Table of Contents

1. Executive summary………………………………………………………………... 3

2. Introduction…………………………………………………………………………. 5

3. Current strategy……………………………………………………………………...6

4. Environmental analysis……………………………………………………………..8

4.1. The macro-environment

4.2. The micro-environment

5. Recommendation to the Board…………………………………………………...12

6. Conclusion………………………………………………………………………….15

7. References………………………………………………………………………….16

8. Appendix…………………………………………………………………………....17

8.1 Power/Interest Matrix

8.2 Vulnerability Analysis

8.3 Brand Perception

8.4 Segmentation
1- Executive summary

Ryanair, launched in 1985, is the first budget airline in the Europe. It has

experienced over its existence various challenges (management instability, flotation

on various stock exchanges, acquisitions). Its successes earned it the world most

profitable and low-fares airline in 2006. This was possible thanks to the determined

monitoring of its internal costs and to its quest to increase the number of

passengers. The volumes then helped it to earn more ancillary revenues (15.3% of

the total operating revenues in the Q106) which yield more profitability to the

business. However, the ancillary revenues started decreasing since the H1 of FY07

(13% in the Q306), the management has been opposing to several airport

authorities, governments and EU regulators regarding different increasing

environmental, safety and social concerns. Similarly, the pressure from various pilots

associations is mounting. Within the industry, the train as a substitute is the key

driver in the five forces used to assess the micro environment. Because of their

competitive prices, low-cost carriers face a high threat of substitute from the train,

thus increasing the bargaining power of buyers whose switching costs are almost

insignificant, and make the rivalry among existing competitors, to some extent,

intense. The bargain power of suppliers is low and the threat of new entrants is low.

In the wake of this turbulent environment, Ryanair may consider implementing the

following key recommendations in order to permanently add value to the

shareholders’ wealth:

- Convincing Michael O’Leary to stay at the command of company.

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 - Organizing urgently, together with some low-cost carriers, a task force to

lobby governments, airport authorities and EU regulators in order to avoid

some charges and maintain the costs low.

- Conducting various surveys urgently in order to better understand the

customer behaviour (which is one of the two key success factors of any

organisation), which will further help to offer products that better match

passengers’ needs and increase the ancillary revenues.

- Improving its HR policy to make it sustain a competitive advantage in a

cost leadership market.

- Acquiring, by the virtue of the liquidity it holds in its accounts, some low-

cost companies which has the same skytrax star rating (2), and others

which serve different routes thanRyanair.

- Reviewing its own security and safety procedures and then communicating

on it through various PR campaign to make the difference.

- Working on any technological innovation that could help to lower the costs,

such as the internet check-in system, and help maintaining step ahead

competitors.

- Finally, conducting some industrial espionage to react quickly to any

change in the marketing offers made by some key competitors.

The recommendation could be more specific if some information regarding the

organisation’s capabilities were provided.

3
2- Introduction

Ryanair was founded in 1985 by the Ryan family, as an alternative to the then state

monopoly carrier AerLingus. Since then until the early 2000s, it has experienced

some periods of management instability even though it successfully copied the

model of Southwest Airlines, one of the famous low-carriers in the USA. Prior to its

admission to the NASDAQ-100 in 2002, Ryanair was floated on the Dublin and

London Stock Exchanges which helped raise the profile of the Irish-based company.

Being considered as the world’s most profitable airline and contradictorily the world’s

least favourite airline in 2006, it attempted to acquire its long time irish-rival, Aer

Lingus, in which it holds an important share. This bid resultedin pressure from some

stakeholders blaming Ryanair for not distributing to its shareholders, the “sleeping”

liquidity. Indeed, over the last years, Ryanair has been a successful company in a

complex environment, and increasingly feel pressure to maintain its great

performance.

This report will firstly explain the current strategy of the company, then explore the

environment, and finally make recommendations that could help strengthen the

position and sustainability of Ryanair.

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3- Current strategy

Ryanair exclusively operates in European market. It only flies short-distance and

does business in the low-cost carriers segment. The competitive advantage it offers

and seeks to maintain is the possible lowest price within its segment. This segment

covers low-income passengers, tourists, students, and low-profile business people.

