Executive Summary
Ryanair is an outstanding example of the low-cost airlines, which predominantly focus on reducing the costs per passenger as well as deploys aggressive horizontal expansion through diversification. The basic principles of business development in low-cost airlines are similar to the approaches of intercontinental carriers, such as increasing passenger traffic and increasing the number of passengers on a particular flight. However, there are significant differences between intercontinental airlines and low-cost airlines in both the United States and Europe, which affect all airline operations.
However, the Ryanair airline was the first among European low-cost airlines to apply the horizontal diversification strategy, which means that it began to acquire other European low-cost airlines. Thus, Ryanair gained more opportunities to control the flow of passengers and increased load factors. The primary issues and prospects for the company can be best reflected upon the PESTEL analysis, which allows assessing Ryanair from a multitude of angles. Political changes in the European Union can be considered as the main hindrance, which can directly affect its overall operations.
One such case is Brexit, which can alter the legal status of Britain regarding the EU and impose certain regulatory changes. In addition, there is a risk of newly emerging competitors because countries might support their domestic low-cost airlines. Social changes are more prospective for Ryanair because with a reduced cost per passenger comes an increased number of customers, who can afford flying as their preferred form of transportation. This will inevitably lead to an elevation of the demographic range and a rise in demand. The company’s economy is primarily dependent on its economies of scale and technological advancements in aircraft, which consume less fuel.
In addition, the company can aggressively utilize online tools, such as mobile apps and check-ins on the website, as well as self-service machines at the airport. Environmental factors are also important due to an increase in awareness regarding pollution and climate change, which can result in taxes for carbon emissions. However, Ryanair should adhere to these regulations to preserve its brand identity and reputation.
In general, the company should expand its option of targeting the US market in the long term and be cautious of the intricacies of luggage allowance. The company should also be aware of current issues, such as coronavirus outbreak and US-Iran relationship, in order not to be involved in these problems. Lastly, Ryanair should aggressively increase the number of routes it offers to its customers, and the map of destination should also be expanded. This will elevate the load factor, which can further enable the option of increasing flight frequencies, which will result in more growth and better economies of scale
Business Model
Ryanair’s primary business model revolves around reducing the costs of every aspect of its operation and offers the essentials. The company actively communicates its approach by not providing any frills, such as refunds and delays. It mainly seeks to reduce the cost per passenger by utilizing its economies of scale and low-cost inputs. In addition, Ryanair actively increases the number of routes and destinations as well as the frequency of flights, which ensures that it stays competitive in the company’s niche market. In order to increase efficiency, low-cost airlines strive to reduce costs for each cost item.
For example, Ryanair works with cheap airports, and in addition, the fleet is represented only by cheap models, which also helps reduce operating costs. Another advantage is that each aircraft in the park has the same number of seats. This simplifies the planning process since many factors, such as the costs of service, maintenance of the aircraft, the maximum value of transaction costs, and others become fixed and the functioning algorithm for maximizing revenue has fewer variables. Another performance indicator is the passenger turnover indicator, measured in passengers per kilometer. This is the product of the passengers of all the flights in question and the distance they covered.
Financial Analysis
Regarding Ryanair’s financial analysis, as was mentioned previously, the company seeks to reduce all operating costs to reduce the cost per passenger aggressively. Similar to Amazon’s company, it offers a highly competitive service, which is manifested in the fact that Ryanair offers the lowest price for the flight. In addition, the costs for staff, airport and handling, route changes, ownership and maintenance, and sale and marketing are the lowest compared to its key rivals.
The level of efficiency is determined by how the airline manages passenger traffic and estimates the load factor. Since this coefficient shows the effectiveness of activities and directly affects income, it is precisely to increase it that the methods of revenue management should be directed. Thus, the goal of revenue management in the airline industry is to achieve the highest possible income from each individual flight within the airline’s portfolio of flights and routes. It is important to consider many factors to determine how low-cost airlines use and gain a competitive advantage from this method.
Options
There are a number of options for improvement which Ryanair can undertake in order to solidify its position in the market. The key statement is that Ryanair’s new initiatives can be expanded, where the company can actively target the US market because it already plans to dedicate a website. In addition, there is an opportunity for mobile applications, which can attract and retain younger customers, who are more accustomed to easy access. Increasing cabin bag allowance is a necessary step, but the company should impose dimension limitations and specify them accordingly.
Recommendations
The main recommendation for the company is to properly estimate the scale of current global issues. For example, Ryanair should be aware of dangerous coronavirus infections in China, which means that the airline needs to preserve its reputation and brand image of safety. Brexit should also be considered because it will inevitably lead to political and regulatory changes regarding Britain and the EU.
