The Macro Environment of Ryanair

Keywords: ryanair environment

The reason for this research on the Ryanair case study is to evaluate the Macro environment and the industry examination and the inner factors that will help Ryanair to achieve success within the environment which they are working. The research is split into three major components, concentrating on the inner and external surroundings and capping off the analysis by our referrals.

For the evaluation on the macro environment and industry research, I will be using important models including the Pestel research which describes the exterior factors affecting the business enterprise in the future in the airline industry. Also models such as Porter's five pushes model will be used to clarify the factors in the industry and how firms compete and how it influences the success of the company. The idea of strategic groups will also be used to help describe Ryanair's main competitors and how they impact their present strategy.

Analysis on the inner environment mainly targets the resources and features of the business. We look in depth to analyse the potential competitive advantages the business may posses through its internal strengths. This research carries a SWOT analysis gives a clear chop idea of the organization and the proper capacities and potential dangers. We also use the VRINE model to analyse the resources and capabilities and bottom our wisdom on its result as to whether they provide a competitive border for the company.

My recommendations will be based on Management theories and models to explain the future strategies and present strategic choices and areas for improving strategy execution for the mature management team of Ryan air.

2. Introduction

The Flight industry remains as a fast and growing industry. It facilitates economic development, world trade, international investment and travel and leisure and it is therefore central to the globalization occurring in a great many other industries. This research study focuses on Ryanair, the first budget air travel no-frills carrier in European countries, founded by the Ryan family in 1985 to provide slated passenger airline services between Ireland and the UK. The research study delivers and interesting insight about Ryan air's progress, the risks and problems it experienced and about its competition and the future strategies for succession and progress.

According to the case study by the finish of 1990, the business got flown through significant amounts of turbulence, disposing of five chief executives, and accumulating losses of IR20m. Its struggle to endure in the first 1990's saw the airline effectively restyle itself to be Europe's first low fares, no frills carrier, built on the style of southwest airlines. A fresh management team was brought in headed by Michael O'Leary who made major changes to the airline. Michael O'Leary got launched a 1. 48bn bid for Irish rival, Aer lingus, but the Aer lingus and its own board down the road turned down the Ryanair procedure because according to them Ryanair experienced acted in a hostile anticompetitive manner.

Ryanair will not release a formal eye-sight or mission affirmation. However, their standard direction is to simply continue being the largest low priced innovator in the European airline industry and carry 50 million passengers by 2009. Implementing this vision is a function of several individual techniques, including a complete dedication to low cost performance atlanta divorce attorneys element of the value chain, quick gate turnarounds, non-union operations, performance-based incentive payment plans, standardization on one type of airplane, and flying (generally) to extra airports, which provides significant personal savings for Ryanair.

Strategy is an integrated and coordinated group of commitments and activities made to exploit main competencies and gain a competitive benefit. (Hubbard, Rice, Beamish, 2008)

The long Term purpose and positioning of Ryanair's purpose is to tightly build itself as Europe's leading low-fares flight through continued improvements and broadened offerings of service. I've conducted a proper evaluation of the macro and internal environment and industry analysis and suggested new tactical initiatives to improve.

3. Exterior environment analysis

The macro-environment explains all factors which influence the company all together but are out of these direct control including wider communal, political and economical factors (Hooley, Saunders, Piercy, 2004). It would be suitable to carry out a PESTEL examination to recognize and examine the external factors which lay beyond the company boundaries.

3. 1 PESTEL analysis

We investigate five factors in the PESTEL research. The Pestel framework categorises environmental affects into six main types: political, economic, social, technical, environmental and legal. These factors are not independent of each other; most are linked. For example, technology trends change just how that people work, their living requirements and their standards of living. As any of these factors change it out impacts the competitive environment in which organizations operate. (Gerry; Scholes; Kevan, 2005)

Political environment

Health and protection regulations are becoming firmly important especially after 9/11 episodes, in line with the case study in August 2006 UK specialists enforced severe security measures at all airports. Ryanair was required to cancel 279 plane tickets in the days rigtht after the incident and refunded e2. 7m in fares to about 40, 000 passengers. Ryanair is predicted to have suffered a loss of e1. 9m in reduced bookings.

On Feb 2005, a fresh EU rules was released. It intended to reduce the hassle induced to air individuals by delays, cancellations and rejected boarding by supplying a refund or rerouting and free look after passengers. Based on the common distance of its flights for Ryanair, the settlement costs may likely fall into the e250 category.

Ryanair is facing growing trade-union pressure in European countries. Some of the countries in European countries have shaped a trade-union among each others, thus it gives the pressure for Ryanair to do business in these countries.

