Swot analysis of Ryanair

In 1997, the EU air transport deregulation allowed the airline for the first time to open up new routes to Continental Europe with over 3 million passengers on 18 routes carried. Ryanair launched services to Stockholm, Oslo, Paris and Brussels and started to float Ryanair plc on Dublin and NASDAQ Stock exchanges. In 2000, they announced the launch of 10 new European routes for the summer and the company launched their new online booking site and in just 3 months the site was taking over 50,000 bookings a week (Ryanair About Us n.d.).

After the tragedy of 9/11, the whole air transportation industry suffered a drawback and airline companies had to modify their strategies in order to adapt to the new situation that led to an increase in oil prices and a downturn in traffic (Gloomy Ryanair 2008). Ryanair, instead of cancelling thousands of flights, adapted the opposite strategy (DG TREN – ANALYSIS OF THE EUROPEAN AIR 2001). The company took advantage of empty slots in the airports, which were until the date the biggest constraint in European airports.

In 2008 Ryanair is the 3rd largest airline in Europe; it has 31 bases and carries 50.9 million passengers annually (Ryanair Annual Results 2008). The firm’s whole story is built on ambitious growth targets. But keeping returns up while deploying ever-increasing quantities of capital is hard to achieve (LEX: RYANAIR 2003). Ryanair has to come with innovative strategies to grow its market and profit in the highly competitive environment. In this report the SWOT analysis will be presented that will help us to identify strengths, weaknesses, opportunities and threats that could have major effects on Rynair’s strategy.

Ryanair’s business model focuses on the price sensitivity of the customers. The model aims to offer the cheapest ticket prices. In order to reach its goal the costs must be kept at a low level, thus Ryanair uses secondary and smaller airports which offer cheaper services than others. Its fleet consists of single model aircrafts (Ryanair About Us n.d.), which reduces maintenance and training costs. Ryanair sells ticket through its website, doing so the firm lowers the cost of distribution as over the phone bookings are more costly, furthermore eliminates the need of travel agents (DG TREN – ANALYSIS OF THE EUROPEAN AIR 2001). The firm communicates with customers only through postal mail, fax, or premium rate phone number. This mode of customer care is not popular or friendly, but it minimizes the costs of operating a customer care service. The airline flies with short turnaround and maximum utilization of aircrafts, in addition it charges for every single service an extra fee.

Ryanair has managed to keep its focus on its objective, and has transformed itself to one of Europe’s biggest airlines over two decades (LEX: RYANAIR 2003). Still it has issues for which the SWOT analysis will try to give answers from a strategic point of view:•Threat of competition and other modes of traffic•Financial crisis and Ryanair•Ways of further expansion•Prone to bad press: Ryanair is perceived as arrogant and the slightest incident gets a lot of press coverage (Milmo 2006)The SWOT analysis given below should help Ryanair to achieve their mission and goals.

The vision and goals of Ryanair (Rynair.Com Strategy 2008) are:•To be the biggest and most profitable low fares airline in Europe•To make low cost a ‘management religion’ and be air fare passive•To target growth, actively manage load factors and the cost base•Growth will be based on opening new airports2. Theoretical frameworkJohnson, G., Sholes, K. and Whittington, R. define the SWOT analysis as “it summarizes the key issues from the business environment and the strategic capability of an organization that are most likely to impact on strategy development” (Johnson 2006). In order to provide a better understanding of the current situation of Ryanair and its strategic options toward reaching its mentioned objectives, a SWOT Analysis can be undertaken. SWOT Analysis is used to evaluate the Strengths, Weakness, Opportunities and Threats involved in a project, or any other situation requiring a decision.

SWOTs are defined based on the following criteria (Meyer 2001):Strengths are internal attributes of the organization that are helpful to the achievement of the objective. Weaknesses are internal attributes of the organization that are harmful to the achievement of the objective. Opportunities are external conditions that are helpful to the achievement of the objective. Threats are external conditions that are harmful to the achievement of the objective.

