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Analysis Of The Factors Of Ryanair’s Success

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Introduction

In today’s world, a key factor for companies to survive is to determine the Value equation for meeting buyer needs. For firms this is by achieving low prices for catching the buyers, but the question remains how long can the firm survive on this low pricing? This itself is a million-dollar question! Some firms pursue demanding and persistent cost-cutting by improving their operational efficiencies, low maintenance, simple ticketing, no add on policy, some succeed in their approach and some fail and declare themselves bankrupt. However, we could see some firm particularly “Ryanair” evolve from this model and create a new era of achievement in the Airline sector meeting customer demand of service quality and customer satisfaction, by being consistent in the market using a cheap pricing model.

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This paper will summarize Ryanair’s strategy focus and overall reasons for their success by analyzing below listed factors:

1. Macro-environment

2. Strategic capabilities

3. Globalization

4. Leadership and Culture.

Macro-environment

Ryanair was formed in 1985 with a 57 staff member and one 15 seater turboprop plane starting its service from southwest of Ireland to London-Gatwick on one route to leaving behind British Airways by being a top brand in airline sector in Europe and UK by growing their network count to 127 routes and by becoming the first European airline to carry 1 billion customers, Ryanair was becoming a huge inspiration of success in the strategy formulation and adaptability to environment for their Strategic growt. Ryanair’s Strategic mission was “to be best cheap pricing airline by meeting customer expectations”. Environmental effects play a vital role in the firm’s strategic success by their impact positively or negatively viz the Macro-environment. To further understand the microenvironment and its effects, PESTLE and PORTER’S five-point models are used to understand its impact on firms. For our case study we will be performing PESTAL analysis for Ryanair to understand environmental impacts:

1. Political (impact of Government and other political forces) – Ryanair can be affected by the change in government policies, political changes in terms and conditions in the area where Ryanair operates its route activity, noise levels are a few factors on political impacts.

2. Economic (impacts affecting economic growth, exchange rates, recession) – Economic recession can affect them which currently is good Ireland, in coming future can decline, fuel costs, change in the climate of other countries.

3. Social (influence in Demand and supply, shaping power and effectiveness of organization) – Economic growth resulted bloom in tourism which is observed in less discovered places like Monaco, Iceland by opening the market, Cheap holiday packages if Ryanair opts too, and lower costs which Ryanair has in their mission.

4. Technology (influence on technological aspects) – Audio Visual conferencing is the main threat, check in service which Ryanair has Boeing 737s which is one of the best used commercial aircraft, so they are up to date on this factor.

5. Environment (Going green concept) – Environmentally-friendly aircraft, less carbon emission and fuel consumption which Ryanair adheres too as per.

6. Legal (Regulatory changes) – Ryanair is having legal issues with EU body over airport deals (O’Higgins, 2004).

Porters Five Force Model

This is a forecasting approach which helps firm understand their structure by advising against threat and is less vulnerable to attack and more profitable (Porter 2008). Having this vision and as per (Porter 2008) we are considering the approach on Ryanair which includes: Competitive rivalry – Pricing is a major factor which most companies try to invade in the market, however Ryanair operates at a very less margins and with heavy pressure on pricing and secondly, they target price specific customers by their policy of low frills and low price which is their major tool over other airlines.

Newmarket threat – describes the ability of a new competitor to enter the market. Some restrictions include regulations in entering EU nation, high capital investments at the start, restricted slot availability at airports and to get low-cost bases is difficult (Porter 2008).

Negotiating power of customers – Refers to benefits offered to the customer by effective pricing and services. Direct bookings from their website constituted to savings in marketing and distribution costs.

Negotiating power of suppliers – Refers to the deals or agreement done with the suppliers for increasing profitability by maintaining low costs to customers.

Aircraft Suppliers – Boeing is Ryanair’s main supplier. There are only 2 possible suppliers for planes. They are Boeing and Airbus.

Fuel Suppliers – The concept of “Hedging” is used by Ryanair to control the cost of fuel

Regional and Bigger Airports – regional airports are smaller and less famous airports where Ryanair is operating as a major airline and so they are more vulnerable to bargain compared to any new airline wherein Bigger airports are those which have a huge traffic base and in which Ryanair doesn’t operate.

New Entrants – Refers to new players in the market as they face barrier issues during their enter to airport due to EU regulations, high capital investments at the start, restricted slot availability due to some slots being reserved for national carriers.

The threat of Substitutes – Other modes of travel i.e. road, rail and waterways adds to threats for Ryanair. Rail is the most threat as it offers a good service across continents around cities that Ryanair operates. Similarly, there is no switching cost from changing the mode of travel and no close relationship between customers.

