Ryanair chose point to point low cost flying strategy over the hub spoke strategy applied by many other airlines. Ryanair airline flies to about 150 destinations serving more than 25 countries across Europe and Morocco. It is characterized for short haul routes between secondary and regional airports. Ryanair has 35 airport bases with airports at Belgium, France, Germany, Italy, Spain, and Sweden, as well as in Ireland and the UK.
The Key strategy that the Ryanair airline has adopted is its low cost, Passenger friendly, point to point operational strategy. Ryanair keeps in mind the interests of consumer while planning its Strategic activities. Ryanair has understood the requirements of an average consumer and tries to meet it without increasing cost overhead. Whenever faced with a competition in the market by another airline, Ryanair responses by reducing the fare and capturing consumer market.
Capabilities, knowledge and intellectual assets. Ryanair has gone through a slow growth period building on its strength and removing its weaknesses. With time it has gained knowledge of market and consumer demands and requirements. It has read the mind of consumers and improved its product molding to consumer needs. Over time using this knowledge base Ryanair has designed a business model for its working. The key elements of this model have allowed Ryanair to succeed time and again. This business model is not based on a nights thought but it has rather evolved with the company itself. This is the intellectual asset of the company.
Structure, Culture and value added. With time Ryanair airline has structured its activities and refined its infrastructure. It employs about 6000 people and has established good relationships with the employees allowing them to participate and benefit from the growth of the company. In the market Ryanair has set a culture of consumer satisfaction and caters to consumer needs effectively. It understands the price sensitivity of consumer and appeals to that nature by keeping low fares that enables consumer to choose Ryanair for travel time and again. This would generate revenue and add to the stockholders share adding value to the airline. Adding value to the company can depend on many factors such as making yourself an appealing choice for the consumer, motivating employees to keep them working, investing in good airplanes for better service.
Strategic Situation. The strategic situation of any company is a sound proof of determining the direction in which the company is heading. It may be planning good strategies and implementing them and moving in a positive direction for future growth or on the other hand the company may either fail in identifying key elements of for its strategic growth or if correctly identified it may exhibit poor implementation of its strategic plan or maybe just neglecting an important area of strategic importance and this may lead the company in the wrong direction contributing to failure and losses.
Regular revisions of company’s status and financial and operational evaluation are a must for successful growth of the company.
The strategy of Ryanair to capture market through its low cost operations has maintained a growth level for Ryanair even when the whole airline industry faces a tough time.
Let us perform a financial evaluation of Ryanair to gain insight. The Ryanair earns revenue through their ticket sales which increases stock value. The cash earned covers the costs incurred like staff wages fuel and oil costs and other operating costs. The rest of the money is profit for stakeholders which may be invested for further expansion to generate more revenue. Ryanair Company’s revenue is on the increase, with an annual sale of $3,884.9M in the fiscal year ending March, 2009. The year’s percentage growth was 9.3% with a net income of $223.4M. This depicts good financial position. Ryanair insists on offering low cost fares in European countries in an effort to increase sales continuously.
Ryanair share price growth: Jan-09 to Jul-09. Now let’s see the operational aspect of Ryanair airline. Ryanair brought a new cost driven strategy to the market by its understanding of consumer’s price sensitive nature. This strategy led to success and growth for the airline. The idea behind this strategy is to operate on a point to point basis instead of applying hub and spoke structure. Ryanair keeps its cost minimal with fuel hedging and save on agent cost by making online reservations available. These cuts on costs allow Ryanair to offer low fare to increase sales.
The strategic analysis of Ryanair brings to light following strategic alternatives and options that must be applied individually or in congregation for continues growth and future expansion of Ryanair Airlines
Option1: Ryanair has operated on a low cost operation strategy until now. New strategic evaluation should be made to continue low cost operation in a weak airline industry position.
Option2: Ryanair should invest in the purchase of more aircrafts to expand company operations.
Option3: Ryanair should investigate new countries where it can establish its base and start service keeping to its low cost strategy so as to capture new markets for potential growth.
Three strategic options have been put forward for future growth and expansion of Ryanair. Let us explore each option weighing its pros and cons.
