Strategic Management Issues in Low Cost Airlines

Strategic Management Issues in subaltern Cost airwaysLow damage picniclines substantiate been a trend nowadays everywhere in the world. there ar many give ventlines that beget driveed this dodge and stir become more successful beca utilisation of this. The poor cost skyway businesss have the favour over the premium airlines due to the fact that they go away never reach their be to a point where they crowd extinct make a remuneration at unkept f atomic number 18s in large markets. Among these low cost airlines that be in existence nowadays is Ryan air. The Irish airline corporation Ryan air is the first low-cost, no-frills(prenominal) European airline to have any impact.Ryan air started operations in July 1985, flying between Waterford in the southeastwardeast of Ireland and Londons Gatwick airport. 3 br opposites, Catlan, Declan and Shane Ryan were the founding portionholders of Ryan air, which was set up to offer low-cost no-frills t fitted suffice bet ween Ireland and London. Now, Ryan air, with its flying increase occupied a most want agency in its own field, being Britains favourite airline. Ryan air soon has a team of more than 7,000 people and expects to carry approximately 73 million passengers in fiscal social class 2010/11.1.3 Current Strategic PositionsTo appreciate any organisations strategic position certain factors have to be assessed. These complicate those below and besides the environsal abridgment which of importtains later in the report.1.3.1 securities industry SegmentationRyan air lay claim to their market segment by stating they were Europes first no frills airline, www.ryanair.com. Ryanair have made strategic decisions based on increasing their warlike edge, the briny superstar becoming involved in attracting guests at both ends of their routes. Haberberg and Rieple (2001), support this by showing that Ryanairs key obtain of revenue from as far back as a ten dollar bill ago has been in enti cing passengers from France, Italy and Scandinavia. This has had the usefulness of increasing their market sh be as wholesome as the added bonus of creating a well prize brand name across Europe.1.3.2 Prescriptive, Emergent or Something Unique?A prescriptive corporate system is unrivaled where the objective has been defined in advance and the main(prenominal) elements have been developed before the schema commences.an rising corporate dodging is one whose final objective is unclear and whose elements are developed during the course of its life, as the dodging proceeds. Lynch (2000)As is shown above by Lynch (2000) the two recognised strategy models are super different, until now these are the two dominant strategy approaches as give tongue to by Dennis Foster in his lecture on Managing Strategic salmagundi (2006).It is safe to recognise straight away that Ryanair does not sit uniformly with either strategy. However certain aspects or functions could certainly adhere to one or the some otherwise as these are sections that make up the flattop as a whole and for an organisation of Ryanairs size different split would have different aims and objectives underneath a main umbrella strategy for the organisation.For example any castning undertaken by Ryanair for recent routes or planes would follow the prescriptive model as the objective would have been defined out front and elements such(prenominal) as finance will have had to have been concur before any purchasing goes a channel.On the other hand emergent strategies may be in direct for things handle training and education where elements can be discovered along the way for example if an hack arose where cater needinessed more health and safety training and so the training programme could be redirected.Ryanair, as already stated, follows neither strategic approach religiously and possesses a strategy unique to their organisation, which has identified their of necessity and objectives. Ho wever their approach to strategic counselling isnt unique in itself as the majority of organisations will tailor strategies to suit their business own individuality.1.3.3 hawkish AdvantagesTheir main competitors are carriers including Easy Jet, BMIbaby, Fly Be and Thomson Fly in every(prenominal) of who try to attract potential customers by emphasising their low cost tickets. This makes the opposition in this market segment fierce as in revision to offer the lowest hails, be must also be kept to a minimum.Ryanair continues to be the lowest cost airline in Europe. The steadfastly manages to maintain its cost leadership despite the presence of other low cost airlines in Europe. The lineage of free-enterprise(a) advantage of the lodge is its susceptibility to drive down costs to sustain low fares while at the akin clock remains juicy. This is done throughFleet commonsThe airlines fleet is made up of Boeing 737, the most common aircraft being flown in the present. Beca use of fleet commonality the firm is adequate to(p) to cut on costs in obtaining spares and maintenance run.Contracting Out of ServicesOther than working capital of Ireland Airport where the firm maintains its staff and services, Ryanair contracts out aircraft use, ticketing, baggage