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Ryanair

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|Strategic Management : Principles and Practise |
|Case Study A : RYANAIR |
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1- You’re invited to use the Value Chain framework so as to explain the extent to which Ryanair has been able to propose low fares to its passengers.

In order to develop a competitive advantage - implementing low fares to its passengers - Ryanair offers a series of activities referred to as the Value Chain, as it is shown in the following diagram:

|Firm Infrastructure |
|Corporate partnerships |
|Human Resource Management |
|Low cost staff training |
|Limited crew |
|Technology Development |
|Internet information |
|Internet bookings |
|In-house marketing |
|Procurement |
|Boeing discount |
|Outsourcing of services at international airports |

|Inbound Logistics |Operations |Outband Logistics |Marketing & Sales |Services |
|Low cost on staff |No frills |Extra services |Free publicity |Low cost |
|training/aircraft |Low cost |Entertainment facilities|Low cost promotions |High productivity |
|maintenance/fuel |Check-in luggage | |Internet sales | |
|supply/aircraft supply | |Quick turnaround timing |Yield management | |
|Relationships with | |Point to point flying | | |
|suppliers (e.g. Boeing) | | | | |
|Airports agreements | | | | |

The performance of both primary and support activities will influence the firm’s margin, as it is the case with Ryanair, achieving a competitive advantage by providing lower cost.

2- Apply the SWOT analysis to the Ryanair case and figure-out four possible strategic options using the TOWS matrix

The following table explains the key issue from the Ryanair’s environment and its strategic capabilities that are most likely to impact on their development. It will let us establish the strategic options.

|Strengths |Weaknesses |
|Ryanair has a focused strategy on low fares and no frill services. It is the |Ryanair has a hard approach (policies) towards disabled customers and too |
|budget airline pioneer in Europe. It has thus a competitive advantage due to its |many restrictions. |
|position of first mover on the market. |Concerning the cost structure, older aircrafts used a lot of fuel, so it |
|Their routes are point-to-point only and thus it reduced airport charges by |needed high maintenance costs to reduce wastage of oil and fuel. The |
|directing traffic toward airport offering bargain deals. It also limits delays |currency fluctuations are also a weakness. |
|and avoids the costs of providing through service (baggage, transfer, passenger |All the extra costs attached in-flight services and the promotion of |
|assistance). |sponsor brands in flight or on aircrafts are sometimes viewed in a bad way |
|The company realizes economies of scale thanks to new routes and has strong |by all the customers. |
|bargaining power over one aircraft manufacturer-Boeing 737. (It reduces training |Ryanair is considered as too cost conscious, indeed to attract customers, |
|costs…). Over the year, Ryanair has purchased newer, more environmentally |it had only one strategy: low fares. |
|friendly aircraft and reduced the average age of its aircraft. It is the youngest|Thus, it caused many staff issues and volatile customer relations. |
|fleet in Europe. |Ryanair is a shareholder dividend policy and it sometimes does not care |
|Concerning the staff policy, it is a performance related pay structure and it |enough about all the shareholders. |
|reduces compensation costs. Absence of ‘free’ in-flight services allows staff to | |
|earn commission for paid service and reduce the turnaround time between flights | |
|(less cleaning and tidying up). | |
|There are no trade unions, which for other carriers are a cause of lack of | |
|competitiveness. | |
|Michael O Leary is a charismatic leader and he provides clear direction of the | |
|organization. He can be considered as a change agent because he affects the | |
|strategy. The strong branding and reputation led to a strong and aggressive | |
|pricing strategy. | |
|Over 95% of the bookings were made by the website of Ryanair, it reduces the | |
|costs of staff, agents’ commissions and computer reservation charges and It | |
|provides substantial extra revenue from advertising and selling ancillary | |
|services directly. | |
|The innovative costs reductions and a communication really resourceful, is | |
|constantly use to find new sources of revenue. | |
|Opportunities |Threats |
|Because of the economic context, the lowcost is becoming a trend. Over the next |The current recession caused unfavorable conditions to leisure and business|
|years, Ryanair will intend to become the second largest airline in the world. |spends. The legislation of the EU commission has always been among Ryanair |
|Ryanair wants to move on 100% carry-on luggage. It will enable Ryanair to make |possible threat list. |
|flying even cheaper and easier and much more fun again. The company has still |The company is vulnerable to the Irish taxes imposed by the government in |
|opportunities to cut the costs. |the airport. |
|The emergence of the social networks could be considered as a marketing |Human resources is also a big issue because Ryanair did not recognize |
|opportunity for the company. |unions and was claimed to provided poor work conditions to the employees. |
|Ryanair forecasts to expand in terms of new aircrafts and to increase the number |The industry airline is also considered as a sick industry with a plunging |
|of routes by reaching new destinations profitable |demand due to the recession. |
| |Moreover, the company has to deal with the rising oil prices and the |
| |increase of the competition. New low cost companies are entering on the |
| |market and there are alliances and mergers between competitors. |
| |The low cost carrier model prices or the fuel taxes and governments |
| |regulations are major threats flying all over industry. |
| |The political situation for aviation industry is that nearly all oil |
| |producing and exporting countries will remain unstable for the future |
| |Fuel prices are denominated in dollars in states changing rates, it caused |
| |exchange rate uncertainties |
| |Strengths (S) |Weaknesses (W) |
|Opportunities (O) |Strategic Options (SO) |Strategic Options (WO) |
| |1-Optimize the Existing Routes (by buying new |1-Become a Fully online-company (in order to reduce even |
| |aircrafts) & Open New ones (towards Touristic |more the costs ) |
| |destinations): |2-Increase Ancillary Revenues (develop new ancillary |
| |-Expand into Central/Eastern Europe |services to increase the cash-flow to accelerate the |
| |-Expand into Africa |growth of the company) |
| |2-Take share from the Charter Market by emphasizing on| |
| |the brand new environmental friendly fleet of the | |
| |company (communicating via social networks or big | |
| |communication plans) | |
|Threats (T) |Strategic Options (ST) |Strategic Options (WT) |
| |-Continue Cost Reductions to propose cheaper flights |-Overhaul the Customer Service in order to build strong |
| |to be more competitive |relationships with the customers, in order to secure their|
| | |loyalty and improve the image of the company. |
| | | |

