Introduction
This report provides a detailed strategic analysis of the UK low-cost airline industry. It focuses on Ryanair Company. Moreover, it evaluates Ryanair’s current strategy and position in the industry, and how it is managing its strategy to stay competitive in the industry. To analyze the general UK low-cost airline industry, porter’s five forces analysis and PESTEL analysis models were used to study the market environment. On the other hand, SWOT analysis was used to analyze the internal environment of Ryanair Company.
Porters Five Forces Analysis of the UK Low-cost Airline Industry
Bargaining power of the suppliers
The main suppliers of commercial planes include Boeing and Airbus Companies. However, new suppliers such as comic and others from china have emerged. This provides the UK low-cost airlines with a variety of suppliers from where to buy spare parts and commercial aircrafts (Porter, 1980). This gives Ryanair, easy Jet, Go and Buzz more bargaining power. In addition, high levels of competition among airports increases the airlines’ bargaining power in their business relationships with the airports (Hubbard, Rice & Beamish, 2008).
Customer’s Bargaining Power
Customers in the UK low-cost airline industry enjoy high bargaining power. This is because most airline companies are aiming at decreasing their flight fare due to stiff competition from aggressive competitors.
Customers have relatively high bargaining power because they can switch between airlines without incurring additional costs (Porter, 1980). Customers enjoy support from Civil Aviation Authority making them have a commanding voice in the industry.
Threat of Substitute Products
Substitute products that compete with the airline industry in general include railway networks, sea transport, coach transport, and car rental firms. Those substitutes are insignificant for UK low-cost airlines because their tickets cost more than the airlines’ flight tickets. Moreover, the UK low-cost airlines’ time and cost advantage outweighs the flexibility and comfort of cars and trains travel. In addition, cars and trains cannot form an alternative means to air travel on international routes due to long distances (Mirko, 2004).
Threat of New Entrants
Threat of new entrants is low because of the existing potential barriers associated with market entry. The barriers include economies of scale, high capital requirements, and access to distribution channels/airports. Competition for airports makes it difficult for new players to find suitable airports for landing and take-off (Dobruszkes, 2006).
Existing Competition
Easy Jet, British Airways, Air Berlin, Buzz, and Go, MyTravellite, and Ryanair are the major players in the industry and they rival each other. In fact, easy Jet overtook Ryanair as the leader in the industry in 2002 (Porter, 1980).
UK Low-cost Airline Industry PESTEL Analysis
Strategic Analysis of the UK Low-cost Airline Ryanair
Ryanair is an Irish ultra low-cost airline that was founded in 1985 by Christopher Ryan, Liam Lonergan and Tony Ryan. It was named after Tony Ryan. Ryanair mainly operates between London stansted and Dublin airports. The founders of Ryanair established it with an intention of offering low-cost services to its customers between London and Ireland (Graham & Shaw, 2008).
The UK and the Ireland governments signed an agreement that allowed free traffic between them after Ryanair airline was founded (Graham, & Shaw, 2008). Therefore, it began its operation with a fourteen seater aircraft that operated between Waterford and Gatwick airports.
The company gained customer loyalty quickly because of its low-cost fare prices throughout its routes. As a result, it acquired another two 24 seater aircrafts to meet its operational requirements. By 1987, Ryanair had overtaken older airlines in the UK airline industry. Therefore, it became the leader in the industry being the biggest airline offering low-cost fare in the whole of Europe. Its fare was 20% less than that of its competitors (Dobruszkes, 2006).
Ryanair remained the leader in the industry until 2002 when Easy Jet, overtook it and snatched the leadership position that Ryanair had enjoyed for many years. Consequently, Michael O’ Leary the CEO of Ryanair and his managerial staff decided to formulate and adopt competitive strategies to bring back the airline to the top while still maintaining its low-cost fare price business strategy (Graham, & Shaw, 2008).
Ryanair SWOT Analysis
Ryanair Value Chain Networks
The airline’s value chain involves its good relationship with the UK public airports and its suppliers. This has enabled it to deliver its low-cost business strategy. Its ability to make and manage strong relationships with various suppliers such as Boeing, comic, and food/beverages ensures that goods are received on time and are of good quality to add value throughout its value chain (Lawton, 1999).
Ryanair’s strong relationship with Boeing enables it to obtain spare parts and maintenance services at affordable costs. This enables it to continue offering low-cost fare prices to its passengers. Furthermore, its workforce is well-trained to provide quality services to its customers.
Strategic Capabilities
The major business strategy that Ryanair has used over the years is the low-cost business model. This strategy has helped Ryanair to gain competitiveness and leadership in the UK airline industry. Ryanair has an advantage over its competitors because they are adjusting their prices to meet the market demand i.e. the customers demand for low flight fare. Moreover, Ryanair has qualified workforce that ensures that customers receive high quality services in the market (Gillen & Lall, 2004).
Ryanair’s Future
Ryanair should keep on pursuing cost leadership strategy because has helped it to stay competitive over the years. Moreover, it should continue to block its competitors from entering its operation routes. It should study its competitors’ growth patterns to distabilise them as in the case of GO in 2001 on Dublin-Scotland route (Lawton, 1999).
Ryanair should understand its customers especially the new clientele. Moreover, it should consider the customers’ needs as it continues to expand its operations throughout Europe. Ryanair should focus on opening branches in 10 new EU member countries to expand its operation.
Opening branches in new EU members is an opportunity for Ryanair to seize, because the airline markets have been regulated and the flight fare is very high to new EU member nations. Therefore, there is need for low-cost airline. However, Ryanair should balance it’s overly rapid growth to be able to penetrate the new markets with success (Muller, 2011).
Conclusion
This strategic analysis has identified the opportunities, strengths, weaknesses and threats that Ryanair is exposed to in the airline industry. The analysis has found that Ryanair offers the lowest flight fare across Europe. This company will continue to be the leader and enjoying competitive advantage as long as it keeps watch on its strategy.
Despite stiff competition from competitors, it has managed to sustain its position in the market due to its strong financial base and proper management. Ryanair’s lowest fares have made the company achieve competitive advantage in the airline industry in Europe. Its innovativeness has ensured its sustainability and will enable it to enter the future with success (Porter, 1980).
Reference List
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