Ryanair's Business Level Strategy: A Cost-Leadership Strategy

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A company's business model is management's model of how the strategies they pursue will allow the company to gain a competitive advantage and achieve superior profitability.

Business strategies are the actions management take to execute a business model.

At the heart of any business level strategy is the objective of developing a firm-specific business model that will allow a company to gain a competitive advantage over its rivals in a market or industry. (Hill and Jones 2004 ). Ryanair's cost-leadership strategy is based on the intent to outperform competitors by doing everything it can to establish a cost structure that allows it to provide its air travel service at a lower unit cost than they can. At the very heart of this strategy is the intent to keep its fares as low as is conceivably possible and thereby live up to its name as "The Low Fares Airline". Ryanair, in pursuing this cost-leadership strategy seeks to achieve a competitive advantage and above average profitability by primarily focusing its attentions on lowering its cost structure. A company is said to have a competitive advantage over its rivals when its profitability is greater than the average profitability for all the firms in that industry. The greater the extent to which a company's profitability exceeds the average profitability for its industry, the greater is its competitive advantage.

Hill and Jones propose that two major advantages accrue from a cost-leadership strategy. Firstly, they say, that if industry rivals that compete in the same price range or market segment charge similar prices for their products or services, the cost leader achieves superior profitability than these competitors because of its lower costs. Secondly they argue that because of its lower cost structure, the cost leader is able to charge a lower price than its competitors, and this gives it a competitive advantage. This is precisely what Ryanair strives to do. Although they offer customers slightly less in terms of customer service than the competition offer, essentially the value from the service is the same, and the considerably lower price attracts many more customers. Despite the fact that Ryanair has opted for the lower price option, the increased volume of its sales of seats to passengers will cause the company's profits to surge. Or so it is hoped. Hill and Jones also point out that the only way competitors can hope to win back passengers is through following suit and by lowering their prices to match those of the cost- leader. When this happens the cost-leader, in this case Ryanair, will be better equipped to withstand competition because of its lower cost structure. Because of this the cost-leader is likely to win any competitive struggle and continue to earn above average profits.

The case-study informs us that the company realises that the achievement of its objective of being the leading no-frills airline in Europe depends on being the lowest cost airline. This, we are told "demands a continuous concentration on driving down costs to sustain low fares and remain profitable, even on low yields". Ryanair's cost reduction strategy focuses on five main areas, namely:

1. Fleet Commonality.

2. Contracting out of services.

3. Airport charges.

4. Staff costs.

5. Marketing costs.

With regard to Ryanair's decision to maintain a fleet of a single type of aircraft, the Boeing 737-200, the advantages for the organisations cost structure are multifarious. The aircraft is the most widely flown airplane in the world today and because of this the company has no difficulty in finding reasonably priced spare parts which are, no doubt, widely available from a number of sources who would be eager to have a large buyer such as Ryanair for a customer. This means that Ryanair does not find itself in a position where it could be made to pay a premium price to a single supplier for parts that only they alone can provide. Also, related to this is the fact...
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