Budgeted Airlines In The Airline Industry Management Essay

Budgeted Airlines In The Airline Industry Management Essay This report in-depth analyzes the European airline Industry and reports the challenges the budgeted airline faces in the industry and especially for Ryanair. Here it shows how structure, system, leadership, culture environment focus in order to see Ryanairs position and growth in the low cost market. It clearly states the Ryanairs current strategy and identifying its long term strategy. The Business Plan ranges from an industry analysis to an internal financial capability. An integrate understanding of the functioning of the company in terms of human and technical operations, leadership, customer relationship and financial structure. This material critically analyses the internal functioning to create viable strategic positioning and discus any approach changes of Ryanair for its improved sustainability. It refers its capability, structure, system, leadership, culture, people and environment in the low cost European market. The analysis has been done by using some major theories such as 7s matrix, balance score card, double loop learning of Ryanair, ansoff matrix and culture web. Accordingly, this material primarily analyses the current business strategies of Ryanair to understand the nature of their operations. Subsequently, conducts a PESTEL analysis, Porters five forces and value chain analysis to understand the environment of Ryanair, drivers of profit in the industry at present and the future and financial analysis. In addition to balance score card analysis also has been done to understand finance situation in the context of Ryanair and to evaluate its performance. Finally, this report will recommend the recommendations where its applicable. The analysis of this report was complete with the support of the case information provided and through industry related information from academic books, journals, websites and other publicly available secondary data sources. Introduction Ryanair is an Irish airline started its operation in 1985 competing in European budgeted airline industry in the recent years. Ryanair is one of the most profitable and key players in the European budgeted airline market. (Refer Appendix 1) Low cost business model was intruded by the US biased southwest in early 1070s. In 1992 Ryanair was the first to introduce low-cost business model in European market. Easyjet is the main low-cost business model competitor for Ryanair in European market, The reduction of the cost is the center point for low-cost business model. Some of the innovative choice made by Ryanair to maintain low-cost, no-frills service are eliminating traditional in-flight catering and by that reducing labour-related cost, use of on-line booking system, connecting point to point network using secondary airport, comfortable but not spacious seats by that increasing seating capacity, use of similar fleets. This report carries out detail study of Ryanait by analyzing Ryanairs current strategy and the management of the strategy. It recognizes how the business functions and operations are affecting the customer and leadership with their overall strategy. Critical success factor of Ryanair Currently Ryanair is facing lot if problems especially in cost strategy but it overcome from these problems by adding new strategies and grow up in market place. It uses different strategies to have Ryanair alive and to competitive with competitors. It gets a positive competitive advantage from competitors. Ryanair become the first largest low cost airline industry in Europe. Recently Ryanair is awarded for punctuality. It keep up times when flies through countries. Ryanair adopt new strategies to grow in market place and use tactics to keep low cost for flying and remain to get profits. Ryan airs goal is to meet the need of travelling places in low cost. Critical success factor are low cost, customer satisfaction with pricing, reliable and comfort service for customers. Ryanairs main critical success factor is to provide low cost. For that it eliminates in flight services. Seats adjustment and drinks but for their target market they prefer on time facilities, frequent departure and seat reservation. Low cost carrier business model The Low cost airline concept first was used in America by Pacific Southwest Airline in 1949. Southwest is now grown to become one of the largest profitable airlines in the United States. European history low cost airline model started in late 1990s. Low cost airline business model could be defined by the following three key elements. (Refer Appendix 2) Simple product: No in-flight catering and catering on request with extra payment. Plane with beiger capacity with narrow seat. Only single class without any seat allocation. Positioning: Price-conscious business passengers. High frequency point-to-point traffic using secondary airport. Aggressive marketing and