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BUSI1271: Global Strategy: Analysis & Pr Team assignment WE Hearne, VJ Torlo, N Brady

Course School/Level Assessment Weight Submission Deadline

BU/PG 30.00% 18/11/2011

Coursework is receipted on the understanding that it is the student's own work and that it has not, in whole or part, been presented elsewhere for assessment. Where material has been used from other sources it has been properly acknowledged in accordance with the University's Regulations regarding Cheating and Plagiarism.

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Contents Coursework Header Sheet ............................................................................. 1 INTRODUCTION ............................................................................................. 3 STRATEGIC POSITION ................................................................................. 3 PESTEL ANALYSIS ........................................................................................ 3 PORTERS FIVE FORCES ............................................................................ 5 Threat of entry (Weak) .................................................................................... 5 PARTIAL SWOT ANALYSIS (Opportunities and Threats) .......................... 6 MARKETING ANALYSIS ................................................................................ 7 STRATEGIC PURPOSE ................................................................................ 8 STRATEGIC CAPABILITY ............................................................................. 9 STRATEGIC DIRECTION .............................................................................. 9 BCG MATRIX (Boston Consulting Group Matrix) ...................................... 10 CRITICAL SUCCESS FACTORS: ............................................................... 11 FINANCIAL ANALYSIS ................................................................................. 14 REFERENCE LIST ....................................................................................... 16

INTRODUCTION

The aim of this report is to look at the airline industry within Ryanair that Christy Ryan, Tony Ryan and Liam Lonergan founded in 1985. This report will analyse the strategy that Ryanair consists of. This report will also analyse the data within the Ryanair annual report and several case studies to determine the strategy that has been adopted as of this date. Ryanair will be analysed and recommendations will be made for the forecasted strategy of Ryanair.

Ryanair is the Worlds favourite airline. There are more than 1400 flights flying every day. In addition, Ryanair is also one of the lowest priced airline companies, more than 1100 cheap fare routes pass through 27 countries, connecting 160 destinations (Ryanair, 2011a).

STRATEGIC POSITION

According to Johnson and Scholes (2005) the strategic position is defined as the influence on strategy of the external environment, internal resources and competences, and the opportunities and power from stakeholders. With all these factors on board and the addition of strategic capability, contemplation of the environment, and the prospects of the cultural and political structure of the organisation delivers the foundation for grasping the strategic position of an organisation.

PESTEL ANALYSIS
The PESTEL framework highly influences the companies business successful or failure. There are six elements included in the PESTLE framework. These are Political, Economic, Social, Technological, Environmental and Legal factors. (Johnson, schools and Whittington, 2009)
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Political: Climate protection charges, 'green' trading schemes1 Multilateral trading agreements Security controls Variable international taxation rates Global Tariff rate issues Government supporting national carrier Air France-KLM2

Economic: Social: Change in the travellers trends Rise in travelling lifestyles Rise in business travelling Student international study exchanges Fuel price increases3 Depreciation of US dollars Varying national growth rates Illegal subsidies of airports4

Technological: Fuel-efficient engines and aerodynamic airframes Ryanair allows mobile phone use5 Heightened security check technologies Internet sales and internet check ins

BBC News,(2007) Ryanir hits back in 'green' row (Source: http://news.bbc.co.uk/1/hi/uk_politics/6233019.stm)

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Airport-technology.com (2006) Runway Wars, (Source: http://www.airport-technology.com/features/feature667/) Wembridge and plimmer (2011) Rising fuel prices clips Ryanairs wings(Source: http://www.ft.com/cms/s/0/5549021a-b693-11e0-ae1f-00144feabdc0.html#axzz1cf3Nd3bv) 4 Presseurop ,(2010) Ryanair flies high on subsides, (Source: http://www.presseurop.eu/en/content/article/255241-ryanair-flies-high-subsidies) 5 BBC NEWS(2009) Ryanair allows mobile phone use.(Source: http://news.bbc.co.uk/1/hi/technology/7899446.stm) 4

Environment: Noise pollution controls Emission of carbon controls Land for enlargement of airports

Legal: Restrictions on mergers Allegations of misleading advertisement6

PORTERS FIVE FORCES

Threat of entry (Weak)

Scale and\\ Experience are required to compete with large airline industries Brand image and loyalty to low fares Legal restraints on new entries High restrictions on landing required in the airport.

