Choose two firms in similar geography and sector.

The two groups chosen are Ryanair and Lufthansa group. Both the groups compete in the passenger
airline industry in European market.

Start with describing the industry segment/marketplace and the diversity

of firms in that space. Who are the customers? What are the customer
needs?
Industry

https://www.iata.org/publications/economics/Reports/State-airline-industry-Europe-Apr-19.pdf

The European airline industry is a very fragmented with 195 airlines offering their service, but more than
half of the operating profit in previous year which was just over $12 bn market came from the big four
players of the industry namely IAG, Air France-KLM, Lufthansa group and Ryanair. The first three
mainly dominate the long-haul international markets, Ryanair majorly dominates the intra Europe short
haul market which is much more fragmented than the international market.

The European airline industry is interesting to study as even though overall industry is performing
decently with an operating margin of approximately 6%, the industry has witnessed many failures and
mergers in the past two years like Air Berlin and Monarch in the year 2017 and many more. The major
challenges faced by the firms in the industry are weak cash flow during weak seasons, ever fluctuating
fuel prices, increasing costs of aircrafts due to weakening of Euro as compared to dollar, lowering to
passenger traffic due to economic slowdown. Thus, the industry faces many challenges and is very
dynamic in nature.

The higher fragmentation and thus the competition in the industry and the lowering passenger traffic has
led to survival of only fittest (in terms of strategy, competitive advantage) firms in the industry.

The European airline market is divided into three main segments, namely;
https://www.businesswire.com/news/home/20190621005317/en/Europes-Passenger-Airlines-Market-
2022-Market-Segments

1. Low cost: A low cost airline is the airline which focuses on obtaining lower fares for its
passengers by minimizing its costs and providing only with the basic service of commuting.
 2. Full service: A full-service airline provides its customers with extra facilities like inflight
entertainment, checked baggage, meals, beverages etc. included in the ticket price.
3. Charter segments: Charter segment airline is the one in which an aircraft is rented to the
passenger and they can determine its arrival, departure, location and time according to
themselves.

Two of the big four of the industry are Lufthansa group and Ryanair. Ryanair is a Low-cost airline, that is
it provides budget services to its passengers by providing the basic facility in the lowest possible cost. All
the subsidiary companies of Ryanair Holdings plc which are Ryanair DAC, Lauda, Buzz, Malta Air and
Ryanair UK are the low-cost operators.

Lufthansa group plays on two segments of the airlines market.

1. Full-service segment: The Network Airlines which comprises Lufthansa German Airlines,
SWISS and Austrian Airlines offer full services to the passengers and are considered to be
premium and high quality.
2. Low-cost segment: The Eurowings segment comprises of 4 airlines which are Eurowings,
Germanwings, Eurowings Europe and Brussels Airlines. These 4 airlines cater to the low-cost
segment of the market.

Both Ryanair and Lufthansa have originally been very distinct but are now trying to enter into each
other’s domain. Ryanair has recently begun long-haul operation and Lufthansa group has entered low cost
short haul operations with Eurowings.

Customer needs:

Customers of Ryanair are the customers who need short haul, point to point flights and are most price
sensitive. Lowest fare is the biggest motivation for its passengers to choose its services. On the other
hand, Lufthansa core customer seeks for comfortable seats, extensive options for inflight meals and
beverages, inflight entertainment etc.

Thus, their core target groups were originally unique but with acquisition of Germanwings in 2008,
Lufthansa group started looking at the low-cost segment. But they have always maintained a reasonable
distance from its Eurowings subsidiary to maintain their premium positioning.

Choice of firms
The two firms chosen are the biggest firms in the European passenger airline industry. The following are
the reasons for particularly selecting these two firms:
 1. Both the firms chosen are in the big four of the European airline industry, they both have survived
the challenges of the European airline industry and thus have robust business models and
strategy.
2. Ryanair is the firm which revolutionized the European airline industry with its low-cost business
model to which Europe was alien at that point. Ryanair has opened a very wide price sensitive
customer base to the European airline market.
3. Lufthansa group has adopted a premium quality offering to stay at the top of the industry.
4. Both Lufthansa and Ryanair have very strong brand name and are positioned very distinctly in
consumer’s mind.
5. There is distinction in their expansion strategies. Lufthansa group diversified into the low-cost
segment, whereas Ryanair continued to expand its forte in the low-cost segment.

Dimensions of competitiveness

Amongst different competitive dimensions, Ryanair competes on the cost dimension of competition i.e. it
offers its services to passengers at fares below the other competitors in the industry. It makes it possible
through its unique business model and strategy.

