SWOT Analysis of Ryanair Essay Example

SWOT Analysis of Ryanair Essay Example SWOT Analysis of Ryanair Essay SWOT Analysis of Ryanair Essay It further evaluates alternative solutions and provides recommendation, which will help the firm to compete and dominate in the European airline Industry in terms of providing more standard services to its clients and can be the number one airline industry in the region. 1. INTRODUCTION Ryanair, set up in 1985 by the Ryan family with a share capital of just ? 1and 25 staffs has grown from a small airline flying a short hop from Waterford to London, into one of Europes largest carriers. It is Europe? s largest low-cost carrier and one of the world? largest and most successful airlines in terms of profits, number of flights and number of passengers flown. At present, Ryanair has 32 bases and 800+ low fare routes across 26 countries, connecting 146 destinations, employing a team of more than 6,000 people Michael O? Leary CEO of Ryanair was responsible for launching the first unique low fares, „no-frills? airlines in Europe. Michael O? Leary known for his aggressive management style, employed a flat management hierarchy and vigorously followed the low cost policy, on all fronts. Ryanair is also one of Europe? most controversial companies, praised and criticized in equal measure; praised for its commitment to low fares, radical management, and its willingness to challenge the „establishment? within the airline industry and criticized for its trade union policies, hidden taxes and fees, and limited customer services, and misleading advertising. Ryanair in order to make its stand in the competitive market they have to think of a business strategy to capture the targeted market through enhancing the company? s internal scarce re sources and capabilities. First part of the assignment states the critical analysis and evaluation of the key Issues in Ryanair focusing on Decision making, Planning, Organising and Controlling. Accordingly, problems challenges and opportunities have been identified through SWOT and PEST analysis. Alternative solutions have been evaluated in various forms one through the financial analysis of the company. The analysis and evaluations finally assist in prioritising recommendations for the future growth and welfare of the company. 2. Critical Analysis and evaluation of the Key Issues : Ryanair 2. Decision making The Ryanair culture gives us the indication that the company is solely depended on one person who is making the risky decision and putting everyone at stake. Ryanair CEO declared in 2003 that they shall swing from no frills airline to no fare airline but with the motive that the company introduced cost cutting and revenue generation modification to compensate the falls in the yields. The Ryanair? s CEO seems to be very dominating by making every decision of the company without involving the concerned departments. Ryanair has the concoction of Bounded rationality and intuition decision making, verdict were conceded in Ryanair mostly through intuition and overriding behavior of their CEO. According to (Robbins. S, Bergmen. R, Stagg. I, Coutler. M, 2006) â€Å"Intuition decision making is a subconscious process of making decisions on the basis of experience and accumulated judgment. † 2. 2 Planning Ryanair? s objective of â€Å" being the leading no frills airline in Europe† was achieved through a proper planning, concentrating on driving down costs to sustain low fares and remain profitable, even on low yields. Ryanair planned and implemented cost reduction strategies focusing on the following areas: Cost reduction Planning: 1. Fleet commonality 2. Contracting out services 3. Airport charges and route policy 4. Staff Cost and productivity 5. Marketing cost Other Planning Issues: In spite of the cost deduction planning, Ryanair also has designed other plans to maximize its profit and expand the market share of the company. On 1st February 2003, Ryanair announced that it was acquiring Buzz, the loss making budget subsidiary of KLM, based at Stansted. Ryanair purchased the loss making company Buzz, as it was a golden opportunity to pick up a ready- made bundle of take -off and landing slots at Stansted Airport, where there is intensifying competition for space. This would not only increase Ryanair? s share of slots in Stansted from 33 to 49. 5 per cent but also produce profit by the fiscal year end of March 2004. Ryanair also aimed to increase its sales through ancillary services in conjunction with its core airline business, because ancillary revenues would increasingly be used to subsidise falling airfares. The ancillary services -includes the availability of satellite television and internet services on flights, allowing passengers to watch their favorite television programmes. The company also undertook activities like sale of travel insurance, car rentals and many other advertisement activities. All in all, Ryanair had a good operational and long term planning. These plans were implemented carefully over the years to achieve its objective of â€Å" being the leading no frills airline in Europe† . The plans reduced the uncertainty of achieving the objective of the company, provided direction, minimized wastes and have set a standard for controlling. However, since the plan was designed by the top management of the company, it was very rigid and did not provide any space for the other stakeholders to provide intuition and creativity ideas for the business. 2. 