Strategic Management in a Global Context - Case Study Example

STRATEGIC MANAGEMENT IN A GLOBAL CONTEXT Contents page 1.0 Introduction 1 2.0 Ryan Air’s External Environment 2 2.3 Strategic Group Analysis 5 3.0 Opportunities and Threats 5 3.1 Opportunities 5 3.2 Threats 6 3.3 Implications of Threats and Opportunities for the Company’s Future Strategy 7 Appendix 8 Appendix 1- PEST Analysis 9 Appendix 2- Five Forces Analysis 10 Appendix 3- Opportunities and Threats 11 References 12 Strategic Management in a Global Context 1.0 Introduction Ryan Air is a low-fare airline, which was founded in 1985 to provide airline services between UK and Ireland as an option to Aer Lingus, which was a monopoly carrier. This essay will assess the external environment of Ryan Air through the identification of threats and opportunities that the company faces. Moreover, the essay will highlight the strategies the company needs to embark on with regard to the external environment. In addition, the assessment of the implications of the analysis will be used to come up with strategic recommendations vital for the future development of the company (Hoffmann, 2007). 2.0 Ryan Air’s External Environment The external environment surrounding the operations of Ryan Air consists of social political, economic and technological factors. PEST analysis will be used to analyze the external environment surrounding Ryan Air through the identification of key drivers of change. The porter’s five-force analysis will also be used to analyze the external environment at Ryan Air. The strategic group analysis will also be of major use in the analysis of the external environment surrounding Ryan Air’s operations (Hoffmann 2007). 2.1 PEST Analysis 2.1.1 Political The political stability in Europe has ensured that Ryan air is able to undertake its major operations smoothly. Through the expansion of the European Union, Ryan Air has been offered a large market for expansion of its activities. Moreover, the liberalization movements in Europe, which aimed at ending monopoly and reducing the prices of airlines to more competitive ones, have ensured that Ryan Air has undertaken its activities smoothly. The legislation of the European Union, the local airports and the Olympic airlines, has played a role in facilitating the growth of Ryan Air (Gugenheimer 2006). The political environment in which Ryan Air undertakes its operations is a source of advantage for Ryan Air. Given that majority of the company’s operations are based in Europe, the stable nature of political situation in Europe ensures that the company’s operations are not impeded. Moreover, the political stability in this region has ensured that flight destinations and passenger volumes are not affected (Gugenheimer 2006). 2.1.2 Economical Through an improvement in the growth rate of the European Union, unemployment rate have been lowered which has enabled customers to spend heavily due to job security and increase in the disposable income. However, the growth of the economy has had a major effect on the market of airlines that are low-priced. In case the customers of Ryan Air and other airlines are determined at spending more money, then the convenience and quality of services will be preferred to the price. In such a scene, airlines that offer low prices have inferior services in the flight market. The successful maintenance of the company’s operations indicates that the economic environment has a high degree of stability. Moreover, the stable economic environment ensures that the financial undertakings of the European nations are stable. Most of the European consumers are economically stable and Ryan Air operations are not affected by small changes in economic or governmental changes (Boesch 2007). 2.1.3 Social The transport market in Europe consists of speedy trains, which are a threat to the airline industry. In Europe, the travelling lifestyle has increased and businesses have made it necessary for individuals to rely on airlines for safe and fast transport. Moreover, few people are worrying about expenses to be incurred in the airlines. The business strategies at Ryan Air are greatly, influenced by the social environment. The social environment is characterized by varying consumer demographics and consumer preferences that fluctuate uncontrollably (Creaton 2004). According to Hägele (2006), consumer behavior has become difficult to predict given that modern consumers are shifting loyalties from one airline to another owing to differences in prices or a lack of consistency on the part of the consumers. Since majority of Ryan Air’s revenues come from the revenues that are generated by the customers, the airline needs to understand the markets that it intends to venture in so that it can utilize the methods that will ensure high returns and cater for the needs of a consumer audience that is diverse. Moreover, the increase in competition between the carriers that offer lower fares is making the consumer make decisions on the appropriate carrier of choice for European destinations. 2.1.4 Technological In terms of technology, technological advancements and the overwhelming increase in the use of the internet have made it possible for Ryan Air and its customer to enjoy smooth business. Ryan Air’s distribution costs have been reduced with its customers being able to compare prices and use their preferences to make decisions. The technological environment surrounding Ryan Air does not have an impact on the company’s operations since the Airline is in a position to sustain the purchase of jets so as to remain in the competition. Moreover, Software programs for supply chains and other software applications that are integrated enable Ryan Air to streamline its labor functions as well as improve the efficiency of its internal organizations (Kahawatte 2010). 