Threat of substitutes (Moderate)

Ryanair is the cheapest airline Easy to switch to other safer and quicker transport tool .

Buyer power (Strong)

Customers may switch to other

BBC NEWS (2010)Ryanair reprimanded for misleading advertisements.(Source: http://www.bbc.co.uk/news/10626652) 5

cheaper mode of transportation. Many alternative choices.

Supplier power (Strong)

High switching costs, due to the Boeing and Airbus High supplier competition threats High fuel prices.

Competitive rivalry (Strong)

High exit barriers High fixed costs.

Based on this analysis of the Porters five forces, the position for Ryanair within the European air transport market can be ascertained. The three strong forces, one medium force and one weak force are representing the competitive ability of Ryanairs industry. Ryanair is the cheapest airline, consumers have strong brand loyalties, and however, buyers within the market have the threat of easily switching to the safer and quicker mode of transportation. Boeing and Airbus are the major suppliers for Ryanair and the fuel price is higher, therefore, Ryanair have extremely strong supplier power. According to these reasons, it makes Ryanair successful in the currently market.

PARTIAL SWOT ANALYSIS (Opportunities and Threats)

Using a SWOT analysis will help to identify the internal factors and the external factors of a company. These factors are; Strength; Weakness; Opportunities and Threat.

Opportunities: The economic recession can be exploited. Most people due to lack of disposable income were rather looking for bargains than leisure spending. The inclusion of more countries in the EU also gave rise to new air routes which the airline industry exploited. This helped Ryanair, as it is a low budget airline. Threats: The competition in the low budget airline industry is a major threat for the company. Customers who look for bargains may switch to other airline companies such as Easy Jet which provide better services than Ryanair even though the price rate are slightly different. The increase in the fuel price can be a major problem to sustain in the industry with this low price strategy.

MARKETING ANALYSIS

Airline Industry is a very large and global industry with high number of competitors. While entering into this market, a company would be requiring a huge amount of capital. As a result the risk involved is very high. Before entering into the airline industry the company should know its market well, should identify the best suitable location and its target customers. A market analysis of the industry would help the company to know the current and future market situation. This will help the company to make their strategies for the business to run successfully

Recovering Global Market: With the global market slowly improving, the market situation for the airline companies is also increasing accordingly. As the economy grows the number of people travelling will also rise. In Japan, the effects of tsunami and nuclear problems are slowly receding. Three low cost carriers are planning to launch service in 2012 (Airline leader, 2011).

Competition It is also very important to know the rivals of your firm. The companies have to analyze if it
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can compete with its rival in the market. Michael OLeory, CEO of Ryanair Inc. in an article published in economist.com has warned of a bloodbath in the low fare airline industry. Ryanairs rival EasyJet is formulating strategies to stay on in this market. Since both the airlines focus mainly on low fare travels they have to keep the ticket price low regardless to the increase in competition. In Europe there are around 50 low cost carriers, some of them go bust, while some new carriers are started.

Price In a low fare carrier industry the most important aspect is price. The average price per travel in the market is increasing in the airline industry (Advito, 2011). With the increase in fuel prices, it is a big challenge for the airline companies in this industry to keep the prices down and survive in this market situation. However with the increase in demand from the people means that the market still hold good news for low fare carrier companies.

STRATEGIC PURPOSE
Stake Holder Mapping:

STRATEGIC CAPABILITY
Strategic capabilities are the resources and proficiencies of company required for it to survive.

STRATEGIC DIRECTION
Strategic direction is a procedure leading to the goals set in a firms strategy being achieved.

BCG MATRIX (Boston Consulting Group Matrix)

The BCG Matrix model bases its theory on the life cycle of products. It enables to have an understanding of the opportunities and the correct direction to distribute resources in order to maximise profit in the organisation Analysed BCG Matrix for Ryanair:

STRATEGIC CLOCK
Bowmans Strategic clock is based on the work of Cliff Bowman. The strategy enables the organization to study its competitive position when comparing it to competitors ways of competitive positioning.

