Table of Contents

ABOUT THE COMPANY: 2

EXTERNAL ENVIRONMENT ANALYSIS: 4

MACRO ENVIRONMENTAL ANALYSIS: 4

INDUSTRY ANALYSIS: 4

PESTEL ANALYSIS OF RYAN AIR: 5 RYANAIR - PORTER’S FIVE FORCES ANALYSIS: 7

STRATEGIC EVALUATION OF MICHAEL O’LEARY’S LEADERSHIP: 10

CURRENT COMPETITIVE STRATEGIES OF RYANAIR: 11

INNOVATIVE COST CUTTING METHOD: 13

ALTERNATIVE REVENUE GENERATION METHOD: 13

CRITICAL ISSUES 14

RECOMMENDATION: 15

CONCLUSION: 16

PAGE 2

About the company:

RyanAir is Europe’s favorite airline. Operating in more than 1,600 daily flights from 72

bases, connecting 192 destinations in 31 countries and operating a fleet of more than 300

new Boeing 737-800 aircraft. They are Europe’s only ultra-low cost carrier, and that

means they bring you the lowest fares on flights to all of our destinations. RyanAir made

air travel accessible to the masses, and they opened Europe up for tourism in a way it had

never been opened before.

1985

RyanAir is set up by the Ryan family with a share capital of just £1, and a staff of 25.

1986

RyanAir obtains permission from the regulatory authorities to challenge the British

Airways and Aer Lingus' high fare duopoly on the Dublin-London route. Services are

launched with two (46-seater) turbo prop BAE748 aircraft. The first flights operate in

May from Dublin to London Luton. The launch fare of £99 return is less than half the

price of the BA/Aer Lingus lowest return fare of £209. Both British Airways and Aer

Lingus slash their high prices in response to RyanAir's. RyanAir starts the first fare war

in Europe.

1987

RyanAir acquires its first jet aircraft by leasing three BAC1-11 aircraft from the

Romanian state airline, Tarom. The aircraft arrive on a full wet lease with Tarom

providing all the pilots and engineers to enable RyanAir to operate the aircraft.

1990

After three years of rapid growth in aircraft, routes and intense price competition with

Aer Lingus and British Airways, RyanAir accumulates £20m in losses and goes through a

substantial restructuring. The Ryan family invest a further £20m. in the company, and

copying the Southwest Airlines low fares model the airline is re-launched under new

management as Europe's first low fares airline.

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1995

RyanAir overtakes Aer Lingus and British Airways to become the largest passenger

airline on the Dublin-London route (the biggest international scheduled route in Europe).

RyanAir also becomes the largest Irish airline on every route they operate to/from

Dublin.

2000

In January, RyanAir launches Europe's largest booking website - www.RyanAir.com.

Within three months the site is taking over 50,000 bookings a week, and becomes the

only source of the lowest airfares in Europe. In addition, RyanAir.com allows passengers

to avail of the lowest cost car hire, hotel accommodation, travel insurance and rail

services.

2004

RyanAir is named the most popular airline on the web for 2003 by Google, as

www.RyanAir.com continues to be the most searched travel website in Europe.

Company Vision-

“To firmly establish itself as Europe’s low fare, schedule passenger airline through

continued improvements and expanded offerings of its low fare service”.

Company Mission-

“To become Europe’s most profitable low cost airline by rolling-out proven low fare, no-

frills service in all markets in which we operate to the benefit of passengers, people and

stake-holders”.

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External environment analysis:

External Environment analysis in conducted to analyze the nature of the environment the

firm operates in. It identifies the forces in the environment affecting the firm and its

degree of impact. It also identifies the opportunities, threats and challenges faced by the

company. The external environment analysis for RyanAir consists of a macro-

environment analysis, industry analysis and external factor analysis.

The macro environment scans and identifies the general environment factors that can

have an impact on the organization whereas the industry analysis focuses on the

competitive situation of the company.

Macro Environmental Analysis:

The macro-environment is composed of major external and uncontrollable factors that

influence an organization's decision making, and affect its performance and strategies.

These factors include the Political, Economical, Social, Technological, Environmental

and Legal forces (PESTEL). These forces do not change frequently, but when it does, it

has a major impact on the organization. The PESTEL analysis looks at the general

environment in which the organization is operating in and helps to realize the risk

associated with the market growth or decline.

Industry Analysis:

The second stage of the external environmental analysis is to assess the industry

environment and the aim of this analysis is to identify those factors that could contribute

to or affect the industry profitability. To aid in the industry analysis, Porter’s Five Forces

Model will be used.