competition with all transport carriers (Refer Assignment 1 appendix 6, p.25 and Appendix 10, p. 29) Low operating cost: Uniform fleet low maintenance cost, reduced crews training cost, low airport fees. Low wages, high usage of recourses and productivity, simple boarding process reduces ground waiting, high percentage of internet advance reservation, reduced clearing time and no hub service. Ryanairs current strategy Ryanair is an Irish airline competing in the low cost European airline industry. They are the most profitable and key players in the market. Ryanairs main objective to establish leading low-fare schedule passenger airline in the European market through continued improvements and expanded efficient low cost service. Low fare: Ryanairs low price policy increases price-conscious leisure and business travelers otherwise they would have used other mode of transport such as train, couch and cars. Ryanair sell one way air ticket for the schedule service by eliminating minimum stay requirement. Customer satisfaction: Ryanair achieved grater customer satisfaction by reduced cancellation and few lost baggage compare to other airlines. Achieve better punctuality by using less congested secondary airport. Regular point-to-point flights on short-haul routs: Ryanair provides regular point-to-point flights on short-haul routes around major populated centers by connecting secondary airport. This benefited higher rate of on time departure and faster turn around tine. Point-to-point non stop flying benefited Ryanair by way of cost of providing service for connecting passengers, baggage transfer and cost associated with transit passenger. Market segment: Early entrance in France, Italy, Scandinavian low cost airline market creates more profit brand recognition in the Europe budgeted airline industry. The success of the company is being able to attract more passengers at the both ends of their routes. This creates a name for Ryanair stating that Europe first number one no frills airline. Ryanair identify it maket growth through ansoff matrix (Refer Appendix 10) Competitive advantage: The main competitors for Ryanair in the low cost market are carriers including easyJet, FlyBe and ThomsonFly. All they try to attract potential customers by lowering the ticket price. In early stage favorable relationship with airport operators helped Ryanairs aggressive pricing until EU commission ruling in 2004 (Refer. Assignment 1, Appendix 11, and page number 30). Dispute with EU commission gives free publicity across the Europe continent. (Refer Appendix 7) Business functioning: Internal resources of the business and its functioning are extremely important for the business to prosper. Ryanairs important function and how this will affect business decision explained in SWOT analysis (Refer Appendix 15, Assignment 1- Appendix 9.p 28) Employees and Technical operations. Human resources are one of the most important functions in an organization. Ryanair keep their staff more happy and motivated. This they do by introducing incentive scheme for all operational employees and share option scheme which allow employees to participate for the success of overall company. Customer relation. Ryanair continues to offer no frills low fare service to keep the ticket rate at minimum level. Also Ryanair uses regional airports instead of national airport in order to keep the ticket price at lowest level and helped them for their punctuality due to less congested in the airport. Customers are looking for cheapest way of travelling; hence any bad publicity does not affect sales figures. Profitability. Ryanair have consistently year by year increased its profitability with customer satisfaction by keeping low cost ticket pricing and comfort service to the customers. Ryanair announced profitability despite bad year for airline industry such as gulf war and an outbreak of SARS. (Refer Appendix 6) financial statement published in Ryanairs annual report and also profit in euro for the period 2005 2008 and projection for 2009, passenger numbers and average fare for 2007 Less operating costs: Ryanairs operating cost is the lowest compare to other European airlines. It control major schedule airline operating cost such as aircraft equipment cost, personal productivity cost, customer service cost and airport handling and access cost Aircraft equipment cost Ryanairs aircraft acquisition strategy is to purchase single type aircraft. In 1998 Ryanair has taken a decision to purchase Boeings latest generation aircraft Boeing 737-800 replacing Boeing 737-200A and starts to use from 2005 onwards. Purchase of aircraft from single manufacture benefited Ryanairs barraging power for the new aircraft and cost advantages from personal training, maintenance and purchase and storage of spare parts. Also it has greater flexibility in terms of scheduling crews and equipment. Personal productivity Ryanair control their labor cost by continuously