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This report is analysis internal and task environments (Porter’s five forces) on the European airline industry include general airline and budget airline and identity Ryanair. After that, student needs to use SWOT to analysis on Ryanair. Finally, students need to mention how Ryanair to delivery the strategy.
Firstly, I read all of the information from case study, that mention a lot of Ryanair background, strategy, objective and competitors. After that, I started to my online research. I read the Ryanair and some of the competitors’ web-site. Then I printed out some of the useful document from Ryanair.
Ryanair is a budget airline. It provides intra-Europe flight service to passengers. The main based is in Dublin but now incline to central Europe. Ryanair provide low fare air ticket to competitive with competitors.
In Europe airline, local government can prevent new entrants appear in the market. Suppliers bargaining power is not strong. Buyer can easily to switch to another airline. And, airline industry needs to face substitute by ferry, train and car.
SWOT mentions external opportunity such as government expands airport; external threat such as EU new rules; internal strength economic scale and contract out of service; internal weakness fuel cost.
At the end of this report will describe different viewpoint of Ryanair and how company delivery strategy to competitive with competitors.
In European airline industry classify two types’ airline, general airline (mainstream airline) and budget airline. Mainstream airlines are not only focusing flight services and also provide ancillary services such as flight club, free movies. On the other hand, budget airlines are only provide flight service on their business and also most of the airlines are set up by mainstream. For example, easyJet, a subsidiary company set up by British Airway, provide service Glasgow and Edinburgh from London. Most of these airlines are lack of financial capacity, as a result, budget airlines will choosing more profitable routes to operate.
Ryanair is a budget airline in European. But it is not a subsidiary company; it provides sales promotion and good discount price on the air ticket. And, passages need to pay on ancillary service.
1. Five forces analysis
Whole world plane produce by Boeing and Aircraft. These two companies are providing high technical product. All of the airline company who want to purchase new airplane must negotiate alternative. Two options to choice by airline’s company, it is difficultly to switch their suppliers.
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There have three main type’s substitution car, ferry and train. Business people will travel by plane, because fast and save time. When they have short holiday, they may want to escape from city. They would choose travel by car, ferry or train. Those three type methods might cheaper than by plane. And, those have much more time to enjoy landscape. Those methods are cheap and more entertaining than by plane, so people might choose other methods to travel. Mainstream, budget airline and Ryarair are facing on those three substitutes.
1.3 New entrants
A mainstream carrier was to set up subsidiary airline. Budget airline separately establish to main airline, such as Virgin Express is based by EuroBelgian Airlines (EBA) Most of the new entrants open by main airline. They have economic of scale, use same aircraft or cabin crew, easy to repair and training employees. Product differentiation, for example, EBA focusing on national line and Virgin Express concentrate on Brussels. In Europe start to operate an airline or route must register in local government. Therefore, local government has strong bargaining power to prevent new entrants go into the market. New entrants is difficultly to exist so main or budget airline and Ryanair can concentrate to competitive with existed competitors
easyJet Set up: British Airway
Routes: Glasgow and Edinbourgh from its London Luton
Strategy: purchase new aircraft and increase new routes like Germany
Virgin Express Set up: EBA
Routes: Brussels, Shannon, Ireland
Strategy: focus on Brussels, attempts to grow in France
bmibaby Set up: No, Base at East Midlands Airport
Routes: UK cities, Ireland, Spain, France, Italy and Szech Republic
Strategy: serving domestic European and Amerian
flybe Set up: British European Airways (BEA)
Routes: UK, Ireland, France, Spain, Austria, Switzerland and the Czech Republic
Strategy: provide good service, just below the mainline carriers
My Trave Lite Set up: My Travel
Routes: Dublin, Belfast, Geneva, Alicante and Malaga
Strategy: low fares airline
Set up: No.
Routes: Ireland domestic and international service
Strategy: low fares airline
Ryanair Set up: No
Routes: Dublin, UK, Spain, France, Italy, Brussels
Strategy: low fares, no frills
Upon those six budget airlines are focusing on Europe, there have strong competitive. In those companies, some of them were backed by parent company, easyJet based on British Airway; Virgin Express based on EBA; flybe based on BEA; My trave Lite based on My Travel. Those of them have similar size and power, and high invested in non-current assets such as plane and licenses. There are high exit barriers. So the rivalry is stronger.
Buyers or passengers can purchase air ticket easily. There have a lot of airlines in the market, and information is circulating. Buyer can check price on the Internet and agency. Passengers can easily to switch airline and without cost or penalty.