Economic environment

The gas price instability is a major economic concern for airlines. Hedging discounts will push air travel companies towards risks of exchange rate fluctuations. This too poses a significant economic concern for Ryanair. Based on the research study Ryanair was susceptible to rising fuel costs in 2005 due to its low fare insurance plan. Its fuel costs represented 35% of working costs in 2006, compared with 27% the entire year before. Ryanair hadn't edged early so it was paying from $70-74 per barrel up to march 2007.

In 2006, international airport and handling charges increased by 21%, slower than the development in passenger statistics. Road charges also increased by 21% because of a rise in the number of areas flown and an 8% increase in average sector span as Ryanair flew into new European union states. These characters could be discussed by an increase in the common price level. Inflations rate in European union is 1. 7(NA, euro area annual inflation down 2006). Inflation rates can cause production costs and air travel fares to increase. However, the relatively secure inflation rate is an excellent sign for the future of Ryanair and the market all together.

It was noted that the unemployment rate was slashed to 8. 7% (NA, unemployment in Europe 2006). Such data offers a positive sign on the excelling current economic climate in Europe. This may obviously influence Ryanair's decision making on various issues. A stable overall economy is basics for growth and perhaps could be one of the motives for Ryanair to consider the takeover of the Irish airliner "Aer lingus".

Socio-cultural environment

The increasing travelling lifestyles will impact the business enterprise of Ryan Air. For e. g. educational vacations, back pack and family travels, business travels. People opt to use budget airlines for short haul flights because it's extremely cheap, will save you time specifically for business dealings. This has converted into a social pattern.

After the terrorist problems People appeared for different ways to visit, for example train services, ferry services which were safer than flights. Air travel has not only been more troublesome, but it has additionally been rather negatively impacted on a far more financial aspect, specifically for budget airlines.

People employ a poor thoughts and opinions on budget airlines. Such stereotyping has posed a significant concern for airlines such as Ryanair. The restriction on luggage, flight delays and cancellations and overall inefficiency has fuelled pressure between management and passengers. Based on the research study Ryanair charged a man with cerebral palsy e18 to use a wheel chair, many customers thought Ryanair had been unethical in so doing.

Technological environment

Ryanair keeps aircraft maintenance costs low, using their Boeing 737 planes. Ryanair replaced its fleet of old plane with new more environmentally- friendly aircrafts and lowering the average fleet era to 2. 4 years. Ryanair uses a winglet modification programme on the fleet providing better airplane performance. New aircrafts produce 50% less emissions, 45% less petrol melt away and 45% lower noises emissions per seats. Therefore it is obvious that it's necessary for Ryanair to invest in proper technology and keep its technology current in order to remain competitive.

Environmental factor

Every government is concerned about global warming and the garden greenhouse gas impact from carbon emissions. Air travel industry is accountable for 2. 6% of carbon emissions. Airlines want for noise decrease solutions to prevent noise pollution. It is clear that the environment is a major matter to companies functioning in the aviation industry. This may also have a financial impact credited to heavy penalties and sanctions. Also the political impact would be considerable scheduled to heavy lobbying by environmentalists.

Legal environment

Getting illegitimate subsidies from the international airports is a crime in European countries. Therefore legal means of getting such useful interface subsidies will be type after, to be able to remain competitive.

Allegations of misleading articles on Airlines will also lead to legal action. According to the case, UK regulators refused allegations of Ryanair posting such articles on channel four. Such legal action would be fiscally detrimental to a budget air travel. It was also mentioned previously that environmental concerns and breaches of stipulated emission charges may also cause legal action.

3. 2 Porter's five forces model

Porter's five makes model examines five pushes that impact or determine the composition of industries, and hence the average success or attractiveness of these industries. For each of the five causes, Porter identified sets of factors that would determine the occurrence and ability of the makes in a particular industry environment. (reference point)

Threat of New Entrants- Low

When focusing on factors such as economies of size, technological innovations, administration polices and capital requirements, High competition, It isn't easy to enter the airline industry. Ryanair has a strong identity in the air travel industry and according to the research study Ryanair cases to be the main for punctuality among other Western airlines, It really is problematic for new entrants to enter the industry also to contend with these famous airlines. Then the quantity of companies getting into the flight industry is low.

Bargaining electricity of suppliers- High

Ryanair is a low budget airline and they suffer from the giants in the industry. Dealing with suppliers of aircrafts and suppliers of fuel and other basics, it is hard for Ryanair to perform negotiations. Based on the research study Ryanair's aircraft dealer is Boeing, which really is a far larger player is the air travel industry. Then it is possible to state that bargaining electricity of suppliers is high.

Bargaining power of potential buyers. -High

New consumers from the Western state people are growing for their interest to travel from one vacation spot to another utilizing a low budget airline, so considering the time and the quickness almost all of the consumers choose air travel. Based on the research study Ryanair in 2006 presented web-based check in and concern boarding. Ryanair has to keep their prices competitive with regards to the industry level.