increasing its productivity with highly competitive work force. Ryanair pay productive-based incentives for employees including flight attendants for in-flight product sales and payments based on number of sectors and ours flown by pilots and cabin crews with limit of industry standard of maximum number of hours. Ryanair average salary per employee is high compare to its competitor easyjet, Lufthansa, British airways, Lberia and Acer Lingus. Customer service cost Ryanair has entered into competitive log term third party agreement for certain airport passenger, aircraft handling and ticketing and other services. Approximately 96% of the ticket sales through Ryanairs website and telephone and by this eliminating travel agent commission cost. Airport access charges Ryanairs constantly high volume of passenger traffic many of the airports benefit them to favorable contracts with those airport for access their facilities. Booking Advantage on internet The Ryanairs internet booking system Skylight reservation system allows internet users to access Ryanair host reservation system to make a reservation and to pay the confirmed reservation in real time. The company advertises heavily about reservation system though newspaper, radio and television As a result 94% of the reservation comes through the companys reservation system. Safety and quality maintenance Ryanairs management fully committed for the safety and quality maintenance to the aircrafts. The company operates latest Boeing 737-800 with additional safety features inbuilt in it. Also the company committed to hire and training pilots, cabin crews and maintenance staffs in accordance with highest European airline industry standards. In past 24 years Ryanairs operating history, it does not had any major incident injuring pilots or cabin crews or passengers. Although Ryanair aggressively practice low cost model, it gives high importance for the aircraft safety, maintenance, training and quality assurance. Increasing operating results through ancillary services Ryanair provides various ancillary passenger services connected to its main air passenger service such as in-flight sale of food, beverage and merchandise and also it provides through telephone reservation officers and Ryanairs internet system accommodation service, travel insurance and car rentals. Ryanairs corporate strategy The Ryanairs corporate strategy (Appendix 3) has been defined much advance and its main objective developed before it commence. Emerge of Ryanairs corporate strategy is the final objective is developed during the course its life. Ryanairs business visor, mission, main objective please. (Refer Assignment 1, Appendix 1 and p. 16-17) Ryanairs business strategy Ryanairs business strategy is to offer very competitive affordable fare for the airline users to reach their destination in the European market. Ryanairs long term marketing plane and its position: Ryanairs long term marketing plans please refer Appendix 2 and its position please refer (Assignment 1 and p. 8 Appendix 6.p 25) Porters competitive strategy model for low cost carrier Porters (1980) competitive strategy model (Appendix 5) describes that there are three types of strategies are used by business for their long term survival. They are cost leadership, differentiation strategy, and market share and market segmentation strategy. These strategies are measured along with business strategic scope and strategic strength. Stuck in the middle OVERROLL LOW COST LEADERSHIP FOCUSSED DIFFERENTIATION COST FOCUS BROAD DIFFERENTIATION Differentiation Narrow Market Cost Low cost Broad Ryanairs business strategic scope Ryanairs business strategic scope is to become number one low cost airline in the European market for cost conscious business and leisure travelers. Ryanairs business strategic scope Ryanairs business strategic scope is to become number one low cost airline in the European market for cost conscious business and leisure travelers. Ryanairs business strategic strength. Ryanair was first Europe discount airline capitalized by the EU decision to deregulate the airline industry stating that any European airline can operate anywhere in the Europe Its aggressive pricing and grater customer satisfaction for the punctuality, reduced cancellation and few lost baggage compare to other airline. In 2005 it became market leader in the low cost airline market. Cost leadership Use of secondary airport: Ryanair did not fly to the major hub airport bur instead it uses secondary airport some distance away from the main airport for low airport access charges. Rapid turnaround: Ryanair maximize use of aircraft by turning around the aircraft within 25 minutes Point-to-point routing: Ryanair fly point-to-point and it avoid cost connected with passenger and baggage transfer Boeing aircraft: Single aircraft family the being 737. It palace big being aircraft order just after September 11 2001 benefiting purchases price