Ryanair low cost airline

Ryanair low cost airline Introduction This case study highlights some aspects of Ryanair low cost airline operation. The company was the largest airline carrier by passengers and market capitalisation in the year 2009. The company based its operational model on the low cost strategy in order to increase its market shares and reduce costs. This model proved suitable during the economic crisis of 2008. The company also has a huge potential for growth as the EU low fare airline markets expand.Advertising We will write a custom case study sample on Ryanair low cost airline specifically for you for only $16.05 $11/page Learn More Ryanair has also introduced ancillary services to increase its revenues. However, some these strategies are not popular with customers. In addition, the company also suffers from negative publicity due to its treatment of customers and persons with disabilities. Still, Ryanair also has challenges related to legal issues, fierce competition, EU ban, regulatory me asures and costs, and fuel costs among others. The company needs a new strategy for its future operation. This should focus on reducing its risks and improving its market share. Current mission/objectives and strategy Low fare Ryanair operates on a low cost strategy. Customers and competitors know Ryanair for low prices. The company underwent restructuring in the 1990s and changed policies that eliminated free services. Ryanair has been operating as no frills passenger airline. The company has relatively low fare in relation to its competitors. However, Ryanair also has some of the most controversial charges in the airline industry. For instance, Ryanair has additional charges for passengers using wheelchairs, infant fees, baggage charges, check-in fees, and onboard toilet fees among others. Such fees related to wheelchairs, and how the company treats persons with disabilities have attracted controversies and negative publicity among stakeholders. In all, the low price strategy has positioned the airline as the cheapest in the European markets, and it constantly changes its strategy to match the European market (HOggins 618). The company also has some serious challenges from both inside and outside. These include poor customer services, legal challenges, fierce competition, regulation requirements, and poor relations with unionists among others. Low maintenance cost The low cost model has also resulted into low maintenance cost strategy. For instance, the company reduced its operating costs by 4 percent. The company maintains its costs as low as possible due to its fleet and staff. This approach also covers environmental area as the company strives to invest in environmental friendly fleets. These fleets are also fuel-efficient. The companys low maintenance cost also includes staff training. Ryanair also reduced flight frequencies in loss making routes in the UK and Ireland.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Ancillary services Ancillary services are also core parts of Ryanair strategy. This strategy aims at increasing the airline’s revenues. The company has in-flight beverages, food, online and onboard gambling, mobile phones, ‘fat tax’ for overweight customers, and sale of merchandise for extra revenues. In addition, Ryanair also has accommodation, car rental and travel insurance services. According to Ryanair financial statements of accounts, revenues from ancillary services have been growing steadily for the past three years, i.e., from  £3.6 million in 2007 to  £5.9 million in 2009. However, not all these ancillary services, such as gaming and entertainment console were successful as they met resistance from passengers. Expansion strategy Ryanair also has an aggressive expansion strategy. For instance, the company expects to operate 300 fleets by the year 2012. Meanwhile, Ryanair has inves ted in new and environmental friendly flights. The company reduced operation in loss making routes of the UK and Ireland, but replaced them with profitable routes in Germany, France, and Spain. The company took advantage of diminishing carriers and planned to open 146 new routes in 2010. At the same time, Ryanair also focused on increasing its market shares. This was also evident in the failed takeover attempt of Aer Lingus. Productive Employees Productive workforce strategy is also a strategy in Ryanair, and this starts from the CEO. The company nearly doubled its staff during the last three years of operation. Ryanair claimed that it paid its crew better than any other airline company. For instance, in 2009, the company Annual Report claimed that it paid an average of  £45,333 higher than other companies. In addition, pilots and other cabin crews negotiated new pay deals with the company. These negotiations aimed at maintaining a healthy workforce and complying with the EU regul ations. Web site advertisement Ryanair marketing strategy aims at positioning it as a low cost airline company. Ryanair has exploited Internet marketing opportunities and in turn eliminated travel agents. The Web site has been the primary tool that the company uses to advertise its low cost services. Consequently, Ryanair promotes its Web site on newspapers, radio, and television. This effort has ensured that 99 percent of the booking takes place via the Internet.Advertising We will write a custom case study sample on Ryanair low cost airline specifically for you for only $16.05 $11/page Learn More Ryanair is sensitive to costs. Consequently, it relies nearly on free and controversial publicity. These include topical advertising, press conference and publicity stunts. In addition, the company also relies on distributions of promotional and advertisement materials, cooperative advertisement with other travel organisations and tourist boards. Internal and ext ernal environment Economic factors Michael O’Leary commented that â€Å"an economic recession is good for Ryanair, as it can survive it better than airlines with higher pricing models† (HOggins). The globe recession of 2008 was the major economic factor that Ryanair faced. Economists like McConnell, Brue, and Barbiero claim that shifts in the economic patterns influence organisations operation (McConnell, Brue and