Threat of Substitutes- High/ Medium

There are a great many other budget airlines and also main service providers offering new low air fares that could be straight substituted. There are also substitutes for flights such as travel by coach, or by using ferry services or sail boat services. If it is a Family trip consumers might choose train or ferry services because it's safer and if indeed they want to go to more destinations, but also for business dealings people use air travel because it's less frustrating and good deal, relatively trains in continental European countries are very expensive. Therefore overall it is possible to state that there is in fact a very real threat of substitutes for Ryanair.

Competitive Rivalry- High

Due to deregulation and increase in rivalry and because of increasing competition on more routes the power of buyers rises. Airlines make an effort to counter increasing rivalry by formulating different strategic alliances even by merging with other airlines for example Air France- KLM. According to the research study Ryanair got launched a bet because of its Irish competitor, Aer Lingus so by incorporating purchasing power to reduce its operating costs also to form lower fares. These airlines introduces various prices, flyer programs, discounts, perks to grab the attention of the consumers and to increase customer loyalty

3. 3 Strategy Grouping

Ryanair's strategy and its own Strategic groups

The previous Ryanair CEO PJ McGoldrick explained that the future for Ryanair is designed for a limited niche airline operating out of Ireland mostly to London. (www. ryanair. com/doc/investor/Strategy. pdf). This statement declares that the company chooses a specific segment of the industry to focus its strategy only. The targeted portion can be considered a particular buyer group, a portion of the product range, or a physical market. Corresponding to Porter, M. E. (1980), this strategy is dependant on the assumption that "the organization is therefore in a position to serve its small strategic target better and proficiently than competition who are competing more broadly". The organization achieves a competitive gain through differentiation concentrate or via a cost concentration.

The key elements of Ryanair's strategies are its low fares to generate demand, to provide the best customer service performance in its peer group. Ryanair's determination to protection is, the burkha priority of the business and its own management. They are some of the primary strategies of Ryanair.

A Strategy group includes the rival rivals with similar competitive strategies and positions in the market. These competitors will sell in the same products, same price and quality using indistinguishable technology. (Thompson A, Strickland, 2001)

Easy plane and other low budget airlines competes for the same customer bottom by using some what similar prices strategies and technology, for example using Boeing aircrafts for fuel efficiency and by offering similar in-flight services online looking at services. The deeper strategic groups find the competitive rivalry among firms' rises. (www. ryanair. com/doc/investor/Strategy. pdf)

4. Internal environment analysis

In this section, we mainly focus on the unique and necessary resources and of course the company's key competencies. These are the factors which continuously drives the competitive advantage of the business.

4. 1 VRINE model

It is comprehended that, as part of the internal environment of a company, the most crucial factors are its resources and capacities. This model helps us to categorise the available resources and/or functions in line with the valuableness, rarity, inimitability, non-substitutability and exploitability. ((Hubbard, Rice, Beamish, 2008)

Valuable

It is essential to determine if the resources or capacities allow the organization to meet market demand or protect the company from market doubt. This is exactly what is assessed by value of resources or capabilities. Ryanair can advantage through both tangible resources such as aircrafts and intangible resources such as intellectual property such as the honor for worlds most profitable Airline. Such features as online reservation and indicate point routing in addition has helped add large value to the service they offer.

Rarity

It is important to know whether these resources are generally possessed by rivals or scarce relative to demand. For several physical resources such as aircrafts, it's apparent that they are greatly possessed by Ryanair's competition. Even functions such as online bookings and online checking-in are greatly used by opponents such as BA and Lufthansa. On the other hand, certain resources like the honours Ryanair possesses are scarce and therefore will add unique value.

Inimitability and non-substitutability

The model also looks into extent which rivals can swap or imitate resources and functions. It is important that resources or functions be inimitable and non-substitutable for this to give a valued competitive advantage. Ryanairs' main competences of no frills strategy, low cost and rout insurance plan strategy are somewhat mimic-able. However, aircrafts are possibly a non-substitutable tool. It is not possible to replace this source of information without departing the aviation industry completely. Human resources are also not inimitable, as competitive airlines have the same jobs of personnel.

Exploitability

It is important that the resources and capabilities are exploitable. The model basically focuses on if the company is able to use its capabilities and exploit its resources to immediately influence its profitability through rousing its competitive edge.

