Analysis of Ryanairs Strategy.docx
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Analysis of Ryanairs Strategy.docx
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AnalysisofRyanairsStrategy
BSP028
StrategicManagement
AnalysisofRyanair’sStrategy
PengSun
A912911
Wordcount:
5396
Contents
1.Introduction…………………………………………………………3
1.1.Industrybackground………………………………………………………….……3
1.2.Ryanairoverview………………………………………………………………..….3
1.3.Researchquestions……………………………………………………………......3
2.StrategicPositionAnalysis…………………………………………4
2.1.Environmentanalysis……………………………………………………………….4
2.1.1.Macro-environmentanalysis………………………………………………...4
2.1.2.Industryanalysis……………………………………………………………..7
2.2.Ryanair’sstrategiccapability………………………………………………………9
2.2.1.Resourcesaudit………………………………………………………………9
2.2.2.SWOTanalysis………………………………………………………………11
3.StrategicOptionsAnalysis………………………………………..13
3.1.Businesslevelstrategy……………………………………………………………13
3.1.1.Costreductionstrategy…………………………………………………….14
3.1.2.Ancillaryservicestrategy…………………………………………………..15
3.2.Corporatelevelstrategy……………………………………………………….17
3.2.1.Strategicdevelopmentdirections……………..………………………….17
3.2.2.Portfolioanalysis………………………………...………………………….20
3.3.Strategyevaluation……………………………………………………………….21
3.3.1.Evaluationofoperationalstrategy…………………...…………………....22
3.3.2.Evaluationofdevelopmentdirectionstrategy………...………………….23
4.Conclusion……………………………………………………….…24
5.Reference………………………………………………………..…25
1.Introduction
1.1.Industrybackground
LowfareairlinefirstlyemergedintheUSwithPacificSouthwestAirlines,pioneeringtheconceptin1949.[1]In1991,Ryanairre-establishedtheairlineasthefirstEuropeancompanyfollowingthelowfarestrategyimplementedbySouthwestAirlines.Nowadaysthegrowthoflowfareairline(LFA)iscurrentlyfocusedontheEuropeanmarket,whereLFAsstoodfor19.5%in2007ofthetotalairtransportsupplyaccordingtoseats.[2]AccordingtotheEuropeanLowFaresAirlineAssociation(ELFAA)’sexpectation,thetotalshareoflowfarestrafficinEuropeisexpectedtoreachover40%by2010.[3]RyanairandEasyJetarethelargestrivalsinEuropeanLFAsstandingfor28.67%and22.1%passengernumbersrespectively.[4]
1.2.Ryanairoverview
Ryanair,thefirstlowfareairlinecompanyinEurope,hasbeentheWorld’sfavoriteairline.ItwastillMarch,2010thatRyanairofficiallyannounces247Boeing737-800aircraftsoperatinginitsfleetandabout6000employees.[5]Ryanairturnstobeprogressivelyfamousforitsextremelylowpriceticketsandhighlyrapidgrowth.Commentslike‘themostprofitableaviationcompanyintheworld’fromEconomicsand‘oneofthemostpopularairlinestocks’fromWallStreetJournal,havedemonstrateditselfagreatmodelasalowfareairlineorganizationsofar.
1.3.Researchquestions
ThisessayreviewsthesituationofEuropeanlowfareindustryandRyanair’sdevelopmentintherecentyears,aimingtostudyontwocentreareas:
analyzingthestrategicpositionofRyanairbetween2006andtoday;andonthebasisofthisanalysis,describingandevaluatingthestrategiesRyanairusedduringthattimeperiod.
2.Strategicpositionanalysis
2.1.Environmentanalysis
Whenanalyzingthestrategicenvironmentofacorporation,abusinessenvironmentscanningisalwaysnecessarygivenitsvitaladvantages(Thomas,2007).Generallyanenvironmentalanalysishelpsorganizationpositionitselfproperly(Palmer,2008).Inthispart,differentanalysistools,suchasPESTELanalysis,Porter’sFiveForcesanalysiswillbeusedindifferentbusinessenvironmentlevelsrespectively.
2.1.1.Macro-environmentanalysis
Particularly,themacro-environmentisthetop-ratedlevelgivenitsvastimpactandinfluenceonacompany.Inordertoachieveacomprehensivelearningandawarenessoftheenvironment,wideconsiderationiscrucial.Thus,PESTELframeworkwhichwidelyincorporatespolitical,economic,social,technological,environmentalandlegalaspectsisrecommendedforabusinessenvironmentanalysis(McGahan,2000).
2.1.1.1.Politicalandlegal
Deregulationandliberalization
ThemostinfluentialpoliticaldecisiontoEuropeanLFAindustrywasthederegulationoftheEuropeanflightmarketin1997.Beforethat,themarketofflightwaslargelycontrolledbythegovernmentsofEuropeancountriesthroughwhichtosecuretheirrespectivenationalcarriersmarketshare.Theliberalizationandrelativelyfreecompetitionsforcedthecarrierstoexamineandre-establishtheiroperationandencouragednewrivals’entry.Meanwhile,airlinefromotherregionsintheworldcomesinEUmarketbecauseoftheliberalization.