In theory, SWOTs are used as inputs to the creative generation of possible strategies, by asking and answering the following four questions numerous times:How can we use each Strength?How can we stop each Weakness?How can we exploit each Opportunity?How can we defend against each Threat?To summarize the SWOT analysis, we can say that it helps to focus on the strengths of organizations, nevertheless it highlights in the same time the weaknesses. It reveals organizations opportunities in their environment but also the threats that organizations have to be aware of. Therefore, the SWOT analysis helps and supports companies in the early process of taking measures and setting strategies.

Consequently, our objective is to apply this method of planning focusing on Ryanair’s mission and goals with the intent that concepts described here can be used to strengthen and guide the company’s future strategy.

3. SWOT analysis of RyanairStrengthsRyanair was the first one among the Low Cost Carriers. The Irish company was established in 1985. In 1990 an aggressive and innovative leadership (Michael O’Leary) took the management of the venture. Since then Ryanair has vigorously maintained ‘low cost’ fare policy. It successfully positions itself to the cheapest segment of the marketplace. The company continuously concentrates on driving down its costs to offer the lowest fares possible and remain profitable. In addition, Ryanair offers minimum standards of service and very low prices for point-to-point, short haul flights. The goal of Ryanair is to meet the needs of travelling at the lowest price.

Ryanair has the marketing advantage of first mover, has very high market capitalization and strong bargaining power in airport deals. Ryanair negotiates extremely aggressive contracts with its airports, demanding very low landing and handling fees as well as financial assistance with marketing and promotional campaigns. The strong bargaining power, high seat occupancy, high seat density, flat-structured organization and single model aircraft all help to reduce fix and operating costs, which results in the lowest fares on the market. In addition, Ryanair’s aggressive fuel hedge aims to keep impact of fuel price fluctuation to the minimum.

WeaknessesRyanair earns publicity through negative press reporting (sometimes misleading advertisements about ticket fares and destinations), which affects the brand image in the long term. Critics have attacked its hidden “taxes” and fees, its limited customer services, and charged that it practises deceptive advertising. Very poor customer relations which is detrimental to success in any services industry, according to passengers staff is unfriendly and complacent. The airline has come under heavy criticism in the past for its poor treatment of disabled passengers. In 2002, it refused to provide wheelchairs for disabled passengers at Stansted Airport, greatly angering disabled rights groups. In addition, Ryanair does not offer customers the possibility of contacting them by email or web form, only through a premium rate phone line, by fax or by post. In a poll of 4,000 travellers around the world, unfriendly staff was cited as the worst part of the Ryanair experience, followed by delays and poor legroom.

Ryanair’s airports are far from city centres, which can be less attractive to customers as markets mature. Decrease in availability of landing slots in major destinations can be a problem for business travellers. Due to its cost-based business operations Ryanair is very sensitive to any new taxes that may be imposed. There is a low level of morale among employees although Ryanair has an increasing demand of skilled aircraft.

OpportunitiesMergers / acquisitions could be a way to stretch its presence in popular destinations by fast expansion to new markets. Complete deregulation of EU aviation market means a larger market for Ryanair. Additions to the EU will increase passenger numbers, as job seekers, tourists, and some business travellers will look for cheap fares. US-European ‘open-skyes’ agreement could be a source for increased routes and passenger traffic. Economic slowdown actually helps Ryanair – changes in corporate culture – to ‘steal’ customers from traditional carriers as passengers seek lower fares (Finance crisis good for business: Ryanair boss n.d.).

ThreatsDirect competition with other LCCs; the firm’s main competitors on the European market are EasyJet, Germanwings and AirBerlin. Traditional airlines are also cutting fares and costs which could affect the market share of Ryanair. Limited or no slot availability at major airports could mean a barrier for further growth of the firm on certain markets. Mergers/acquisitions could threaten the existing low cost structures, by making the decision process more complex. Impending legislations for environment protection and customer compensation will increase costs. In middle and South European regions Ryanair comes in competition with other ways of transport, such as railways, or automobiles. Cancelled flights due to airport strikes could generate a loss of income for Ryanair while harming the marketing image of aviation generally.

