This essay is initially going to analyse the LCC (Low Cost Carrier) industry and subsequently focus on Ryanair, the world's largest low cost international carrier (figure 1). The first part of the assignment is going to apply Porter's five forces to the above-mentioned industry, then it will look at how the company competes in such environment, referring to Porter's generic competitive strategies. Finally it will analyse how the company delivers on these competitive strategies concentrating on its methods of growth, its value chain analysis and its management and leadership.
| |2009 | |2010 | | |1 |Ryanair |65,282 |Ryanair |71,229 | |2 |Lufthansa |41,515 |Lufthansa |44,460 | |3 |easyJet |34,593 |easyJet |37,665 | |4 |Air France |31,256 |Air France |30,882 | |5 |British Airways |27,844 |Emirates |30,848 | |6 |Emirates |25,921 |British Airways |26,320 | |7 |KLM |22,333 |KLM |22,787 | |8 |American Airlines |19,514 |Delta Air Lines |21,029 | |9 |Cathay Pacific Airways |18,102 |American Airlines |20,356 | |10 |Singapore Airlines |16,322 | Pacific AirwaysCathay |19,723 |
International scheduled passenger traffic rankings
(Source: Centre for Asia Pacific Aviation and IATA)
1 Using Porter's five forces model, analyse the competitive environment of the industry in which your chosen company operates.
The five forces (Porter, 1985) is a useful method that illustrates how competitive a certain industry is. This model is very important from a strategy formulation point of view. The five forces jointly determine the profitability of an industry. A full analysis of these forces shapes the prices that a company can charge, the expenses it will have to face and the costs required to compete in the industry. The forces that are going to be considered in this case study are the most significant ones for a company such as Ryanair. These are the level of competitive rivalry, the threat of new entrants and substitutes.
Level of competitive rivalry
LCCs need to have the lowest price to be successful, so the level of competitive rivalry in Europe is very intense, especially in the high-volume routes the market for LCC is mature and competition for flight slots severe. The main players are Easyjet and Ryanair (Figure 2), followed by other companies such as AirBerlin, FlyBe, BmiBaby, etc.
Not many LCCs offer large european coverage and are directly in competition with one another, most regional LCCs only compete in their local market segment. However, although they operate in different ways, the two main players, Ryanair and Easyjet, compete directly. An example of their differences is that they don't tend to use the same airports; Easyjet flies to the central airports, Ryanair is more inclined to use secondary airports (eg: Bruxelles-Charleroi, Paris-Beauvais, Barcelona-Girona, etc). Another difference is that Easyjet is very customer focused, Ryanair instead only has a “low fares-high frequency” mentality, charging for every additional cost an having an aggressive recovery of style. Another reason for which competition is so intense is that cost advantages or new ideas can easily be copied by competitors.
Threat of new entrants
An airline isn't easy to set up due to initial costs and...