Stateaid
EUhaslaiddownstrictcontrolonstateaidtodiscouragegovernmentsfromsupportingnationalflagcarrierswithstatesubsidies,alsocomparedtolegislationinothercountriesingeneral.[6]Evenafter911,EUstillinsistednottosubsidizeanyairlineapartfromallowingcompensationforlostrevenuesdirectlycausedbytheterroristattachandasaresulttheBelgiumnationalflagcarrierSabenawentbankruptinNovember2001astheailingairline.Additionally,governmentsupportsuchasinvestmentinterminalsespeciallysecondterminalscanencouragelowfareairlinecompaniestosetmorefutureairlineplans(Johnson,2002).
Traveltax
GovernmenttaxesontravelcoulddamageLFAs’developmentandcouldhaveamaterialadverseimpactonLFAs’operations.Somecountriesincreasedthetaxesontravelintheresentyears,whichhaveanegativeinfluenceonpassengervolumeandotherfinancialindex.Forinstance,theU.K.governmentleviesanAirPassengerDuty(APD)of£11perpassenger.Thetaxwaspreviouslysetat£5perpassenger,butitwasincreasedto£10perpassengerin2007and£11in2009.[9]
2.1.1.2.Economic
Globalrecession
Astheglobalrecessionhasstillbeenongoing,ageneraldownturntrendneedstobebearinmind.Thisdownturnsituationislikeadouble-bladeswordtoLFAs;ononehand,obviouslyeconomicrecessionbroughtgeneralshocktoairlineindustrythroughfinancialmarket;ontheotherhand,itmadecustomers’purchasepowerweaker,andmorecustomerswouldliketotakelowfareairlineconsideringthemuchcheaperticketprice,safetyandswiftnessratherthanfullserviceandluxuryenvironment.
Fuelprice
Themostimportantcosttolowfareairlinecompaniesisdefinitelyidentifiedasfuelcostasthefuelcostsconstitute10-14%ofanairline’soperatingcosts.[2]Fuelpricehasalmostboostedsharplyinrecentyearsandithasalreadyforcedsomecompaniestoquitthecompetitionfrommarket(Johnson,2002).Traditionallyairlinecompanieswouldchoosetooff-setthecostsofrisingfuelpricesontothecustomers,eitherthroughincreasinggeneralfaresortoadda“fuelsurcharge”intotheticketpricesasmostfullserviceairlines.HowevermostLFAsrefrainsfromusingthisstrategy,insteadthattheyaretryingtoincreasemarketshareoff-setthehigherfuelpricesbyservingmorepassengersandincreasingtheloadfactor.
Laborcosts
Laborcostisanothermaincontributortoairlinecompanies’operationalcosts.Insuchadownturnsituation,reducingthelaborcoststhroughloweringwagesorworkforceisreasonabletoairlinecompanies.However,incountrieswithinflexiblelabormarketsandstronglaborunions,itisdifficulttoreducethewages;thereforemanycompanieswentbankruptduringtherecessionbecauseofunaffordablehighwages.ManyLFAssuchasRyanairfiercelyopposeunionsandtheiremployeesarenotunionizedandtheflexiblelaborrulesthathasattractedsomanyinternationalbusinessestoIrelandhasalsohelpedRyanairinreducingitslaborcosts.[2]
2.1.1.3.Social
Affordableflighttravel
Asthedevelopmentoftheairlineserviceandtheincreaseofthepeople’spurchasepower,flighttravelismoreandmoreaffordablebymiddle-classpeopleandstudents.Andthemediumandshortrouteflightshaveattractedanincreasingnumberofpassengersoftrainandshiptravel.
Demandformobilityandtime
People’sincreasingdemandformobilitybecomesanotherfactorpromotingtherapidgrowthoftheairlineindustryingeneral.Moreandmorepassengersnowtravelfrequentlyviaairplaneratherthantrainorshiptoholidaydestinationsorweekendtripsforsavingtime.Forthemajorityoftheseprivatetravelers,priceistheprimarydecisionfactor;commitmentofthemisalsobasedoncheaperprice.
2.1.1.4.Technological
Onlinesalestechnology
Althoughtravelagentscanincreaseflightticketsaleshugely,thecommissionfeesforagentservicedoleaveairlinecompaniesbigpotentialprofitspacetoexplore.Thus,newsaletechnologybasedoninformationtechnologywhichcansimultaneouslysavethecostofcommissionandincreasesaleswillbewarmlywelcomedbylowfareairlinecompanies.Currently,mostlowfareairlinecompanieshaveadoptedonlinebookingsystemtofacilitateitssaleandcustomerservice.
Fuel-savingtechnology
Apartfromonlinesalestechnology,introducingnewfuel-savingsolutionstoreplaceout-of-dateequipmentshouldbethemostcriticalaspectaccompaniedwithlow-costmarketingstrategy.Therealsoweremanytechnologicaldevelopmentsinthepastfewyearsfacilitatinglowfareairtransportation.Forinstance,“turn-aroundtime”,thetimerequiredforanaircraftfromarrivaltonextdepartureatanairportwasdecreasedfromaboutonehourtolessthanhalfanhour,whichismadepossiblethroughadvancedmethodsofaircraftfuelingsimultaneouslywithpassengersboarding.Sincelowerturn-aroundtimesareessentialforhighermargins,thisisanimportantfactorforLFAs’capabilitytoofferlowerprices.
2.1.1.5.Environmental
Manyconcernsintermsofenvironmentcanbeapparentlyfoundnowadays.Oneofthemostserverconcernsmaybereferredtoaviationemissionwhichalwayscauseshotdebateonglobalwarm
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