Lufthansa group on the other hand competes the quality of service they offer to their passengers in terms
of services and premium experience and convenience. Following are the different dimensions of quality
on which Lufthansa competes:

Dimension of Quality Lufthansa Remarks

Performance Yes Lufthansa offers comfortable, on-time travel

to the passenger, thus competing on the
performance dimension of quality.

Features Yes Apart from the main service of travelling,

Lufthansa also services like inflight shopping,
entertainment, meals, lounge service etc.

Reliability Yes With successful operations from last 60 years,

since 1951, Lufthansa offers reliability to its
passengers.
 Conformance Yes The airline industry is highly regulated in
terms of aircraft design and operations, thus
Lufthansa offers

Durability - Since this is a service sector, durability of the

service can’t be defined.

Serviceability Yes The Lufthansa groups special attention to its

staff’s training and development, which
allows them to ensure serviceability.

Aesthetics Yes Lufthansa has luxury planes in its feet to

ensure the aesthetics.

Perceived Quality Yes The promotions of Lufthansa group are to

reinforce all the dimensions of quality, to help
potential passengers to indicate its high
quality experience and build strong perceived
quality.

Another dimension on which Lufthansa competes on are the convenience dimensions:

Dimension of Convenience Lufthansa Remark

Decision Convenience
Access Convenience
Transaction Convenience
Benefit Convenience
yes Lufthansa offers travel preparation, travel guides,
guidance related to baggage limit etc.
yes Lufthansa is open to booking on all platforms including
App, website, travel agents etc.
yes By easy cancellation, rescheduling and upgradation
through app, websites it gives ease of transaction to its
passengers
yes It gives benefit convenience through its high-quality
services
 Post benefit Convenience yes It gives post benefit convenience in terms of mileage
points, loyalty program etc.

Comparison of Firms

As has been seen before that both the firms compete on very different dimensions and have very distinct
positioning with respect to each other. The detailed comparison of both the firms is done to see how these
firms achieve their distinct competitive advantage with their different functions like sales and marketing,
HR, supplier relation, operations, technology etc.

Sales and Marketing:

The sales and marketing of both the firms are compared in terms of the 4Ps of the marketing mix.

Ryanair
 Product: Basic point to point flight
mostly short haul services, no extra
baggage, no inclusive meals etc. Ryanair
just offers single class travel.
 Price: Lowest fare in the industry
 Place: The tickets for Ryanair are sold
online through their website and app, they
purposely don’t sell it through travel
agents to save the commission cost which
is paid to the agents.
 Promotion: They don’t spend much on
the advertising. They do inhouse
marketing i.e. they don’t have any
advertising agency, but all the promotions
are done by company employees.
Lufthansa
 Product: Lufthansa offers different
services to its customers like lounge, extra
baggage, in flight meal, entertainment etc.
It offers different services based on the
different classes like Economy, Premium
Economy and Business and First class.
 Price: Prices for Economy and premium
Economy are competitive, whereas those
for business class are mid-premium and
for first class are premium.
Eurowings follow low cost strategy.
 Place: Unlike Ryanair, Lufthansa tickets
are also available with travel agents, apart
from other channels.
 Promotion: Lufthansa does its promotion
through ad campaigns, sponsorship
programmes and through social media.
 Unlike Ryanair, it does not shy away in
increasing user connect through travel
agents. The company also does
promotional advertising and offers loyalty
programs, promotional codes etc.

Human Resources:

Ryanair: https://www.ukessays.com/essays/management/hr-strategy-report-the-case-of-ryanair-
management-essay.php

The different HR practices followed by Ryanair are in line with its low-cost strategy. The different HR
practices of Ryanair are:

1. Low salaries: To keep up with its low-cost strategy, Ryanair pays less salaries to its employees,
but its growth has led to a lot of employment creation in the industry.
2. Productivity based incentive system: Ryanair has productivity-based incentive system to
motivate its employees for better performance and the performance is defined in a way that
encourages for cost reduction practices. For examples inflight sales and for pilots it is for flying
for maximum hours which helps them maintain minimum staff and reduce on staff cost.
3. Expenses borne by employees: The expenses related to employee training, dresses are all borne
by the employees themselves, which reduces personnel cost for the company.