* Bowmans Strategy Clock taken from http://www.mindtools.com/pages/article/newSTR_93.htm

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Ryanairs low fare and no frills strategy is its key to success placing it at Point 1 on the Strategic Clock. The airline company ensures lowest ticket prices by keeping other costs as low as possible. More baggage allowance should be considered and Ryanair could possibly provide basic in-flight frills like Easyjet to refrain customers from switching over. With Easyjet being its competitors, Ryanair could be at risk to losing market value.

CRITICAL SUCCESS FACTORS:

In this high competitive industry, Ryanair and its management still maintain sustainability without even having to add sub-fuel charges to its customers. The following points are the main factors for Ryanairs success

Low fares: Ryanairs low fare policy attracts low bargaining customers. They use a method of advanced booking to attract customers. The farther away from date of departure the cheaper the flight fares are. This is the method in which Ryanair fix their ticket prices.

Low operating cost: The management of Ryanair keep operating cost as low as possible. The company operates on a single aircraft type which is Boeing 737-800s. This helps them to reduce the maintenance cost and also the training cost given to its employees.

Customer service: Ryanair maintain the policy of a good relation with its customers. Their success is attributed to a better punctuality in flight timings, fewer baggage losses and fewer flight cancellations..

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Frequent Point-to-Point Flights on Short-Haul Routes: Ryanairs frequent short distance flights help them offer low cost flights and therefore avoid in-flight superfluous services.

PARTIAL SWOT (Strength and Weakness)

Strength: The major strength Ryanair has over its competitors are its brand name and low fare policy. Ryanair uses the same air craft from Boeing 737-800. By doing this the company is able to reduce the fuel expenses and maintenance expenses. The online check-ins introduced by Ryanair also helps to reduce the queues at the airport which inconveniences its customers. Weakness: The lack of health customer and employee relation is Ryanairs major weak point. Ryan also allows only lesser baggage allowance than the other airlines. This also creates customer dissatisfaction.

OPERATING ANALYSIS Ryanair has its strategies well laid out to execute the business successfully. Since Ryanair fall under the low fare airline industry, they seek to provide low fares which will result in the increase in number of customers. It also focuses mainly on containing costs and operating efficiencies. Some of the long-term strategies adopted by Ryanair are listed below. It is also very necessary to know the results of the strategies adopted by the company. Reduced Fares: The prime focus of Ryanair is to increase the number of customers by reducing its fares. Ryanair eliminates the minimum stay requirement by selling seats on one way basis. Ryanair generally sets its price depending upon the demand of the flights. It also considers the time when the ticket is booked. If the ticket is booked nearer to the departure date, they will increase the price of the ticket. Customer Satisfaction: Even though there are no frills attached to the journey, Ryanair make sure that they try to deliver the best customer service among its peers. As per the data published by Association of European Airlines (AEA), Ryanair has improved its punctuality; there have been less number of cancelations, less number of lost bags. Ryanair has also successfully reduced the percentage of delay flights with their new and improved strategy.
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Point to Point Flights: Ryanair also facilitates point to point service to secondary and regional airports on short haul routes. With the introduction of this strategy Ryanair flew average flight duration of 1.69 hours and an average of 727 miles. This also eliminated the need to provide unnecessary frills Reducing Operating Costs: Ryanair aims to reduce its operating costs by controlling its primary expenses such as aircraft equipment costs, employee costs, customer service costs and the cost required for accessing various airports. The development of Ryanairs own internet booking facility has allowed them to eliminate commission and the third party costs. 99% of Ryanairs revenue is generated through direct sales as of now Improving the safety: The management of Ryanair consider safety of the crew and passengers as their primary priority. As per the report published by Ryanair, (2011) they have not ever had a single passenger or flight crew fatality due to accidents in its operating history. Enhancing operating results through Ancillary services: Ryanair has various contracts with agencies for hotel reservations, providing rental houses, camping etc. They have also contracts for car rental services and they also sell bus and rail tickets as well. These ancillary services accounted for nearly 22% of Ryanairs total operating income in both 2010 and 2011 (Presentation of financial and certain other information, 2011) Effective implementation of these strategies resulted in an increase of profit for the company. According to the financial report published by Ryanair, the profit after tax increased from 93.7 million in 2010 to 139.3 million in 2011. The operating profit of the company increased to 169.9 million in the recently completed quarter in 2011 from 121.1 in first quarter. There was an increase in operating costs by around 200 million mainly because of the increase in fuel prices by 49%. The companys cash and cash equivalent also increased to 3213.8 million as at June 2011 from 3072.8 which was recorded in June 2010

