Ryanair as Low Fare, Low Cost Scheduled Airline Group
Ryanair Airlines was established in 1985 by Ryan family (Box and Byus 2007). According to Ryanair Ltd. 2019, Ryanair enjoys the status of “low fare, low cost scheduled airline group” of EU aviation market with 142 million passengers travelling through 86 bases with lowest average fare of €37 per person. In initial period Ryanair operated with three different types of aircraft and two different classes of seating along with frequent flyer club (Ryanair DAC 2019). However, due to high losses in revenue business class was discontinued (Ryanair DAC 2019) and company went on to operate with a single type of Boeing – 737 aircraft (Box and Byus 2007).
In initial period of business ryanair suffered huge monetary losses. However, in-depth identification of reasons responsible for the loss and subsequent strategical changes transformed airlines into one of the successful airlines in Europe. Ryanair is expected to continue it’s upward growth trends because of its low fares which encourages passengers to forget other airlines services and grab those low priced tickets (Thomas, 2015). The another most important aspect is Ryanair’s capabilities to cope up with its competitive environment, monitor the changes and then reducing cost (Barret 2004).
This report examines performance of organisation based on effects of macro environment and internal organisational environment along with strategic modifications which Ryanair put forward in response to the changing environment. PESTEL Analysis is used to study the macro environment whereas internal organisational environment is seen on basis of Resource Based Value analysis. The extent of internationalisation and the effect of successful leadership of Michael O’Leary are accessed.
The environment in which an organisation works is very important as it can create both opportunities and threat. The macroenvironment deals with the broad environmental factors which impact the organisation to a great extent (Johnson et al. 2011). Many organisations face complex, dynamic, turbulent and global environment due to which it becomes necessary to analyse the environment (Volberda et al. 2011). There are several methods used for analysis of macroenvironment like PESTEL analysis and porter’s five forces model. Due to the dynamic nature and increased competition in airline industry PESTEL analysis is more preferred method of macroenvironment analysis (Grant 2002). PESTEL analysis covers the political, economic, social, technological, environmental and legal impact on an organisation.
Political environment deals with the role and impact of government (Johnson et al. 2011). Initially, deregulation enabled ryanair to operate on Dublin-London route (Barrett 2004). Afterwards, due to further air transport liberalization the network increased gradually, and various bases were set up outside Ireland and London stanstead (Dobruszkes 2006). According to the case study, ryanair was interested in taking 25% in stanstead airport but had to hold back when it became clear that BAA would not sell it to any association which included ryanair. During Gulf War I when there was a decline in overall airline traffic, ryanair made a profit of £293,000 for the year 1991 (Box and Byus 2007). According to Ryanair Ltd. (2019) Brexit would pose political uncertainty in UK and Ireland. It has damaged investment and economic activity. It is the major contributor to less air fares and passengers to/from UK. Also, ryanair would face several regulatory challenges due to Brexit (Ryanair Ltd. 2019).
Economic factors make a marked impact on profitability of the organisation (Sammut‐Bonnici and Galea 2015). Currency fluctuations in U.S dollar and UK pound sterling would effect ryanair’s financial and operational status as most of operations are conducted in UK whereas fuel, aircraft maintainence and insurance are denominated in US dollars (Ryanair Ltd. 2019). Ryanair efficiently negotiated with airport authorities on issues like cost of european air traffic control, landing costs and ground handling charges and has been successful in increasing the rate of air traffic (Lawton 2000).
Also, in response to high fuel prices and decreased number of passengers ryanair adopted the policy of grounding some of its aircrafts in winter months and works with full capacity in summer months to cover for losses incured in winter (Budd and Ison 2017). Although, increasing fuel prices still remain an issue to be considered (Ryanair Ltd. 2019, Box and Byus 2007). Furthermore, marketing costs are decreased significantly as low priced tickets get sold out easily and the organisation is successful in generating news by being a part of legal and policy disputes with national and european regulatory authorities (Barrett 2004). Moreover, low fare airlines like Ryanair bring economic benefits to the destinations they operate by opening routes to relatively transport disadvantaged regions by increasing job opportunities and social cohesion (Coles et al. 2011).
Social responsibilities of organisations revolve around stakeholder/customer engagement and communication with stakeholders (Coles et al. 2011). Ryanair is constantly under attack from stakeholder groups when it comes to relationship with stakeholders. According to the case study ryanair’s policy was not to pay dividend to its shareholders. The organisation kept its earnings for further investment in business operations which caused a level of dissatisfaction. However, ryanair changed the policy and announced special dividends in 2010 and 2012. Also, ryanair focuses on getting its travellers to/from various destinations but has a strict no-refund policy. When flights are delayed the passengers are not provided any free refreshments and if flights are cancelled no arrangement of taxi or hotel is proposed (Bridoux and Stoelhorst 2014).
Technological influence refers to effect of technology like internet or machinery technology on any organisation (Johnson et al. 2011). Internet selling has become the biggest advantage and most significant cost saver in airline industry in last decade (Diaconu 2012). Ryanair made extensive use of technological environment through this technique. Ryanair followed the aggressive direct sales approach and sells tickets to its customers directly through its website in order to keep up with aim of providing lowest fare.
Maximum bookings are done through website without agents (Xie and Barnes 2008, Diaconu 2012). The efficiency and effectiveness of airlines can also be maximised by using a standard fleet of aircraft (Hüttinger and Giedraitis 2010). Ryanair operates on principle of “Fleet Commonality” (Caputo et al. 2019) by employing standardized fleet of Boeing-737 aircraft (Ryanair DAC 2019). The standardized fleet of Boeing 737 ensures low maintenance costs & equipment costs and low training cost for pilots without any impact on customer welfare (Hüttinger and Giedraitis 2010).
Apart from soaring profits and quality of services, ryanair is also concerned about the impact it’s aircrafts make on environment. In view of this it underwent a fleet replacement strategy and replaced its old Boeing 737-200 aircrafts with new Boeing 737-800 next generation aircrafts which are known to be youngest and most fuel efficient aircrafts in Europe (Diaconu 2012). Aras & Crowther in 2009 mentioned that Ryanair operates in the most environment friendly way by using latest aircrafts which has consistently low CO2 emission rates and low fuel consumption. Currently, the organisation is market leader in terms of environment friendly practices and is constantly working on same for more improvement (Diaconu 2012). After going paperless, the next 5-year plan is to go plastic free in business operations (Ryanair Ltd. 2019).
Most common form of negotiation between airports and airlines is price rebate on input charges. Since this practice results in downstream competition between airlines it often leads to legal proceedings by authorities. EU has alleged Ryanair of obtaining illegal state aids possibly offered by Charleroi Airport, Brussels (Francis et al. 2003). In proceedings Ryanair was ordered to pay 4 million euros. However, on appeal the decision was overturned and Ryanair got the refund of whole amount (D’alfonso and Nastasi 2014).
Also, Ryanair faced legal actions from Spanish Ministry of Public Works as five Ryanair flights required emergency landing as they were running low on fuel. On investigation Spanish Civil Aviation Accident and Incident Investigation Commission found that Ryanair flights commonly land on minimum required fuel (Ryerson et al. 2015). Ryanair has also faced various legal challenges in respect of staff’s terms and conditions of employment and poor working conditions (Budd and Ison 2017).
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