Strategic Management in Ryanair

Introduction

Ryanair is seen as one of uppermost no- frills- Airlines Company which has been operating very successfully, since the privatization of airlines way back in the 1980’s. It starting its commercial flights during 1985, and since then, although starting operations first, as single flight basis service from Waterford Airport in South east Ireland to Gatwick airport In the United Kingdom using turbo propelled aircraft, it has never look back in its 25 year old chequered history.

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It now has 28 aircraft bases and 729 low fare routes across 26 countries of the globe carrying around 51 million passengers annually. “Ryanair currently employs a team of 6,000 people and expects to carry approximately 58 million scheduled passengers in the current fiscal year. “

Mintzberg models

The two Mintzberg Models that are being used are:

  1. The Positioning Model
  2. The Entrepreneurial Model- entrepreneur and negotiator

“Effective managers develop protocols for action given their job description and personal preference, and match these with the situation at hand.”

The Positioning School

Under this method, it is necessary to consider Ryanair in the context of the airline industry. Under this theory it is necessary to consider the following aspects of Ryanair in terms of the airline industry under which it operates globally.

Ryan Air now occupies high position in terms of the number of passengers it carries, carrying over 58 Million passengers yearly. It is also necessary to consider the position of Ryanair in comparison with other airline companies. The competitive advantages that Ryanair has would be in terms of its pricing strategy.

“Currently it is estimated that European low cost carriers (LCC’s) carry 10-12m passengers (pax) pa. “

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It is seen that its pricing is one of the lowest in the airlines industry, and its services, especially punctuality, and lower incidence of baggage losses are very less in comparison with other airlines, private or public.

The other competitive advantages that Ryanair enjoys is in terms of strategic code sharing with other airlines in the UK, including some of private airlines that could impinge upon the business and profitability of Ryanair in the future.

The use of Porter’s Five Force advantages could be seen in terms of maximising value creations.

  1. Forces of high competition: It is seen that although Ryanair has been operational since 1995, a lot of small time airlines, taking advantage of the deregularised conditions, have encroached Irish travel trade and tried to exercise rights over the market shares of the existing airline players. Although nearly 80% of them had folded up, newer competition entered the field over some time.
  2. Next, the Porter’s Five Forces in the context of Ryanair, needs to take care of the competitive rivalries that is a major aspect.
  3. It is seen that since deregulation, airline operators have been allowed by government to have discrimatory price settings and discounts to passengers, routes traversed and other regulatory aspect of air flying. It is sheer management brilliance and strategic planning that has allowed Ryanair to survive and sustain in a highly surcharged and competitive environment.
  4. Next are competitive aspects regarding threats of suppliers supply chain management, in terms of competitive pricing of supplies and fuel needed to keep the company going. It is seen that often differential pricing strategies, credit terms and other aspects
  5. The next threat could be in terms of threat of substitution in that due to certain reasons buyers or passengers may stop opting for Ryanair, and instead would think in terms of flying some other airlines. This could spring from security concerns, pricing policies or loss of goodwill. This could, in the short, and medium term cause serious concerns in the workings of Ryanair and its future policies.
  6. The threat of new entrants into the airline industry is a major factor that needs to be concerning Ryanair and its future strategies.

Thus it is necessary that the top management needs to consider the impact of Porter’s five forces when formulating strategic decisions for future. In adherence with the aspect of positioning, it is now necessary to consider the value chain analysis that entails dealing with value chain in terms of suppliers, vendors, outsourcing partners and others. It is seen that about supply chain, the main aspects would be in terms of alliances with airport authorities for refueling airlines, providing essential services and infra-structural facilities for the aircraft.

Ryanair believed in being most economical about supply chain management and has reached agreements with secondary airports to actively pursue economies of value chain systems.

Again, it is seen that economies need to be effected to keep the prices to the consumer also low. While Ryanair tries its maximum to reduce burden on ultimate consumer, it also needs to do away with tea/coffee onboard, and substitute it with paid soft drinks, to maintain the price line and “for ancillary revenues from sales of in-flight extras and other services”

Again about supply chain, it has developed strategic value chains with loyal vendors and suppliers to reap large scale economies. It allows brands to advertise on the outer side of its planes and it also gets commission from hotels and restaurants for promoting their products, or sponsoring their items.