handling and other functions to ordinal parties. The firm is able to obtain competitive rates and multi-year contracts at fixed apprizes, limiting exposure to cost increases. Third party service outsourcing also limits Ryanairs direct exposure to employee relations responsibilities and potential dis displacees.Airport Charges and despatch PolicyAirport charges include landing fees, passenger loading fees, aircraft set fees and noise surcharges. In revision to reduce these fees, the firm avoids congested main airports and chooses secondary and regional airport destinations which are really interested in increasing passenger throughput.Staff Costs and ProductivityIn couch to control employee co mpensation costs, the firm implements a performance related net structure. Although the caller take into accounts lower labor costs, the employees can earn additional profit or remuneration base on their performance.Marketing CostsIn order to reduce trade costs, the firm cut its rate focussing to touch off agents. The firms main advertisement tools are sweetspapers, radio, television and its association website.2.0 impertinent analysisFor success within the airline industry, an ken of the external environment is essential. This section aims to bluelight the position of the industry, in limited looking at competitors and assessing Ryans capability to meet current and future challenges.2.1 PESTLE AnalysisIn Pestle analysis we investigate macro external factors for companies, which are very meaning(a) for identify their strategies. there are 6-core elements of Pestle analysis. These are Political, Economical, Social, Technological, intelligent and Environmental re sprin gs. We can examine these factors in the airline industry to consider Ryanairs future external threats and opportunities.PESTEL FactorKey PointsImplications for RYANPoliticalHeavy convention (AEA, 2009).Compliance is essential if Ryan wants to continue operations. change magnitude security due to last(prenominal) terrorist threats (DFT, 2008).Sufficient security measures should be in place to ensure consumer authority and competitive advantage is maintained.EconomicGlobal economic crisisWorld developing is projected to just over 2percent in 2009 (IMF, 2008). overreach weakens eespecial(a)ly against the Euro.Possible reduction in the amount of business travel as companies are cutting costs and using alternative agency of communication such as teleconferencing.Oil damages declined by 50 % since their rush retreating to 2007 takes. Decline in fuel price = streng henceing of the dollar (IMF, 2008)Fluctuations in oil prices and exchange rates will directly affect Ryans cost base .UK consumer take placeing saw its sharpest decline for 13 years between July and folk 2008 (Channel 4, 2008).More intense competitionSocialThe UK has an aging population ( percolate vermiform appendix 3) (National Statistics Online, 2008).Potential opportunity for growth as older generations havemore cartridge holder to spend on leisure activities such as international travel.Increasing unemployment (Kollewe and Sager, 2008).Increased bargaining authority as an employer.TechnologicalA recent vista revealed that 34% of online consumers plan to use price-comparison sites more in 2009 (NMA, 2009).Increased consumer awareness and therefore bargaining power.Online booking services and check-in is becoming progressively used by the airline industry.Ryan must ensure that they remain up to date with these technological advances whilst avoiding becoming overly reliant, as this may sequestrate certain consumer markets (i.e the elderly) who dont feel comfortable using such applied sc ience.Environmental/ honestNoise pollution controls,and energy consumption controls (DFT, 2008). refreshed legislation (e.g. mode Change Bill) enforcing tighter environmental regulation may increase operational costs each year.Limited land and for growing airports Expansion is difficult at Heathrow as it would result in a loss in the Londons kilobyte belt area. (BBC News 2006)Limited capacity=utilisation of capacity.Consumers are becoming increasingly green and more aware of the environmental impact of their achieves.Failure to adopt an integrated environmental strategy could lead to a detrimental force out on the Ryans reputation and income.Cancellations of flights and loss of baggage (Channel 4, 2008).such(prenominal) ethical issues could have a detrimental effect on reputation if left unresolved. reasonedRecognition of trade unions and industrial action e.g. Cabin Crew strikes. skinny employee relations are essential if Ryan wants to avoid industrial action and off-and-on(a) operations.Open Skies Agreement (AEA, 2009)Opportunity for Ryan and its competitors to freely transit aircraft between the EU and US.There is a cruel competition in airline industry. Especially, aft(prenominal) credit crunch in 2008 the competition has become crueler. Companies have to labor with recession also and in this economic situation we can canvass lots of threats in sector. If you reverse these threats to the opportunities you will be one measuring further in the competition. Ryanair is the most suitable follow to gain advantages from todays world. With this