2. SWOT analysis on Ryanair
In 2003, the British government decided to expand and develop Stansted Airport. Before this announcement, Ryanair just take over Buzz which is a budget airline based at Stansted airport. Because the airport will expand, it seems to be more passengers to use this airport. That is an opportunity to increase loading and provide a new route to choose by customers.
The European Union (EU) canceled duty free sales on intra-EU travel. That is an opportunity to Ryanair. Accounting to case study data, Ryanair’s ancillary service continued to rise from 11.7 percent to 12.12 percent. It can sell products without tax on plane, which could be increase ancillary profit. It can predict that ancillary service would have heavy proportion on profit.
EU had decided that aircraft must give compensation to air traveler for cancelled by carrier without two weeks notice. This is threat to decrease Ryanair’s revenue. This rule could be result to increase cost of operate.
Terrorist attacks on the United States on 11 September (911) had a negative impact on airline industry. Most of the people will consider changing their transportation to travel. And also, the insurance companies rise insurance cost. It result revenue dropped and cost increased.
Ryanair’s plane consist a single aircraft type Boeing 737. That is strength of Ryanair. Firstly, company had economic of scale. Company can easily to repair when plane is damage and easily to train pilot and cabin crew. Secondly, cost saving. A large number purchase plane or accessory, which might have discount allowance. Finally, company can flexible to organize flight scheduling. That would decrease delay or cancel caused by compensation or penalty pay.
Ryanair contracts out aircraft of services to third company such as ticketing, baggage handling etc. That would be helping company decrease cost and obtain competitive. And also, that would avoid a part of employee relation responsibilities and potential disputes.
Ryanair provide point-to-point flight, avoiding the transfer cost such as baggage transfer. That avoid delay caused by late arrival of connect flight.
Internet booking air ticket and ancillary products such as travel insurance, hotel reservations etc are increasing booking. Accounting to the case study data, by 2003 95 percent of booking, it provide extra revenue from these ancillary services. That is strength of Ryanair to increase profit and also can reduce travel agency commission.
Airport will charges fee, when the plane landing packing and passengers loading. Ryanair reduce these fees. Company decided to avoid these congested main airport, choosing secondary and regional airport destinations. That would help to reduce cost. On the other hand, that might weakness for Ryanair. It is because some airports are further from city such as ‘Trop 100km from Oslo’ (according from case study data).
According to case study data, ‘Ryanair will not provide free wheelchair to their disable passengers. Because of this policy Ryanair need to compensation’. This is weakness of Ryanair, that policy will prevent disable customers to choose Ryanair. It will lose profit and compensation again and harm company image.
Buzz was take-over by Ryanair. Buzz pilot and cabin crew would still earning 10 to 15 percent less than Ryanair pilots and cabin crew. This is weakness of Ryanair, it may happen strike in the future, when buzz’s pilot and cabin salary are not same level.
Company should try to adjust both companies salary until same level.
Changes in fuel cost affect the company’s result. Fuel price increased at high level, which has had an impact on Ryanair’s costs. Because low fares policy, its ability to pass to customers though increased fare.
3.1 Ryanair’s strategy
Ryanair’s objective is to maintain their position in Europe leading low fares airline, operating point-to-point flight. ‘Low fares, no frills’(according to case study data) is strategy was adopted by Ryanair. Company provide lowest fares to their customer, because the price is low, company will only provide basic flight service to their passengers such as frequent departures, advance reservation, baggage handling and flight on-time services. All ancillary services such as Internet, movie will not be provide, passenger need to pay extra fees on that services. Additionally, Ryanair try to reduce cost on the value chair, company will land on secondary airport to avoid landing charge. And also, plane will pack on less expensive gate location and outdoor boarding stair rather than jet way help to keep cost down.
3.2 Customer viewpoint
Based on the service (appendix 1) most of the passengers would not satisfy on the plane services, which include catering, cleanliness of interior, legroom, seat allocation seat comfort and toilets. Upon those six points were unsatisfied and worst. And also, only 42 percent passengers would suggest their friends to choose Ryanair (appendix 2). Based on the Ryanair’s policy will not provide free wheelchair to their passengers. If passenger required wheelchair, Ryanair will direct passengers to wheelchair supplier and pay by passenger. That caused a passengers sued Ryanair to compensation. It seems Ryanair should provide more ancillary service such as provide free wheelchair, keep toilets tidy. On the other hand, passengers would satisfy on price of air ticket.
3.3 efficiency viewpoint
To efficiency delivery low fare, no frill Ryanair try to keep product cost as low as. Develop internet online booking and reservation, which can reduce commission to travel agency. Ryanair decide plane landing on secondary airport to reduce cost of plane packing. Some of the services were contracting out to third party, keep at the fixed price.