Ryan Air - Environmental Analysis, Discussion of Core Competencies and Strategy proposal

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Creating a sustainable marketing strategy for Ryanair means to organise its future. To plan the future one has to know the present in a broader perspective. This is the starting point of an environmental analysis, which identifies the internal and external parameters of the particular environment an organisation is operating in (Drohan, 1997) and translates it into useful plans and decisions (Albright, 2004).

The environmental analysis gives Ryanair the opportunity to identify the main factors affecting the industry it is operating in and to find its opportunities and capabilities. Above all it is important to answer the question “What business are we in?” by defining the industry the organisation is competing in since this gives the opportunity to identify competitive advantages relatively to others (Kay, 1993). Ryanair is positioned as being in the European low-budget airline industry. This creates a competitor group consisting of other European no- frills airlines and low-budget sub brands of traditional airlines but excludes full-service airlines.

Macro-Environmental Analysis

The macro-environment describes all factors which influence the company as a whole but are out of their direct control including wider social, political and economic factors (Hooley, Saunders, Piercy, 2004). The analysis of those factors is therefore often known as Pest analysis (Johnson, Scholes, 1999).

Since the airline industry is very much influenced by cha nges taking place in the environment and has undergone rapid and dramatic changes during the last decades (Kaynak, Erdener; Kucukemiroglu, Orsay, 1993), this analysis is especially important for Ryanair.

Ryanair as the largest and most successful of Europe’s low fare airlines targets in the first instance leisure travellers and the visiting friends and relatives segment (Gillen, Lall, 2004) of the market. Describing itself as “lowest cost scheduled airline” means basing the airline’s financial strategy on the average number of seats sold per flight instead of on the revenue made per sold seat (Lawton, 1999). Therefore every environmental issue which either affects basic costs of flights or affects the likeability of customers to book a flight is important for Ryanair.

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The recent past has brought many events which affected flight security in the eyes of

the customers. 11 th of September and “Sars” have shown that global dangers heavily affect global air-travel. As an European airline and following an effective promotional strategy Ryanair sales grew irrespective of this danger. Nevertheless the unstable political global situation is a major factor of insecurity in the airline business. Ryanair, still being a main carrier between UK and Ireland and heavily using London Stansted is especially affected by the fact that more terror attacks are predicted for Great Britain (Der Spiegel, 2004).

“Sars” has shown that an epidemic can have a heavy influence on the airline business (cnn.com, 2003). The World Health Organisation (WHO) has already forecast a global epidemic within the next years. This will certainly have a larger influence on Ryanair’s business, relying as it does on a high number of sold seats among leisure travellers than do traditional airlines whose clients merely fly for business reasons and which are operating in term of yield management.

Similar events happening within Europe would nevertheless influence its business heavily while the growing fear against air travelling is already a problem to face.

Low price, value for money and efficiency are core values of Ryanair. Those core values should not change regardless of environmental turbulence Collins and Porras (1996). This means that cost reduction and other profit sources than travel fares are important factors in Ryanair’s strategies since they cannot compensate its expenditures by increasing travel fares.

For the low cost strategy prices of fuel, taxes, and government regulations are especially important. The airline deregulation not only helped Ryanair but also increased competition and air traffic. This has lead to increased regulations by the EU government in terms of safety and environmental rules. This again increases operating costs within the EU. When Ryanair wants to maintain its low fares it has either the possibility to cut costs elsewhere in order to compensate increasing costs for safety and environmental taxes or it has to finance those costs by increasing ancillary services revenue.

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Efficiency and low prices are due not the least to the company’s lower labour costs. Ryanair controls these costs through a performance related pay structure. This system is of course also dependent on EU social/employment legislation which is always subject to change.

A major problem is the uncertainty of the oil price, which is again tied to political

developments. Since the political situation in most major oil producing countries will stay unstable for the foreseeable future, the oil prize will remain a major problem for airlines. The fuel cost difficulty is exacerbated by unpredictable currency exchange rate fluctuations since aircraft fuel prizes are denominated in US dollars. Nevertheless the weak dollar has compared to sterling has had a positive impact for Ryanair.

Finally Ryana ir as a major European airline has to consider the travel regulations within Europe. The falling barriers of travel and trade have certainly had an influence on inter-European travel rates. Flying has become much faster and convenient. Also the trade within the European Union has become easier; an advantage for Ryanair operating largely in mainland Europe (Higgins, cited in Johnson and Scholes, 1999). The recent and potential continuing expansion of the European Union eastwards will therefore offer a growing market in terms of passenger volumes, destinations, and suppliers, particularly as the new markets become more fully integrated, including of course, membership of the euro zone.

Micro-Environmental Analysis

The micro-environment includes all factors which directly influence the organisation. It can also be referred to as the “competitive environment” (Hooley, Saunders, Piercy, 1994) since it describes the relationship between firms and the driving forces that control this relationship.

This type of analysis is often undertaken using the model proposed by Porter, called Porter’s Five Forces Model (Lynch, 2000). It assumes that suppliers, which deal directly or indirectly with the organisation, consumers and customers, and other local stakeholders have a large influence on the opportunities and threats an organisation is facing by effecting on supply and demand (Jobber, 2004). The greater the power these forces have the higher the rivalry between existent firms tends to be, and the more

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competitive is the marketplace. Porter (1998, cited in Mintzberg et.al) emphasises the importance of the strongest competitive forces since they determine the profitability of an industry.

For the European low-cost airline the threats of new entrants has increased during the last decades due to the EU deregulation which removed general barriers of entry. European passenger numbers have increased within recent years and are forecasted to grow further. This makes the airline business an extremely attractive business. The success of Ryanair and Easyjet appeals to potential competitors. This high attractiveness is compensated by high costs of running an airline, which requires a strong financial background, and the fixed number of airports and landing slots within Europe which is a particular problem for a new no-frill airline. Nevertheless the number of competitors is growing especially in terms of incumbent airlines launching a no- frills brand

In addition the threat of substitutes also tends to be medium but growing with the improving train network within Europe. Especially in southern European countries train tickets are cheap, and across Europe night trains run between all major cities, offering the convenience of delivering passengers to city central stations. Another major substitute is cars, as these benefit from good European road and ferry networks and easier cross border movement, enabling people to cross physical and political barriers more easily than was once the case. As a no-frill airline Ryanair can also of cour se be substituted by the incumbent airlines.

The threat of substitutes directly influences the strong power of buyers in this industry. In addition the internet enables customers to potentially always get the cheapest ticket as well as giving to them more information and comparability. The fact that especially around big cities there are several airports served by more than one airline with same destinations increases the power of buyers further. Due to this low differentiation in actual flight issues there is low differentiation apart from price.

Being therefore dependent on a low-cost strategy the bargaining power of suppliers is especially affecting Ryanair’s business. Fuel and aircrafts are the main factors being delivered to Ryanair. In terms of fuel the company is dependent on supply and market