Ryanair does not aim to offer a particular experience.

To outperform its competitors, on the one hand, it is permanently scrutinizing its

internal costs. Banning employees to charge their mobile phones at work illustrates

this very well. In addition, customers are required to check-in via website, thus

lowering the number of staff available during the checking-in process and

undoubtedly, reallocating them to other relevant tasks. All those measures have

probably yielded a reduction by 5% of the average staff cost and 7%of the airport

costs per passengerto enable Ryanair to offer a competitive price. Furthermore, it

keeps a close eye on the various charges that could be increased or caused by

relevant authorities and EU regulators; and it monitors the labour costs by probably

hiring more expatriate pilots.

On the other hand, as a low-cost carrier, it makes a high level of profit by increasing

the volume of passengers (high turnover of flights by avoiding busy airports which

could cause some delays). In turn, those customers provide it the base to earn

substantial ancillary revenues (high margin) as illustrated in below graphs.

5
 35.0
100 30.0
25.0
80 20.0
Operating 15.0
60 revenues (%) FY of 05
10.0
Ancillary revenues FY of 06
40 (%) 5.0
0.0
20 No of passengers, Increase according
mln to previous year, %
0
FY of 05 FY of 06 FY of H107

It is evidenced by 26% increase in the number of passengers from 2005 to 2006.

Similarly, over the same period, the ancillary revenues increased by 36%. That line

contributed specifically to 14,47% to the total revenues in Q105 and rise to 15,31%

in Q106.

Overall, Ryanair strategy is successful and its financial performances are excellent.

Their current (2.6 in 2005 and 2.4 in 2006), quick (2.5 in 2005 and 2.4 in 2006)

andleverage ratios (1.2 in 2005 and 1.3 in 2006) are more than acceptable. There is

room for growth in the segment which attained 18 % of ‘the market for all European

flights in the three months ended 30/09/2006, compared with 15% a year earlier’.

Consequently, Ryanair expects to double its size by 2012, thus placing some plane

orders with Boeing.

Ryanair is, in a sense, a leader in its segment, not only because together with

EasyJet, they hold 55,8% of the low-cost business, but competitors tend to copy its

best practices (i.e. the web-based check-in process). With regard to the strategy

described above, its attempt to acquire Aer Lingus, which flies Long-haul routes, was

risky in terms of brand and business model.

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Finally, while their performance appears to be more than satisfying, there is however

a fact to worry about. For the H1of FY07, the ancillary revenues which provides high

margin, has decreased to 13,08%, even though the profit for that period of the year

increased substantially compared with 2005 and 2006. At this step it is necessary to

audit thoroughly the environment to better understand its influence on the industry

and the organisation.

4- Environmental analysis:

The PESTEL framework (Johnson et al.,2008) will help at this stage to assess the

macro environment and its various influences.

4.1- The macro-environment

FACTORS DESCRIPTION AND INFLUENCES

 EUregulation in 2005 on reducing inconvenience caused to air
ECONOM POLITIC
AL

passengers due to delays, cancellations and denied boarding is

likely to cause an increase to the costs for Ryan and others, while

 Increasing fuel costs put an extra pressure on the cost structures of

IC

all of the airliners in the industry.

SOCIAL

 People’s concern for safety measures, which is further expressed by

some under-cover investigation. Ryanair has been targeted by
some journalists and suspected for poor training policies and
TECHNOLOGICAL

 New larger seat capacity aircrafts with fuel efficient engines. This
can help airliners in general, and particularly, budget carriers, to
save some money.
 Availability of in-flight mobile phone service. This is useful to
increase the ancillary revenues.

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 ENVIRONMENTAL
 Environmental concerns regarding the carbon emissions could result
with environmental taxes for airline industry which will directly affect
Ryanair and its peers.
 New aircrafts with less emissions and lower noise pollution. The
consequences will subsequently be positive for the whole industry.
LEGAL

 Unfair airport rights favouring airlines over others. This will reduce
the competitiveness of some carriers such as Ryanair.

