Ryanair and the External Environment

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Ryanair and the External Environment

Executive summary
This report explores Ryanair’s domain in relation to the external environment and outlines the concerns for the company within these sectors. The environmental uncertainty of Ryanair is dealt with and ways in which it can adapt to this uncertainty are outlined. This report also explores possible strategies for minimizing environmental uncertainty for the organisation.

1. Ryanair’s domain in relation to the external environment and sectors of concern for the company An organisation like Ryanair’s domain is the chosen environmental field of action. “It is the territory the organisation stakes out for itself with respect to products, services, and markets served” (Daft, 2007 p50). Ryanair’s goal is to provide a no frills service with low fares designed to stimulate demand. Ryanair’s domain defines the external sectors with which the organisation will interact to accomplish its goals. These external sectors are elements that exist outside the boundary of the organisation and have the potential to affect all or part of the organisation.

They can be divided into the task environment and the general environment. Ryanair’s task environment “includes sectors with which it interacts directly and that have a direct impact on its ability to achieve its goals” (Daft, 2007 p50). These include the airline industry itself, the raw materials Ryanair needs in order to offer its service, the market sector and the human resources sector.

Ryanair has a strong industry position as Europe’s largest low-fares airline. This year it can expect to carry close to 67 million passengers on over 830 low fare routes across 26 European countries (www.ryanair.com). However, the airline industry itself is set to face its worst revenue environment in 50 years. The IATA (International Air Transport Association) predicted in March that there will be losses of US$4.7 billion in 2009. Giovanni Bisignani, IATA’s Director General and CEO, commented “The state of the airline industry today is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago. Our loss forecast for 2009 is now US$4.7 billion. Combined with an industry debt of US$170 billion, the pressure on the industry balance sheet is extreme”. Passenger traffic is set to decline rapidly by 5.7%. This downturn in the industry puts huge pressure on all airline companies. Ryanair must battle with competitors such as Aer Lingus, British Airways and Easyjet to remain profitable. On the positive side whilst the industry faces tough times and stiff competition Ryanair still managed to increase its March traffic by 5% this year.

As Ryanair doesn’t make its own aircraft, the organisations main material sector concerns are that of oil and the availability of aircraft. The company has had little to worry about in previous months with fuel prices falling but it is only a matter of time before oil prices soar once again. The fall in the price of oil has helped to curb the declining demand and decreasing revenue faced by Ryanair. In 2009, with an expected fuel price of US$50 per barrel (Brent oil), the industry’s fuel bill is expected to drop to 25% of operating costs (compared to 32% in 2008 when oil averaged US$99 per barrel). Combined with lower demand, total expenditure on fuel will fall to US$116 billion, compared to US$168 billion in 2008 (IATA). Ryanair has little aircraft worries as it currently operates a fleet of 181 new Boeing 737-800NG aircraft with firm orders for a further 111 new aircraft (all net of planned disposals), which will be delivered over the next 3 years (www.ryanair.com).

In the market sector Ryanair must try to satisfy all of its target markets ever changing requirements. It needs to maintain its low fares while continuing to prioritise features which are important to consumers such as frequent departures, advance reservations, baggage handling and...
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