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Thus, it is seen that innovative thinking and commercial acumen has been a major factor for growth and success of this business, and the fact that, except for certain evidences of bad publicity, all seemed to go well for Ryanair in its eventful history.

http://books.google.com/books?id=X0zpJ4DCyj8C&pg=PT340&dq=Ryanair#PPT346,M1

Table 1 below traces growth pattern of this low cost economy, no frills airliner, which, despite challenges like escalating fuel costs, operating in cut-throat competitive markets, in name just a few, have managed to notch up a reasonable growth performance since its inception, some 25 years ago due to free movement of people.

Year Employees
(numbers)
Passengers
(millions per year)
1985 57 5,000
1991 350 70,000
1994 500 1.5M
1995 600 2.25 M
2008 6000 51M

Table 1.

This performance has been fundamentally due to strong supply chain management in place and strategic use of resources, which underpin corporate performance.

Customer service.
Table 2 Customer service.

BCG Analysis

The Boston Consulting Group has stated that from 1998 to 2000, the combined strengths of the main private airliners, Easy jet and Ryanair had doubled their trans-European market share by almost 100%. However, post 2001, the scenario for air travel fell drastically, and even major airlines suffered

Like South West Airlines suffered drop of 16% in sales, while there was a 2400 % drop in that of US Airways.

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It is seen that for a low cost strategic pricing pursued by Ryanair, it is necessary that competition and air traffic needs to be sustained. With the advent of deregulation in the airline industry, competitive activities and air traffic rules also escalated and safety and environmental factors also become key issues to be sorted out on a case-to-case basis. When operating costs become crucial issues, it becomes necessary not to burden the consumers with high load inputs of costs, but the airlines need to absorb costs themselves, through hedging and other financial market measures designed to reduce fuel costs.

According to strategic management groups, many factors impinge upon costs and performance, like oil price movements, political scenarios and a host of immediate or urgent issues that may crop up in the European markets.

It would not be wrong to suggest that air travel, especially in business class, is dependent upon currency exchange rates also, which is linked with American Dollar. However, the good news for Ryanair is that a weaker dollar would most certainly uplift the value of the Euro or the British Pound sterling.

It is seen that there are a plethora of reasons for the drop in air travel. For one thing it could be the fall in demand due to political and economic instability and the recessionary trends in the economy. For another it could also be attributed to more faster and efficient alternative transportation, by rail or road, especially between European cities, thus saving substantial euros in the Bargain.

The strategies that need to be implemented by Ryanair would be in terms of fact that the load factor has to be maintained which is seen to be around 90% last month, is maintained as well as fresh demand created for its product.

http://www.reuters.com/article/tnBasicIndustries-SP/idUSDUB00036420070803

If Ryanair, for one, decides to increase capacity, this may be at the cost of reducing prices more to attract more customers; again if the load factor needs to be maintained, it is possible that servicing may take a back seat, since additional load may compromise on exiting facilities and infra- structure. Thus, it is seen that whatever strategies are being adopted, it is necessary that its implications are well understood, and implemented in a way that would not cause detriment to the company. Another aspect is that all the relevant factors like profitability, growth, fuel costs, load factor and customer servicing needs to be harmoniously dovetailed into the entire segment, to provide smooth operational convientce and maximum customer comfort

Entrepreneurial model

Coming to the second part of the question, that is the entrepreneur model, it is seen that main architect behind the success story of Ryanair has undoubtedly been Michael O’Leary, a tax consultant by profession, who joined the company in 1991. The earlier attempts by the owners of Ryanair to post profits proved disastrous and thus it was now O’Leary’s responsibility to stage a financial turnabout for the company and become a “strategic leader.”

http://books.google.com/books?id=INy2SHeqMhwC&pg=PA6&dq=Strategic+management+in+Ryanair#PPA6,M1

He showed remarkable entrepreneurial courage and perspicacity in quickly learning the methods of the company and undertake a visit to US to study efficient airline operational management from South West Airlines. He quickly realised that the best way out for Ryanair was to develop robust cost reduction and control market in a highly volatile and elastic airlines travel trade business. His main focus was using economical secondary airports, not international airports for use, thus saving tremendously in costs of using large airports. However, this did result in some inconvenience for the travelers since they had undertaken an extra effort to reach/ come out from secondary airports to the city.