designation we answered the questions, which frequently asking for their future strategy and their positions of the future competition. Thats why they have started to corporate social responsibilities.2.2 Porters Five ForcesBefore starting to write analysis of the Ryanair based on Porters flipper forces I should write some special information intimately Ryanair or all low cost airlines. The main characteristi cs of these companies are designed for reducing costs. Because it is obvious that the most competitive perchance just one- side of them is their low fares.For Ryanair, their aircrafts seat density is very high and they prefer just one aircraft types (Boeing 737-800). All of their bookings are via Internet so they earn huge amount of money because of no sales commissions. They havent got any frills such as free food or havent got any air-mile promotions. They invariably prefer secondary airports.Actually these all I mentioned above are had mentioned at their S.W.O.T. analysis in strengths part. In my opinion we can use every single detail from S.W.O.T. analysis of Ryanair when we are writing most Porters Five Forces analysis of it.This analysis has five-core element. These are1. Bargaining ability of Suppliers2. New Entrants3. Threat of Substitutes4. Competitive Rivalry5. Bargaining Power of clientsBargaining Power of CustomersRyanair customers are highly price sensitive. It is very easy to change their airline and it is not related to high cost. In this century customers knowledge about the cost of service is high and there is no customer dedication for Ryanair. Even though there is no customer loyalty, bargaining power of customers is low. Ryanair is the cheapest airline for all Europe destinations and customers are -especially in recession times- highly price sensitive.New EntrantsIt is very big(a) to be refreshing in airline industry. There are lots of barriers to entry. You should take the flight authorizations. The capital that you will invest in this sector is very high. It is also bad to take a place current competition and also hard to find suitable airports for your flights. In my opinion in short time fulfilment there will not be any threats of immature entrants against Ryanair even though some existing companies are changing their strategy and reducing their ticket price (Lufthansa).Threat of SubstitutesAs I mentioned before there is not any brand loyalty of customers and Ryanair preferred customer relationship is not-close relationship. If their customers find better way to travel they will not feel any hesitation to chose it. So the threat of direct and confirming substitutes is very high and the most important point is there are no switching costs for the customers.Competitive RivalryThe market is highly competitive. Most of Ryanairs cost advantages can be copied immediately. In Europe it seems like there is an agreement between Ryanair and Easyjet about not to compete head to head. However if any company does decide to compete on the corresponding basis as Ryanair it will be highly crucial for Ryanair. There will be heavy pressure on prices, margins, and hence on favourableness.2.3 Bowmans Strategy ClockBowman created his Strategy Clock in The essence of Competitive Strategy book. With this strategic model he illustrates companys competitive position in comparison with their rivals. For him the real advantage of companies being achieved cost and differentiation. His strategy clock has 8 options.First two options are about the low price. First option is totally low cost low added cherish but the second option totally about to be a cost leader without caring its value. Second option has the risk of price war and low margin.Third option is a hybrid option. primarily the low cost but not the lowest price. The most important difference between second and the third option is in third option reinvestment in differentiation.Fourth option is about differentiation. For option five the biggest difference is the differentiation is highly focused. It perceived added value to a particular segment warranting a premium price.Rests of the options are failure options. At option six the price is increased but the value is standard. Option seven-spot is worse than option six. In option seven you can see increased price with low values. It is only feasible in monopoly situation. utmost(a) option is optio n 8, which is the cause loss of market role. Because your low value has a standard price.Ryanair had dramatic changes during last decade period time and this was flabbergasted its competitors. Their profitability rose within a short period of time. Their low-fares strategy without frills and punctuality in flight service helped their high profitability period and it brought a significant value on the growth.The high level competition needs efficient strategy to gain advantages and at the same time high profit. In different times we can put Ryanairs strategy in different options in Bowmans Strategy Clock. But all of them can be placed between options 1 to 5. Their strategy never placed in failure part of Bowmans clock. Mainly, in these days Ryanair place in the clock is between options 1-2, which is mainly about low price. We can easily