Strategic Plan of Ryanair the Low-Cost Irish Airline - Essay Example

Introduction Ryanair being the low cost Irish airline has its headquarters situated in Dublin. It has the largest operation bases in London Stanstedand Dublin international Airport. The airline was founded in 1985 and it was named after one of the numerous owners; Christy Ryan. Since then the airline has been growing up to date when it put up its strategic plan to have be the lowest cost airline in Europe. Currently, it operates on around 729 routes in North Africa and Europe. It has 31 bases and 168 aircrafts. It should be noted that Ryanair airline is the third largest airline in attracting numerous passengers in Europe. This is due to its low cost strategy. Like any other company, when the management makes decisions it has to be guided by different factors that directly or indirectly affect the company. All organisations are affected by external and internal factors and like any other company, Ryanair is not left behind. It is advisable for the airline to use the PEST analysis to view its policy making strategies thus look at how the company is performing to ensure that it does not lose market. Such analyses will ensure that the management is able to keep, ignore and adapt strategies to make the company more competitive and unique (West, 2007). The paper will examine Ryanair airline by using Porter’s 5 forces and McKenzie 7s framework. Porter’s 5 forces To understand how Ryanair Airline has been able to survive to the resent times it is advisable to use Porter’s 5 forces analysis to critically examine its strategies. The strategy and its concepts came from Michael Porter. The 5 forces were derived from Industrial Organisation economics which generally helps a company to know its intensity in competition moreover show what attracted the company to join the market. It should be noted that the amount of profit is what attracts the company to the market whereas unattractiveness is simply the implementations of poor strategies that lead to a loss. According to the forces, when a company approaches pure competition it means that it is becoming unattractive. According to Porter such implementations are referred to as micro environment which are within the company and they do affect how a company is able to reach its customers. Customer service provision is what brings about profit in the company (McGahan, 2004, pp. 203-205). The stages of the framework are discussed below step by step. Threat of substitute products According to the strategy, a company can decide to offer products or services that will act as substitutes to change the demand of its customers. The customers will be attracted by the change in prices (McGahan, 2004, pp. 203-205). Ryanair has been able to attract various customers by offering low cost services. This has increased its competitive nature as vary many customers have shifted from the other airlines to it. Moreover, it is one of the largest airlines in Europe increasing its chances of attractiveness. Threat of the entry of new competitors When a company ventures in a sector that builds up high levels of profits, it will definitely increase its attractiveness for other companies to venture in the market. When there is high entry in the firm, the profit level of the company will definitely decrease. For this reason, a company needs to differentiate its service and product provision from its competitors. This will definitely mean that it has to advertise its new services and increase its customer-company communication skills. When Ryanair introduced its new low cost strategy, it used advertisement as a strategy to inform its customers and attract more customers. Ryanair has had a series of controversies in its adverting strategies when it was busy informing its customers on its new strategy (McGahan, 2004, pp. 203-205). In 2005, Ryanair had to pay a fine of €250,000 (US$319,000) for publicly advertising that “the air fare of Ryanair is 391% cheaper than the air fare of Air France-KLM” (Breitbart News, 2005). Although the UK courts legally allow comparative advertising, the case of British Airways plc vs. Ryanair Ltd [2001] was filed by British Airways who sued Ryanair for publicly claiming that the ticket prices of other airline company’s were at least five times higher than the prices offered by Ryanair (Ellis, 2008). In the UK, the Advertising Standards Authority (ASA) strictly regulates the advertising practices against serious business offences especially relating to the violation of the trademark directive (89/104/EEC) including the promotion of unfair market competition (Dee, 2007, 1036-1048; Porter, 2007, 619-622). The main function of ASA is to protect businesses that are protected under the trademark law and the general public from misleading information presented in advertisements. The intensity of competitive rivalry A company can be prompted to increase its competitiveness when the intensity of competitive rivalry is high (McGahan, 2004, pp. 203-205). Ryanair increased its competitiveness when it decided to be the lowest cost airline in Europe. This rival competition against other airlines has made a major impact as it highly attracted very many customers. The airline has had a turn out of 49 million passengers in 2007. This means that it