Analysis of Ryanair

Summary Ryanair, one of the most famous seehearted greet respiratory tracts, attracts attentions from people and researchers all everywhere the world. As the financial crisis and the European debt crisis contract an obvious negative influence on the global economy, the aircraft industry has experienced or so decline for the last a couple of(prenominal) years. However, both the sales events and wins of Ryanair have increased during this period. In this essay, we leave behind first analyse the external environment of Ryanair by using PESTEL Analysis mock up.Then we exit organize an in-depth analysis some its strategic capability by SWOT model (strengths, weaknesses, opportunities and threats). In the following part, we will comp atomic number 18 Ryanair with its biggest competitor easyJet and critically feeler the effectiveness of its cost focus strategy. Finally we will give a conclusion of the whole result of our research and give some suggestions for its future devel opment. accounting entry Ryanair was first established in 1985 by Christy Ryan, Tony Ryan and Liam Lonergan.Its headquarters are located in Ireland, while its primary operational bases are at London Stansted Airports and Dublin. In 1989, Ryanairs businesses saw a decline. At the same time, Tony Ryan persuaded his financial advisor to assume the CEO. Then, Ryanair began to l get experience from Southwest Airline, and was the first one to introduce the loud air postmans and mode into Europe. Profitability of consecutive years has made Ryanair to become the most profitable air lanes in the world. Findings and Analysis Environmental AnalysisPESTEL Model is used in this fib to give an overview of the six different environmental factors that the company has to take into consideration. Firstly, political factors refer to the political organizations and relevant policies, laws, regulations as well as different factors which have the actual and potential impacts on run activities (Gil lespie, 2007). The charge which was raised by airports of different countries has a signifi dirty dogt effect on Ryanair. Indirectly, Ryanair is also nonmaterial to extra charges and taxes, for instance, the 10 tourist tax imposed by the Irish government.In addition, EU imposed a regulation on 17 February 2005, which asked airlines to provide standardised and immediate assistance for passengers who stayed at EU airports for delays, stinkpotcellations and denied boarding. This regulation led Ryanair to raise at least 200 trillion in their calculate every year. (OHiggins, 2011) Secondly, sparing factors mean the organizations external frugal structure, industrial layout, resource situation, the level of economic development and future economic trends (Gillespie, 2007). There are two interrelated economic factors that affect Ryanair. The first one is the recession of 2008/09.It created adverse economic situations such as high unemployment rates and severe credit crisis, which le ad to the leisure expense and business passengers declining. Ryanairs planned passenger volume growth has been restricted by this depression. Moreover, the continuing growth of fuel price is the commodiousest concern to this company. It is hard to curtail and predict the wide fluctuations of Jet fuel price and its increase demand. According to Pearce (2011, 3), However, the developed economies have seen a much slower recovery and levels of output, income and spending await well below pre-recession levels.Thirdly, social factor refers to the historical development, cultural traditions, values, education levels, as well as customs and other factors of society where the organization belongs to (Gillespie, 2007). It whoremaster be found in Ryanairs own report (2012) that Ryanair as well as other airlines are facing some social changesthreats from terrorist attacks, the continuing acceptance of the security budget suppliers and more price-sensitive business travelers. These factors make up the social factors which affect Ryanair and aviation industry.Fourthly, technological factors include not only the revolutionary purpose but also some relative new technologies, new materials and new appearances of in operation(p) or management (Gillespie, 2007). For airline industry and airline companies, the contributions of applied science could be separated in three parts to ensure aviation rubber, to improve the quality of services and to make operations more economical. Even Ryanair bought some of second-hand planes, these aircraft are all Boeing 737, which could reduce the training fee for pilots and flight attendants (Box, 2005).More important, Boeings help to make the unitive structures