Ryanair Firm’s Competitive Position in the UK

Introduction

The idea of providing the low-cost opportunities to travel is actively explored by the flight service providers. The Ryanair, a company founded in 1985 aimed to deploy scheduled passenger services between the UK and Ireland as a cheaper and competitive alternative to the monopolistic ownership of Aer Lingus (O’Higgins, 2016). It has further resulted into a massive low-cost service coverage across the Europe, while having major drawbacks in terms of customer centricity. Considerably, this report will further focus on how Ryanair may retain its customer base and improve competitive positioning.

Sustainability and Changes

The evolution of Ryanair as a low-cost airline operator has gone through the major transformational steps. Since its foundation in 1985, the consequent five years resulted into the overall disposal of the 20 million of Irish dollar despite the growth of the passenger volumes (O’Higgins, 2016). However, the company was successful to transform its business model towards the low-fare carrier approach during the 1990s, which enhanced its opportunity to provide flight services across the Europe. Eventually, the new management team was able to improve company operations to the remarkable investments resulting into listing one in Dublin Stock Exchange market and NASDAQ ratings.

Consequently, as of 2015 the company was able to offer more than 1600 flights per day allocated to 72 bases and 190 airports across the Europe, having its major fleet of the Boeing aircrafts and additional leased one reserved for the summer vacation period as required (O’Higgins, 2016). Overall, the financial growth of the company was accumulated because of the lower operational costs estimated as a reduction in 11% per passenger in terms of fuel expenditures and an increase in overall revenues by 66% between 2013 and 2015.

To explain this transformational change, the PESTEL analysis is further applied for the cross-sectional explanation:

• Political: Ryanair was limited to the local travels between the UK and Ireland, while the monopolistic stance of Aer Lingus required introducing a new market competitor;
• Economic: Since 1990s, the choice of airlines for travelling majorly increased in Europe and further outbarred the demand for trains or road transfers;
• Social: Internationalization and globalization became more evident across the Europe, which required more frequent physical interaction and therefore the way to travel faster for both formal and informal meetings (Lynch, 2018);
• Technological: Airline travelers became more demanded for the speed of travel rather than onboard services, which was perfectly utilized in emerging connectivity technologies;
• Legal: No specific legal restrictions here except for the regulations related to the scope of passengers onboard and the weights of cargo as specified by official authorities;
• Environmental: Higher fees were imposed for the Ryanair in line with the provisions of the World Health Organizations related to the air pollution caused by the air traffic operations.

Another important aspect is to consider the degree of turbulence experienced by Ryanair during the transformation. In the autumn of 2015, Ryanair performed a fatal acquisition effort of the Aer Lingus at lower bids, which was further commented as unreasonable investment and a subject of non-conformance to both EU and UK Office of Fair Trade (O’Higgins, 2016). The aftermath of such events resulted into additional efforts to revise the corporate strategy to maintain existing operations and maintain positive reputation. Despite there were no exceptional economic shocks during that time, the company still managed to be involved in the process of uncertain decision-making, which eventually led to the loss of investors’ loyalty.

To address the emerging issues of corporate sustainability, it is worth further exploring the Ryanair operations through the lenses of how it transcended its past unfavorable policies towards become the most favorable low-cost airline in Europe. The main selling point chosen by the company was to set lower fairs that stimulate demand, which was primarily realized through selling the seats on a one-way basis. For instance, when the company made a decision of launching the new route, the price was by default set at a price lower than the one offered by the other carriers while still maintaining the cost limits within the satisfactory operating margin.

Furthermore, the cost efficiency was pursued as the company was operating only the short-haul flights with an average time to travel estimated lower than 2 hours and the route length of not more than 1300 kilometers (O’Higgins, 2016). From the budget control view, such focus reduced the need to provide services typical for the long-haul flights such as onboard meals and movies, as well as to avoid the costs required for managing additional transfer and baggage control services natural for the longer travels.