Strategic capabilities by analyzing internal resources

Effective strategic management requires understanding of their internal resource capabilities and evaluating their importance in the formation of organizational strength and ultimately to the development of modest advantage. Resources can be tangible (physical in nature which can be either long term or short term assets) and intangible (long term assets which are not physical but are intellectual property) and analysis of the internal resources are performed using VRIO model.

VRIO model

A tool which is used in analysing an organization’s internal resources and capabilities to find out if they can be a source of sustained competitive advantage. The resources must be valuable, rare, imperfectly imitable and non-substitutable. These attributes are required for a firm to become a source of sustained competitive advantage. VRIO is an abbreviation of a four-question framework viz value, rarity, imitability, and organization. The below four components are analyzed in the form of a decision tree.

Value – The first question in the model asks if a resource adds value to the firm by exploiting opportunities or defend against a threat. If the answer is yes then resource adds value, it is also valuable if they increase customer value by decreasing the price of the product or by increasing differentiation. If the answer is no then this leads to competitive disadvantage.

Rarity (Rare) – Resources acquired by one or very few companies are considered rare. Rare resources grant temporary competitive advantage. On the other hand, if more than one company has similar resources and similarly uses capability will lead to competitive parity as similar strategies can be implemented and no organization can have superior performance.

Imitability – A resource is costly to imitate if other organizations are not capable to copy, buy or substitute at a reasonable price. This is possible in two ways viz duplicating and others by a substitute. A firm which has valuable, rare and costly to imitate resource can achieve sustained competitive advantage. Resources are hard to copy owing to historical conditions (resources developed over a long period), causal ambiguity (identifying specific resources which are cause of competitive advantage), Social Complexity (resources based on company culture or interpersonal relationships).

Organization – Does the company have organized management systems, processes, structures, and culture to capitalize on resources and capabilities? if the answer is “Yes” then the company has a competitive advantage and if the answer is “No” then the company have unused competitive advantage and will need to reassess how to attain needed organization (Barney 1991)

A resource that meets all four requirements can bring sustained competitive advantage for the company.

Explanation – For achieving Low-cost module Ryanair has very efficient operational effectiveness like marketing strategies (through newspapers, controversies), Good deals with suppliers (Boeing, Airport facilities on secondary airports), value and incentive-based employees, etc. adds Value to the business in keeping their profits. Rare factor accounts from point of view of a stronghold on secondary less important airports as Ryanair are premium customers for the airport since the inception and so are likely to have a stronghold compared to other competitors. Next is the Cost to Imitate as association with secondary airport is hard for a new competitor since it’s a causal ambiguity and last point is the organization has managed systems, processes and structures in place to handle this skill making it a very sustained competitive advantage over others.

Globalization

Globalization is a process employing which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange. It can also be analyzed that the main intention of this was to open the global market and minimize the influence of government authorities within them. It is also evident that most of the globalization process is independent of government intervention even in the field of taxation wherein its role has been limited.

Internationalisation is a process that occurs through trade by shipment or sales of goods and services from two different countries and direct investment can also be done by acquiring productive assets in the other country. Internationalisation mainly works through alliances and mergers viz through strategic alliances and joint ventures by crossing the boundaries. By taking such steps the companies are connected in some ways, the exchange of culture and knowledge happens.

Based on the understanding of each of these terms there are few differences between globalization and industrialization which are as listed below:

– Globalization is concerned with economies of the nation wherein internationalization is related to individual, firm or business for their goods and services.

– In terms of result, globalization is desired by global economies and internationalization is a process by which globalization can be achieved i.e. former is an economic process and the latter is an improvisation process.

From the above concept and understanding we could conclude that Ryanair falls into “Internationalisation”. Ryanair was established in the year 1985 and entered as a low-cost airline. Firms attained fame in Europe due to free-market conditions. The company was able to allow the market to decide the price. Flexibility, freedom, and variety assisted Ryanair in growing its business due to this free market concept and growing its business operations in Europe and other foreign countries. Deregulation and free-market entry conditions allowed Ryanair to exploit the Irish and European transport market. The free market has allowed Ryanair in switching its route from one place to another due to the widespread market. This was possible due to minimal government protocol intervention and because of Strategic team which allowed to grab this opportunity for gaining a competitive edge.

Ryanair has a point-to-point path between Ireland, the UK, Continental Europe, and Morocco. Since its inception, Ryanair currently has 2400 daily flight from 86 bases with s over 200 destinations in 38 states on a fleet of over 475 aircraft, with a further 210 Boeing 737’s on order, which will enable Ryanair Holdings to lower fares and grow traffic to 200m p.a. by FY24.

