Ryanair: The Business Strategy

About Ryanair

Ryanair is the largest budget airline in Europe. It was founded in 1985 as a full-service carrier that included two classes of seating and operated for passengers in Ireland and the United Kingdom. The airline experienced a reinvention in the 1990s after it became the first low fare, no-frills airline carrier in Europe. A new management team, including CEO Michael O’Leary, adopted an innovative business model that allowed Ryanair to cut operational costs and passenger fares, which revolutionised the market and contributed to the growth in popularity of budget airlines. Despite the economic instability experienced by the air-travel industry, Ryanair remained successful and managed to become the most profitable European airline in 2014, ranked by operating cost/revenue (O’Higgins, 2016). Ryanair’s remarkable growth is tarnished, however, by the organisation’s controversial reputation due to inflexible ticket exchange policies, punitive charges, and low-quality customer support services. The combination of heightened competition and negative publicity led to a series of changes Ryanair has undergone since 2015. The adoption of a new ‘Always getting better’ (AGB) three-year-plan included numerous digital transformations, market segmentation, and product development (O’Higgins, 2016). Ryanair’s strategy focused primarily on ensuring high levels of customer satisfaction and consumer loyalty.

Updated Insights: Strategic Transformations within the Company

Since the publication of the case study by Elizabeth O’Higgins in 2016, Ryanair has grown in size and profits. In 2019, the airline set up Ryanair Sun (a Polish scheduled passenger airline), acquired an Austrian scheduled passenger airline Laudamotion, and finished establishing Ryanair UK (Ryanair Holdings PLC, 2019). In June 2019, Ryanair Group acquired Malta Air (Ryanair Holdings PLC, 2019). As of June 2019, the enterprise had a fleet of “455 Boeing 737 aircraft and 20 Airbus A320 aircraft, and offered over 2,500 scheduled short-haul flights per day serving over 200 airports” (Ryanair Holdings PLC, 2019, p. 73). Despite Ryanair’s favourable results in the acquisition of subsidiary companies and aircraft, the company recorded a profit of €885 million, which was a significant decrease compared to a profit of €1,450 million in 2018 (Ryanair Holdings PLC, 2019). The airline’s management attributed the decrease in profitability to increases in fuel and staff costs, as well as the €139.5 million start-up loss in Laudamotion (Ryanair Holdings PLC, 2019). In addition, Ryanair was named the worst UK brand in terms of customer support based on a survey conducted by a British publication Which? (Coffey, 2019). Despite the airline’s efforts to adopt an ABG plan, the majority of respondents described Ryanair as “greedy,” “arrogant,” “sneaky.” The decrease in profitability and the negative perception of the company demonstrate that Ryanair can no longer rely exclusively on its cost-efficient business model and disregard the needs of the customers.

Ryanair’s Resources and Capabilities Examination

Identifying Key Resources and Capabilities

Every successful business entity has a set of key resources and capabilities that help the company position itself on the market and generate a unique selling proposition. Resources refer to the money, facilities, and networks an organisation has. Capabilities, on the other hand, imply that a company can optimise the utilisation of its resources in order to manage, improve, and innovate its operational processes. The main difference between the two is that resources can be obtained much easier than capabilities that take a long time to develop, making them harder to duplicate by competitors. The VRIO framework helps to examine and gain an in-depth understanding of Ryanair’s resources and capabilities. The questions of value, rarity, imitation, and organisation are crucial to assessing the airline’s advantages over its key competitors.

Ryanair has numerous tangible and intangible resources, including physical, financial, human, and intellectual ones. Physical resources of the company include 455 Boeing 737 aircraft and 20 Airbus A320 aircraft, which constitute Ryanair’s aircraft fleet (Ryanair Holdings, 2019). The enterprise’s headquarters in Swords, Ireland, serve as a tangible resource as well (Ryanair DAC, n.d.). A network of secondary airports can be considered one of the most important resources for the airline.

Human capital is one of the most advantageous resources an organisation can have. Emily Auw (2009) argues that “firms with higher level of human capital tend to be more efficient in utilising the knowledge they acquire” (p. 30). Ryanair’s human resources include 17,500 employees, not including the outsourced labour force (Ryanair DAC, n.d.). Moreover, the enterprise’s CEO Michael O’Leary is an invaluable part of the human resources due to his charismatic leadership and public persona. The personal brand of the CEO usually translates into the company’s recognition by the general public, with Steve Jobs and Elon Musk being perfect examples.