advantage. Aviation fuel: Major portion of fuel porches hedged hence increase in fuel price not affected to the company. In-flight service: No free in-flight service such as free drink or snacks. No refund for no-shows. Staffs and overhead: Ryanair staffs are non-union and pilots and cabin crews get low salary but compensated with other benefits. Differentiation strategy: Ryanairs operation provided several positive features for the passengers towards its punctuality, reduced cancellation, few lost baggage compare with other carriers. Passengers always were assured to reach their designation on time with their baggage. Many other revenue generating service such as travel insurance, car hire, couch and train ticket. Market share and market segmentation strategy: Ryanair has taken grater market share in the low cost airline business in the European continent and it became market leader in that sector. (Ryanairs route map in Europe Refer appendix 8) Organizational Structure DIRECTOR Paolo Pietrogrnde CHAIRMAN OF THE BOARD David Bonder man DIRECTOR James Osborne DIRECTOR Klaus Kirchberger DIRECTOR Michael Horgan DIRECTOR Emmanuel Faber DIRECTOR Kyran McLaughlin FLIGHT OPERATIONS David O Brien COMMERCIAL REVENUE SF HUMAN RESOURCE EW PILOT RC ENGINEERING Michael Hickey CUSTOMER SERVICE Caroline Green LEGAL SECURITY JK COO Michael Cawley CFO Howard Millar CEO (Source www.ryanair.com, last update February 14th 2010) This diagram shows the organizational structure for Ryanair. The airline is operated with the name of Ryanair Ltd. Subsidiary for this Darley Investment Ltd. In this organization all international dealing are done by Ryanair.com. Nature of this business is aircraft trading. These boards of directors are responsible for the strategic view and functions which are in Ryanair Ltd. Chairman is Michael OLeary and other directors responsible other activities such as audit, executive, remuneration, nomination and the air safety committee. Leadership. Ryanair fight for its survival in early 1990s. In 1992 Ryanair introduced low cost no frills business model in Europe market under the leadership of Mr. Michael O Leary. Despite huge success Mr. Michael O Leary has come under both praise and criticism about his leadership and management style. Financial Times Magazine Mr. Tim Jeans argue that Mr. Michael O Leary genius in his ability motivate people with single-handedly transforming European air transport. Mr. O Leary leader ship style doses not fit rigidly into one style. His characteristic highly task oriented controlling cost, aircraft acquisition, and rout development. Also at the same time he is highly people oriented both with customers and people. His outspokenness has made him to expose into public-eye. EU commissioner for Belgium describes him in the Financial Times as irritating and arrogant Creaton (2004). But former and present staffs prized his leadership style in an interview with Financial Times Magazine. (Refer Append ix 4) There are three main characteristic of leaders in an organization Finley (2000). They are Leader should have strong held vision Mr. Michael O Leary took the leadership of Ryanair with very clear vision to the model the carrier on Southwest Airline and to create low fare no frills carrier in Europe. Leader should be able to communicate the vision External communication concern Ryanair was well recognizing one of the first budgeted airline in Europe. Internal communication concern he motivated and created incredible energy among the people to achieve the desired objective. Leader should be able to convert the vision into reality. Certainly the vision has turned into reality Ryanair grown and created a record profit low cost no frills airline in the European market. Culture The culture web describes the paradigm of an organization and physical manifestations of an organizational culture. (Johnson and schools, exploring corporate strategy, p.230) culture basically explained the organizational behaviors. Culture will include stories, symbols, system, structure, routines and rituals. (Refer appendix 11) Ryanairs pricing strategy Ryanairs cost leadership is the backbone for its lower piecing strategy. Ryanair is the lowest cost in Europe and its 40% low compare to closet competitor in Europe. (Refer Appendix 6) Implementation of gap Strategic implementation is complex and time consuming but success of an organization lies on this stage. However good the business or corporate strategy is, it is off little value unless implemented (Hubbard R.C, 2008, pg 349). Therefore, during this phase, strategy makers should consider the question of who implements that strategy, what must be done and how the strategy is implemented (Fletcher, 2001, p.2). Hence, 7S framework has been applied to Ryanair to identify gaps the issues that should be addressed during implementation phase (Refer appendix diagram 9) Recommendation Ryanair continues to attract customers with heavy