of plants could decrease the possibilities of incorrect operations and the unsuited spare parts of aircrafts. Although Ryanair is widely regarded as a low cost airline, it is also one of the safest airlines. As some of other airlines rely on the tickets agents, Ryanair built i ts own website and ticketing system. The cost of confidence fee is minify and the company could make control of the ticket service which could lead to some misunderstandings as some operators of tickets agents would treat customers in a worse mood.Furthermore, by dint of operating the ticketing system, Ryanair itself, could make booking tickets and bounce easier and speedily. Fifthly, environmental factors include ecological and environmental aspects. Countries in the world are faced with the enormous challenges of environmental issues, and sustainable development is an important way to solve this problem (Gillespie, 2007). Due to the report of IATA, air transport contributes 2% of global man-made CO2 emissions. Although Boeing 737 helps Ryanair to keep open fuel of airplane, it is not enough at the moment. new-made energy sources such as biological energy source are in the experimental stage and should be used in the further, and most airlines have to adapt to the new developm ent. Lastly, legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law (Gillespie, 2007). Ryanairs up-to-the-minute attempt to take over its Irish rival Aer Lingus is investigated by the European Commission over competition worries. Ryanair also has problem with the government. The British government obstinate to remain the Air Passenger Duty (APD), a ladder-type tax, and raised the tax rate by nearly 10%.This change leads to the increase of cost of cursory operation of Ryanair. To cover the costs of the EUs new eco-looney ETS tax, the Ryanair has to raise the prices of tickets, which could make their prices less competitive. Furthermore, BAA, the owner of Londons Heathrow airport, is seeking to sell Edinburgh after losing a legal challenge to an raise from the UKs antitrust regulator to break up the company, while the bid of Ryanair is rejected by BAA (Rothwell, 2012). Strategic capability analysis SWOT Analysis Model is us ed to assess the strategic capability of Ryanair by four dimensions Strengths, weaknesses, opportunities, threats.Strength 1. Low-cost strategy The most significant strength of Ryanair is its low-cost strategy. It uses a young in force(p) fleet with low cost of ownership and industry load factors to increase benefit and gain high asset utilization. The following statement from their CEO Michael OLeary proves that These quarterly results are a testimony to the strength of the Ryanair lowest cost model which even during the most difficult trading conditions (including record fuel prices and violent competition) delivers strong passenger growth and profits. (Sorensen, 2005) 2. Youngest fleetRyanair only choose to use Boeing 737 planes for easier staff training and also can improve pilots familiarity with aircraft operation, in this way to keep customers safety. According to OHiggins Ryanair reducing the average age of its aircraft to 2. 4 years which be the youngest planes in Europ e and increased the safety of the flight (2011). 3. New kinds of merchandise strategy Ryanair uses newspaper, radio, television and all the possible methods they can to advise, which are proved to be efficient on change magnitude the number of customers as a result,Internet bookings account for 99 per cent of all reservations(O Higgins, 2011).Otherwise, some methods force be controversial and audacious, such as using the pictures of Queen Sofia, President Sarkozy and his wifes on the air slipping. Although the action is without permission and also costs damage, it still made the company become famous rapidly. Weakness 1. Customers dis delight Ryanair takes a lot of adjuvant taxations from customers, which causes customers dissatisfaction, such as payment for using the toilet on plane, charge for check-in luggage and fat tax for overweight passengers. These measures will lead to customers bad impression to the company. 