Porter developed a technique analyzing five forces that affect industry profitability

known as “Five Forces Model”. These forces shape the industry and increase the intensity

of competitiveness, and therefore, the profitability and attractiveness of the industry. This

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model helps to identify the dynamic factors of the industry and the market to compete

effectively.

PESTEL Analysis of Ryan Air:

RyanAir PESTEL analyses are those external factors that could hinder their operation

which would be analyzed based on the case study.

Political: As a big political factor European Union expansion affect the direction and

strategy planning of RyanAir. The enlargement is positive as it increases the flow of

migration, thus increasing the company passengers. Also, the tighten security may have

increased their security system. This could increase costs because it has to be regularly

monitored and maintained.

Economical: For Economic factors, there is unstable fuel price that could affect the

company operating costs. It can be said that, the biggest costs for any airline is fuel. The

rise in fuel prices means that operation costs would increase therefore pushing prices to

increase and relatively affecting the company growth and profitability. This situation was

badly affected to the Ryan air while they are run for least price. Also the depreciation of

US Dollar, availability of efficient substitute transport methods and also reduction in

distribution costs from customers adapting to online check-ins where identified as the

factors that has high influence regarding the economical influence.

Social: Social factors link with political and economic in terms of stable development

that would allow a more sociable lifestyle. The enlargement of EU for instance has

increase the number of people moving from region-region to work, for graduation trips,

backpackers, or leisure. The enlargement (EU expansion) has affected RyanAir by

providing the bases to attract a wide demographic of prospect. The effect of this capacity

on RyanAir is that, it could increase their operating market, segmentation and

productivity. Also, the company low-fares strategy means they can fly frequently because

there is demand.

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Technological: Technology expansion has enabled the company change their market

focus from third-party agents to on-line bookings. This has increased the competition

level between airlines, consequently driving RyanAir to further reduce costs in order to

remain competitive in the aviation industry. RyanAir admitted that in order to keep costs

down all aircraft are made by Beoing. Availability of satellite Television and Internet

services on flights for a fee increased their revenue in order to enhancing the revenue

through ancillary services.

Environmental: Environmental factors for RyanAir include noise level controls, global

warming, green house gas effects and corporate social responsibility policies and

environmental protection laws. There is evidence of the company implementing certain

policies to reduce pollution. Despite their environmentally friendly strategy, the company

has been diminished by bad publicity. Thus RyanAir should adhere to good business

practice for sustainability and high performance.

Legal: Legal factors can affect the company's image and reputation. In August 2003,

RyanAir ceased operations at Strasbourg after losing a court case brought by Air France.

Also the EU had devised new rules to cover overbooking that result in boarding denials

to passengers by airlines. Before to the EU decision at the Central London Country Court,

a disable man won a landmark case against RyanAir after it charged him €18 for a

wheelchair he needed at Standsted to get from the check-in desk to the aircraft. The

passenger awarded €1,336 in compensation from RyanAir.

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RyanAir - Porter’s Five Forces Analysis:

Porter’s Five Forces analytical tool assists in analyzing competitive environment for

RyanAir.

Figure 1: Porter's five forces model

Bargaining power of suppliers:

Boeing has been traditionally RyanAir’s main supplier, as well as increased level of

efficiency associated with energy consumption. This fact signals about RyanAir’s

increasing bargaining power towards its main supplier, Boeing.

Barriers to

Entry

Supplier Existing Customer

Bargaining

Power Competitive

Bargaining Power

Rivalry

Substitute

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However, the supplier switching costs for RyanAir is extremely high due significant

amount of expenses involved associated with pilot retraining needs. Because there is no

abundant supply of highly qualified and experienced pilots. Nevertheless, RyanAir enjoys

rapidly increasing power towards a different category of its suppliers.

Bargaining power of customers:

RyanAir customers enjoy high bargaining power because switching to another airline is

simple and not associated with additional expenses. Increased level of price sensitivity of

RyanAir customers is another factor that contributes to their bargaining power.

Competitive Rivalry:

The competitive rivalry in RyanAir is increasing due to deregulation, more competitors

on more routes creating overcapacity and growing power of buyers. Potential trend

among some competitors to add some „frills’ and flexibility, e.g. Virgin Express adds

comfort, Easy Jet adds flexibility.

Threat of substitute products and services:

A substitute is a product or service of another industry, which creates an equivalent value

for the customer. The threat of substitute products or services is a major factor upon the

level of profitability of an industry. Substitute services for airline industry in general and

RyanAir in particular include railway networks, sea transports, coach transport, as well

as, car rental firms. The threat of main substitute, trains are occasionally addressed by

RyanAir in a proactive manner through providing price comparison prices of RyanAir

services with train services on the company website and other sources. Nevertheless, it is

fair to state that the threat of substitute products and services for RyanAir is insignificant

compared to many other industries in the marketplace.