Ryanair should strive to increase current passenger turnover through the acquisition of assets, servicing at low-cost airports, and the use of long-haul flights to increase the number of bookings and maximize revenue through these indicators. In comparison, EasyJet, on the contrary, seeks to limit potential passenger traffic by maintaining the number of flights, the size of the fleet and other assets, but attracting customers through services.
Ryanair should use an automated revenue management system based on maximizing revenue on each flight by a day. The first thing one should pay attention to is working with the fleet. Ryanair should purchase aircraft directly from production, without leasing as a financial instrument. Thus, the company saves on fuel, since new planes consume less fuel, it spends less on maintenance, and it can sell them after several years of use.
The second important factor is the airports with which airlines work. Low-cost airlines try not to use large airports as their base. Most often, their aircraft are served at minor airports remote from the city, which optimizes costs. Ryanair has two times more routes than EasyJet, but the cost of this item is two times less due to a large number of low-cost airports. The airline uses only its own website as a promotion channel, while at Ryanair, the share of tickets is sold through intermediaries, for example, through Avia sales. This allows each aircraft to be filled up to the maximum at low distribution costs, which significantly reduces the unit cost of the ticket.
The second segmentation parameter is the departure time. Early morning, early evening flights on weekdays are usually considered as a business segment, and flights in the middle of the day, late evening, and weekend flights are considered as a leisure segment. Each segment has different booking templates, which reflect the number of tickets sold. The financial implications will be manifested in the fact that increasing the number of routes, frequency of flights, and integrating low-fuel consumption aircraft will significantly increase the overall profitability. This will lead to at least an estimated growth of stakeholder’s value by quarter and revenue can be doubled, but the profits need to be reinvested into business to utilize the economies of scale.
PESTEL Analysis
The insight that I gathered from the PESTEL framework gave me a strong summative analysis of each dimension, such as political, legal, economic, social, environmental, and technological. In the political aspect, Ryanair faces a number of government regulation changes. The company was challenged by legal disputes in the European Union and local countries, where the issue was related to airline regulatory departments and business deals.
In addition, the problems are escalated by political changes in the EU, which will directly affect Ryanair’s routes and pathways. In the legal aspect, the nations can start supporting their domestic airlines, which will create more competition in the market of the company. Local regulators are also raising questions about the high level of noise created by frequent flights. However, despite these challenges, the government can assist Ryanair to increase tourism in the country.
In the social aspect, the current economic growth being experienced by the nation can increase the number of destination countries, which will promote tourism. There is a tendency for people interested in business trips to choose Ryanair as their preferred airline due to lower costs and higher frequency of flights. In addition, the company aggressively lowers the costs, which allows them to increase their consumer demographics. In the economic aspect, the economic shifts in destination nations can open new opportunities for routes creation. However, fuel and energy costs pose a threat because the value might change.
Ireland’s domestic economy might stagger at a certain point, which will significantly reduce the level of demand for the airline. In the technological aspect, there is a threat created by the improvement of online meetings and video conferences, which reduces the overall demand for cheap business trips. However, Ryanair can enhance its technology of self-check-in and online check-in to elevate the general convenience for its customers. In regards to Ryanair’s environmental influences, there is an opportunity to utilize greener aircraft, which are more efficient and have less fuel usage. In addition, the company can deploy environmentally-friendly planes as well as actively pay carbon emission-related taxes.
Therefore, an approach for acquiring a more competitive advantage needs to be primarily focused on preserving the low operating costs in a highly sustainable way. The main reason is that Ryanair is already leading in this regard because its costs are much lower than Wizz Air and Easy Jet. Thus, there is the only issue for the company, which is to keep the given competitive advantage in the long-term because the factor of uncertainty can play a detrimental role in affecting the overall profitability.
In addition, the competitive advantage can be elevated by increasing the number of routes available for customers. The map of destination should be expanded to reach out to a larger demand population. The company can actively wait for the time when the Chinese epidemic will settle and be first in offering its services to the given market.
Summary
In conclusion, Ryanair is an outstanding example of a low-cost airline in the air transportation industry. There is a total of five key players in the industry, which are Wizz Air, Air Berlin, Norwegian, Easy Jet, and Ryanair. The primary strategy revolves around maintaining the reduced per passenger cost in a sustainable and risk tolerable way. In addition, the company should remain in its horizontal diversification approach to remain dominant. Ryanair can also aggressively increase the number of routes and expand its map of destinations. The main challenge the company faces is reflected in PESTEL analysis, where there are political changes, such as Brexit and economic stability uncertainty of Ireland’s economy.
The best option for the company is to continuously expand, as Amazon company, to maximize the monopolization of the industry through diversification and cost reduction. It is difficult to make precise estimations regarding shareholder value increase and revenue changes. However, the approach of reinvesting all profits back to Ryanair can be a determining factor in elevating stakeholder value by 25%. The revenue can also be doubled by actively increasing the number of routes and frequency of flights.