Option1: The first strategic option is an expansion and revision of the key business model already employed by Ryanair to get to the position it is at today. But Strategies need revision, a strategy that worked well before may not be applicable now or maybe a new dimension has added to it. The airline industry grows weak day by day with growing pressures of labors, dropping consumer demand and less uniqueness of service offered by airlines. Such a scenario requires a strategy revision for Ryanair to see if it can maintain its low cost service in such conditions.
Option2: Ryanair is a company that is generating revenue and gaining profit. This profit must be properly invested in new aircrafts that may be contributed towards expansion and future growth of company.
Option3: Ryanair has sound operation in the areas in which it is providing service but it is not enough. With continuous change in consumer market, Ryanair needs to explore new territories. Efforts should be made to find new destinations where low cost operation strategy could be implemented with ease further increasing revenue for the company and providing future growth.
The above strategic options provided for growth of Ryanair airline in future are interlinked and can be collaborated into a strategic planning for Ryanair that would take it on a long road to success. Currently Ryanair is operating point to point at highly profitable destinations maintaining its low cost fare strategy. This strategy has generated strong return for Ryanair but still concerns remain regarding the current strategy’s potential for sustained growth over a long period of time. Though Ryanair has employed fuel hedging to lower fuel cost but it will cover only this years fuel costs. These increasing fuel costs are a major concern throughout the airline industry and Ryanair cannot exempt itself from it.
In addition to fuel cost, labor costs are also a growing issue for Ryanair. Since, Ryanair has had good working relationships with its employee it has not been a victim of strikes and demands but to keep safe from these hazards Ryanair should begin to plan strategy now. Issues like employee disputes, dissatisfaction with salaries and non convenient working shifts should be considered and counteractions should be planned in advance.
Although Ryanair has a good financial situation but this may act negatively by creating ideas in employees mind for benefits and bonuses. To reduce and maintain its labor costs Ryanair must work toward good management employee relationship motivating the employees for quality work in minimum incentives.
The next step in the strategic planning for Ryanair is to expand its services to new horizons. Ryanair should maintain its current operational strategy but with increase in service destinations to gather market share and facilitate future growth. Current market conditions and lack of competition may help Ryanair in securing solid position at new destinations.
With increase in number of destinations Ryanair should also plan the purchase of new aircraft to support its new market needs. Currently Ryan air has a fleet of 220 Boeing 737 which is a well suited aircraft for Ryanair’s operations.
Key Strategic decisions
Here are the summarized key decisions that Ryanair must take for future progress:
This positive relationship between management and employees has been an integral part of the culture that has allowed Ryanair to excel in the airline industry. In negotiating new agreements, Ryanair should persuade the unions that maintaining low labor cost is essential for stability of the company. However, Ryanair must be careful in these negations not to damage the positive management-employee relationship. If Ryanair destroys its positive work environment, it would be cutting costs for labor only to have decreased labor efficiency.
For expansion of Ryanair services to new destinations the strategy planning teams should be organized and extensive research should be made to choose new destinations keeping the important factors in mind like consumer demand in the area, economic and political factors, existing competition etc. High competition areas should be avoided as they would not help in sales increase.
A positive investment should be planned in the purchase of new aircrafts to accommodate planned expansions for service to new destinations.
Resource and timing implications
Ryanair service many parts of Europe but they don’t have access to all major cities. With many other airlines sustaining losses and backing from areas of service now is the time for Ryanair to move in these markets and establish its own market. As other major airlines are forced to back out due to their losses Ryanair can increase passenger capacity in these locations and enjoy primal position.
The study was made to establish current strategic position of Ryanair in the airline industry and having found that Ryanair has a good position and strategic situation, further suggestions and recommendations were made for continual strategic revision and future growth of the company. The study material and researches that helped gain insight can be found in References section. The study was conducted over with the help of financial and strategic data gathered from reliable sources and this study depicts a very clear picture of the success of Ryanair if strategic recommendations are put to effect. Although there are always limitations when making such study about the collection of data and research methods applied for the development of strategic plans. This is just a report for providing insight into the company’s status and potential for future growth.