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Threat of new entrants:

The threat of new entrants is low for RyanAir due to the significant entry barriers

associated with entering airline sector that include economies of scale, capital

requirements, access to distribution channels etc.

Moreover, significant capital requirements associated with entering airline industry

include, but not limited to obtaining physical facilities, dealing with inventories, engaging

in marketing activities and attracting qualified workforce represent another significant

barrier.

Difficulties associated with gaining access to distribution channels is another

considerable barrier faced by new entrants in airline industry. Local and international

airports may not be able to create additional slots in their platforms in order to serve new

entrants into the market.

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Strategic Evaluation of Michael O’Leary’s leadership:

The Michael O’Leary became the CEO of Ryan air in 1993. A new management team

was appointed by the Tony Ryan. After this appointment the company entered the path of

success.

His language is the litany of the anti-hero, the self-styled champion of no frills service

with low cost fares. His entrepreneurial model is, by his own proud admission, an

unashamed copy (of Southwest Airlines) and delivered with a culture of iconoclasm to

beat the traditional airline model. By any measure, he has succeeded and delivered wealth

to his shareholders beyond their wildest dreams.

His leadership model is a clever one. As a leader, Michael O’Leary is a risk taker, a

hands-on day-to-day decision maker. He is both an asset and liability to RyanAir. He had

pros and cons in his leadership of the company. The characteristics that have driven the

company forward – his enthusiasm and energy, his strategic insight, his determination

and mission orientation – can be carried too far. The capacity to irritate may bring about

conflict and change. Michael O’Leary’s had delivered but now the question arises if the

company now require more of a manager’ than a leader’ during a consolidation era.

Leadership style in the Michael O’Leary

o Autocratic style of leadership,

o Determining strategic direction.

o Effectively managing the firm’s resource portfolio.

o Exploiting and maintaining core competences.

o Developing human and social capital.

o Sustaining effective organizational culture

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The leadership style O’Leary has instituted at RyanAir finds expression in a sort of

transition: a movement from autocratic leadership to democratic one. Thus, O’Leary’s

leadership structure as at when he joined RyanAir in 1988 as Tony Ryan’s personal

enforcer to 1994 when he became the CEO of the airline and now has undergone

variation to suit different situations. Debates could arise as whether O’Leary’s style

would work in different circumstance(s), but there is no doubt that he is a perfect

situation match for the RyanAir revolution. The remit of this study limits more

investigation in this direction.

Current Competitive Strategies of RyanAir:

RyanAir is now the biggest airline company in Europe. They are expanding to new

markets quickly and aggressively. They have a visionary and farsighted CEO Michael

O’Leary. This Irish CEO has changed the company in a whole new dimension. He

followed the Southwest Airline to restructure his company. He implemented new

strategies to compete in the industry. It was a success. RyanAir has managed to remove

the top airlines like British Airways, Aer Lingus etc. from their position.

This was possible because RyanAir followed some strategies to gain the competitive edge

these are:

I. Low Fares: They offer plane fare half than that of their competitors. They

incurred huge losses for the initial years but they were able to drive out the

competitors. For fare they have huge demands in the market. Their seats get

booked a month before the flight.

II. Expansion: RyanAir is following an aggressive expansion strategy to move

against the competitors. They are now the Europe’s fastest growing airline

company. They are starting services in many air bases around the continent.

III. Targeting discount market: RyanAir is not competing head on with the

competitors. They are targeting the discount market which are neglected by the

big airlines. They provide low fare. About 48% of their passengers are budget

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conscious travelers. They emphasizes the low fare more than anything. These

budget conscious travelers move in and out of the country more frequently

because of low fare. So, multiple revenue can be derived from each customers.

IV. One Class Flight: There is no business class in RyanAir. They provide a single

class and fare for the customers. This has a good effect on the customers. They

don’t feel discriminated and that’s why the company’s sales and passengers are

growing each year.

V. Low CASM: CASM it is the cost per available seat mile. The CASM of RyanAir

is very low, about 33%. The competitors on the other hand are about 63-73%.

Low CASM has allowed to attain the break-even of each flight quite easily.

Calculation shows that Ryan air can attain break-even of each flight with only

half full flight.

