1. Analysis of the Business Environment
In order to analyze the airline industry, we need to conduct the PESTEL Analysis.
Political and Legal
- Regulations for the air travel industry are getting even more stringent. The European Union authorities demand that airlines operate in an open, transparent manner. Any state subsidies to airline companies are prohibited in order to make working conditions equal to anyone and to boost competition in the industry. There are also regulations in place for airlines not to exceed certain levels of noise and air pollution. All of the legislation and regulations make operating in the industry harder. - Trade unions are powerful in Europe and have a great bargaining power. Airlines thus may face high costs or fines unless they comply with strict labour legislation or lay off employees. Unionisation is, however, weaker in the budget airline sector, which puts less stress on Ryanair.
- Europe is undergoing economic slowdown. People therefore spend less, in general, and tend to travel less, as a result. - High oil prices inflate costs of fuel and impact margins negatively. - At the same time, people are ready to travel for less and thus willing to opt for low-budget airlines. - Business travel is on the surge. E.g., business travelers count for 40% of all Ryanair’s passengers. - At the same time, overall traffic in the industry as well as profitability levels plummeted in the aftermath of 11 September and after the war in Iraq and the SARS. This had a devastating effect on the majority of airlines but also gave an impetus to the development of low-cost carriers.
- People’s mobility has been increasing during the last decades. People travel for leisure, business, and in search of new jobs. - Personal disposable income of people is rising in Europe as well as the number of senior citizens who enjoy traveling. - Traveling low-cost has become a norm.
- Airlines set up websites through which they sell tickets and other ancillary products and services such as car rentals and travel insurances. This led to cost decreases and to greater reach to customers. - Airlines now provide satellite TV and phone services on board as well as broadband Internet and thus enhance value to customers. - Information systems allow airlines collect data about passengers, cost, prices as well as ensure better service when boarding and handling luggage.
- Companies now have to comply with strict environment protection regulations and laws. Should they breach them, they may be liable to enormous fines or court hearings. This can have a greater impact on low-cost carriers as they have more take-offs and landings due to higher frequency of flights, and therefore need to pay more environment related taxes.
2. The Strategic Growth Model
Ryanair was set up by the Ryan family in 1985. The company went public in 1997 and the Ryans subsequently sold the bulk of their share to other shareholders. Ryanair traditionally developed organically, i.e. by growing its assets by itself. Every year, it opened new hubs in Europe, started flights from new airports, and added to its aircraft fleet. This model proved to be rather successful. By 2003, Ryanair was the most profitable and valuable airline in Europe ahead of Lufthansa and doubling its value over British Airways. However, as the market started to saturate and as the competition got tougher, the company decided to buy Buzz, another low-cost airline. It did so in 2003. Many said that Buzz was a financial disaster but acquiring it was strategically important for Ryanair that wanted to increase its market share and get Buzz’s airport slots and other facilities.
3. The Leadership Style of the CEO
The CEO Michael O’Leary can be characterized as an eccentric, charismatic leader. He has never been conventional and has...