanair is not known for offering a comfortable journey or outstanding customer service, its affordability greatly appeals to customers.
Ryanair is known for its affordable prices compared to other airlines like BA and Easy Jet. Although their customer service is not the best, Ryanair has a good reputation for flight safety, giving customers a dependable experience (O’Higgins, 2010). Additionally, they prioritize punctuality, have few cancellations, and rarely lose baggage. These benefits are effectively communicated through various channels.
Ryanair's primary objective is to effectively communicate with customers and offer them a valuable proposition (Osterwalder, 2010). The airline primarily utilizes the internet as its main distribution channel, with online flight bookings accounting for 99% of total bookings. Additionally, Ryanair maintains a strong marketing presence through advertisements on television, radio, and newspapers to extensively promote the company (O'Higgins, 2010). In conclusion, Ryanair places significant emphasis on cultivating positive customer relationships.
It is evident that Ryanair does not prioritize fostering positive customer relationships with its passengers. This is clearly seen in their strategy of limiting the recruitment of cabin crews in order to save on training and wage expenses. Ryanair constantly seeks innovative ways to minimize costs in all areas of their business model, with a primary focus on cost-effectiveness rather than building customer relationships. One example of this is their customers' reliance on the "self-service" approach by purchasing tickets online, which eliminates the need for face-to-face interaction usually encountered when booking through a travel agent. Revenue Streams
Ryanair's primary revenue stream is ticket sales. In order to boost their income, Ryanair has introduced additional services such as insurance, accommodations, and car rentals. Customers have the choice to purchase or decline these services based on their requirements. This strategy enables Ryanair to enhance its earnings through innovation.
Ryanair made four attempts to acquire Aer Lingus, but encountered resistance from the European Commission and shareholders. However, Ryanair still holds a 29.8% stake in Aer Lingus (Financial Times, 2013). The company's overall strategy is to persist as a low-cost airline.
The current strategy of Ryanair is to become the top low-cost producer in the industry, aiming for low-cost leadership. According to Air Transport Magazines, they were the most profitable creators in the five years leading up to 2009. (Case Case Study, 2013) Ryanair's realistic attributes support their generic strategy as they offer cheaper fares than their competitors, such as Easy-Jet and Air-Lingus. (Science Direct, 2013) Their objective is to minimize costs whenever possible, allowing them to maintain high profits. By targeting price-sensitive customers, which is currently a broad target market, Ryanair is able to keep their costs low.
According to Kotler et al, 2009, Ryanair is praised for its strong ancillary services which greatly contribute to its revenue. These services include on-board beverage, food and merchandise sales as well as car rentals, accommodation and travel insurance. They have successfully met the expectations of many customers. In 2009, these ancillary services generated € 598 million for Ryanair, accounting for 20% of their operating revenue. This demonstrates their ability to increase sales while reducing unit cost.
However, Ryanair also has weaknesses.
Ryanair, despite being a budget airline, has a tendency to engage in controversial behavior that can harm its reputation. One example of this is their plan to charge passengers £1 for using the onboard toilets, which garnered significant attention but was considered unrealistic by consumers. Another controversy arose when Ryanair proposed implementing a 'fat tax' for overweight passengers, an idea that found support from one in three respondents in an online poll. This feedback highlights the need to avoid excessive controversy while maintaining the airline's low-cost approach. Additionally, Ryanair faces a weakness with its reliance on secondary airports, limiting its ability to attract passengers who prefer closer airports and creating opportunities for competitors. However, despite these shortcomings, Ryanair still outperforms the industry average.
According to a case study, the airline industry is experiencing a decline in performance. Customers tend to prefer flying with "low cost, no-frills" airlines, particularly within Europe where flight journeys are short. This is because consumers want to pay less while still reaching their destination. Therefore, there is no need to pay twice the ticket price for other expensive airlines like BA when the same mission can be accomplished at a cheaper price. Micheal O'leary stated that passengers are seeking cheap tickets, and this is where Ryanair excels. In addition, Ryanair, being a low-cost airline, has won the Best Managed Airlines award, demonstrating the high demand for their services. Moreover, Ryanair is a well-known brand overall, thanks to Michael O'Leary's public relations efforts. Compared to its competitors, Ryanair consistently maintains an efficient industry average performance due to their low-cost strategy, which attracts many price-driven customers, especially during times of recession and crises. In conclusion, Ryanair constantly adapts its model to the European markets and changing conditions as the costs continue to decrease.
Conclusion: Ryanair's success in the European Airline Industry can be primarily attributed to their cost-effective generic strategy. Unlike other airlines, they are able to survive and generate profits even during economic downturns by reducing overhead costs and offering cheaper services. This has helped establish Ryanair as a prominent player in the industry. It is important to note that their business model is based on that of southern airlines, which contributes to their long-term success. Additionally, the presence of Micheal O'Leary has played a significant role in Ryanair's current power, and the future success strategy will largely depend on how they manage without him.
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Assessing the Competitiveness of the European Airline Industry. (2016, Mar 24). Retrieved from https://studymoose.com/ryanair-case-study-questions-essay
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