advertisement stating that they are not going to charge furl surcharge with the aim to keep the fare low. Davey (2006) states that the figures release by the Ryanair shows that its low cost formula is continue to work. Ryanair in order to increase the business travelers who needs punctuality, the carrier reduce the turnaround time from 30 minutes to 25 minutes by dropping there cargo service even they new that they are going to lose à ¢Ã¢â‚¬Å¡Ã‚ ¬ 500,000 per year However budgeted airlines continues to enjoy its boom with low cost and opening new routes in the European market. If there is drop in demand Ryanair would certainly suffer and they might have to change their strategy by offering drink vouchers and making alliances with hotel groups in order to offer complete package and attract more people to its carrier. Also Ryanair should pay attention technology changes happening such as on line check in and would able them to cut their cost. Ryanairs innovating action creates future sustainability. In future if they found new routes reach places quick it will bring more tradition of getting more passengers for Ryanair. Ryanair for low cost uses secondary airport it will cause inconvenient for some customers to reach their place so they have to consider this point to get a solution for customers to reach their place easier. Conclusion Overall RYANAIR is in good position when compared to other players. The strategies implemented seem to be more effective since they have helped to match RYANAIR with its external environment. The adoptability flexibility of RYANAIR to the environmental changes have contributed to the success of RYANAIR. Ryanair seems to be using their strategy sensibly which work for them. They aware the environment and understand the importance of monitoring and they are the first to come into low-cost market in Europe. However they constantly monitor the environment and any change they should be ready to change their strategy. The flexibility adoptability to environmental changes was possible especially because of the value adding factors RYANAIR has focused. The value chain of RYANAIR has been designed to deliver the low cost concept by emphasizing only in value adding activities and by eliminating non value adding activities such as eliminating catering. In my point of view I believe RYANAIR was successful in managing the strategic management process by matching itself to its external environment. However, it does not have a major market share as the leader though it has beaten the market leader in many areas. Therefore, I suggest following recommendations for RYANAIR to achieve its potential improve its market share. References Cavendish, Camilla, A policy that pretends we can all fly on the cheap is a policy that wont fly, The Times, 5 January 2006 Doganis, R., 2001, The Airlines Business in the Twenty-first Century, Routledge, London Fletcher J (2003) .Strategic management Study guide and plan Edith Cowan University Perth Australia Hubbard, G. Rice, J. Beamish, P. [2008] Strategic management Thinking analysis action 3rd edition Pearson education Australia Lynch, Richard (2000), Corporate Strategy 2nd Ed. Pearson Education Ltd, ISBN 0- 273-64303-7 Miller A, (1998), Strategic Management, McGraw Hill, 3rd Edition. New York. Study Guide: Strategic Management Ryanair industry details retrieved on the 21st may 2010 from www.ryanair.com Viljoen, J. Dann, S. 4th edition (2003). Strategic Management, Frenchs Forest, New South Wales: Pearson Education Pty Ltd. Appendix Appendix 1 Ryanairs Introduction Ryanair started its operation in 1985. In the first year more than 5,000 passengers traveled between South Eastern Ireland and London. The company expanded continuously and 600, 000 passengers traveled per year in 14 aircrafts by 1989.Past four years the cost increased substantially and ends up with loss of  £20 million. In 1990 the current CEO Mr. Michael OLeary took over the management and conducted major changes in the company. Ryanair followed the low cost-low frills concept and reduces the routes from 19 to 5 by 1991. The company increased the fleet to 21 over the next 6 years and remarkable increase in passenger traveled in Ryanair due to its low pricing policy. European regulation restricted Ryanair to take advantage to implement low pricing policy. Ryanair took full advantage in 1997 open new routes in Continental Europe due to deregulation of European Union air transportation regulation. Ryanair established 160 routes by 2001 and hubs established around the continent in London, Glasgow, Brussels, Frankfort, Milan, Now Ryanair is the most profitable and key players in the European budget airline market. Appendix 2 Low cost carrier business model (Source MERCER management consulting 2002) Appendix 3 COPORATE STRETEGY. Corporate Parenting Parenting strategy Portfolio Analysis BCG Matrix Directional Strategy Growth Stability Retrenchment Corporate strategy basically