2. Overstep in increasing scaleRyanair is too addicted to in creasing scale. This will cause the increasing of operating costs. With the growing of fuel and airport charges, the bigger scale of the company is, the more challenges it will be faced to. 3. Single-handed leader and the controversial acts As Ryanairs CEO, Michael OLeary is a controversial leader. The issues he made such as calling thousands of passengers idiots (Huff Post, 2012), using the Italian minister Umberto Bossi abusive gestures picture for advertising caused great repercussion. Most of people think this measure was not suitable and will give a bad impression on Ryanair.Opportunities 1. New markets With the enlargement of the European Union, a lot of new destinations could be opened up. Skies agreement opened by EU could be a source for increased routes and passenger dealing inwards. According to the opinion of Ryanairs route development director OToole, there remains major opportunities in Spain and Italy, as well as Norway, Portugal, Greece, Bulgaria, Cyprus and Russia (Routes Online, 2010). to a fault that, future open skies agreements in Turkey, Tunisia and Georgia could make these interesting countries for the carrier, he added. 2. Benefits from economic recession.Though economic slowdown created unfavourable economic conditions with reduced spending by leisure and business passengers which restricts the growth of the whole airline industry, actually, it can help Ryanair to improve corporate culture, and steal customers from traditional carriers as they seek lower fares. Mr. OLeary, Ryanairs CEO, stated that the rise in profit came despite the economic downturn in Europe (New Europe Online, 2011), and he intended to double the size of the airline over the next decade. Threats 1. Increasing oil price Ryanairs earning rate highly depends on the oil market because the fuel cost is influenced by it.With the increasing of global oil price, fuel cost could be a burden for Ryanair and its expansion plans will be challenged by the high fuel price. 2. Increase of low fare competition According to Newll (2006, 3), Yet perhaps the price tag has become too much the focus of attention. Value market fragment is being catered by an increasing number of competitors, such as easyJet, Air Berlin, Basic Air, BMIBaby. Slots at some primary airports have been established by them (Air Scoop, 2007). Ryanair have to compete directly with other low cost carriers in the near future.At the same time, additional marketing costs and reduced yields from lower fares force Ryanair to elevate additional routes. As a result, Ryanair was likely to encounter increased competition, and save depressing yields, as airlines struggled to fill vacant seats to cover fixed costs. 3. Customers are very price sensitive Because of the low cost strategy, the customers of Ryanair are much more sensitive to price, that means, any kinds of extra fees could make bad influence on its corporate image. As a result, it is difficult for Ryanair to improve unit profit and hav e to reduce unit costs through scale expansion (OHiggins). . base of duty for fuel and environmental charges Since Ryanair is powerless to prevent the environmental charges such as the tax on aviation fuel, its growth potential would be reduced as the unit costs would be increased. SO strategies 1. Ryanair should use the low-cost passenger ticker strengths to attract more customers. Nowadays, global economic recession is a serious problem to all over the world, especially for Europe. Ryanair is a company most facing the European market. Customers now are more concern about the price. The company should catch this opportunity to occupy more market share. . Special pay by use service of Ryanair is one of its characteristics and the unusual features compared with other companies which can decrease costs of services. Ryanair can use the financial crisis of competitors and capture the opportunity to attract more customers and earn more profit than others. ST Strategies 1. In the next fe w years, low cost airlines market expansion would probably slow down because new opportunities would be more limited. As growth slows, tire costs for the low-cost carriers will continue to rise as well as the level of oil prices.Ryanair should be prepared for convergence of costs and conditions and make corresponding strategies, but it should still retain the no-frills advantage of high seat density, aircraft utilization and lowest fares in any market (Air Scoop, 2007). 2. In purchase order to achieve the aim to be the biggest player and keep its domination in the low-price market segment, Ryanair will have to expand into more popular routes coupled with retaining its specialisation strategy, such as purchasing newer, more fuel-efficient and environmentally friendly aircrafts and offering best customer services compared with its peer grouping in Europe.Strategic Assessment The spirit strategy of Ryanair Airlines is cost-focus strategy. The company continuously keeps its cost at a low level to offer low-fares services. Actually, cost control is the central strategy of all budget airlines, such as Ryanairs main competitor in EuropeeasyJet. In this part, we are going to assess Ryanairs competitive strategy through a comparison with the operating performance of easyJet. EasyJet is a Europes leading airline comes from the United Kingdom, founded in 1995, which has remarkable positions in some key markets No. in Gatwick, Milan and Geneva No. 2 in Paris with over 300 million people within a one hour drive of an easyJet carrier (easyJet plc, 2012). And easyJet is one of the leading lights of Europes budget flight industry. 