realize Ryanair is the best example for this option. If they can secure their price and gives higher valued service they can easily take a place opt ion three and they will be strongest company in the competition. In my opinion, hybrid strategy is the most preferable strategy in the clock that is why Virgin Airlines prefer this option. If Ryanair updates their lowest price strategy with a standard service they easily will be the strongest company in the competition.3.0 SWOT AnalysisStrengthsRyanair has been known as Europes first low-cost, no-frills airline brand.This fact alone credits is the companys strongest selling point. Ryanair started in year 1985 with only 57 staff members and with one 15-seater turboprop plane from the south of east of Ireland to London-Gatwick which carried 5000 passengers on one route. In 1986, inspired from the story of David and fiend the company go after the big guys for a slice of the action and end up smashing the Aer Lingus or British Airways high fare cartel on the Dublin-London route. From therein, Ryanairs lower fares offering increased their market share rapidly resulting to the establishm ent of low-cost subsidiaries of established airline companies such as British Airlines and KLM.The low-cost, no-frills strategy resulted to a rapid increase of customers and blowup of their operations, wherein the staff increased from mere 57 to 3, 400 staff members and almost 35 million passengers. In toll of operations, the EU air transport deregulation go awayed the airline for the first time to open up new routes to Continental Europe with over 3 million passengers on 18 routes carried in 1997. Ryanair also launched services to Stockholm, Oslo, Paris and Brussels and took time out to float Ryanair Holdings plc on Dublin and NASDAQ Stock exchanges. The company was awarded as Airline of the Year in 1999 by the Irish Air Transport Users Committee. In 2001, while almost all traditional airline companies suffered from losses and pissed off competition, Ryanair, being a low-cost airline became more than merely profitable by recording 26 percent in operating margins results that t he former(prenominal) only dreamsabout. In June of the following year, Ryanair made a market capitalization amounting to 4.9 billion euro ($4.82 billion), breaking the records of 45 percent more than the mighty British Airways that has 20 times larger in terms of revenue.Ryanair possesses the sophisticated and able technology that can cater to the fast changing global merchandising management trends. It has core competence in its use of information technology that can support its management and marketing operations. Thus, adding to its innovations in service providing among the simple range of clientele. Its IT supports competent procurement of services (e.g. bookings and ticketing) in e-marketing or online aspect. subsequently establishing its website in January 2000, it became one of the busiest sites in the country with 14 million postage stamps a month. The booking in their web accounts have increased to 94% which has likely has something to do with opening some other 26 routes. In year 2003, the company is characterized by rapid expansion and the start the year by announcing that the company has ordered an additional 100 new Boeing 737-800 series aircraft to facilitate the rapid European growth plans. The company is named as the most popular airline on the web in 2004 by Google. The company has also passed out British Airways to become the UKs favorite airline in United demesne and throughout Europe. In sum, Ryanairs strengths rest on the companys commitment to low fares, deep-seated management, and willingness to address managerial challenges and marketing trends (e.g. competition, expansion, and IT solutions).WeaknessesDespite of the increase of passengers, the company is not so good in managing cost that the company has lose its money. At the moment, there have been urgent and deliberate mechanisms that were implemented to address such weakness. Such cost reduction strategy relies on five main aspects like fleet commonality, contracting out ser vices, airport charges and route policies, managed staff costs and productivity and managed marketing costs. Ryanair, in spite of its strategies has other problems that respond as weaknesses too. One of the problems is in terms of handling customers or put market. Reports say that Ryanair accumulates hidden taxes and other fees, restricted customer services, and deceiving advertisements. In addition, another problem is assuring quality service. According to the result of poll conducted by BBC involving air travelers in 2003, 56 percent of respondents claimed that the airline caused them the biggest headaches in terms of services and customers. Also, in 2007 Irelands Commission for Aviation Regulation recorded a total of 60 percent of all complaints accumulated by the commission. There has been significant number of bad publicity for the company, thus, creating a negative impression to the airline brand. The company is faced with different unsolved issues because of lack of strateg ic decision making in several areas of human resources particularly in relation to trade union