has used the pricing system to enhance competition in the firm. Under the same concept of competition, a company can decide to use non-price strategies to increase its profit levels. This include: marketing and employer-employee relations (McGahan, 2004, pp. 203-205). Since adapting its low cost strategy, Ryanair has been accused of poor customer services. Its staff is said to be very rude and incompetent. This is due to poor employee motivation and training skills. The other airlines are now able to bit Ryanair by improving their service provision strategies to make their customers feel at home and valued. More so, they do appreciate work motivation which is linked with morale or employees feelings toward the job, superiors, and the organisation itself such that employees are likely to experience high morale if they are satisfied with the pay they receive including their job responsibilities and the way they are treated at work. With high morale, the airline company is expected to enjoy higher productivity, profitability, and a healthier customer service. On the contrary, employees with low morale can lead to carelessness, absenteeism, and high rates of turnover (Marchington, 2005, p 126-154). The bargaining power of customers The customers are able to put an organisation under pressure by determining the volume of production and prices of the goods and services. It is important for any company to maintain communication with its customers to know there bargaining power. It is important for an organisation to know that it is expected to be focused on identifying the needs and wants of the customers. (Doole & Lowe, 2007: p. 5). Ryanair is having a rough time using this concept. First of all, it does not have the best communication strategies because as it has poor E-commerce strategies. In 2006, it did not even implement on the new communication strategy that customers perceived to be easy to book tickets and communicate with any organisation. Today, it is being accused of not giving out its E-mail address to its customers to freely ask questions or comment on their services. Bargaining power of suppliers This concept deals with describing the market of inputs to a firm. Suppliers of materials can determine how much profit a company can make (McGahan, 2004, pp. 203-205). Ryanair, works with many airports as it gives its transport services to other companies. Ryanair and the airports it works from need to share some of the costs so that they can all benefit from offering different services. Ryanair has been accused greatly in offering poor services to its customers. Another time it was accused of treating the disabled very poorly. This was so because it did not offer wheelchairs for its passengers who were disabled. The disabled rights group in the United Kingdom were very angry with this kind of treatment thus they decided to sue Ryanair. The airline was later able to share the cost of giving out wheelchairs when it argued that it was not responsible in offering such services but the Stansted Airport was. There argument was based on the fact that out of the 84 airports Ryanair is associated with 80 providing their own wheelchairs to the passengers. Later, Ryanair was able to add a surcharge of £0.50 (West, 2007). McKenzie 7s framework According to the philosophy of the framework, an organisation is not only a structure but has other seven elements in it. The seven elements are divided in two broad categories; soft and hard. The hard elements include: the structure, system and strategy, the soft include: shared values, skills, staff and style. The hard elements are very feasible and easy to identify. The hard elements are found in the structure of the organisation and corporate plans. The soft elements are not easy to describe because they are intangible in nature thus it is very hard to plan for them. The relationship of the elements can be shown below in the diagram (Marchington, 2005, p 126-154). (Diagram 1, showing the elements of McKenzie 7s Framework) According to McKenzie, an organisation can be successful if it only knows how the elements inter-relate and that a change in one element affects the others. For instance, a change in the management strategies will definitely have an impact on the human resources strategies. Proper implementations of the strategy will lead to a company increasing its competitiveness in the market thus earning more profit (Marchington, 2005, p 126-154). The hard elements Ryanair has its own strategy which simply means that when it was founded, it had a plan for the action it was to take which was offering airline transport services. With the plan it had to set its price levels which led to low cost prices. Offering a relatively low air fare to the public can make it easy on the part of Ryanair to fill up passenger seats in each plane. However, there are also some negative consequences associated with selling plane tickets cheaper than its direct competitors. In the UK travel industry, the market price of air fare should be significantly dictated by the public demand such that the market price of air fare should be higher during holiday season and lower during winter (Mounser, 1996, pp. 23-41). Within the airline industry, it is important to keep the quality service offered to customers reliable enabling