Furthermore, Ryanair was successful in deploying the idea of grounding the larger portion of its fleet during the winter times, when the cost of fuel increases and airports experience lower seasonal yield. Being explicitly concentrated on the European operations, Ryanair provided considerably larger number of flights during winter vacations across the Europe, which incentivized sustainable growth among the passengers in the Central and Eastern European market during 2015 and further during winter vacations or short intermediate weekends.

The sustainable view on offering the constantly low prices for the new offers was particularly noticeable during the Christmas holidays, when Ryanair offered additional short-haul flights in selected airports across the Europe at a bargain, while not exemplary committing to provide superb experience. Nevertheless, the company reported that it will never compromise on the quality of its aircraft fleet and declared that after the current Boeing models are being scheduled to quit the production cycle, the company experiences to completely renovate its fleet with the new aircrafts.

Ryanair also maintains sustainable operations through constantly leveraging on the reduced airport service costs. Realizing the importance of avoiding congested airports while also bearing in mind the luxury of not providing extra transportation and cross-docking services, the company opted for choosing secondary destinations for its newly opened routes, which contributes to occupying less expensive gate locations and avoiding the use of jetways. Some of the examples include Frankfurt Hahn located more than 120 kilometers from the Frankfurt itself or Chaleroi located 60 kilometers from Brussels (O’Higgins, 2016).

Nevertheless, in terms of the airport service coverage the company still followed its pre-announced ‘Always Getting Better’ (AGB) program and extended its route system to the larger airports; however, it was not always a fruitful collaboration as shown in the case for taxation arrangements for the Athens Airport. Alternatively, Ryanair was successful in making further arrangements with Manchester Airports Group based on the commitment for tax charge reduction in exchange for increased passenger volumes brought by the aircrafts, which has further increased its capacity in the European airline market.

Overall, it should be stressed that Ryanair had clearly identified its key success factors for sustainable operations and customer acquisition and retention with the implementation of AGB program. Pursuing the idea of the low-cost services provided within the scope of comparatively small geographical coverage allowed the company to expand its local operations and engage in productive partnership agreements with major airline stakeholders across the Europe.

However, it is still worth considering if such strategy is still viable for the future business development, considering the aspect of competitiveness and overall saturation of the airline business. Furthermore, since the company has a slight presence in its travel routes beyond the European borders, one might consider further expansion efforts which should be as sustainable as those develop inside the continent.

Competitive Position of Ryanair in the UK

The initial analysis of Ryanair’s competitiveness overall and in the UK specifically is based on the strategic management characteristics of being valuable, rare, inimitable, and non-substitutable; otherwise incorporated as VRIN framework (Hitt et al., 2017). However, while the first aspect of being valuable to particular category of consumers, it is worth admitting that the overall business model utilized by the company replicates the one initiated by the easyJet, and therefore continues to be easily practiced by the other low-cost airlines.

Furthermore, referring to the current market realities it is worth considering that the notion of value proposition for the cost-efficient operators will become more demanded among the travelers because of the consequent lockdowns and travel restrictions. Hence, in terms of VRIN framework, the services provided by Ryanair might become more imitable and substitutable, resulting into the need of seeking for external market opportunities to maintain strong competitive position.

Referring back to the UK market, it is also worth considering the economic aspect of the ways how Ryanair will maintain customer demand, segmentation, and positioning of its strategic capability. While it is true that Ryanair provided cheaper opportunities to travel to and from the UK, it is questionable whether the demand for such flights will be increasing in the consequent years. The UK itself is a specific destination in terms of tourism and might not fit individual preferences because of internal prices for services or weather, while for the business services one remains a preferrable landing point.

Consistently, Ryanair might consider the opportunity of internal diversification of services towards alternative customer groups such as business travellers given its already established operations in the London airports. However, it might require purchasing new aircrafts to guarantee the opportunity of the business class travels, as well as contracting commercial organizations through the global sourcing and international market expansion. Eventually, it would also require leasing new services, which will require Ryanair to establish a premium segment business unit.