4.2-The micro environment

As indicated earlier, the key players of the low-costs carriers are Ryanairand EasyJet

which both dominate their segment. To some extent, this segment is competitive and

includes other players such as Air Berlin/Nikki, FlyBe and other companies

whichappear to operate only in specific routes within Europe. To better understand

the structure and address the issues of this industrywe will apply Porter’s (1998), five

forces,

FORCES ASSESSMENT JUSTIFICATION

Indeed, the budget airliners can more likely place their
ng power

suppliers
Bargaini

Low planes order with various companies such as Boeing,

of

Airbus, Bombardier and the Brazilian airplane

Threat of

Within the industry, the customers have the choice of

High flying with one of the low cost companies serving their
routes. Outside the industry, the passengers can
decide to travel by train because its price is as cheap
substitut
es

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 Bargaining power of
Mainly due to the existence of a substitute service

buyers
High which is the train and the low level of the switching
costs.
Threat of

entrants
new

Low It can be appraised as low to average, because it

requires a great deal of capital to enter the airline
Rivalry among existing

industry, thus making it difficult to enter. Secondly, the

It is quite high because companies are competing

competitors

essentially on the price; they are not trying to

High
differentiate each other in terms of quality for example.
Buyers have the possibility to switch easily.

5- Recommendation

Before making the various recommendations and based on the environment, it is

worth to expose the strengths, weaknesses, opportunities and threats for the

organisation.

STRENGTHS OPPORTUNITIES

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 - Room for increasing its market share by
- Lower fare pricesenabledit to compete with
acquiring further low profile aircrafts.
its competitors, positioned it as the Europe
Ryanair has a comfortable level of liquidity
leading budget airline,
available.Considering long-haul routes in
- High number of passengers carried,
the future and becoming an international
- Very high margins on ancillary revenues
low-cost airliner. This is to be thought
which contributes substantially to the
about carefully in terms of strategy.
profitability.
- The largest travel website in Europe and
the fifth most recognized brand on
Google plays an important role in e-
business.
- Increase in share prices results in
shareholder satisfaction.
- Environment-friendly and the youngest
fleet of any major airline in Europe.
- Web-based check in process that
shortens the check-in and registration
process
- The rate of “repeat” business is higher
meaning that the passengers re-using it
and this proves that it keeps its
attractiveness

WEAKNESSES THREATS
- The fact that O’Leary guaranteed no fuel - Any terrorist attack will cause harm to the
surcharges forever puts extra pressure industry, increasing the insurance costs,
on the company. raising security issues, and inducing
- Using some secondary and regional passengers to travel by trains.
airport destinations which are mostly far - Increasing route charges and fuel prices
from the cities. will force Ryanair to put pressure on other
- Various conflicts with different airports parts of the cost structures, especially if it
authorities, organizations and legal cases does not hedge on time.
could lower the reputation of company - Any improvement in the quality of the
- Refusing to recognize unions may result travel by train may make clients opt to travel

10
 in some employees undermining their by trains, thus decreasing the passenger
work, not putting in the extra-effort which turnover and lowering their revenues.
is at the discretion of the employee. - Aviation fuel taxation, possible emissions
- Unfriendly staff, delays and poor legroom trading scheme will similarly lower the
could have a negative impact on the company’s revenues.
“repeat business” which will decrease the - Pressure from the British Airline Pilots’
income of the company Association which can force them to take
- TV programs and Newspaper articles some costly actions
criticizing them and lower reputation in - New tight regulations may make their work
terms of security. difficult and decrease income

Building on all the previous points, the following actions are strongly recommended

in terms of priority:

1. Michael O’Leary, should stay at the command of company. Because, he

seems to be a creative person, helping to find extra sources of income for the

company.

2. Organizing urgently, together with some peers, a task force to lobby relevant

authorities in order to avoid some charges and maintain the costs low. They

will face the ‘danger’ that represents the train as a close substitute. This

action calls for collaboration between competitors so as to benefit the

industry. O’Leary should initiate that action because he is putting some

energy in opposing to the bespoke stakeholders.

3. Because the ancillary revenues have been decreasing over the H1 of FY07

knowing their contribution to the bottom line, it is, as well, urgent to conduct

various surveys in order to better understand the customer behaviour, which

is one the two key success factors. A better understanding of their wants and

needs will help Ryanair to offer the specific products on the plane resulting in

more purchases.