Lufthansa: https://writepass.com/journal/2015/03/hr-management-lufthansa-group/

Lufthansa is an employee friendly group, which is very crucial for it as it is in the premium
category of the service sector. The employees will be able to deliver quality services only if they
are content with the organization. The various practices carried out by Lufthansa are;

1. Communication and Feedback platform: Lufthansa has built strong communication

and feedback system to address any grievances of employees.
 2. Training and Development: Lufthansa group believes in continuous learning of their employees
by continuously engaging them in training programs required to train them for the competencies
needed to achieve Lufthansa’s strategic objectives.

3. Use of Technology: They have successfully used technology (HR management software:
ETWeb™) that adds transparency to the alliance network’s HR potential so that any vacancy can
be filled with the available pool of employees.

4. Flexible organization structure: The employees can be transferred to the other subsidiaries of
the group.This also helps them to exploit internal market of labor which they have created
through the group and allows them to have flexible organization structure which allows them to
react quickly to the market demands and needs.

Supplier Relations

Ryanair:

To maintain low cost, it is imperative to have good supplier relation which can help procurement of the
fleets at lower cost. Since, Ryanair has only one type of planes, Boeing 737, it has been able to maintain
good relationship with the suppliers and it has also helped Ryanair to crack lucrative deals with Boeing,
which has helped them enjoy bulk discounts.

Lufthansa : https://www.scfbriefing.com/why-lufthansas-scf-programme-had-top-quality-results/

Lufthansa group has high number of suppliers owing to its high features’ services, which require inputs
from large number of vendors. Thus, maintaining exclusive relations with all of them like Ryanair is not
feasible for Lufthansa. They came up with different program to establish relations with their vendors and
they started supply chain financing programme in which they closely help their vendors to get financial
help. This helped them to get large numbers of suppliers onboard with them.

Operation and Technology

Operations of the two firms are compared on the 8 decisions of the operations strategy:

Decision Area Ryanair Lufthansa

Capacity High capacity in terms of
number of aircrafts but limited
international routes.
Individual fleet is high capacity
with high seat density
Facility Ryanair mostly operates within
Europe with very less long
international routes
Scope Integrated w.r.t to owning its
own terminals and
transportation services from
the secondary airports
Technology Technology driven, mainly uses
internet to reduce transaction
fees.
Workforce Mostly motivated people who
get baited for performance-
based incentives
Organization Centralized
Planning Well planned
High capacity in terms of
number of aircrafts and large
number of both domestic and
international routes.
Lufthansa operates in both the
long and short haul markets,
but it mostly makes profit from
Network airlines which
operates on long international
routes
Lufthansa group also provides
other aviation services and is
thus highly integrated
Lufthansa has highly invested
in digitalization for its
customers as well as
employee related
transactions. Lufthansa has
also established such as the
Lufthansa Innovation Hub.
Highly skilled labor force
Flexible organization structure
Reactive
Doors closed
Ryanair is Europe’s largest airline which runs on low-cost no-frills model. The cost advantages obtained
by the company are passed on to the customers by offering lowest fares in the industry. The cost
advantages obtained by the company are owed to the strategic choices (doors closed) by the company
to become cost efficient. The doors closed by the company are:

1. Long routes: Ryanair flies mostly on short haul routes.

2. Frill operations: Ryanair offers no frills operation, i.e. it has closed the door to any sort of extra
premium services to its passengers like inclusive meals, baggage facility etc.
3. Primary airports: One of the most important cost reductions that Ryanair does is by flying to the
secondary airports thus saying no to most of the primary airports. Flying to secondary airports
gives a lot of advantages to Ryanair, like freeing it from the hefty landing and parking charges
charged by major airports. Secondary airports are also free from heavy traffic which allow
Ryanair flights to make landing and takeoff on time, improving the turnaround time for the
flights.
4. Variety of Fleet: Ryanair doesn’t have a variety of fleets; it only operates the Boeing 737.
Having only a single type of fleet allows Ryanair to invest low in maintaining the spare parts
inventory. The cost related to the maintenance personnel for the fleet is also reduced. They also
enjoy bulk discounts from Boeing.
5. Point-to-Point flights: Flying point-to-point helps Ryanair to eliminate a lot of additional
operations like baggage transfers etc. helping it to turn-around the planes quite quickly.
6. Travel Agents: To be able to deliver the lowest fares in the industry it was imperative for
Ryanair to eliminate any middlemen which increase the cost by charging commissions.
7. Diversification: Ryanair has expanded to different routes including low haul routes also but still
maintains its low-cost strategy with no frills operation.