Barbiero 34). The prevailing economic conditions influenced how passengers, sellers, and other stakeholders in European markets behaved. Airline companies diminished because their business models could not withstand recession challenges. However, as we have seen above, the recession created opportunities for low cost airlines like Ryanair. Ryanair was able to exploit the vacuum that other companies created. As a result, the company did not experience thorough effects of recession due to its business strategy of low cost. Instead, the company increased its ope ration to become among the best airlines in the region. From this observation, we can conclude that Ryanair business model was recession proof. However, tough economic conditions also had its effects on Ryanair. For instance, the company share prices dropped, revenue plummeted and it cancelled expansion decisions due to costs. The UK and Ireland routes became unproductive and forced the company to cut its operation in those routes. Ryanair was also able to exploit the favourable fuel prices in order to offer low fare fleets that no other company could achieve. In 2009 to 2010, the company managed to hedge 90 percent of its fuel costs and saved  £460 million. Political factors These are mainly regulations, taxes, and other related political factors. In this case, Ryanair must abide by EU regulations on airline operation. For a long time, Ryanair CEO has engaged in high-profile wars with the EU and British Airport Authority (BAA). For instance, the CEO accused the EU commission of b ias towards low fare airlines.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The company noted that the EU Commission prevented its agents from booking low cost airlines. This is a case of regional regulations affecting activities of Ryanair. At the same time, the Commission’s fixed charges also discriminate low cost airlines (Ryanair 2012). According Ryanair, this is discrimination against low fare airlines. At the same time, BAA has also imposed charges that affect the company’s revenues. For instance, the UK government planned to raise passenger charges from  £10 to  £11. Social factors The CEO can control the company’s image and its relationship with customers. This is because such factors affect consumers’ emotions, attitudes, opinions and interests about Ryanair services. Some of these social factors have generated negative publicity for the company. These may include relations with disabled and overweight passengers. At the same time, passengers who prefer service-oriented flights may not find high quality services in R yanair. Brassington and Pettitt note that social factors are priority concern to marketers (Brassington and Pettitt 24; Solomon 39). Technological factors Ryanair is technologically evolving company. The company conducts its 99 percent of bookings through its Web site. Ryanair noticed convenience that online services provided to its customers and the company. Therefore, the company advertises its Web site in different media. Technological developments have transformed the way airlines conduct their management processes (Kotler, Wong, Saunders and Armstrong, 2005). Legal factors The company has some of the most expensive lawsuits in the industry. Consequently, its operation costs have increased. The company has faced charges from regulators, competitors, passengers, and it is also in poor relations with trade unionists, politicians, and people with disabilities. Environmental factors Environmental factors also influence activities of Ryanair. The company embarked on using modern airc rafts and maximised usages in order to reduce emissions. At the same time, Ryanair also claimed that its decision to eliminate free food, beverages, and newspapers had reduced waste products from the company fleets. Ryanair SWOT Analysis Strength Low fare strategy Environmental friendly fleets Ancillary revenues generation Web site booking Few flights cancellations Weaknesses Poor customer services Overreliance on CEO Negligence on security issues Opportunities Growing EU markets Provisions of ancillary services Expansion of marketing strategies Investing in environmental friendly flights Using hedge to save on fuel costs Threats Expensive lawsuits Competition from other low fare flights and large flight companies, alternative modes like train EU ban on low fare flights Different states regulations and charges Unproductive routes like Ireland Customer resistance to some revenue generation strategies Negative publicities Map and determine the organizational stakeh olders’ expectations power and influence Shareholders High Power hareholders of Ryanair have significant power and control over the future of the company strategies (Roloff 233). Shareholders expect returns from their investments. However, since the year 1996, the company had never declared or paid dividends on shares. The company believes in retaining earnings for future expansions, acquisition of new fleets, and expansion of current services (Svendsen 85). However, shareholders of the company expect their dividends after 2012. We can also see how shareholders influenced Ryanair’s strategic decision to takeover Aer Lingus. Employees The company’s management team and employees have been responsible for its current position. Ryanair believes that it pays its employees relatively well above the average of other airline companies. For instance, the company report of 2009 claimed that the staff cost was  £45,333 above other European airlines. Employees can also n egotiate for favourable pay with the company, but their power is low. However, Ryanair also expects its employees to deliver positive results. Lenders Lenders have high interest in the company because of business advantages. However, their power to control the company’s decisions is low. Government /Regulators These groups influence all the company’s policy, charges, and decisions among others through their regulatory and tax measures. The company cannot consider decisions that go against governments’ wishes. Thus, their interest and power in the company remain high. Customers In a world of fierce competition, Walker and Marr believe that customers are key stakeholders for success (Walker and Marr 