1. Financial results analysis with business strategy Table 1 Comparison of operating financial results between Ryanairs & easyJets in 2012 Ryanair(? million)EasyJet(? million) Scheduled revenues28273794 Ancillary revenues71560 Total operating revenues35423854 Scheduled revenues /total operating revenue79. 8%98. 4% Selected costs Fuel12841149 Mai ntenance84203 Marketing145104Total operating expenses29883323 Source Ryanair Annual explanation 2012 & easyJet Annual Report 2012 In their own financial year of 2011/12, Ryanair performed better than easyJet by ? 312 million in the total operating revenues (after exchange EURO to GBP with current rate), which mainly due to the high ancillary revenues from various ancillary services and involvement in other activities connected with its core air passenger services, including non-flight scheduled services, Internet-related services, and the in-flight sale of beverages, food, and merchandise (Ryanair annual report, 2012).Michael OLeary talked previously about their ancillary strategy If you want a quiet flight, use another airline, Ryanair is noisy, full and we are of all time trying to sell you something (OHiggins, 2009). The ancillary strategy has been working well so far. However, the scheduled revenues which should be the primary business revenue of Ryanair were lower than its co mpetitor easyJet. It might be caused by the cutting routes strategy and lower average load factors, especially the cutting routes strategy carried out in 2009, which has already cut down 389 rotes (1000 routes in 2009).In terms of operating costs, Ryanair had a better performance in controlling total operating expenses in 2011/12, which is ? 2988 million, while that of easyJet is ? 3323 million. However, Ryanair spent more on fuel and oil, which occupied nearly 43% of the Ryanairs total expenses. Jet fuel is always variable and cannot be predicted previously. And jet fuel prices are bloodsucking on crude oil prices, which are quoted in U. S. dollars. As a result, Ryanairs fuel cost is affected by currency exchange. Based on Ryanairs fuel consumption for the year 2011, a change of $1. 0 in the average annual price per metric ton of jet fuel would have caused a change of approximately 1. 5 million in Ryanairs fuel costs (Ryanair annual report, 2012). In order to minimize its differe nce on fuel price change and currency rate, like many other airlines do, such as Southwest Airlines, Ryanair uses forward contracts to protect against fluctuations. Ryanairs criminal maintenance cost is relatively lower than easyJet. It might be largely due to the aircraft it adopts. Ryanair uses single fleet typeBoeing 737-800, which is considered to be one of the most fuel efficient fleet type, while easyJet has two typesAirbus A320, A319.The single fleet type reduces the number and cost of aircraft components in stock, as well as its maintenance cost. Ryanairs marketing cost is more than easyJets. This may be a result of its promotion for ancillary revenue. In order to earn a widely range of revenue apart from scheduled revenue, Ryanair advertises its services in national and regional newspapers, as well as controversial and topical advertising (Ryanair annual report, 2012). 2. Growth mental object under strategy Table 2 Ryanairs financial performance(Million) 20122011Changes T otal revenue4,324. 93,629. +19% Profit before tax560. 4375. 6+50% Adjusted net profit after tax502. 6400. 7+25% Basic earnings per share (in euro cent)38. 0325. 21+51% Adjusted basic EPS (in euro cent)24. 1026. 97+26% Source Ryanair annual report 2012 Ryanairs operations have grown rapidly during 2011/12. This year, net profit after tax had a 25% increase after adjusted, total operating revenues increased by 19% to 4,324. 9 million as average fares rose by 16% (Ryanair annual report, 2012). Furthermore, ancillary revenues grew up by 11%, faster than the 5% increase in passenger numbers.Although the average load factor of Ryanair was lower than its competitor, there is still an increase of 13% (Ryanair annual report, 2012). In 2012/13, Ryanair plans to develop 330 new routes and intend to continue expanding its navigation, new destinations and new flights, which are expected to increase Ryanairs booked passenger volumes to approximately 79 million passengers per year. In addition, th ere is a strategy of transferring operating flights from high cost airports to low cost airports in winter in order to reduce cost in off season.Overall, the companys growth has been largely dependent on increasing performance and growing capacity. 