To identify an appropriate strategy for a given industry one must look into the external and internal factors influencing the company. The following report will discuss these factors regarding Ryanair, which is one of the leading budget European airlines.
This report identifies important issues of Ryanair's environment which have been formed since the company's development. It also goes on to analyse the future opportunities and threats which Ryanair is likely to face in currently and in the future.
Ryan air have developed a cost focus strategy, where it focuses on reducing cost to obtain a competitive advantage. The following discussion will show just how efficient the company has implemented this strategy.
In 1985 Ryanair was established by the Ryan family to provide travelers an airline service from Dublin to the United Kingdom. Ryainair's strategic model was built upon the successful Southwest Airline (based in Texas) which is to provide low costs and no frills. During its history it has undergone some criticism from opposition and consumers but this has not halted Ryainair's progression in the airline industry. It has now developed from a family run business to one of Europe's leading low fare airlines with more then 133 routes across 16 destinations.
3. Porters Five Forces Strategy
Porters Five Forces strategy is used to examine the environment of competition within the industry (Tutor2u Ltd n.d). The following will examine the competition of the five forces with regard to European airline industry especially Ryanair.
3.1 Threat of New Entrants
The threat of new entrants in the airline industry is relatively high but to be successful in the market is a different matter. The deregulation of airlines in Europe has allowed airlines to be "...free to negotiate their own operating arrangements with different airports, enter and exit routes easily, and to levy airfares and supply flights according to market demand." (AvationExplorer.com n.d)
Barriers of entry for the airline industry are quite low even though the initial capital outlay is high. Banks are willing to lend money and if companies can not obtain enough they can engage in the debt and equity markets (Investopedia ULC). Due to relative ease of obtaining capital there has been a saturation of airlines in the European market.
However economies of scale in the airline industry has the potential to put off new entrants. This means that a company can produce so many units they can actually drive the average price down and in return gain more revenue. This is the case of Ryanair which owns a large number of aircraft. Given that Ryanair own a large fleet they are able to reduce the cost of servicing and pass this on to customers.
Brand equity also plays a major part in the airline industry. Many airline carriers offer rewards such as frequent flier points. The purpose of this is to keep the customer from switching to a different airlines. Hence if a company has a strong brand name and incentives for customers, they may be willing to stay with the same company.
3.2 Threat of Substitute Services
Threats of substitute services in the European Airline industry is of minor concern. Substitutes are an item or service which can replace another. Although most of Europe is accessible by train, boat or car, why would one want to travel by these means, when the cost to board a budget airline is nearly the same. Currently Ryanair is offering £0.01 flights excluding tax and charges until the 16th of May 2007 to certain destinations on its website, while a train ride to from Long to Paris is £84 (citied from Eurostar.com).
Traveling by airplane is the fastest way to travel. Bullet trains are the only closest competitor which can reach legal speeds of 320km/hr (BBC MVII 2007) but even they can not compete in terms of speed. Since Ryanair is a budget airline the service and comfort of the journey may not be as...