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 4. Ryanair needs to review and improve its human resources policy in order to

raise the staff morale as this is generally viewed as the core asset that helps

to make a difference for any company operating in a competitive market.

5. Acquiring, by the virtue of the liquidity it holds in its accounts, some low-cost

companies which has the same skytrax star rating, and others which serve

routes different than Ryanair does. This will definitely increase the number of

passengers, and help earn more ancillary revenues.

6. Reviewing its own security and safety procedures and then communicating on

it through various PRcampaign which will help enhance its reputation and

differentiate slightly from the other low-cost competitors in Europe as they

face criticisms with regard to their security level.

7. Working on any technological innovation that could help lower the costs, such

as the internet check-in system. It should always have a step ahead over the

competitors who will duplicate its innovation in order to maintain its

competitive advantage which is the price.

8. Finally, it could be worth conducting some industrial espionage to react

quickly to any change in the offers made by close competitors such as

EasyJet, Aer Lingus for example. Indeed, understanding what the competition

is doing is the second key factors of any successful organisation.

6- Conclusion:

Overall, this report has analyzed the low-cost carriers’ environment, auditing

particularly the macro and micro-environment, which led to the SWOT analysis and

finally made some valuable recommendations to the board based on ourperspective.

Those recommendations, if successfully implemented, will certainly help Ryanair to

mitigate its current weaknesses and reduce its exposure to some major threats. A

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market leader, such as Ryanair, should not rest on its laurels. It needs to keep on

thinking ahead of its competitors in order to maintain its advantage.

This recommendationcould have been more specificif some statistics on the

consumer behaviour were provided in order to better understand their profiles and

attitudes; and if more information had been given regarding the organisation’s

capabilities. Finally, because of the turbulent nature of this environment, its audit

should be conducted on a regular basis.

7-References

1. Johnson, G., Scholes, K. & Whittington, R. (2010)Exploring Corporate

Strategy:Text& Cases(8th edition).London: Pearson Education Limited.

2. West, D., Ford, J. & Ibrahim, E. (2010) Strategic Marketing (2nd edition).
New York: The Oxford University Press Inc.

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 3. Potter, N.(2010) Strategic Analysis of Business I, Module hand book,

Birmingham Business School

4. Porter, M. (1998) Competitive Strategy: Techniques for Analyzing Industries

and Competitors. New York: Free Press.

8-APPENDIX

8.1-Power/Interest Matrix
Level of

  Level of Interest  
  Low High
Low

-Stock exchanges (NASDAQ, -Competitors (Easyjet, FlyBe,

LSE) AerLingus)

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 -Employees Representation
Committee and Ryanair
Employees.
-British Airline Pilots Association
Irish Airlines Pilot Association
(IALPA).
  -EU Regulators
Power

-Airport Authorities (British,

Dublin)
-UK Minister for climate change.
-Advertising Standards Authority -Governments for security
-Media (Financial Times, reasons.
High

Channel 4, Guardian, Air -Michael O’Leary.

Tranetc...) -Investors, including the Ryan
Family.
-Passengers
-'UK and Irish Aviation
Authorities.
 

8.2-Vulnerability Analysis

Terrorist attacks, Airport charges, Safety issues, EU

(1
Defenceless regulations on compensation to passengers,
)
Pollution (carbon emissions)
(2
Endangered Oil prices
)
(3
Vulnerable Legal actions
)
(4
Prepared
)

8.3-Brand Perception

Brand perception Low / Functional

Competitive advantage Cost leadership / Acquisition

Geographical spread International / Narrowed down to Europe

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8.4-Segmentation

  Geographical coverage
 
Long-haul Domestic Europe

N/A N/A
Distance

 
-Ryanair (2)
-Ryanair
-DbaWindjet
-EasyJet (3).
-Fly Me (intra-
Short-haul

-Fly Be (3)
Scandinavia)
-SkyEurope (2)
-Fly Be
-Easyjet (3)
-Bmybaby (2)
-Air Berlin (4)
-EasyJet (65%)

   

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