3 Organising: According to Robbins et al. 2006, â€Å"Organisational structure is the formal framework by which job tasks are divided, grouped and coordinated. † Ryanair is observed to implement common traditional organizational designs. The organization is designed with low departments, as the aircraft handling, ticketing, baggage handling and other functions to third parties in all the airports other than Dublin airport, where it maintains its own staff and services are outsourced. The company organized this kind of a system, to limit the direct exposure to employee relations responsibilities and potential dispute. Ryanair has also organized to carry out the routine maintenance, repair services and checks on aircraft by their own engineering staff, while engine and heavy maintenance are contracted out to third parties. This organization was necessary for the company, since it was cheaper for the company to outsource to third parties rather than employing dedicated employees for the company. The control and authority of the organization is centralized in one person i. e. Michael O? Leary, the CEO of the company. The organizational structure have the advantages of wide span of control, fast and inexpensive to maintain, however as the organizational grows and expands its market, it is not appropriate and reliance on one person makes it very risky for the company. 2. Controlling Ryanair have outsourced the engine and heavy maintenance as a contract work, however the work is carried out under the supervision and planning of Ryanair engineering staff, enabling the company to retain control of quality and safety. This is a feed forward control as it prevents anticipated problems in the future (Robbins et. Al. 2006). Ryanair also have the control over the market of airlines business. Ryanair is the market leader and every airline follows the company in setting out their ticket prices, commission of the agents and other related costs. The company also have a good control over the financial position of the business, in the sense that the liquidity position, leverage, profitability ratios are maintained at a balance level. In a nut shell, the company has checked and balanced over all the activities in the company. It has a good control system implemented from the maintenance of aircraft machine to the lowest level of managing human resources. However, control measures should be implemented in attracting and retaining the existing market share of the company. 3. SWOT analysis STRENGTH Low cost airline Performance related pay structure Aggressive and innovative leadership (Michael O? Leary) Low maintenance cost Punctuality of flights Fleet commonality User friendly website for online booking Passenger charter Minimum baggage loss Major earnings from ancillary services WEAKNESS Growth addict Weak customer service Central decision making Poor affiliation with employees Falling profit yield Multiple fines by the authorities Only in EU market Earns publicity through negative press reporting. Old aircraft. Low employee morale. High turnarounds resulting in maximum Misleading information about ticket fares and aircraft utilization Reduced commission to travel agents Out sourcing Lowest labor cost due to non-unionized labor force Highest seat density destinations. OPPURTUNITY THREAT Expansion of the routes to other parts of the Competitors world Improve facilities in air From low fare airline to no fare airline Fly to central located airports Enhancing their ancillary services War, disease outbreaks Currency fluctuation Formation of union by pilots Hike in oil prices Slack customers due to poor customer service. Other modes of transportation . 1 STRENGTH Ryanair being known as the Europe? s first low cost, no frill airline is the company? s strongest positive feature. The low cost no frills policy resulted to the speedy increase of customers and development of their operation. The CEO of Ryanair, Michael O? Leary portrays a major strength to the company; his aggressive and innovative leadership proves to sta nd Ryanair at the position where it stands now. One of the largest factor acting as a positive force for Ryanair is the firm? s direction towards out sourcing certain service activities within the firm, such as maintenance and repair service. This pace might help the firm to focus on sustaining improvement with on-payroll staff and enhance customer service. Rynair? s performance related pay structure acts as a motivation for the staff and as a company it will stand out in terms of providing excellence in total organizational performance. The variety of ancillary services offered by Ryanair was the greatest source of revenue generator for the firm. According to the graph below it indicates that due to its low fare super brand passenger number grew every year, which made Mr. O? Leary conclude that† low fare always wins†. (Centre for Asian Pacific Aviation, 2009) (Ryanair passenger number growth and load factor growth: FY06 to FY09) 3. 2 WEAKNESS: Ryanair has transformed itself from an undersized industry into one of Europe? s biggest Airlines over times. However its obsessive focus on the growth and only growth has dented its public image. Its negative public image is contributed both by its aggressive CEO and unfriendly staffs. One major problem lies in the handling of customers or target market. It provides poor inflight services to the passengers further more it has misleading websites thus creating a negative impression to the airline brand. Customers are unhappy with Ryaniar because of it poor customer service the only source of attraction for them is the low fare. Old aircrafts are a major concern to think of, as it wasted lots of fuel and needed high maintenance cost especially when the currency fluctuation takes place. The firm faces a lot of unsolved issues due to lack of strategic decision making in several areas concerned with the welfare of the firm. The CEO of Ryanair Michael O? Leary is the central decision maker of the firm, this stands as a weakness as the firm has to rely fully on one person whether right or wrong. 