policies.OpportunitiesWith the management system of the company and the strengths that it has, Ryanair has bigger opportunities to still dominate and catch up with the competition in the European airline industry in terms of providing more quality service standard and at the same time preserving it low-cost no-frills strategy to its clients or even have an opportunity to be the number one airline company in the whole region after its eventual(prenominal) application of its proposed plans in the future. Another opportunity that can be disposed to the company is it would gain more customers if they would be able to determine the modish trends in airline management and marketing to meet the demands of their target market. The nonstop initiatives of the company in diversification of its revenue resources also open new opportunities to make the business become stronger to outgrow all its riv al companies. Such opportunities will include e-business development by strategic alliances as well as suppliers, leveraging the companys investment in the World Class Customer Satisfaction Systems, and other business opportunities in both non-core and core areas.Threatsoperating(a) in the most competitive marketplace especially European airline industry, Ryanair is faced with the inevitable threat of stiff competition. For a company to attend in global competition there is a continuous plan to develop new products with higher quality than its competitors. New product and new business development must be highly effective and efficient, however that alone will not ensure its competitiveness. The expansion of its operations to other areas means adjusting to the trade policies and political problems of the locality. The dynamic needs and demands of customers served to be a challenge to the management. Furthermore, consumer behaviour and satisfaction with regards to the product/service procurement is also a risk. If the company will continue to be a vertically integrated corporation, the company may fail in terms of management ability. The division of the company may tend to have internal complexity. Additionally, fast paced technological advancement may be a threat to Ryanair as a whole. In terms of the competitors, the company should be able to provide unique and more technologically advanced services to be able to survive in the competition in the world airline industry. rising Strategy and good wordsMergers and AcquisitionsMergers and acquisitions have become one of the most important corporate-level strategies in the new millennium. Merger and acquisition strategies are important to firm growth and success in the 21st century. As Ryanair continues to grow it is expected that the company will acquire other companies such as Buzz, in order to improve its capabilities and acquire more competitive advantage.Strategic Human preference ManagementRyanair, in its commitment to low-cost airfare have sacrificed its movementes and services. The human resources of the company are not seen as a potential source of competitive advantage. The company do not seem to value its people. There is a growing belief that a companys human resources is the most important source of competitive advantage. Human resources or the companys people are one source of sustainable competitive advantage. In a fast-changing environment where technological innovations and other strategies can be copied, it is the human resources that bring a sustainable competitive advantage.Marketing Plan StrategiesRyanair should has a detailed plan for its strategic moves in the market and be able to provide good customer services to the customers like by having discounted flights and value promotion to keep the competitive advantage at a stable mode within its competitors and will need to focus more on the core competencies that allow Ryanair to practically and wisely designs suitabl e airline operations within the bracket of their marketing meshwork services in a market standard-based perspective. Ryanair need to be intention oriented and must not stop to rejuvenate and change their marketing plan strategies from time to time in order to re-invent the performance process upon the upgrading of rules and regulations mandated by the state. Ryanair is to overcome the lack of product differentiation and increase it that will have the ability to revive revenue generation.Operational EffectivenessIt is then recommended that Ryanair should outsources as many non-core functions as possible that may abandon skirting(prenominal) services such as catering or ground handling services and can be required to perform such activities as external specialist companies defined to be independent profit centers.RecommendationBased on above analysis, it is recommended that Ryanair consider the expansion in to taking into custody markets specially the transatlantic routes which a ccounts for more than 60% of worlds air travel. By despicable in to this new market with its low fare strategy match with added service options the company can utilize its existing business with introducing antonymous goods and services via its web site its also recommended as this will allow the company to further reduce its cost base per unit of customer.