The Ryanair’s competitiveness could also emerge from the approach of classifying the types of services it provides in specific market. The company majorly do not compete with the major network carriers in Europe such as Lufthansa, as well as does not seek to outperform the niche full-service carriers such as Air Berlin. Nevertheless, it successfully operates as an ultra low-cost carrier on the pan-European scale and follows the low-cost business model also pursued by its competitors such as Wizz Air and Pegasus.

Potentially, for the UK market, the Ryanair might attempt to diversify its business operations towards the leisure low-cost carrier model explored by the companies such as Transavia and Monarch; however, it will potentially require purchasing the new aircraft fleet and customize destinations to avoid tough competition while concentrating on the leisure travel service specifics. However, it is worth considering that in practice such diversification might lead to potential risks and losses given that Ryanair does not have its robust network of primary airports and therefore might experiences the issues of the primary line of service cannibalisation.

The competitive advantages for the UK market should be also explored from the perspective of internalization and the choice of the most favorable entry modes. Considering that Ryanair operates in a low-cost market segment, it is worth assuming that one should prefer licensing and franchising over the wholly-owned subsidiary establishment if one goes to capture the international market (Morlotti et al., 2020).

Specifically, if the underlying idea is to provide the low-cost travel services for the UK passengers, it is worth seeking for the opportunity to select remote locations in exotic countries, while still bearing in mind the official regulations applied to the air transport operations in the region. The company might also consider the opportunities for mergers and acquisition in the foreign countries to ensure that the competitive risks are addressed and handled in line with the local legislation. Specifically, it would help to address the context of intended diversification of services and related guarantees. However, the following risks and challenges should be considered with respect to such endeavor.

First, Ryanair as the company that previously operated solely in Europe might face elevated fuel costs that might dramatically increase the costs of services and pre-booking seats online because of hedging below contemporary spot prices. Second, given that the company is headquartered in Ireland, the expansion of its route system might result into adverse affect of the euro-dominated assets on the incoming revenues from remote locations. Third, the company might engage into additional services typical for the leisure low-cost carriers to cover the transfer and baggage costs, which will bear the risks of managing ancillary expenses (Caputo et al., 2019).

Fourth, the adoption to leisure service format requires considering seasonality effects of further aircraft grounding to specific locations, which might be a cost-challenging effort for the company that previously enjoyed the revenues from the winter holidays. Finally, given that the company was previously alleged of receiving illegal aid from certain airports as per EU litigation, certain facilities abroad might consider that the company is risky to collaborate with (O’Higgins, 2016). Hence, the company might require special arrangements and new partnership agreements to leverage on the aforementioned risks.

Conclusion

The analysis of the Ryanair’s case suggests that operating in a low-cost airline business is a complex and multifaceted business process that requires profound strategies to deal with uncertainties and initiate thoughtful decisions. While the company was able to expand its business operations from Ireland and UK to Europe and become the larges ultra-low-cost-carriers, it still experiences a number of competitive challenges despite its commitment to sustainable operations. Major advancements considered for the case are seeking for the business diversification opportunities through engaging either in business or leisure services, while these recommendations require additional consolidation on the anticipated budgeting threshold.

However, the most reasonable advice is to enhance business operations and partnering relationship on the European scale considering the uncertainties associated with pandemics and forecasted travel demands, while still keeping in mind the proposed development strategies for the future.

References

Caputo, A., Borbely, A., & Dabic, M. (2019). Building theory on the negotiation capability of the firm: Evidence from Ryanair. Journal of Knowledge Management, 23(2), 240-262. Web.

Hitt, M.A., Ireland, R.D., & Hoskisson, R.E. (2017). Strategic management: Competitiveness & Globalization: Concepts (12th ed.). Cengage Learning.

Lynch, R. (2018). Strategic management (8th ed.). Pearson Education.

Morlotti, C., Birolini, S., Cattaneo, M., & Redondi, R. (2020). Introducing connecting flights in LCCs’ business model: Ryanair’s network strategy. Journal of Air Transport Management, 87, 101849. Web.

O’Higgins, E. (2016). Ryanair: the low fares airline – ‘always getting better’? In G. Johnson et al. (Eds.), Exploring strategy: Texts and cases (pp. 622-632). ProQuest Ebook Central.