3. 3 OPPORTUNITY: Every firm has its own set of strength and weaknesses, but to make good grasp of the bigger opportunities will further take part in the firm? s enrichment. Ryanair still has the opportunity of competing and dominating in the European airline Industry in terms of providing more standard services to its clients and can be the number one airline industry in the region. Customer ratio can increase if Ryanair can establish the latest trends in Airline management and marketing to meet the demands of their market. Additional initiatives can be taken to diversify its ancillary services which are a revenue resource and open new opportunities to make the business stronger to outstand all its rival competitors. Since Americans have allowed European Airlines to enter USA in the domestic market, as such Ryanair without doubt will be in the leading position as it will be the first carrier to fly low cost to the States. Expansion of operation to the non-EU market can stand as an excellent opportunity for the firm. 3. 4 THREAT Competition, market uncertainty and changing customer crave appears to be the largest threat in the emerging market scenario. Ryanair is continuously faced with inevitable threat of stiff competition and for it to survive in the global competition it has to develop new products with better standard than its competitors. Expansion of operation to other areas like the non-EU markets means that the firm has to adjust to the political issues and trade policies of that region. The demands of the customers are highlighted to be a challenge to the management, consumer behavior and satisfaction with regard to the product and services is also a risk. If the firm continued concentrating on money making and paid no heed to customer satisfaction, the company may fail in terms of management ability. Advancement in the technology world can tend to be a threat in the airline business, hence the company should be able to provide more distinct and advanced technological services to be able to build a place in the competitive airline industry. 4. PEST Analysis POLITICAL Accusation of Misleading advertisement Taxation rules Route charges increased by govt. Union policy EU expansion EU abolishment of Duty free sales ECONOMIC The fuel price fluctuation Currency fluctuation Increase growth rate in GDP Compensation to travelers SOCIAL Terrorism, war outbreak Flight hijack Public image of airline Customer demographic TECHNOLOGY New Boeing flights Proper website Different modes of travel The four factors (Political, Economic, Social and Technology) that play a major role in the future of the airline industry have been focused as above. These external forces have direct impact on the strategic direction at Ryanair. As Ryanair is being operated only within the EU market it can be a relative advantage to the company regarding the external Political environment as this locality maintains political stability. The only concerns on the political environment are the changing taxation rules, union policy and route charges imposed by the government. Nevertheless, on the outside of the European place of the market, the society supports economic significant difficulties put by the political forces as OPEC, the organization responsible for the petroleum production in Middle East. As majority of international revenues in the regions of Middle East comes from oil and from petroleum production / distribution, Ryanair and other business entities have no escape from it. The situation becomes worse when exchange rate fluctuation takes place. (strategic case analysis, 2005) The social environment which is completely uncontrollable can be classified as the changing consumer preferences and demographics. The consumer behavior are the most unpredictable behavior in the business scenario as their preference tend to differ from one product to another due to price differences or even lack of basic consumer reliability. From the financial statements of the company, it is observed that the company is doing well in updating the technologies over the time. It is observed that, the company can afford to purchase new jets to remain competitive in the market. Supply chain software programmes, online ticketing service for customers and other technologies were used by the company for improving the efficiencies and cutting down the cost of the services. The technological environment does not have much of an impact on the organization as of now. (Higgins. E, Ryanair, 2005) To sum up, the external environment of the business is stable compared with many other businesses that are taking place globally. The political, economic, social and technology factors are steady and easing the business to expand, however if these conditions changes in the future, there might be a huge impact on the profitability and market expansion of the business. (Strategic case analysis, 2005) 5. Financial Analysis Objective Discription Formula 2003 (E 000) 2. 9532 2. 8928 50% Liquidity test Current ratio Acid ratio Current assets/ current liabilities Current assets-inventories/current liabilities Total debt/total assets Leverage test Debt to asset Operations test Inventory turnover Total asset turnover Profitabililty Sales/Inventory Sales/total assets 4% 0% 28% 0% Profit margin on sales Net profit after taxes/Total sales Return on investment Net profit after taxes/total assets The above table shows the ratio analysis of Ryanair from the income statement of the company for the year 2003 and the balance sheet as on 31st December 2003 of the said company. From the above table it is observed that, the company is liquid enough to pay its short term liabilities from its current assets. Ryanair has E 2. 