Executive Summary
Ryanair gives us a good overview of strategic management practices that improve the status of an organization and makes a company get more profits. From the statistics of Ryanair collected over time, one is able to see the competitive moves and business approaches that the management has taken.
These systematic steps have led the company to success (Barrett 90). It took the company a lot of time to start growing. It accrued loses within the first five years after its establishment in 1985 amounting to IRE£20m. On changing the management team the company rose to the top of Europe’s airlines in the early 90’s.
O’Higgins (2007) says that in 1997, Ryanair first sold its shares through the Dublin Stock exchange and afterwards with NASDAQ in the year 2002 (O’Higgins 687). It not only rose in Europe but also by the year 2006, it was leading the world’s airlines as the most profitable company.
In the same year, Ryanair announced its profit to be £329m for the first half of the fiscal year 2007. Its profits rose by 1% to 26% in that half year (O’Higgins 687).
This essay focuses on some aspects of strategic management that the leadership of Ryanair used to come to the top in terms of profitability. These are: managing strategic change, strategic management on human resource and cost.
Ryanair
Michael O’Leary has done a lot to propel Ryanair to the top in terms of profitability. This is because of how he has been strategic in his leadership, since he took over this role in this company (Barrett 90). After his promotion to be the chief executive of Ryanair, he had a very clear vision; to model the Ireland’s Ryanair after the novel Southwest Airline Business Model.
He had the objective of making it to come to the top rank among all Europeans Airlines in terms of profitability. O’Leary did not take a very long time before he steered the short haul airline to the top. From the early 2000, the airline has topped not only in Europe but also globally.
“Ryanair took delivery of the largest number of new aircraft in 2009, with 54 B737-800 deliveries – or an average of 4.5 per month” (“Ryanair tops 2009 aircraft deliveries” par 1). This report shows exactly how O’Leary’s is effective and how the company is doing.
In this discussion we focus on four aspects of strategic management; managing strategic change, strategic approach on managing human resource, strategy on cost, and finally, an over view of how Ryanair compares with British Airways. These four aspects fall under the whole domain of strategic management.
The company focuses on the scope and the direction in which it will carryout its activities over a long period of time. This enables the organization to make use of the changes in the environment, principally viewing them as opportunities.
The organization or the company configures its potentials and resources to achieve this goal (Hitt, Duane and Hoskisson 3). Studying the above-mentioned four concepts will validate the fact that Ryanair has benefited from the initiative its management took in those areas of strategic management.
Managing Strategic Change
Change is usually a challenge. It comes because of many factors. Managers should always be on the lookout because the change may bring a negative growth to the company if not well managed (Grugulis and Adrian 33). Both positive and negative changes may cause a negative growth if they are not monitored.
The first approach that the company used to manage change was by planning. Planned or regulatory ways looks at organizational change as a procedure that progress from a certain “type of state” to another by a sequence of carefully planed stages (Hill, and Gareth 53).
This is when, amongst all other things, when Michael O’Leary the Chief Executive Officer was went to America to gain knowledge of the business model of the then best performing Airline Company, Southwest Airlines. It was the most profitable airline company in the USA.
This led to the Ryanair’s model that is still fuctional to date. This was a clear application of planned changes. This was at the initial transformation of the company.
The former traditional model had made the company incur loses very fast. Eventually the low-cost airline model has elevated the company to the top, amongst all the airline companies in the world (Barrett 97).
Ryanair’s management also mixed their style of managing strategic change with the emergent approaches. This approach does not depend on exact plans put down. It studies the upcoming issues and devices means to manage such changes (Hill, and Gareth 120).
Some of the issues that arose and the company showed a good manner of managing change were the rising cost of fuel, managing the increasing number of passengers, using ancillary resource, and maintaining fleet commonality (O’Higgins 687).
As other companies surcharge their customers because of the rising prices of fuel, Ryanair maintained their prices low. Contrary to many companies that had increased their prices because of the rising fuel cost in the year 2005, and even higher in the year 2006, Michael O’Leary declared that they would not levy their customers more at any time, not even in the far future.