The company’s financial resources include fiscal year profits of €885 million, as well as other investments and shareholder dividends (Ryanair Holdings, 2019). Intellectual assets constitute the majority of skills and knowledge Ryanair has acquired over the years. Ryanair’s brand recognition and customer loyalty are a part of the intangible resources as well. The specifics of the airline’s strategic planning are confidential, but it is apparent that Ryanair has collected a large network of industry insights and expert market knowledge.

Capabilities refer to the organisation’s utilisation of existing resources in order to make changes and engage in sustainable growth. Barney and Hesterley (2008) establish that capabilities are, in fact, “the tangible and intangible assets that enable a firm to take full advantage of the other resources it controls” (p. 74). According to Barney and Hesterly (2008), capabilities do not immediately translate into profits, but they are essential in resource management in order to implement various sustainability strategies. Ryanair possesses a set of organisational and dynamic capabilities that allow it to stay profitable and engage in continuous growth.

The airline’s main capability is innovative cost-cutting, which serves as a unique value proposition. The company’s ability to provide customers with low fare services implies no-frills, clear offer, large brand awareness, and quick turnaround time. Ryanair is able to bargain with suppliers and get the most cost-efficient deals from airports, which contributes to the low fare operating model. Flight scheduling and point-to-point destination system influence the cost significantly. Integrating knowledge and expert insights accumulated over the years is the second most important capability of Ryanair. Despite Michael O’Leary’s image, he has managed to attract a lot of public attention to the company by using outstanding marketing and public relations skills.

Ryanair’s ability to think strategically and make predictions accordingly is another important asset to the organisation, which is evident in its acquisition of Buzz and Malta Air (Ryanair DAC, n.d.). Ryanair is capable of organising its operations at a high level, which results in favourable “flight punctuality, levels of lost baggage, and rates of flight cancellations” (Ryanair Holdings, 2019, p. 74). It is important to acknowledge Ryanair’s ability to segment the market and customise its services accordingly. In recent years, however, digitalisation has become one of the company’s strongest capabilities. An online platform allows the airline to personalise the offers, publish flight schedules earlier, and target customers with specifically tailored offers. Digitalisation has also aided Ryanair in generating alternative sources of revenue, including various ancillary services.

VRIO Assessment

The VRIO framework enables executives to analyse various resources and capabilities in order to determine whether they have the potential to generate competitive advantages for the company. As a result, it is possible to identify the organisation’s main strengths and weaknesses. To evaluate the potential of a certain resource/capability, one must ask a series of questions. For example, the questions of value, rarity, imitability, and organisation, which the framework’s name stands for (VRIO).

Value

The question of value is crucial to assess Ryanair’s competitive advantage. The airline’s Boeing 737 aircraft fleet manages to exploit an opportunity to purchase all aircraft from a single manufacturer. This provides the company with the ability to cut costs “associated with personnel training, maintenance, and the acquisition and storage of spare parts” (O’Higgins, 2016, p. 625). In addition, scheduling of equipment and crews becomes easier. Therefore, Ryanair’s main physical resource helps the company maintain two of its most important capabilities – cost-cutting and flexible scheduling. According to Nijssen and Frambach (2001), a company is “a vehicle for customer value creation” (p. 57). In terms of value, the airline’s resources and capabilities create a unique selling proposition and help Ryanair distinguish itself on the market.

Rarity

Ryanair has certainly had the privilege of being first adopters. An innovative low fare business model and point-to-point destination routes have revolutionised the industry and made Ryanair a leader among European budget airlines. However, when it comes to the company’s current resources and capabilities, they are no longer monopolised. The airline’s key competitors, including EasyJet and Wizz Air, have acquired enough resources and business intelligence to provide consumers with the fares just as low. Two resources that are controlled exclusively by Ryanair are a customised digital platform and the company’s brand identity, which has evolved over the years. Digitalisation and brand positioning remain the only rare capabilities Ryanair has to offer. As a result, it is apparent that the airline has lost its competitive advantage in terms of rarity.

Imitability

Imitability is a crucial factor in determining the organisation’s competitive potential on the market. Apart from the resources’ value and rarity, it is essential to examine whether it is easy for a competitor to duplicate the company’s capabilities, competencies, and other assets. There are numerous low fares, point-to-point, scheduled-passenger airlines in Europe, which demonstrates that it is not costly to imitate Ryanair’s business model. It is harder for them to imitate the operational systems established at Ryanair since every component needs to be the exact same, which is often impossible. However, the airline’s young successors like Wizz Air and Pegasus manage to duplicate the essential elements of Ryanair’s operational framework and provide customers with low-price services (Garcia, 2019). Thus, the company has no competitive advantage in terms of imitability.