95 of current assets for the payment of E 1 of its short term liabilities. The firm is very liquid and creditors of the company will be willing to give more flexible credit terms to the company. Ryanair has a balanced leverage. In other words the company made investment on the assets by 50% debt and 50% equity. The risk and returns of the company is also balanced. The profit margin on sales is 28%. The company has a good profit margin and an increase in sales with proportionate increase in expenses will help the company to grow and expand faster. The return on investment is almost nil. The company should put in effort to utilize their assets efficiently, so that the returns from the investment can increase over the period. Overall, Ryanair has a good liquidity and leverage ratio. The company should utilize these strengths for expansion and growth of the company. However, the operations and profitability ratio are not really leading the company in the right direction. The management should focus on improving the returns from the investment ratio. (Higgins et al, 2005) 6. Critically evaluate alternative solutions: From the above SWOT, PEST and Financial analysis on Ryanair, the following alternative solutions are obtained to overcome the threats and issues of the business in the near future. Market Expansion Ryanair should diversify their services to other parts of the world as these expansions will boost the sales of the company. Ryanair is one of the economical airlines around the world and it has ample of opportunities for business diversification in other markets. Expansion of operation to the non-EU market can stand as an excellent opportunity for the firm. Introduction of unique value added services Ryanair has the opportunity of competing and dominating the European airlines industry in terms of providing standard services to the client and can be the number one airlines company in the region. Ryanair should outsource in providing unique value added services to their clients which are not provided by the other airlines at a budgeted cost. For example, a shuttle bus service can be introduced to carry their passengers from the airport -city and from city – airport at a minimum cost. These kinds of services will help the company in increasing their sales with a minimum increase in cost. Marketing research on airport selection strategy As of now, Ryanair uses the strategy of choosing secondary and regional airport destination and avoiding the congested main airports mainly to cut the cost on airport charges and utilize the time efficiently. A good marketing research and an analysis should be made on comparing the costs and benefits of current strategy and using the main airports in the city. If the report of the research finds out that, it is more beneficial for the company to use the main airports rather than he current strategy, it is advisable for the company to change their strategy and run few experiments with the new one. Marketing and advertisement Ryanair advertises primarily on its website, in newspapers and on radio and television. More advertisements should be made off course within the budget focusing the target market of the company. Product packaging , which consists of air ticket, travel insurance, hotel reservation, car rental and other services, should be designed differently for different groups of customers. This will serve as a one stop shop, which will promote the business as well increase the profitability of the company. Mergers and Acquisitions Mergers and acquisitions is one of the important strategies with big companies. Ryanair should merge or acquire with other businesses in order to improve its capabilities and acquire more competitive advantages. Human resource management In a fast changing world, where technologies and other strategies can be copied, it is the human resource that can bring a competitive advantage. The company does not seem to value its employees and belief in the competitive advantage and importance of their people in the competitive world. Ryanair should initiate steps in improving and valuing their people and frame strategies for gaining competitive advantage over their competitors. 7. Recommendations: Based on the analytical issues it can be recommended that Ryanair can merge with other companies as it can be a brilliant strategy for the growth and success of the company. In case of Ryanair it? s been noticed that the company does not value its staffs. Since, the staffs of the company are considered as one source of sustainable competitive advantage, first and foremost the company needs to priorities its Human Resource Management. Ryanair need to be more goal oriented and must not stop to review and change their marketing plan strategies frequently in order to re-originate the performance process upon the upgrading of rules and regulations imposed by the state. Ryanair is to overcome the lack of product differentiation and enhance it that will have the ability to revive revenue generation. Ryanair has land marked in the area of punctuality however the perception of good customer service has always been poor and more hived up by press. With this in mind Ryanair, while maintaining its strict rules and regulations, must make an adjustment in this area. 8. References Annual Report. (2008). „Ryanair Annual Report and Financial Statements 2008?. 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