To conclude, although we can say Ryanair follows “Internationalisation” due to its vast network in the EU region it is working closely to become globalized too. For become “Globalisation” they require airport rights in bigger airports and not the regional ones since Immigrations happens smoothly only at major airports and concept of low-cost airline will change due to the fact that by being Globalised accounts for airline travel increase at far off places resulting in provision of no-frill like food and baggage allowance facilities to the flyers and this will add to value of the fare and moreover this will then tend to bring the fare at par with other airlines too due to this factors as Ryanair makes its margin through providing no extras to customers.

Leadership and Culture

Leadership is a process in which an individual impacts other group member towards the fulfillment of organizational goals. As per Cairns (1997) 5 leadership theories help explain how some individuals become leaders viz Great man Theory, Trait theory, Contingency theory, Situational theory, and behaviour theory.

  • Great man theory (Military leadership) – Leaders are born with the right traits and abilities for leading including charisma, confidence, intellect, communication skills, and soft skills and the ability to lead is inherent and best leaders are born and not made.
  • Trait theory – Theory predicts effective leadership in which identified individuals are compared to potential leaders to determine their likelihood of leading effectively.
  • Contingency Theory – Depicts that no one leadership style applies to all situations and that leadership is a combination of many key variables like maintaining the balance between behavior, needs, and context.
  • Situational Theory – A leader exercises a specific form of leadership based on the maturity level of his or her team.
  • Behavioural Theory – Focuses on specific behaviour rather than characteristics. Theory suggests that technical (knowledge about the process), conceptual (ideas to run business) and human (interaction with other individuals) skills are the primary skills to lead the followers.

To understand the leadership style Michael O’Leary, his traits will be compared to mentioned theories and analysed for a conclusion. As per Box (2007), MOL has a very controversial personality (Paid thousands of dollars for using Taxi lane and irritated the Irish Government), nonconformity (Charging passengers who will use the bathroom for reducing the no of bathrooms per plane to one), inexorable Campaigns of Public stunt (Dressed as a pope to announce Ryanair route from Dublin to Rome), Not a charismatic leader as he isn’t sensitive to employee needs and has a non- unionized operation and Ryanair’s cabin crews are supposed to pay for their training, uniforms and meals and his achievement-oriented qualities (Converting complicated business to as simple as possible and delivered it at large scale, profitable product). By analyzing these personality traits, we could conclude that MOL is an effective leader and possesses a mix of Trait, Contingency and Behavioural theory due to his telling style approach, thick-skinned aggression due to his family background and his knowledge and ideas to run the business and human interaction respectively.

Organizational culture is a group of internal values and behaviours in an organization including experiences, beliefs, ways of thinking and future expectations. Ryanair culture is influenced by its leaders’ vision of low cost and no communication within the organization making it a weak culture. Weak culture happens when ground rules are laid by employers and employees’ goals are considered different from their objectives of organizational goals.

Ouchi’s Theory Z and ERG theory from Alderfer’s are considered for change in the culture of Ryanair.

Ouchi’s Theory Z suggests that employees increase productivity of the firm if there are adequate trust and support from the manager and strategic team. For Ryanair operating on autocratic leadership style leading to improper communication, no respect, firm specialization basis this theory Ryanair should give its employees decision making power, valuing their inputs incorporate. Such changes in the environment will not only increase the profit of Ryanair but also their confidence and improve their working environment.’>Erg Theory – Flexible theory which states that more than one needs can be functional at the same time and assumes that higher-level needs can be satisfied even though lower one isn’t.it states that if an employee cannot satisfy their growth then they will retreat to their desire to satisfy relational needs like interaction and communication. In Ryanair’s case, the lack of motivation, communication and difficult working condition without any reward system don’t push the employees to achieve better effectiveness. If Ryanair’s management motivates their staff then the organization will be more efficient and will also decrease the ratio of employees leaving VS hiring.

Culture change as per Invictus (2009) will result from their behaviour of leadership team and how they motivate their staff to follow and lead the change by being an example so that they can perform their work in a better way without any stress, risk of lay off and demotivation and this would even benefit the customer in a sense that they will get a more friendly service. The weak culture of Ryanair is strong because of their leadership styles and it needs to be changed for good where employees are motivated and they are encouraged for their suggestions, communications are frequent and entire organizations are aligned for achieving the goal of being the best low-cost airline.

To conclude, Ryanair has a dominant leadership approach and it should be more employee-centric understanding their values and needs and cultural changes should be put in place for having a good working environment thereby increasing productivity and customer experience.

01 February 2021

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