Lufthansa group is known for being more adaptive to the market conditions and for allowing that it has to
1. Niche Player: Lufthansa group plays in two segments of the airline industry with two of its
airline subsidiaries which are Network airlines and Eurowings. Thus, it has tried to mark its
presence in premium as well as the price sensitive segment. Thus, it has purposely closed the door
of being a niche player.
2. Cost Cutting: Lufthansa has focused on lean programme and gaining cost efficiency, but it has
never tried to reduce the cost by compromising on the quality of its services for its customers,
thus closing the door for cost cutting. In fact, it has always focused on high innovation.
 3. Hardcoded Organization structure: Lufthansa has maintained flexible structure which has
allowed it to be more adaptable to the industry changes. Thus, it has closed the door to hardcoded
organization structure which could help it to do better planning and maintain efficiency but would
have made to lose its flexibility.

Explore the way each firm (i) maintains itself (autopoiesis, deviation
counteracting) and (ii) becomes/produces something else (innovation,
deviation amplifying).

Ryanair

Ryanair though is known to be an innovator in the low-cost airline segment, has mainly focused on
maintaining its autopoiesis through deviation counteracting loops. It is very crucial for a cost leader to
have deviation counteracting loops as any deviation in the system can lead to inconsistency and thus
increase of cost. The various deviation counteracting mechanism is Ryanair can be seen as follows:

Low traffic airports Less time in landing Quick turnaround No inflight meals

Lower cost Higher capacity utilization Higher number of trips No Check-in baggage

Thus, all the things are working in loop to ensure lower cost for the airlines and are reinforcing each other
to make it the cost leader in the industry.

All these processes are component independent and thus the system is independent of the components and
is dependent only on the processes which are constant.

Lufthansa on the other hand is an innovator,The various deviation amplifying loops in the system are:

1. Lufthansa innovation hub: Lufthansa has established Lufthansa innovation hub to ensure that
the system has deviation amplifying loop.
2. Continuous learning: Lufthansa focuses on continuous learning of its employees to ensure that
the employees are exposed to new learnings and can contribute to innovate.
Identification of the Bottleneck of system
The bottleneck of the system must be its most crucial resource so that the most crucial resource is fully
utilized.

Ryanair

Fuel: The objective identified for Ryanair was to further increase its cost advantage such that it can drive
out all the other low-cost carriers from the industry. But Since fuel amounts to 30% of its operational
cost, oil supply and thus prices which are not in its control can become a major bottleneck for the system.

Lufthansa

Expertise & Knowledge: The objective for Lufthansa will be to gain maximum adaptability to changing
market conditions. To do so it has already entered the price sensitive segment but has not been able to
successfully compete with Ryanair who is the leader in the low-cost segment. Lufthansa group has
expertise and learning curve advantages in the premium segment and thus its knowledge and expertise
can become a barrier in achieving this objective.

Barriers to growth
Ryanair:
1. Variety: Ryanair as of now offers very limited variety to its passengers in terms of its
services and fleet options which helps it to maintain its cost advantage. But with more intense
competition in the low-cost segment, customers are going to get more options and will thus
seek variety. By the law of requisite variety, Ryanair will have to match the variety to meet
the requirement of the market. The variety sells but also it hurts in maintaining low cost
operations, which can become a barrier to growth for Ryanair.
2. Leadership: Ryanair started and maintained its cost leadership strategy under Michael O’
Leary. Many firms in the past have seen that presence of such strong leader in the system, the
organization becomes over dependent on him and in his absence is not able to grow much.
Lufthansa
1. Outrun by niche players: As Lufthansa is also playing in the price sensitive segment, it can
be easily outrun by the niche players who have expertise and knowledge to operate the low-
cost airlines efficiently.
2. Brand name: As The Lufthansa group is always known for premium services, its brand
name can become a barrier for it to establish itself in the low cost segment.
Essence of the firm

Ryanair is a typical cost leader, with its investments in being in the direction of cost reduction. Thus it has
essence of an elephant. The traits of elephant that matches with Ryanair are:

1. High capacity utilization

2. High Volumes
3. High investments
4. Lowest Prices

Lufthansa group on the other hand shows essence of Cat with high flexibility and adaptability to
the market.
With its internal pool of staff, flexible organizational structure, variety of fleets and subsidiaries
it has targeted range dimension of mix flexibility.

Conclusion
On comparing the two firms it is seen that they have distinct brand image, customer base as well
as the expansion strategy. To achieve this both the firms have followed very different routes and
functions, it is through integration of these that they have gained their competitive advantage.