2.2 Porters’ Five Forces The porters’ five forces model can be used to assess the attractiveness of the industry in which Ryan Air operates. The threats of substitutes for Ryan air are medium. The substitutes that are threatening operations of Ryan air are land travel with speedy trains canvassing major parts of Europe. Indirect substitutes are also a source of threat with video conferencing being a major threat that may reduce the need for the use of air travel. The bargaining power of the buyers is high. This is because air travel that is of low budget has become an important commodity in which the carriers are many. Buyers are conversant of the prices and are able to know about the deals through the internet and mediums, which have emerged with the advent of technology (Creaton 2004). The Bargaining power of suppliers is low since Ryan Air is a large-scale company that holds power in order to change its suppliers and demand terms that are necessary for cutting costs. At Ryan Air, the threat of new entrants is low since in order for new airlines to enter the travel industry, special licences and capital investments that are high are necessary. The existing rivalry with Ryan Air is high since Ryan Air competes against carriers that are national. Moreover, carriers of low budget are major rivals as they are competing for the market share (Dhalla, n.d.). 2.3 Strategic Group Analysis Strategic group analysis identifies several companies that Ryan Air has to compete with. These companies offer similar services with Ryan Air. Ryan Air has to compete with EasyJet and Air Lingus at a very close level and also competes with the British Airways and national carriers throughout its region of operations. Moreover, there is the existence of airlines of smaller budgets that are based in Europe. These airlines are Hapag Lloyd Express, Germanwings and FlyBEBudget among others. The aforementioned airlines pose serious competition in the routes that they compete (Malighetti, Paleari, & Redondi, 2009). 3.0 Opportunities and Threats 3.1 Opportunities The global recession has enabled Ryan Air and other carriers that provide low fares to attain operation conditions that are perfect. This is because the recession encouraged airline passengers to become price sensitive, which made them switch to Ryan Air due to low fares and better customer services that the company offers as opposed to its competitors. In the light of this, the company is embarking on a strategy of reducing the fares to around 32 Euros per passenger. This move will be highly beneficial since its rivals cannot be able to withstand a price reduction of such a magnitude. Moreover, Ryan Air is set to benefit by garnering handsome profits (CAPA Centre for Aviation 2009). Ryan Air has another opportunity in buying cheap aircraft. This is because the company is determined to reach its target of 200-300 aircraft by 2016. To achieve this, the management of the company scheduled talks with Boeing. Ryan Air is in the need of extra aircraft in order to cater for the needs of increasing customers. The company can embark on initiating more routes from Ireland and U.K. to other destinations in Europe, which are currently being served by carriers that charge high fares. Moreover, Ryan Air can initiate domestic routes within Europe, which can enable the company to simplify its operations. By increasing the frequency of service on the routes it currently offers its services, the company can achieve tremendous growth (CAPA Centre for Aviation, 2009). Ryan Air has a major opportunity of expanding its operations by considering acquisitions with companies such as Lufthansa. By connecting the airports that exists within its network of routes, the company will achieve a competitive advantage. Moreover, the company has an opportunity in the exploitation of destinations that are profitable in terms of business and tourists. Other opportunities are decreasing in regulations, decreasing competition, increase in revenues from ancillary services, employee loyalty and innovative marketing, which will achieve differentiation (Mennen, 2010). 3.2 Threats The major threats that Ryan Air is facing are changes in consumer preferences, market uncertainty and competition. These factors are among the major impediments to the strategies that are adopted by Ryan Air. Regarding competition, Ryan Air is witnessing the emergence of carriers, which are of low-cost in the European market. Competition was responsible for the erosion of consumer patronage and sales volume in 2004. Although small competitors are unable to assume a position that is strategic in the marketplace and end up being swallowed by larger airlines, their presence leads to the erosion of service destinations (Kahawatte 2010). Ryan Air is facing a major threat in the market of Northern Europe, which is highly limited. The limited nature of this market leads to occupancy levels that are low and inefficiency in the use of planes. The tough competition that the company is experiencing from charter airlines and traditional airlines in Europe is another threat that is a major source of concern. This is because these airlines offer cheap holiday packages that are hard to beat. Currently, the company has been threatened by the adaptation of its model of business by other airlines. Moreover, the airlines that are adopting its model are offering substitute services that are highly innovative. Furthermore, the new airlines are copying the tactics of the company in competition routes (Kahawatte 2010). Another threat is the presence of trains of high speed, which have been subsidized by Germany and France. The Benelux region has a rail plan, which will deny Ryan Air some of potential customers. Moreover, there is the existence of highway connections in major cities in southern and middle Europe. Other threats that the company is facing are price wars, increment of landing charges, epidemics, commission decisions by European Union and terrorism. Furthermore, the sterling pound is becoming weaker as compared to the Euro and competitors such as KLM and Air France are forming mergers (Mennen 2010). 