STRENGHTS1.First to launch low-cost airline in Europe and vigorously maintained ‘low cost’ fare policy2.Has the first mover advantage in the following areas:3.Well recognized brand name4.Strong bargaining power in airport deals5.Lowest fares lead to greater seat occupancy6.Highest seat density lead to high efficiency7.Single model aircraft reduces training and operations costs (Boeing 737 – 800)8.Very high market capitalization9.Low overheads due to flat-structured and simple form organization10.Aggressive fuel hedging keeps impact of fuel price fluctuations to the minimum

WEAKNESSES

1.Negative press reporting which affects brand image in the long term2.Very poor customer relations which is harmful to success in any services industry3.Long distances from its airports to city centres might become less attractive as market matures4.Decrease in availability of landing slots in popular destinations5.High sensitivity to any increase in costs (tax, suppliers)6.Cluttered websiteOPPORTUNITIES1.Mergers / acquisitions could be a way to stretch its presence in popular destinations2.Complete deregulation of EU aviation market3.Additions to EU will increase passenger numbers4.US-European ‘open-skys’ agreement could be a source for increased routes and passenger traffic5.Economic slowdown actually helps Ryanair – changes in corporate culture, ‘steals’ customers from traditional carriers as they seek lower faresTHREATS1.Direct competition with other LCCs2.

Traditional airlines are also cutting fares and costs3.Limited, or no slot availability at major airports4.Mergers/acquisitions could change the existing low cost structures5.Impending legislations for environment protection and customer compensation will increase costs6.In middle and South European regions Ryanair comes in competition with other ways of transport7.Airport strikes4. Challenges and recommendations for the futureLow Cost Carrier market expansion will probably slow in the close future as market matures. As the growth slows, labour costs will continue to rise reducing the advantage the Low Cost Carriers enjoyed. Ryanair must be prepared to the convergence of costs and conditions, still retaining low fares in any market, coupled with high seat density and aircraft utilization.

Ryanair has to continue to expand into more popular routes in order to keep growing. This will require high employee retention which is crucial for higher customer satisfaction.

The growth, expansion and high profit margin of the firm probably can be sustained by Ryanair in the actual market conditions. But the firm must monitor market environment, as it is dynamic and adjust its objectives according. Competition with other modes of transport in the low price segment will intensify in Middle and South Europe. The Eastern regions are the current major growth areas. To keep up the pace of growth Ryanair has to find new markets such as Russia or Turkey.

Ryanair has to be prepared to combat with pro-nature conservation moves. Rapid growth of secondary airports will increase noise pollution and carbon emissions which is an environmental hazard.

Ryanair is the market leader in the lower price segment, but would have to cater to the rapidly growing value segment. Value segments consist of travellers interested to optimize comfort, time and price. This would mean a requirement for city-centric airports, and comfortable departure times.

Competitors are catering to value market segment and have established slots at some primary airports, furthermore provide cost effective basic services. Acquisition of a similar airline would enhance expansion into value-orientated market segments without comprising its top position in the low-price segment.

The key challenge for Ryanair in the next few years therefore is developing a successful strategy for not only winning the war in Low Price segment but acquiring solid position in the Value Segment and in new non-European markets.

 References

Belfast Telegraph. “Finance crisis good for business: Ryanair boss.” 8.

Creaton, Siobhan. “The rise and rise of Ryanair.” The Post.IE, 2004. 06 06.

“DG TREN – ANALYSIS OF THE EUROPEAN AIR.” European Commission, 2001.

Financial Times. “Gloomy Ryanair.” 2008. 02 04.

Financial Times. “LEX: RYANAIR.” 2003. 06 29.

Johnson, G., Sholes, K. & Whittington, R. Exploring Corporation Strategy, 7th edition : Prentice Hall, p. 102. 2006.

Meyer, De Wit B. &. Strategy – Process, Content, Context, Thomson Learning, London, UK. 2001.

Milmo, Dan. “Ryanair – the world’s least favourite airline.” The Guardian, 2006. 10 26.

“Ryanair About Us.” http://www.ryanair.com/site/EN/about.php?page=About&sec=fleet.

Ryanair Annual Results. Ryanair, 2008.

“Ryanair.com History.” 2008. http://www.ryanair.com/site/EN/about.php?page=About&sec=story (hozzáférés dátuma: 2008. 12 8).

“Rynair.Com Strategy.” 2008. http://www.ryanair.com/site/about/invest/docs/Strategy.pdf.