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Strategic Analysis of No Frills Airline

Essay by   •  December 17, 2010  •  Case Study  •  3,988 Words (16 Pages)  •  2,496 Views

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1 INTRODUCTION

The aim of this report is to carry out a strategic analysis of Ryanair. This will involve investigating the organisation's external environment, to identify opportunities and threats it might face, and its strategic capability, to isolate key strengths and any weaknesses that need dealing with. Finally, a SWOT analysis will be carried out to assess the extent to which Ryanair's strategies are suitable to what is happening in its task environment.

Ryanair is Europe's largest low-fares, no-frills short-haul carrier. The organisation was founded in 1985 as a conventional airline but re-launched itself in 1990/1991 as a low-cost carrier, replicating American Southwest Airlines' business model. Since then Ryanair has grown substantially and successfully. The company currently has 146 routes to 84 destinations in 16 countries, and carries more than 15 million customers annually. Ryanair aims to be Europe's largest airline in 8 years (www.ryanair.com).

2 ANALYSIS OF THE EXTERNAL ENVIRONMENT

This is a crucial part of a strategic analysis because Ð''Ð'...organisations do not exist in a vacuum, they are part of a complex world' (Bowman 1987:61) and many factors can influence operations, beneficially and unfavourably. However, these can be difficult to comprehend due to their complexity, diversity and fast changing nature. Necessarily a number of techniques have been developed to facilitate the process and to Ð''Ð'...contribute to answering the key managerial questionÐ'...'of what Ð''Ð'...opportunities and threats might arise in the future' (Johnson & Scholes 2002:99).

2.1 PESTEL analysis

This identifies the main micro-environmental influences by classifying them into six groups: Political, Economical, Sociocultural, Technological, Environmental and Legal. By applying this framework to Ryanair it is possible to summarise the key forces in the general environment (see appendix A) likely to present opportunities and threats to the organisation (Johnson & Scholes 2002).

Political

Ð'* Ð''Saturday May 1 will mark one of the most important days in recent European history' (http://europa.eu.int). The continent will see the biggest expansion of EU to date when ten states become new members. For Ryanair new markets will open which suits its growth plans (www.ryanair.com).

Ð'* Stansted airport, owned by BAA, is one of the most rapidly growing airports in Europe (www.baa.co.uk/). BAA plans to build a second runway and terminal there, accompanied by necessary rail and road infrastructure, aiming to double passenger capacity within ten years (Done 19/12/03). Stansted is Ryanair's London base and an expansion would enable substantial traffic increases thereby facilitating consolidation (Johnson & Scholes 2002).

Ð'* The Civil Aviation Authority (CAA) is responsible for setting Ð''Ð'...price caps on airport chargesÐ'...at airports designated by the Secretary of State' (www.caa.co.uk). One of these is Stansted, which has hitherto Ð''Ð'...benefited from discounted airport charges and cross-subsidy from the higher charges paid by the airlines at Heathrow and Gatwick airports' (Done 18/12/03). CAA's new requirements command airport financing without cross-subsidisation on a stand-alone basis. Consequently discounts will be removed and charges possibly increased. Ryanair has protested as it will raise its costs (Done 20/10/03).

Economical

Ð'* Opec aims to keep oil prices within the agreed band of US$22-US$28/bbl (www.opec.org). However, with crude oil now Ð''Ð'...standing at close to $33 a barrelÐ'...' (www.bbc.co.uk) near a 13-year high, Opec considers increasing its target. With a tight US gasoline market, low inventories (The Guardian 27/04/04) and an upsurge in fighting in Iraq (http://news.bbc.co.uk), oil prices look likely to remain high or rise (see chart 1 for example). Ryanair faces persistently high or rising fuel prices.

Chart 1: Oil price fluctuations during periods of war 1947-2003

Source: http://www.guardian.co.uk

Sociocultural

Ð'* Holiday home ownership in Europe is increasingly common for Britons. During Christmas sales boomed and analysts believe it will continue as customers are Ð''Ð'...encouraged by the highest employment figures in 28 years, low interest ratesÐ'...' (Insley 18/01/04) and other favourable borrowing conditions. Ryanair services regional airports, opening up the European countryside to buyers, and this trend means an increase in the possible customer base (Insley 08/02/04).

Ð'* The over-55s now represent approximately one third of most EU-countries' populations, and the figure is increasing. Ð''Because of better healthcare and financial planning, a significant proportionÐ'...'of senior citizensÐ''Ð'... are able to indulge in high levels of leisure-orientated consumptionÐ'...' (Brassington & Pettitt 2003:48). Analysts recommend developing specific marketing strategies for this market highlighting its growing importance (Lohmann & Danielsson 2001). Ryanair here has an opportunity to increase its market share.

Technological

Ð'* New technology will allow mobile phone and broadband use on-board. Carriers, including Ryanair, can thus increase ancillary services by offering on-line shopping, TV screenings and mobile phone usage against a fee. Furthermore, the satellite link could boost operating efficiency by being used to monitor planes, giving early warnings of problems to ground crews, thereby enhancing safety and minimizing groundings (Economist 01/03/03 & Economist 01/04/04).

Environmental

Ð'* A recent White Paper emphasised Ð''Ð'...the environmental importance of including aviation within the global emissions-trading schemeÐ'...' (Newman 03/12/03), aimed at providing financial incentives for companies to cut greenhouse-gas emissions and to tax aviation fuel across EU. Presently an increase in air passenger tax is planned, which doubles the Ð'Ј5 and Ð'Ј20 economy passengers currently pay for short- and long-haul flights. This will raise Ryanair's prices,

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