13). The company is favourable among low fare airlines in European markets. Customers expect fair treat and quality services for charges they pay. Though Ryanair is a low fare airline, the company has formulated some of the most controversial methods of charging custom ers extra fees. Some of these methods are not popular among its passengers. Ryanair charges persons with disabilities who use wheelchairs onboard. This move has generated debate on how the company handles its disabled customers. At the same time, the company also targets overweight passengers with its ‘fat tax’ charges. However, the ‘fat tax’ led to wastage of time and the management eliminated it. Some of these ancillary services for extra revenues have generated negative publicity for the company. In fact, critics of the airline believe that passengers use it because it is a low fare airline available in most routes. Competitors and Suppliers Competitors and suppliers are also important elements of Ryanair. We can look at fierce competitions among airline companies of Europe. These companies have based their battles on prices. Ryanair uses different media to compare its prices with its competitors. In turn, competitors have accused it of misleading passen gers. Competition among these organisations is responsible for the growth of the airline industry in Europe particularly the growth of Ryanair. The relationship between Aer Lingus is also crucial as it affected profits of Ryanair. Aer Lingus is a fierce competitor of Ryanair. However, Ryanair has 25.2 percent stake in the company. The deteriorating fortunes of Aer Lingus meant losses to Ryanair shareholders in the year 2009. As a result, Ryanair CEO admitted investment in the company was a mistake. In this case, the company could have sold its shares before accruing further losses (Lock 67). Another relationship of significance is the interaction between Ryanair and its suppliers. Ryanair attempted to expand its fleets in 2009, and the company invited Boeing and Airbus. The invitation of Airbus was a strategy that the company wanted to apply in order to get a massive discount from Boeing. Airbus declined because the process would be expensive and time-consuming. On the other hand, t alks with Boeing collapsed. These cases show how Ryanair management use different strategies in order to keep costs as low as possible. Formulation of new strategic direction for the organization This was the largest airline carrier by passengers and market capitalisation in the year 2009. In fact, the airline and its management have won several awards. In addition, its low cost strategy proved recession proof in 2008. However, the company must address some concerns for future growth by balancing its strategic direction with revenue generation, legal issues, market dynamics, and industry relations among others (Kaplan and Norton 56). Home Business Ryanair should emphasise weekend travel and last-minute travel and provide the best packages for such travellers. The company can rely on such strategies for improving its customer base. However, home business strategy for Ryanair can lead to poor services as customers may increase beyond the company’s capacity. This strategy may al so affect perceptions of customers about the quality of services Ryanair offers. As a result, some customers may use alternative means like rail transport. Holiday packages Ryanair should introduce free seat campaigns for a given period of time, especially during winter seasons. The company should use this approach as sales strategy particularly in unpopular routes so as to increase the number of customers. The company should offer few seats in popular routes. The company should also inform its customers about tax charges with free seat campaigns. Such holiday packages should save customers on costs and improve experiences of their holiday. This shall enable Ryanair popularise itself among travellers and attract many travellers. Promotional strategies can only improve the number of customers who need free seats or discounted services. Thus, Ryanair must restrict such offers to a specific number of customers for its fleets. Frequent traveller loyalty programme Ryanair should introduc e loyalty programmes for its frequent travellers. The company can reward its frequent customers through free flights or reduced charges. Every travel should earn redeemable credits. The best method to capture such data is through the use of smart card. The company must also give specific periods for expiry of such credits. Loyalty schemes should not target blackout dates. Thus, customers can redeem their free flights at any time. However, loyalty programmes can severely affect the profit of the company (Pocket Mentor 12). Referral discounts The industry is still competitive (Bache and Freeman 3). Thus, Ryanair should work with local travel and accommodation companies so as to promote its flight. In turn, customers who also book through the Internet can also get discounted rates in hotels rooms and car hire among others. However, the company must apply policies such as nonrefundable and advance payment in order to discourage cancellations after booking (Madison 233). Referral discoun ts also shall affect the company’s profit margins. Baggage and Saving Ryanair should encourage its customers who have baggage to check while booking in order to avoid extra charges while boarding. Customers can check the option and determine the number of baggage they can carry in different flights. This means that customers can purchase the baggage depending on their travel requirements. This option should also give customers opportunities to save flight costs instead of incurring extra charges when boarding. Web Booking and Check-in Ryanair should continue exploiting Web booking, and it should also introduce Web check-in before with or without luggage before a given deadline for check-in expires. This should also allow customers to choose their ideal seats depending on availability. This is a method of improving customer service for Ryanair that has poor customer service. Conclusion Ryanair has used low cost strategy to increase its market share and reduce costs of operatio n. 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