Report: An Analysis of Ryanair’s business environment
Ryanair is Europe’s leading low cost airline. It currently operates over 1600 flights per day to 180 destinations in 29 countries. It has achieved this through developing and marketing itself as Europe’s only ultra-low cost carrier (ULCC). This has seen its profits rise by 13% for the fiscal year ending 2013 to over €569million and its passenger traffic grow by 5% to over 79.3 million people, this being in spite of an increase in fuel cost by €292million. In this report we will carry out both an Industrial and an Environmental analysis of Ryanair with the help of a number of academic analysis tools and frameworks which will help us to examine both the Micro and the Macro environment in which the organisation operates. Micro-Enviroment
Firstly we will examine the Micro-Environment in which Ryanair operates and the numerous factors which affect it through the use of a SWOT analysis. If we look at the work of Hitt, Black and Porter (2009) we can see that they set out a SWOT analysis as: “A SWOT analysis approach to integrate the separate analyses requires managers to consider their firm’s strengths (S), weakness (W), along with opportunities (O) and treat’s (T) for its continued operation. SWOT analysis is a basic framework for integrating the result of analyses that guide the formulation of an appropriate strategy.” (Hitt, Black and Porter, 2009, p.149)
We can see from the above quote that a SWOT analysis of an organisation essentially involves the organisation identifying what its main strengths and weaknesses are as well as what opportunities it may be able to exploit and what treat’s it must protect itself from. After the gathering of all this information, the SWOT framework can then be used as a guidance tool for the organisation in its strategic planning. We will now set out a SWOT analysis for Ryanair as follows:
Strong Brand Name
Ryanair has been able to build a strong brand name and has firmly established itself as ‘Europe’s leading low-fare airline’. The great emphasis which the company places on the ‘low-cost’ element of services has been hugely popular with customers and if we look at the Annual report for the fiscal year 2013 we can that the company’s passenger traffic for the year grew steadily by 5% to 79.3million passengers, an extremely high proportion of market share.
High Ancillary Revenues
Ancillary Revenue in the case of an airline is all the revenue which is earned through means other than direct air fares. Ryanair has been very successful at developing a high level of ancillary revenue through a creative range of different products and services such as priority boarding, in flight scratch cards, text message reminder alerts and baggage check in. Again from the annual fiscal report year ending 2013 we can see that the company able to grow ancillary revenues by an impressive 20% to €1,064 million.
Government and European legislation
There are many new laws and legislations being introduced in Ireland and the EU which have had a serious impact upon Ryanair’s ability to maintain its competitive advantage i.e. its low cost such as the introduction of a €10.00 travel tax on all flights by the government and European legislation requiring Ryanair to reimburse customers affected by cancelation or delays for costs such as food and lodging
Ryanair has been very effective at ceasing upon and exploiting the failings of its many competitors. While the global economic downturn in 2008 resulted in many airlines going bankrupt and ceasing operations Ryanair has been able to contiously grow its profits every year. If we look at the accounting figures for 2013 it shows that profits have risen by 13% to over €569million. This has been down to Ryanair’s ability to reduce its unit cost through the opening of new bases and routes to many countries affected by the downturn.
The have offered Ryanair favourable rates in the hope off generating more traffic to their airports, which in turn allows Ryanair to spread its costs over a larger area and thus reduce unit cost. Again if we look at the annual financial report for 2013 we can see Ryanair open 7 new bases and 217 new routes for the year ending 2013.
Acquiring new Fleet
Again Ryanair has been very effective in exploiting the reduced demand for aircraft due to many failing airlines as a result of the economic downturn. Ryanair has been able to acquire many new aircrafts to meet its needs not only now but in the future at very favourable prices. In the year ending 2013 they were able to put a deal in place with airplane manufacturers Boeing to provided them with 175 new planes growing their overall fleet to 410 aircrafts which will result in growing their traffic by 39% to 110million people by 2019.
One of the main threats facing Ryanair is the unstable nature of the global oil markets. Ryanair like many other airlines engages in a practice called ‘Hedging’ when it comes to purchasing its fuel. This involves buying large quantities of fuel at a agreed price over a set period of time e.g. one year. Ryanair has already hedged 90% of it oil for the fiscal year 2014 at $98 per barrel which is set to see its overall fuel costs rises by over €200 million. If the price of oil were to fall considerably due to unforeseen circumstance Ryanair could be in big trouble.