Again the matters became serious if connecting flights were required, and if the plane arrived late at the first airport and thus missed the connecting flight.

There were no refund systems for unused flight tickets, nor were there any hotel reservations made for overnight stay, in the event of delayed, or cancelled flights.

However, Leary display strategic management skills when he began to undercut rivals like Easyjet, etc. and get forays into new routes and destinations. He displayed remarkable cost effectiveness leadership management and strategic cost consciousness to afford costs at only around 67% of the nearest rival, Easyjet.

It could also be seen in terms of fact that his strategies proved efficient and judicious for Ryanair, keeping in mind that buying aircrafts were a major aspect that needed to be effectively negotiated,

Ryanair’s strategy for purchase of aircrafts were to seek aircraft manufacturers who were experiencing selling difficulties thus negotiating for low pricing, maximum use of e-ticketing and other internet usage in airlines business, thus keeping documentation at lowest. Nowadays, even check in at airports has become computerised, so that more business economies are effected.

The crew costs have also become competitive and performance oriented, thus rendering maximum output and efficiencies.

Even the ground handling business has been streamlined and labour reduced drastically to improve passenger amenities and service. Thus it is seen that the new CEO has been able to render many strategic management systems that makes it possible to lower costs, and achieve managerial effectiveness in major areas of public accountability.

Besides reducing costs, Leary has also been responsible for creating greater outputs for the company. The sitting has been increased substantially to increase the load factor. Strategic alliances have been struck with secondary airports authorities for providing infra structural facilities.

While being an astute and shrewd negotiator, O’Leary has realised following ground realities about the future of airlines business, particularly about no frills, low-cost airliners. It could be in terms of the fact that competition in the trade would be more severe with many new players entering the field; it could also be seen that factors like green environment, fuel cost control, employee and personnel dynamics, European governmental regulations and a host of other factors would cast its shadow on the successful operations of airlines in future years.

The effective Leaders generate resonance. Effective leaders understand other people’s emotions and twist them in a right direction. Pacesetting, visionary, democratic, associative, and coaching these are the styles very essential for an effective leaders. The most effective leaders can switch the various styles according to the situation demands. They always speak accurately about their principles.

People are motivating under the supervision of an efficient leader.

Visionary leadership motivates people in a right manner. They have their own beliefs and visions. They are very empathetic. Visionary leaders describes about how peoples hard work contribute to achieve the dream. This style is applicable for when a clear direction is needed or when changes require a new vision. Coaching style leaders are always a good listener. They help people to recognize their strength and weakness. He encourages and advises people always. He understands person’s requirement and that connects with the organization’s goals. People are performing very highly by the motivation of coaching style leaders. Affiliative leaders balancing harmony at work place between employees. They are very friendly and empathetic. They boost moral values and solve conflicts between the staffs or management. Affiliative leaders cure gaps in a group.

They are motivating staffs during hectic times and strengthening their association. Democratic leader is a wonderful listener, team player, traitor and an influencer. They always appreciate employees input without any hesitance. Democratic leaders are building good support or harmony to get worthy result from employees. Pacesetting leadership, they are very initiative but low on empathy and collaboration. Pacesetting leaders do not much patience and to control a situation by paying extreme attention to small details. They are very high on standards. They are always expecting high quality of input from a motivated and skilled group. The sixth style of leadership is commanding leadership. This style often makes impact on the business or climate. Their activities such as threatening, tight control on staffs, monitoring diligently, creating conflict, contaminates everyone’s attitude and drive away talent. This style of leadership is appropriate in a severe situation or problems with staffs. Traditional militaries are following the commanding leadership style.