Organisation

While it is true that an organisation’s profitability on the market depends largely on the value, rarity, and imitability of its resources, the way a company structures the allocation of these assets and their further management is essential to the success of a business. Ryanair has accumulated enough corporate insights to make its operations less costly but more efficient. The airline’s employees earn incentive payments based on their productivity. As a result, the workers are motivated to work harder and make more profits for the company. However, Ryanair’s labour policies have been criticised after a series of strikes took place in 2019 (Morris, 2019). The airline’s refusal to cooperate with unions and address the employees’ concerns has been detrimental to the company’s operations. One of the strikes has caused massive disruptions in flight scheduling (Davies & Brignall, 2019). Ryanair’s customer support has not seen much improvement since the implementation of the ABG plan (Topham, 2019; Peachey, 2020). Therefore, it is apparent that, despite the optimised business model, Ryanair is at a disadvantage in terms of organisation.

VRIO Framework Analysis: Advantages and Disadvantages

There are obvious benefits to the integration of the VRIO framework to assess the company’s competitive advantage based on its resources and capabilities. Lin et al. (2012) identify VRIO as “a useful tool to assist top management to identify a list of potential competitive advantages of the available sources” (p. 1396). The framework is simple to implement, which makes it suitable for regular utilisation. The value and rarity questions help to establish a unique selling point for the company’s services. The organisation question can provide insights into the organisation’s strengths and weaknesses in structure and resource management (Frue, 2017). The imitability question, on the other hand, reflects the company’s environment and allows executives to make projections about the competitors.

The VRIO framework is an extension of a resource-based view, which has various advantages. However, focusing exclusively on the organisation’s assets serves as a threatening limitation. First of all, Barney and Hesterley (2008) define resources too broadly, which creates confusion between the terms ‘capability’ and ‘resource.’ The company’s business intelligence, for example, is not easily measurable, which can lead to unrealistic conclusions regarding the organisation’s weaknesses and strengths. The VRIO framework does not include regulatory policies and legal implications. It fails to acknowledge economic downturns that often make people choose the cheapest option, and not necessarily the most valuable or rare. This, in fact, might explain why Ryanair continues to make huge profits, despite its rarity, imitability, and organisation disadvantages. At its essence, the VRIO framework is effective even though it disregards the dynamics of the economy and does not include the majority of external factors that can influence the business. A SWOT framework can be introduced in addition to VRIO in order to include external elements into the analysis (Picincu, 2020). Opportunities and threats sections may provide crucial insights into the company’s business environment.

References

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Barney, J. B., & Hesterley, W. S. (2008). Strategic management and competitive advantage: Concepts (2^nd ed.). New Jersey, NY: Pearson Prentice Hall.

Coffey, H. (2019). Ryanair named the worst brand for customer service in Which? survey. Independent. Web.

Davies, R., & Brignall, M. (2019, August 8). Ryanair strikes: All you need to know about pilots’ five days of action. The Guardian. Web.

Frue, K. (2017). How firms use VRIO analysis to obtain competitive advantages. PESTLE Analysis. Web.

Garcia, M. (2019). Wizz Air sits pretty in growth market as potentially ugly Brexit threatens other European airlines. Forbes. Web.

Lin, C., Tsai, H., Wu, Y., & Kiang, M. (2012). A fuzzy quantitative VRIO‐based framework for evaluating organisational activities. Management Decision, 50(8), 1396-1411. Web.

Morris, J. (2019). Ryanair strikes: Five planned pilot walkouts called off. Evening Standard. Web.

Nijssen E. J., Frambach R. T. (2001) Creating customer value through strategic marketing planning. Boston, MA: Springer. Web.

O’Higgins, E. (2016). Ryanair: the low fares airline – ‘always getting better’? In Johnson G., Whittington, R., Regner, P., Scholes, K., & Angwin D. (2017), Exploring strategy: Text and cases (11^th ed., pp. 622-632). London, England: Pearson.

Peachey, K. (2020). Coronavirus: ‘First Ryanair agreed to a refund, then it didn’t.’ BBC. Web.

Picincu, A. (2020). Resource-based view: Definition, advantages & disadvantages. Biz Fluent. Web.

Ryanair DAC (n.d.). Ryanair Corporate. Web.

Ryanair Holdings PLC (2019). 2019 annual report. Dublin, Ireland: Author. Web.

Topham, G. (2019). Ryanair ranked ‘worst airline’ for sixth year in a row. The Guardian. Web.