Climatic factors have had a serious impact upon the operations of many European airlines such as Ryanair in recent years. The volcanic ash cloud incidents in 2011 resulted in Ryanair having to cancel over 9400 flights over an 18 day period. The presence of legislation resulted in Ryanair having to reimburse many of these customers for expenses such as food and lodges having a serious impact upon its profitability.
Now that we have examined the micro environment of Ryanair through the SWOT
analysis, we will know use the PEST framework to examine the macro environment in which the company operates. To understand what the PEST framework is we will now look at the work of Tiernan and Morley (2001): “An organisation should thoroughly analyse both its macro and task environment, focusing on the relative importance of each of the components for the organisation and the extent to which they are changing. This process is sometimes referred to as the PEST analysis. PEST is an acronym for political-legal, economic, socio-cultural and technological analysis of environmental influences. In this sense it corresponds to an analysis of the primary features of the macro environment.” (Morley and Tiernan, 2001, p. 128)
We can see from this description that the PEST framework is essentially a theoretical tool used to examine the macro environment of organisation through the examination of what it perceives to the four most key areas.
There are many Political and legal factors which affect or have the potential to greatly affect the operations of Ryanair. The one Political and legal factor which provides the greatest opportunity to Ryanair is the implementation of the Open Skies agreement in 2008 between the EU and the United States of America. This essentially allows any European airline to open a route or bases to or in any US city. Ryanair has looked into the possibility of starting operations but has not yet acted upon this potential opportunity for market growth. While this may have the potential for a positive impact upon Ryanair’s operations it is important to note that there are political and legal factors which have had a negative impact upon Ryanair’s business operation such as EU’s emissions trading scheme which resulted in Ryanair having to put a levy on all flights to cover the cost of this new tax scheme or the implementation of a travel tax by the Irish government resulting in a tax of up to €10 euro on some flights reducing Ryanair’s ability further to maintain its competitive advantage and provide the cheapest flights in the market place.
We have already seen from the SWOT analysis that Ryanair has been very successful in exploiting the economic environment it has faced over the past few years, further growing its profits by 13% in 2013 to €569million. It has done this at time when many of its European rivals have faced bankruptcy or ceased trading altogether. This has been partly down to it being able to acquiring new routes and bases at favourable rates due to many European airports suffering from reduced passenger traffic as well as the fall in demand for aircraft resulting in Ryanair being able to meet its present and future aircraft needs at very favourable prices.
Ryanair has been very reactive to its customers’ needs in that it has realised in the harsh economic climate since 2008 customers have little expenditure for luxuries and simply want the cheapest prices possible. Ryanair has made this possible through the removing of all luxuries from the base air fare price and implemented a charge for them such as biscuits, soft drink or even extra baggage. This has been a vewry successful strategy for Ryanair as they have been able to keep its prices as low as possible while increasing traffic by 5% in 2013 to 79.3 million passenger, it has also shown a growth in its ancillary revenues by 20 % to €1064 million. Technological
Ryanair has been able to use advances in technology to its advantage in recent years. Through the acquiring of new fleets of aircraft it has been able to maximise its fuel efficiency and pass these saving on to its customers. It has also been able to reduce cost through its implementation of online check in and self-service kiosk in airports helping to reduce the cost of labour and again pass these saving on to their customers
Findings and recommendations:
We can see from this report that Ryanair has successfully dealt with both the external and internal factors affecting it business operations in recent years. My main recommendations to the organisation would be to continue to
embrace its strategy of increasing ancillary revenues as it provides a strong back up stream of revenue to just relying on it air fares alone for income. I would also recommend that Ryanair continues its strategy of expanding its operation by looking beyond the European market and tries to take full advantage of the political and legal factor such as the Open Skies agreement 2008, which allows any European airline to operate a route from any European city to any US city. If Ryanair were to successfully many to offer low fare Trans-Atlantic before any of its rivals could, I feel they would only further increase their competitive advantage over their rivals of having the lowest fares on the market by being able to further reduce their unit costs. I would also strongly recommend that Ryanair guard itself from any future unforeseen circumstances such as the Icelandic ash cloud in 2010 which caused Ryanair to cancel over 9400 flights over an 18 day period by the possibility of introducing a small levy on all flights to cover any monies which may have to be paid out in expenses to customers as result of future cancelations or delays.