Ryanair Framework Analysis for 355 Sam Global Business

Title : Ryanair Framework analysis for 355SAM Global Business

Word Count: 1916 words

Subject: Global Business

Introduction

Ryanair is one of Europe main low-cost air carriers; offering budget flights to customers. Ryanair started business in 1985 with a 25 employees and a share capital of only one pound. By their second year, they had established an air link from Dublin to London Luton to compete with both British Airways and Aer Lingus, which resulted in the first fare fight in Europe. However, Ryanair were too insignificant to compete with other airlines as completion grew in 1990. This cumulated in a loss of 20 million pounds and the threat of substantial restructuring. Since then, Ryanair have imitated the low fare model of Southwest Airlines and are becoming the largest low-cost carrier in Europe. Despite their popularity, Ryanair have faced significant pressure from consumer complaints, competition from rivals, cost increases and administrative organisations. This report will critically evaluate Ryanair using the frameworks of Five Forces, SWOT of Global Business.

Finding

Five forces

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The threat of new entry: The threat to for the new entrants is relatively low because the requirements to enter the aviation industry are high. The difficulty associated with entering the industry determines the level of the opponent and the scale of the aviation industry, which results in a high-level of investment (Johnson 2009). As a result, the capital is related to business expansion and this is considered to be the main barrier to a company’s entry into the aircraft industry. Ryanair’s main strategy was based on a model of low cost and low outputs. This was possible due to their substantial collaboration with the Boeing Company and cooperation with secondary and regional airports, which enabled the company to have absolute control over costs (At the case states). In addition, by having only one model of airplane in their fleet – the Boeing 737-800 – Ryanair were able to further control their outgoings. As a result, new entrants to the aviation industry impart very little threat on Ryanair Aviation.

The threat of substitutes: Although substitutes affect a threat to Ryanair, it is not high. The threat of alternative carriers arises from differences in price and the effect of this on the aviation industry. Modern technology makes choosing the mode of transportation more convenient than before. Transportation is not limited to the air as high-speed rail systems and sea transportation cover the same routes as those offered by Ryanair between the UK, Ireland, Europe and Morocco (At the case states). However, compared with these modes of transport, aviation is advantageous as it saves time. In addition, Ryanair’s low price and low cost strategy also helps them outcompete other transport systems on price. Although the threat of alternative transport systems is weak at the moment, this situation could change due to the development of global business environment. Furthermore, due to Ryanair’s preference of using secondary regional airports (At the case states), this may lead the consumer to prefer a different air carrier or transportation. For example, Ryanair do not have a route that flies directly to Paris (Ryanair 2015) so they may be outcompeted by the other transportation. For this reason, the threat exists.

The power of buyers: The rights of customers are also a challenge faced by Ryanair. Despite offering attractive low price air fares, Ryanair provides a poor services and has a bad customer service record (At the case states). O’Leary believes that the poor service provided is in exchange for the cheap fares (At the case states). In fact, additional services need additional costs, such as airport check-in, checked luggage and meals on the flight. However, according to Ryanair’s annual report, the income of ancillary revenues contributes to one third of Ryanair’s total income (Ryanair 2014). With the customers’ deepening understand of an application mode, the number of complaints Ryanair has received are on the rise. A survey by The Telegraph has shown that, if purchasing additional luggage checking services in excess of the original ticket, Ryanair is not cheaper than their competitors, such as British Airways (At the case states). In some cases, the total price of serve and tickets flying with Ryanair is in excess of that for British Airways (At the case states). As such, customer loyalty to Ryanair has declined, it face an important challenge to resolve this.

The power of suppliers: Suppliers have a direct impact on the low cost strategy of Ryanair. The Boeing Company has always been the main collaborator of aircraft to Ryanair and, therefore, has the right to negotiate price (At the case states). Ryanair has recently declared they have ordered 280 new Boeing 737s and 100 more Boeing 737 MAX 200s from Boeing. This is advantageous to Ryanair as it will enable them to lower fares  meanwhile increasing their air traffic from 90 million to over 150 million by 2024 (Ryanair 2015). Although this strategy effect the risk of high switching costs, it would be more expensive and disruptive for Ryanair to move from one supplier to another. Another main factor that will affect Ryanair is fuel supplies. Ryanair’s annual report shows that operating expenses have increased by 5%, to €4,378.1 million, due to increasing fuel prices and higher levels of activity (Ryanair 2015). A shortage of fuel has caused a continuous rise in price, which directly influences the low cost strategy of Ryanair. The power of the suppliers over Ryanair’s future is strong.

Competitive rivalry: The influence of the competition on Ryanair is gradually increasing. Europe has fierce competition between companies in the aviation industry. As such, Ryanair has to counter challenges from other companies that are using the same low-fare model, and traditional and chartered airlines (At the case states). Ryanair ordered 180 new aircraft from Boeing in an attempt to increase their competitive advantage from 2014 to 2018 (Ryanair 2014). In addition, Ryanair plan to further reduce costs by special changes, such as removing two-thirds of toilets on each airplane and replacing them with six extra seats (At the case states). However, complaints from customers are already on the rise due to the increases in prices and poor service. Although Ryanair is seeking to find a balance, the influence of the competitors continues to grow. As a result, Ryanair has to face growing competition from competitors and decrease their advantage.