explains about the direction of the firm. It go through in three ways. They are as follows: Directional strategy This strategy includes three points which are growth, stability and retrenchment. Growth explains expansion and growth of the company. Here we are going to look at the growth perspective of Ryanair. Stability explains ryanairs did not change its current activities. Retrenchment explains strategies reduce the companys level of activities. Portfolio Ill explain about the BCG Matrix. BCG Matrix is a best analysis part to analyzing and managing the performance of a business unit within the organization. It developed to identify the growth rate of an industry by classifying its business unit. This BCG matrix relies on lifecycle and experience curve Relative market Share Low High DOGS CASH COWS PROBLEM CHILDREN STARS Industry Growth Rate% High Low This BCG Matrix growth strategy explains the growth of the company. If we looked at this case study Ryanair is in stars position that means high industry growth rate and having high relative market share. COPORATE LEVEL Low High Cost reduce Need for local responsiveness High Low Global strategy Export strategy Multi domestic strategy Transactional strategy Ryanair is moving from export strategy to transactional strategy. Export strategy which explains products are standard but can varied, market is usually main market, operation location done in home market, and strategy control is done by home. Here coordination level and local responsiveness is low. Transactional strategy explains the product are same as export strategy, market means all markets, operation location done in two way organizational structure, strategy control varies with a product are within global framework and coordination level as well as local responsive level is high. Ryanair moves from export strategy to transactional strategy to adopt more strategies to survive in the world. Ryanair evaluate on No Frills segment, low fare cost leadership, ancillary revenue into focus differentiation and adopting transactional strategy and no fares relationship. Appendix 4 Leadership vs. Management Leadership and management are two terms used to define a group behavior in a professional setting. Leadership and management are inter-connected and inter-dependent concepts. Leadership Management Setting up new goals, vision or planning a new strategy Contorting the organizing to achieve realistic goals and objectives Managing the group properly Help the leaders to achieve the goals on collective vision of the group Seeks effectiveness do the right thing Seeks efficiency do things right Provides direction to the group Enforces control Thrives on opportunity Lives for the job well done Make people go down in history as great men to inspire generations. Only behavioral aspects that alter with environment and requirements Leaders are made, not born According to Great Man theory, Leaders are born and not made. In my point of view leader are made and some or all of the following helps them to become a great leader, their background, education, knowledge and experience, and their career path. If we further explain leadership as anyone in a position whose success requires the support of others can play the role of a leader. Leaders have ability to discuss, communicate, influence, and control others to do things is absolutely indispensable to everything you achieve in life. Of course, everyone you meet has different values, opinions, attitudes, beliefs, cultural values, work habits, goals, ambitions, and dreams. Successful leader should have leadership traits. When you become capable in your job or skill, then you become skillful at understanding the motivations and behaviors of other people. Michael OLeary deeply believes leaders are made not born. Mr. Herb Kelleher is the one born with leadership quality the founder of original budgeted airline, Southwest Airline in the United States Mr. Michael OLeary is made leader who flowed budgeted Southwest Airline model in the European market Leadership Skills Getting and giving information Getting and giving information is probably number one competency required from leaders. Leaders should be communicating effectively and must be able to exchange information effectively and accurately. In Ryanair Michael OLeary is the leader who gives decision to others to do. He has the charismatic power to control all its staff and work under him. Understanding the needs and characteristics of the Group As the group plans and carries out activities, Michael OLeary learns more about the individuals needs and characteristics. Knowing and understanding the resources of the Group Knowing group peoples skills, attitudes, backgrounds and experience and to use an effective technique for bring a group together and creating commitment to common goals. Controlling the Group A group exists for a purpose. As a leader exerts control, he needs to balances to get the jo