the company to keep its price-sensitive loyal customers from switching to other similar companies (Chen, Narasimhan, & Zhang, 2001, pp.366-372). Another element is structure and like all other organisations, Ryanair ha sits own structure whereby it has different departments which have their own respective roles and responsibilities. It has 31 bases that are operated under its headquarters in Dublin. The 31 bases have employees and their own management but the strategies applied are uniform. The departments found in the airline are; accounting, human resources, technicians, marketing and advertising and so on. All the departments are specialised in their areas of to ensure efficient service provision. For any department to apply a new strategy, it must report to the superiors whoa are the CEO and the Board of Directors. Every department has its own line manager who is responsible in ensuring that the duties and responsibilities in his or her respective department are carried out effectively. The third element is the system which generally looks at the formal and informal procedures of the organisation. They are supposed to support both the structure and the strategy. Formal procedures can be meetings that are held by the employers and employees in discussing the way forward of the company. Like any other company, Ryanair has its annual general meeting where the shareholders have a right to choose its board of directors and more so ask questions on strategies that they do not understand. The shareholders are given booklets that show the yearly financial reports during such meetings. They are also encouraged to come up with solutions to improve the strategies of the organisation. The Soft elements The soft elements as previously described are intangible thus difficult to describe. The style of an organisation simply means its culture. Culture means a way or belief in which a company carries out its services and its management strategies. In Ryanair, the management has so much power thus practising bureaucratic leadership. In this type of leadership, employees listen and do what the management needs them to do without any questions. For instance, the management decided on the low cost strategy without consulting the views of its employees. This led to the reduction of the employees salaries to counter the costs that came through the strategy. The idea has highly affected the employees because they are now receiving low income which is not motivating enough (Lavigna, 2005, pp 46-48). The other element is the staff. The staffs are a very critical input to any organisation. This is so because the staff provided services and product to the customers so if mishandled the company can easily lose market if they refuse to corporate with the management. The department that is in charge of the staff is mostly the human resources management. The strategies applied need to be up to date to ensure efficient and competent staff members within the organisation (Lavigna, 2005, pp 46-48). Ryanair has been accused of poor human resources management strategies. This has really affected the service provision to its clients. They have very poor training policies. This is due to saving for the costs that have been brought about by the new low cost methods. The airline needed to cut down some costs so that to support its strategy and this led to the human resource management reducing its training costs. Thus the employees are no longer trained in the new skills of offering services that are now being supported by the new technology. In addition, staff morale is very poor due to low salaries. The problem with implementing a strict cost reduction scheme is that it could significantly affect employees’ morale and work motivation. As reported by the International Transport Workers Federation (ITF), many workers have left their jobs with Ryanair (OSullivan & Gunnigle, 2008). In line with the evidence revealing the unsatisfied workers at Ryanair, some negative comments were posted on the website www.ryanair-be-fair.com which publicly exposed the personal opinion of its employees when it comes to issues related to “low pay, misery and oppression” (Miller, 2005). Among the common employee complaints include the fact that employees are required to pay for their own uniforms, food, and other office supplies like pens etc (Ryan-be-fair, 2008; Clark, 2005). Since Ryanair has been persistent in keeping its operational costs low, it has become inevitable for the company to hire sub-contract workers with lower paid salaries (Boyd, 2001: p. 442). As a result, the quality of Ryanair’s customer service suffers. Conclusion It is evident that the two strategies; Porter’s 5 forces and McKenzie 7s framework have revealed the short comings of Ryanair airline. It needs to increase the employees’ motivation within the working environment. This can be done by adapting training skills that will enhance employees’ knowledge and skills in their respective fields. Secondly, it needs to come up with differentiated prices. This is to capture those consumers who prefer expensive but better services. It will enable people to have a big variety to choose from as there will be costs that target on the upper, middle and lower class individuals. 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