VI. Targeting Secondary Airport: RyanAir has reduced their cost tremendously by

targeting the secondary air bases. This has allowed them to get the airports at any

terms they offer. RyanAir has acquired the secondary airports for a low cost

about $ 1.50 per passengers. Whereas the international hub costs about $ 15 to $

22 per passengers. This is a major cut off of cost. They are currently using some

of the ex NATO air bases and some old airports.

VII. Removing cost layer: RyanAir is following a certain strategy to reduce their cost

continuously. They want to remove a cost layer each year. The most notable is

launching a website in 2000 to replace their travel agent service. They now

follow the website. Passengers can book seats from websites very easily. Their

website is so popular that it is considered the most crowded one by google.com.

They have also started a no frill service. They will provide only the necessary

services. For example no free drinks, no seat back pockets, no ice etc. The no ice

strategy has allowed them to save $50,000 each year.

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Ryan air Core competencies are:

Innovative cost cutting

Alternative revenue generation

Innovative cost cutting method:

The main point of RyanAir's strategy involves reduce cost at wherever possible and pass

the savings to the customer with low ticket prices. All the activities in its process are

designed to increase efficiency and reduce costs. RyanAir is continuously come up with

very Innovative Cost reduction method as a example Ryan Air doesn't have to have

personnel in by offering a very few services at the airport, like limited airport check-in

facilities or removal of baggage transfer, these areas. Lower customer service cost and

riddance of ticket agent fees by high fixation of internet to sell tickets. By having a

uniform fleet, it has helped to lower its maintenance costs and time. They also don’t

provide meals to passengers facing delay. They do not provide wheelchair services to

disable passengers. This reduces cost in maintaining only fewer inventories of aircraft

maintenance parts and training of maintenance engineers. RyanAir flies offers only point-

to-point route and flies to less expensive secondary airports which charges lower airport

fees. Since these airports are not very populous, RyanAir can attain fewer delays and

higher turnaround times.

Alternative revenue generation method:

RyanAir's ultimate goal is to offer free flights by generating revenue through other

means. It always creative in finding new sources of revenue onboard their flights. Some

examples of this are inflight advertisements, on-board shopping and gambling, pay-

preview television. All the flight attendants get commission on the items they sell

onboard. Food and beverages, airport check in, baggage checking and any other

additional passenger service is charged higher than normal charge. RyanAir will not

provide refreshments or meals to passengers facing delays. Anyone who wish to avail

themselves of such services will be asked to pay for them directly to service provider.

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Critical Issues

i) Customer service satisfaction:

o RyanAir has eliminated traditional in-flight services such as seat

allocation, complementary meals and drink and newspapers.

o RyanAir earn profit from such secondary services by charging customers

for in-flight services and other travel expenses such as travel insurance, car

hire, Internet.

o RyanAir is extremely sensitive in changing the fair value.

o RyanAir is raising its checked luggage fee from 15 to 20 per bag.

Although the RyanAir has remarkable track record for punctuality, flight

completion the perception of the softer side of its customer service has not

always been good.

ii) Risks & Challenges:

o Extra capacity building would create uncertainty about the success of

new routes and locations

iii) Fuel Prices:

o Vulnerable to rising fuel prices

iv) Industrial Relations:

o Unions were not recognized

v) Unwillingness and failure to recognize unions:

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Recommendation:

According to the study the RyanAir’s only strategy is to reduce the cost. Excellent

leadership under Michael O’Riley had led them to success so far but as the companies is

growing they need to rethink and redesign their strategy. Below list mention our

suggestion regarding the company development:

o Increase the customer service

o Increase the customer loyalty

o Recognize workers union and form strategic relationship

o Should invest on the Information Technology

o Need to update competative strategy, because competitors adapt and will copy

their core competencies, so they can’t be content with their success.

o Should do careful analysis before entering new market because every market is

different a single strategy will not work everywhere.

o Rethink their advertising strategies.

o Consolidate their business in their home country Ireland.

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Conclusion:

Under the Leadership of Michael O’Leary RyanAir have succeeded and have managed to

do that far beyond expectations. Aggressive pricing and expansion had been RyanAir’s

main strategy since inception and few company have gone to such lengths to achieve

their goals. But the thing is they are not a small growing company any more, they are

Europe’s leading brand in low cost airline service. Now they have more to lose and their

every steps is under careful observation by both competitors and shareholders. They need

to be more careful how the public perceives them as a brand. Cheesy, hurtful advertising

campaign to get easy publicity, bad relationships with workers union will only do harm in

the long haul. And further new strategy needs to be evaluated and the current strategy

should be given an overhaul because market changes and competitors adapt. Ryan’s core

competencies will be copied, so they can’t be content with their success.