4. 2 Value string analysis

The value string describes the actions within and around a business which along create a product or service. It really is the price of these value activities and the value that they deliver that can determine if best value products are developed. The idea was used and developed by Michael Porter with regards to competitive strategy. (Johnson G; Scholes K, ; Whittington R, 2005)

Primary activities are immediately concerned with the creation or delivery of something or service. Alternatively, support activities help improve the success or efficiency of key activities. (Johnson G; Scholes K, ; Whittington R, 2005)

Our priority is if the company uses its capabilities and resources successfully in order to add value to the service. The most important driver in regards to to Ryanair is the potential cost benefit which seeks to remove needless costs and minimise over-all costs from those activities which add value to the service. Such cost reductions allows the business to become more competitive.

The company could also concentrate on its main competencies and thereby give a better, more differentiated service to its customers. This too offers value as customers would gain a greater benefit.

Technology is just about the most potent factor in the aviation industry. The value addition through advances in technology is impressive. It is therefore important to renew and revise technology in order to both minimise costs and to boost the benefits linked to it, thus creating higher value.

4. 3 SWOT analysis

Strengths:

Ryanair is rolling out a recognised brand name throughout the years, and it contains reputation as the biggest budget flight in European countries.

Ryanair offers solution booking on the internet- affordable for its customers and eliminates the need of travel companies.

Ryanair offers better low prices than its competition. And they feature onboard entertainment and finds earnings from those sales.

Ryanair gets promotion because of its CEO Michael O'Leary and his controversial issues.

Ryanair's insurance policy of fleet commonality to keep personnel training and airplane maintenance costs low by using Boeing 737 planes.

High service performance on punctuality and seating space was thought to be typically average as was on-board catering, high rate of flight completion builds the nice image of the business.

Weaknesses

Bad publicity on the indegent treatment of customers, Training policies, aircraft cleanliness, and poor personnel morale.

Restricted expansion possibility because it's a niche market

Currency fluctuations made fuel costs either costly or unpredictable for Ryanair.

Customers were miserable because Ryanair was too cost conscious, imposed a wheelchair levy on every traveler solution, increased insurance charge.

Outsourced services outside Ireland may reduce employee commitments.

Opportunities

EU enlargement will open up new destinations to visit.

Economic slowdown actually helps Ryanair- changes in corporate culture, 'steals' customers from traditional companies as they seek lower fares.

Potential opportunities to capture the market show.

Launching 138 new planes to get numerous kinds of consumers, which range from families to businessmen to increase cash revenues. And can allow Ryanair to double in proportions to 80 million passengers per annum by 2012.

Threats

Dependence on olive oil marketplaces and on economical cycle: Fuel prices rely upon the oil market.

Increasing competition on low fare rates by other budget airlines.

Changing EU authorities regulations.

Increase in air traffic control charges credited to increasing aircrafts. Based on the research study In November 2006 traffic grew by 23%t as total earnings rose by 33 %33 % to e 1. 256bn. Ancillary income rose by 33 %33 %. Product costs increased by 7. 5 %. Despite 42 % higher fuel prices of e337m, Ryanair after duty margin for the half-year rose by 1 indicate 26 %.

5. Recommendation

Ryanair should concentrate on new opportunities to be able to boost its current market position. They may provide packages for vacationers for different areas which could open up better market probable.

Another main point that Ryanair should focus on is to control human resource more efficiently, according the case study some of its cabin team were trapped napping o the job as they had a pressurised work schedules.

Ryan air may possibly also supercharge its market talk about by giving better conditions for people by realistically increasing luggage allowances and lowering off wheel chair costs and build customer romantic relationships and devotion.

It is also suggested that Michael O' Leary and other future CEO's must have a far more professional view towards the business this will directly impact the company and its general public image. Michael O'Leary once dressed up like pope to promote solution offers; this will have a poor impact on the business's image.

Ryanair's business strategy should give attention to its niche, they should mainly target brief haul routes rather than rivalling with dominant founded airlines such British isles airways by focussing on the area of interest Ryanair will be able to gain a competitive benefits over its competitors.

Ryanair should give higher concern to the financial local climate and situation, mainly focussing on oil prices and other economical factors, Ryanair should hedge against undesirable financial changes to minimise its risk from unforeseen changes throughout the market.

Refinancing aircrafts can be an important strategy which Ryanair should concentrate on. Although the Western european airline industry keeps growing Ryanair should control its costs and control its high-risk investments for example the investment decision to obtain "Air lingus".

6. Conclusion

The analysis on Ryanair explains environmentally friendly characteristics by discovering internal and external environment by using theoretical models. I've recommended new strategic initiatives and areas for enhancing strategy execution for the older management team of Ryanair such that it can gain a competitive edge in the other competitive airlines like easy plane, Lufthansa, Aer lingus.

Ryanair is Europe's first low quality air travel and it has the potential to achieve the surroundings they are currently in order to attain their objective more effectively, proper planning must be achieved concerning Ryanair's history and future fads and technology of the airline industry.

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