Customers welcomed this assurance. This is because the statistics show that the company further increased its revenue during this period. Many of the companies of the long – haul routes surcharged their customers (O’Higgins 688).
In addition to that, these levies were not proportional to the overall fare. Ryanair in this case handled this change with care making sure that it would not lose its customers.
Due to its low travel cost, Ryanair had an increase of its customers. To cope with this growth change, the company bought new aircrafts (Barrett 92).
This was between September 2006 and April 20007 when they acquired 30 aircrafts. This also ensured that the increasing customer would not come, miss the service, and later tarnish the reputation of the company.
However, the company needed to compensate the rising fuel cost in order to increase its profit margin. Ryanair therefore focused on ancillary revenue. This revenue rose by 36% in 2006, far much more than the passenger revenue (O’Higgins 692).
The company calculated it to be at £7.70 per person (O’Higgins 692). The ancillary revenue comes from the schedules that do not involve flight. These are rail and bus ground services, hotels, charges on excess baggage, car rental services, and flight charge fees, in flight sales, personal loans and commission from Ryanair credit card.
This initiative also started the in-flight mobile phone service and online gambling. This did not receive a positive reaction from a majority of the customers. Michael O’Leary kept the company’s stand on the fact that they would not stop doing the business.
The kind of the business had made some passengers uncomfortable because of the perceived noisy environment (O’Higgins 691). The management refused to adhere to the customer’s complaint because of the relatively low prices. This was an act of balance.
It had to be there in order to maintain the company’s profits as well as provide affordable service to the same customers. They did this to respond to the rising costs of fuel (Warren 146). The company therefore gained much more than many companies.
Ryanair maintained the fleet commonality by using Boeing 737 planes. The company has replaced the old aircrafts with new efficient and environmental friendly planes. The policy is in place to keep the employee training and the maintenance of aircraft very low. This and the above-discussed points have shown how Ryanair has managed change strategically.
Another evident aspect in this company in managing strategic change is the use of learning organizations (Sange, 270). They understand that by continuously learning and seeking knowledge, they will be able to deal with most of the emerging issues. In this Ryanair has a consistent program for training and retaining its workers (O’Higgins 699).
How Ryanair used Strategic Approach in Managing Human Resource
Managing resources strategically in general entail studying the resources that are at the company’s or the organization’s disposal. This is with the aim of exploring their role and their contribution in order to comprehend how they can yield high profits (Barrett 87).
In Ryanair’s analysis, they found out that in order to increase the productivity of the human resource, they would increase their number in order to reduce the workload of the then present workers. This would highly increase their profitability. In the year 2006 the company’s employee count increased by 700.
The number rose to 3500 (O’Higgins 689). This gave the workers who have been there relieve. It improved their working conditions. This is majorly by reducing their working hours. This eventually increased their efficiency and so maximizing their profitability.
The management of Ryanair must have performed a resource audit before arriving at the decision of training and retraining their workers. Such an audit aims at assessing the amount of the resources existing, the quality of such resources and the uniqueness as compared to what other organizations would have (Grugulis and Adrian 125).
On this fact, the company focused on the quality of service their workers offered. It is at this point that they decided to establish a culture of training and retraining them. In that view, they embraced the value of learning organizations.
Learning organizations give people educational opportunities while on job (Sange 270). This will always be a fulfillment to the employee because it is a direct form of developing his or her career further.
The educational opportunities will profit the company directly too. This is because the skill gained by the staff or the employee will improve the productivity of the company.
In view of resource base view (RBV), a certain resource should pass five market tests so that the company would embrace it. In their appraisal, Ryanair made sure that its Human Resource meets these standards (Warren 148). In order to pose competitive advantage to their rivals they decided to pay their workers higher than the other airline companies did.
From the claim that they had an average pay of £49, 692 in 2006, insinuates that they are paying higher than any European airline (O’Higgins 690). This still implies that that Ryanair pays its employees well. This is another fact that improves on the working conditions of the staff. Motivation is the principle issue in this.
This strategy had the quality of inimitability within it. High pay is usually one the hardest things companies get involved in when they are remunerating their workers. Their initiative to maintain this proved that it was a durable value on this resource.