Ryanair is a Europe’s famous low fair airline company. This airline company set up by the Ryan family in 1985. Ryanair faced so many ups and downs in its long carrier. Anyhow they overcome the situation with the help of an effective leader like Michael O’Leary, who is a current CEO of Ryanair Airlines. He is harsh but highly inventive talent has changed European voyage forever. O’Leary is one of the richest men in Ireland with an anticipated wealth of ∑280m. In 1985, Ryanair has only 51 employees and transported 5000 travelers between UK and Ireland. Later it is became top profitable airlines, with 2600 employees and a group of 233 routes enlarging as far field as Finland, Poland and Lithuania. Ryanair expects to take 35 million passengers this year.

Michael O’Leary is a business tycoon who was born in Ireland in 1961. He has completed his graduation from Trinity in 1983. He was worked in different segment and places in his long career. In 1987, he was worked as a personal financial and tax adviser of Tony Ryan, chief of GPA (Guinness Peat Aviation, a leasing company). Ryanair was launched about this time. At the early stage of Ryanair They hastily began to lose money. He was appointed in Ryanair as a Deputy Chief Executive in 1991. In 1994 company has promoted him as a Chief Executive. Under the administration of O’Leary, Ryanair developed a low cost fare airlines originated by Southwest Airlines. He was very brave and bold. Travelers of Ryanair were to pay money for the whole thing they consumed. He speaks very confident and sometimes violating accepted standards of decency or morality flagrantly or shockingly.

Most of the CEO’s level of confident is too high. Because of an extra confidence they are reaching the new heights. They continue to lead their companies in a strong position. The success of O’Leary is his very competitive nature, hard work, and self driven. “Michael O’Leary appears to control every penny of his organization from preventing employees from charging their mobile phones at work, to making new aircrew pay for their own training and charging customers for every service or drop of water they consume on board.”

It is a part of his cost cutting strategy. Even office staffs have to use their pens at office timings. But his different strategy of cost cutting turned Ryanair into one of the most gainful airlines in the globe. http://www.guardian.co.uk/business/2006/oct/06/theairlineindustry.travelnews

Many people are considered him that he is one of the most effective leaders in the industry with the qualities of discipline and extra ordinary level of confidence. He follows the commanding style of leadership.

Conclusion

The fortunes of Ryanair is seen to be improving, even though escalating oil prices, unfavourable trade cycles, rising costs and competition from other smaller and lower overhead airlines have dipped into their profits. This could again be seen in the backdrop of the fact that having a good CEO, with a good professional background and experience could guide the company along the right course in future years. It is seen that during earlier years, the Ryan family could not make profits despite earning good revenues since their cost control systems were not in place. However, with the induction of O’Leary and modern management principles, including strategic management, it was possible to break away from series of corporate losses that confronted the company and start earning profits. To a large extent, this was possible due to the far sightedness and intelligence of the CEO himself along with his team of performing executives and work force at all levels.

Ryanair has come a long way from a one destination aircraft company, from a multidimensional and progressive minded business which is in direct competition with British Airways, American Airlines and other giants who have been around for many years. BA would not be able to accept pricing strategies advocated by Ryanair since this would incur heavy losses for them, and they would need to do away with certain routes, in best interests of the company. It is also necessary that, from competitive point of view, the company needs to improve its performance and sustainability for the future. It could also be seen in terms of providing better customer servicing in future, taking into account the Porters Five Forces, SWOT analysis and recommendations provided by the Boston Consulting Group (BCG) which could address critical issues regarding its operations. This could also be seen in terms of creating value additions for services, providing right inputs for individual growth of workforce and maintain congenial and tension free work environment which could lead to higher productivity and job satisfaction for the company and its workforce at whichever level they may be working.

Coming to the aspect of strategic management, it is seen that it means setting different strategies to meet different goals and objectives. Again, these strategies need to be amended to suit different trade conditions and business climates; the strategy Ryanair adopts during recession would not be the one that would be used during booms, or recoveries.

It is therefore, for the top management to decide on which stragegy would be most suited for each occasion.

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