3.3 Implications of Threats and Opportunities for the Company’s Future Strategy Given the aforementioned threats, the company is determined to boost the perceptions that customers have about the quality of Ryan Air. To avert the effects of the threats Ryan Air is embarking on a strategy that entails the adjustment of the budget for the market, which will be achieved through numerous changes in promotion and advertising. Advertising, especially through internet, is becoming a major channel through which to reach customers given that most of them have access to internet. Ryan Air needs to expand its marketing budget in order to achieve optimal levels of advertisement and promotion by maintaining a research panel that is coordinated externally or internally. This move will ensure that the company has met consumer preferences. The company needs to increase its marketing budget so that it can change its demographics in increasing consumer research and include demographics concerned with the consumer and broader tourist patronage. The mentioned marketing strategies are important in addressing macroeconomic factors, which drive performance (Mennen 2010). Ryan air has been focusing on its core competencies and has been considering the external environment before determining the strategies that are necessary for survival in the European market. However, the company needs to consider the development of its market by expanding to regions such as Turkey and Greece, which have been indicated by Mennen (2010), as offering marketing opportunities that are highly profitable. Moreover, there are market opportunities owing to domestic routes that exist within the countries under European Union. Furthermore, increasing the frequency of the services it offers in the existing routes will enable it to retain its low fares and maintaining growth without impacting negatively on the company’s core competencies (Mennen 2010). Appendix Appendix 1- PEST Analysis Political Political stability in Europe Liberalization movements in Europe have ended monopoly Expansion of European Union has extended the market for Ryan Air operations Social Uncontrollable market with changing consumer preferences and consumer demographics Consumers are shifting loyalties to other brands based on prices Consumers choosing Airlines that offer lower prices. Economical The economical environment surrounding Ryan Air is stable The European Union maintains high value of its common currency Ryan Air’s markets consists customers who are stable economically Technological The technological environment has no major influence The airline is in a position to purchase new jets Software that streamline labor functions are available Appendix 2- Five Forces Analysis Threats of substitutes are high. Speedy trains being subsidized by France and Germany are some of the substitutes for air travel. Alternatives to air transport threaten the operations of Ryan Air as they offer cheaper transport. Speedy trains that canvass almost the entire Europe are reducing the customer base for the operations by Ryan Air. Indirect substitutes such as video conferencing reduce the need for air travel hence affecting the market dominated by Ryan Air. The bargaining power of buyers is high. Given that air travel, which is lower budget in terms of lower fares, has become an important commodity for many travelers, buyers are able to know and bargain for the fares and other deals through the internet. Moreover, the bargaining channels present in the internet through the advent of technology have become of great importance in ensuring that customers are able to negotiate and become aware of the prices. Bargaining powers of suppliers is low. The large-scale nature of the operations undertaken by Ryan Air has enabled it to have enough power to reduce the bargaining powers of suppliers. In the light of this, Ryan Air is able to change its suppliers and demand from its suppliers, terms that are necessary for the reduction of costs. The threat of entrants is low. The threat for new entrants is low at Ryan Air. This is because for new airlines to enter the travel industry that is dominated by the likes of Ryan Air, it has to obtain legal licenses through a rigorous process. Moreover, capital investments necessary for new airlines are high. Existing Rivalry is high. Ryan Air competes with carriers that are national, which makes the competition in the air travel stiff. Moreover, carriers of low budget are major rivals competing for the market. Appendix 3- Opportunities and Threats Opportunities Developing additional routes to other European destinations Development of domestic routes in Europe and venturing into business Offering integrated services in the existing routes Considering future acquisitions such as Lufthansa and mergers Connecting airports that exists in its routes of operations Decrease in competition Embarking on differentiation Purchase of more aircraft Threats A limited market in Northern Europe that leads to low occupancy and low efficiency in the use of planes Competition from charter airlines that offer cheaper packages Emergence of competitors in the home market Imitation of the model used by Ryan Air by competitors Speedy trains that are subsidized by Germany and France Prices wars Escalation in landing charges Decisions by the European Union commission References Boesch, F. 2007. The Ryan Air Model - Success and Impact on the European Aviation Market. Munich: GRIN Verlag. CAPA Centre for Aviation. 2009, June 3. Ryanair SWOT Analysis: Addicted to growth, a great model for bad times. Available from: . [ May 31, 2012]. Creaton, S. 2004. Ryanair: How a small Irish airline conquered Europe. London: Aurum Press. Dhalla, M. n.d.. Ryanair. Available from: .[ May 31, 2012]. Gugenheimer, P. 2006. Ryanair, the Low Fares Airline. Munich: GRIN Verlag. Hägele, K. C. 2006. Marketing Plan for Ryanair. Munich: GRIN Verlag. Hoffmann, S. 2007. The Low-Cost Airline Ryanair: A Critical Evaluation of the Ryanair Phenomenon and Its Future Prospects with Taking the European Airline Industry Into Consideration. Munich: GRIN Verlag. Kahawatte, U. 2010. Ryanair’s Strategy from a Perspective of Core Competencies. Munich: GRIN Verlag. Malighetti, P., Paleari, S., & Redondi, R. 2009. Pricing strategies of low-cost airlines: The Ryanair case study. Journal of Air Transport Management , vol 31, no 1, 195–203. Mennen, M. 2010. An Analysis of Ryanair’s Corporate Strategy. 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