On the aspect of quality, Ryanair still went a step ahead to improve the working conditions of workers; the company complied with the regulation, which enforces a ceiling on pilot flying hours to an average of 18 hours per week. This will help the workers to work with renewed strength making them to be more efficient (Warren 194).
This is because of reduced fatigue. At times, it goes to dangerous levels. Keeping the health of workers in an organization is sustaining its productivity.
In focusing on competence, the ability of an organization to perform in certain areas of business, Ryanair also implemented the above strategy in order to improve the knowledge, attitude and potentials of the workers. The aim was to achieve the general competence of the firm.
The company has however been criticized for mishandling workers at some point. The focus has been more on the pilots. The company has not allowed them to join unions in order to express themselves freely (O’Higgins 715).
The company allegedly subjects its workers to stringent working conditions. An example of such an allegation is that the workers are not allowed to charge their mobile phones in the company premises to save on power cost.
The Ryanair had an appeal to the Supreme Irish court over a ruling that its pilots should collectively bargain through Irish Airline Pilot Association. The court ruling was in the favor of Ryanair. The company thereafter launched a claim for it s legal expenses.
Furthermore, in 2006 the Irish High Court found the company to have bullied pilots to accept a harassing contract. The contract was that they should pay ÂŁ15 000 for retraining. This is on new aircraft if the pilot had left the airline.
The same would also apply if the very situation forced the company to negotiate with unions in the next five years. Some senior officials of the company were judged in court to have given false evidence (O’Higgins 702). This was as concerns the above-mentioned case. The company has had this wrong side while handling its human resource.
From the previous statistics about the remuneration, Ryanair is said to be the one paying higher than all other companies. It means that they pay their workers highly.
The company declared that their pilots are the best paid among all the short-haul pilots in Europe. They should therefore balance these with a more human relationship with its workers. This would cure their image and further sell their brand name.
Strategy on cost
The Ryanair Company also analyzed the way they would maintain their prices. In this, they looked at the value of ancillary revenue sources. This answered the question about value. It is the first question managers should be asking themselves when they want to capitalize on a certain resource (Grugulis and Adrian 225).
In the list of the four questions VRIO framework, the company found that the ancillary revenue would be very handy in substituting on imposing an extra levy on the customers. This was a unique way of balancing costs to bring them down to increase the profit margin. Some of the recurrent costs are not always predictable (Warren 255).
The main one that has it prices badly fluctuating is fuel. The company decided that the challenge will not cause them to increase charges on travel costs. To manage this, the company has refocused its energy on the value of ancillary revenue sources as earlier seen.
The second aspect of VRIO, which is the resource rareness, is evident (Hill and Gareth 402). Focus on ancillary revenue is a common thing in most airline companies. It is usually there but it is not the major focus. Focusing on it made Ryanair to look for more aggressive means of capitalizing on this resource (Warren 105).
To some point, some customers said that it caused discomfort on plane. The reason was that the place becomes very noisy. They forgot one thing, that they are paying low fares for their flight.
This is the reason, Michael, the CEO, stuck to the fact that this will go on (O’Higgins 679). Other high fare airlines do not have such aggressive types of ancillary strategy.
On the point of value, they also cited value in flight commonality. This company has dwelled on this policy. This policy adds value to the company by reducing the cost of having diverse types of flights. By using the Boeing 737, the company is able to save on the cost of training staff and the cost of aircraft maintenance.
This was by doing away with the small and less environment friendly planes. These aircrafts were also older which meant a higher maintenance cost than new ones. The cost would reduce by a big margin because the fuel consumption alone would reduce by about 47%.
“Then newer aircraft produced 50 per cent less emissions and 45 per cent less fuel burn… Also, a winglet modification program on the fleet was providing better aircraft performance and a 2 per cent reduction in fleet fuel consumption, a saving which the company believe could be improved over the next year” (O’Higgins 699).
This has benefited the company by efficiently saving on cost, therefore increasing the profitability margin. All focus is still on value.
Employing more workers also improved on the efficiency of the current workers. Increasing their number seems to be increasing on the cost of wedges, but the firm had seen it right that more work would be finished and the result will be more profits.