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FINANCIAL ANALYSIS

Consolidated Statement*
Year ended March 31, 2011 M Profit (loss) of the year Other comprehensive income: 374.6 Year ended March 31, 2010 M 305.3 Year ended March 31, 2009 M (162.2)

Net actuarial gain (loss) from retirement benefit plans. Cash-flow hedge reserve effective portion of fair value changes to derivatives: Effective portion of changes in fair value of cash flow hedges......................................................... Net change in fair value of property, plant and equipment.......................................................... Net change in fair value of cash-flow hedges transferred to profit or loss................................ Net movement in cash-flow hedge reserve

5.0

(7.5)

227.1

129.8

256.8

(15.2)

(16.7)

(1.0)

(14.8) 197.1

(50.8) 62.3

(115.6) 140.2

Available for sale financial asset: Net (decrease)/increase in fair value of asset sale Impairment of available for sale asset written of
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(2.2)

23.0

(222.5)

income statement......................................... Net movements in available for sale financial asset reserve................................................................ Total other comprehensive income of the year

_ (2.2)

13.5 36.5

222.5 -

199.9

98.8

132.7

Total comprehensive income/(loss) for the year- all 574.5 attributable to equity holders of parent
*Retrieved from 20 F statement released by Ryanair, www.ryanair.com

404.1

(36.5)

Ryanair recorded a profit on ordinary activities after taxation of 374.6 million in the 2011 fiscal year, as compared with a profit of 305.3 million in the 2010 fiscal year. This profit was primarily attributable to an increase in revenues driven by a 12.3% increase in average fares and a 20.8% increase in ancillary revenues, partially offset by a 37.3% increase in fuel and oil costs from 893.9 million to 1,227.0 million. Ryanairs scheduled passenger revenues increased 21.6%, from 2,324.5 million in the 2010 fiscal year, to 2,827.9 million in the 2011 fiscal year, primarily reflecting an increase of 12.3% in average fares. The number of passengers booked increased 8.4%, from 66.5 million to 72.1 million, reflecting increased scheduled passenger volumes on existing passenger routes and the successful launch of new bases at Barcelona (El Prat), Gran Canaria, Kaunas, Lanzarote, Malta, Seville, Tenerife and Valencia in the 2011 fiscal year. There was a one-percentage-point increase in booked passenger load factors from 82% in the 2010 fiscal year to 83% in the 2011 fiscal year. Passenger capacity during the 2011 fiscal year increased by 18.5% due to the addition of 40 Boeing 737-800 aircraft (net of disposals), as well as a 7.8% increase in sectors flown and a 9.9% increase in the average length of passenger haul. Scheduled passenger revenues accounted for 77.9% of Ryanairs total revenues for the 2011 fiscal year, compared with 77.8% of total revenues in the 2010 fiscal year.

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REFERENCE LIST
Advito, 2011, Industry Forecast Index http://www.bcdtravel.com [Accessed on 15 Nov 2010] Johnson, G., Schocles, K. and Whittington, R. (2009) Fundamentals of Strategy .England: Pearson Education Limited [Accessed on 20 Nov 2010] Ryanair,(2011a) About us [online] [Available from] http://www.ryanair.com/en/about[Accessed on 04 Nov 2011] Wembridge, G.P. and Plimmer, M. (2011) Rising fuel prices clips Ryanairs wings [online][Available from] http://www.ft.com/cms/s/0/5549021a-b693-11e0-ae1f-00144feabdc0.html#axzz1cf3Nd3bv [Accessed on 04 Nov 2011]

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