3- Should Ryanair continue to pursue the Aer Lingus bid?

After the refusal of Aer Lingus both in 2007 and 2009, we can wonder if Ryanair should keep pursuing the bid on its competitor.

From a pure “market share analysis”, Ryanair should maintain this strategy. Indeed, Ryanair and Aer Lingus definitely have the leadership on most of the routes proposed by airlines companies in Europe. Acquiring Aer Lingus would then allow Ryanair to take around 80% of the market shares.

However, strategists of Ryanair have to take into account other factors, internal but also external, that can influence the relevancy and the success of such an acquisition.

1) Legal and political environment

This is the hardest part for Ryanair. As European company, Ryanair has to comply with the European law regarding competitive environment. The Commission already blocked bids because of the monopoly it would create on the low cost market. Thus, Ryanair has to consider that even with Aer Lingus agreement, there could be some other high barriers to overcome.

Moreover, the political environment does not look so friendly for Ryanair considering the fact that the Irish government was part of the Alliance that rejected the offer five years ago.

2) Financial aspects

From a financial perspective it appears that Ryanair is ready to pay a huge premium for Aer (25% above the closing price). The relevancy of the price is debatable but it can be argued that the financial crisis should lead companies to be extremely careful with their spending. The Hubris behavior could otherwise bring them future financial issues. As a result we think that Ryanair should not overvalued the shares just to make sure to obtain what they want and should be more patient.

3) Cultural facts and human aspects

The cultural aspect strengthens our feeling that the bid should be delayed. Indeed, the long and harsh competition that exists between Ryanair and Aer Lingus might lead to a difficult integration of employees of Aer Lingus in Ryanair. The competitors from yesterday will probably face issues in being the friends of tomorrow.

Moreover, the existing animosity between Christoph Mueller and Ryanair might reinforce the difficulty in finding a consensus over a potential bid.

Thus, it looks like the bid is currently not really appropriated.

Conclusion :

In June 2012, Ryanair made a 694M€ offer to Aer Lingus but it still faced the same resistance from both Aer and the European Commission. In a nutshell the strategy for Ryanair is to find the right “momentum”. By momentum we mean that Ryanair should give up the bid for a while and focus on maintaining and developing its market shares, thus reducing Aer influence. Once Aer will be weakened and in a lack of money (their financial situation have yet started to deteriorate), it will be time for Ryanair to come with fresh cash and employment propositions.

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