On this O’Higgins (2007) says, “Also, by tailoring rosters, the carrier maximized productivity and time off for crew members, complying with the EU regulations which impose a ceiling on pilot flying hours to prevent dangerous fatigue.
The airline adhered to the general rule of a maximum of 900 flying time per year, averaging 18 hours per week (O’Higgins 699). This positive aspect increases the value of workers, consequently improving on the quality of the work they offer to the company.
The last aspect (VRIO) comes out clearly on the point they introduced more measures to manage cost. This how an organization takes advantage on the potential of certain resources to increase profitability (Warren, 89).
The measures were luggage handling and passenger check-in techniques that were designed to reduce the cost and enhance productivity. The first was to introduce a web-based passenger check-in that saves time. The company was able to take advantage of these funds generating resource to gain competitive advantage over other companies (Hitt, Ireland and Hoskisson 154).
This also saved the cost on using airport facility for check-in services. The other cost minimized was of the check-in staff. The second was luggage handling (O’Higgins 688). They introduced charges on the check-in bags.
This encouraged the customer to travel with few or at some cases without the check – in bags. This saved on cost of handling the luggage and increased speed. This had an overall improvement on the efficiency of organizing the travels throughout.
They decided to focus on the airline budget model. They therefore maintained point-to-point routes only. “Ryanair reduced airport charges by avoiding congested main airports, choosing secondary and regional airport destinations, anxious to increase passenger throughput” (O’Higgins, pp 699).
This was in the time the handling and airport charges raised by 21per cent. This was slower relative to the growth of passengers giving a net reduction on costs from transactions at new bases and airports. This defied the increased costs at some bases like Stansted (O’Higgins 700).
Generally airport charges had increased in the year 2006 prompting the company to use alternative routes. Aircraft numbers increased in that year on the existing routes therefore congestion was evident.
Congestion would make the Ryanair waste time and so losing income at any particular time. That is why they decided to use alternative routes. This saved on the operational costs.
British Airways Compete with Ryanair
As all the fuel companies were devising ways to maintain or reduce cost during the fuel price rise, British Airways as well increased its fare charges. They did this to hit back on the strategy Ryanair had (O’Higgins 689).
Ryanair did not surcharge the customers for the same reason. Contrary to their thought that Ryanair would have its revenue reduced, it went up higher for the low prices attracted the customers.
British Airways had monopoly over some main airbases. From this, they collect much revenue. Increasing airport charges was a strategy to get off those companies that would not sustain the charges comfortably. Their alternative was to look for alternative routes.
Such routes that would not favor the passengers especially those are far away from the city center. That is why, “Ryan air continued to protest at charges and charges and conditions at some airports, especially the Stansted and Dublin, two of its main Hubs (O’Higgins, pp 699).
In addition, O’Higgins says, “It vehemently opposed the British Airport Authority (BAA) airport monopoly plans to build a £4bn gold plated Taj Mahal at Stansted, which we believe, could be built for £1bn” (O’Higgins, pp 699).
British Airways also has tried to reduce operational cost in several ways. It has withdrawn some refreshments formerly given to the customers. This has so far discouraged some customers showing that it is not that successful in using this measure.
In its struggle to increase, its revenue the firm is also introducing charges for travelers who would book seats beyond 24 hours before the travel dates (Smith, par 3). This will make the customers struggle for seats always as travel dates draw closer. This will also make the customers look for alternatives.
This is contrary to the Ryanair’s strategy of turning on ancillary revenue. The ancillary revenue does not hit on the customer directly. This is because some of the services give the customer the choice not to use or to use the service available. Customers then will continue to prefer such a company to the British Airways.
Conclusion
Ryanair’s strategic plans were very successful since Michael O’Leary took over in the early 1990’s. Though he has received sharp criticism from rivals, O’Leary has kept standing strong to keep implementing the ideas he had. That is why he steered the short-haul firm to great success in the last few years.
Ryanair has hitherto kept growing as Michael O’Leary leads it. “Never the less, Ryanair is growing at the expense of its competitors. The airline reported a 17% increase in passenger numbers for September 2009. The airline said it carried 6.12 million passengers in that month, up from 5.12 million the same time last year” (Smith, par 6).
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