3. Star rating & customer satisfaction From low-cost Airline Ranking in Official SKYTRAX Airline Star Ranking website (2012), the star ranking of Ryanair is two stars while easyJet is three stars. And easyJet ranked fifth in Worlds Best Low-Cost Airlines award, however, Ryanair wasnt in this list. Actually, Ryanair always has a worse public image than its competitors due to its marketing strategy by fashioning stunts.And in some instances, the extra charges imposed on passengers such as check-in charges and booking fees make customers unsatisfied. What is worse, some flying accidents make its statements of punctuality and safety being doubted by the public. Conclusion Overall, Ryanair is successful in planning and performing its cost foc us strategy. Facing with the strength, weaknesses, opportunities and threats, it is recommended that 1. Ryanair should continue using its low fares to attract price-sensitive customers. 2. Ryanair can keep following its pay by use service, which is an effective way to ensure low price.However, when taking extra charges, it should consider the publics attitudes to the fee. 3. Ryanair should continue controlling its costs to compete with other low fare airlines, especially fuel and oil costs. 4. Ryanair should pay attention to its brand and reputation, and make some efforts to earn a better degree of satisfaction. 5. Ryanair should take measures to build a good relationship with authorities and governments. Reference List Gillespie, A. (2007), Foundations of Economics, Oxford University Press Oxford OHiggins, E. 2011), Ryanair the low fares airline future destinations? ,IN, Johnson,C. (ed. ) Exploring Strategy Text and Cases, Pearson Education, pp. 618-627 Pearce, B. (2012), The stat e of air transport markets and the airline industry after the great recession, Journal of Air Transport Management, brashness 21, July 2012, pp. 3-9 Rothwell, S. (2012), Ryanair Deepens Cuts at Edinburgh as BAA Seeks to Complete Sale Online. Available http//www. businessweek. com/news/2012-04-12/ryanair-deepens-cuts-at-edinburgh-as-baa-seeks-to-complete-sale Accessed 12th April 2012Box, T. M. (2005), RYANAIR (2005) successful low cost leadership, Journal of the International Academy for Case Studies, Volume 13, Number 3, pp. 65-67 Air Scoop, (2007), The Low Cost Carriers Analysis Newsletter, online, Available http//www. air-scoop. com/pdf/air_scoop_May2007. pdf Accessed 10th celestial latitude 2012. Huff Post, (2012), Ryanair CEO Michael OLeary Calls Passengers Idiots, online, Available http//www. huffingtonpost. com/2012/09/05/ryanair-ceo-michael-oleary-calls-passengers-idiots_n_1857143. html Accessed 10th December 2012New Europe Online, (2011), Ryanair profits rise despite fuel c osts and economic downturn, online, Available http//www. neurope. eu/article/ryanair-profits-rise-despite-fuel-costs-and-economic-downturn Accessed 10th December 2012. Newll, I. (2006), Is win-win just pie in the slash? , Strategic Direction The airline industry, Volume 22, Number 6 June 2006, pp, 3-5 OHiggins, E. , 2011, Ryanair the low fares airline future destinations? , IN, Johnson,C. (ed. ) Exploring Strategy Text and Cases, Pearson Education, pp. 618-627Routes Online, (2010), Major opportunities remain in EuropeRyanair route director,online, Available http//www. routesonline. com/news/36/the-hub/97447/amajor-opportunities-remain-in-europea-a-ryanair-route-director/ Accessed 10th December 2012. Sorensen, T. C. , (2005), An analysis of the European low fare airline industry- with focus on Ryanair, Aarhus inform of Business. EasyJet Evidence, 2012. AT A GLANCE. online Available at Accessed 1 December 2012. Ryanair, 2012. Annual report 2011-2012. onlineAvailable at Accessed 1 D ecember2012. easyJet plc, 2012. Annual report 2011-2012. onlineAvailable at Accessed 1 December2012. STARTRAX Evidence,2012. Low-Cost Airline Ranking. online Available at Accessed 1 December 2012 Appendix Selected operating data RyanaireasyJet PASSENGERS (JAN11 DEC 11)76. 4million55. 5million AVERAGE LOAD FACTOR82. 2%87. 5% go OF DAILY FLIGHTS13531260 COUNTRIES SERVED2730 DESTINATIONS162130 ROUTES6111400 PERMANENT EMPLOYEES75719000 NUMBER OF AIRCRAFT275202 AVERAGE FLEET AGE3. 03. 9 FLEET TYPE275 Boeing 737-80035 Airbus A320 167 Airbus A319 Sources European Low Fares Airlines Association (ELFAA), December 2011