Analysis of the low cost airline industry and internal analysis of Ryanair
Submitted to: Vladan Hadzic
Student ID: 20000910
Module: International Business Management and Strategy
Date: 05 August 2011
Porters Five Forces
Internal Analysis of Ryanair: Strengths & Weaknesses
Value Chain Analysis Of Ryanair
Financial Analysis Of Ryanair
A) Value chain analysis
B) Financial ratios of Ryanair and Easyjet
C) Ryanair acquisition of companies and marketing mix
Ryanair established in 1985 carrying more than 5,000 passengers between its route Waterford Airport in Ireland to London Gatwick during its first year. The company expanded by 1989 had 350 employees, 14 aircraft and carrying more than 600,000 passengers a year.
In 1997 there were dramatic changes in the European airline industry with deregulation of European Union air transportation allowed airlines to open new routes into Europe. The European Low fares association reported that low fares airlines are carrying more passengers than before with an increasing number of destinations in Europe set to increase from 38% to 53% in European travel (elfaa.com, 2011). Ryanair took advantage from the deregulation with routes from London Stansted to Stockholm, Oslo and Paris. By 2001 Ryanair launched its own travel website and within 3 months received 50,000 bookings (Ryanair.com, 2011).
The report will focus on the low cost industry environment by identifying the opportunities and threats as well as five forces of the external environment. The report will also identify the strengths and weaknesses of Ryanair.
Part 1: Low cost Airline industry
The low cost airline industry has become the most profitable with all segments in the market with low prices and high load factors. This strategy has been challenged since the 1990s with the liberalization of services allowing new entrants to compete for business (Economist.com, 2011). The low cost airline industry operates all activities by reducing costs in order to gain strategic success and competitive advantage. This approach has a lot of opportunities as well as threats. Political
Governments in the UK have the highest tax compared to Germany with a $1.3bn departure tax and Austria’s similar $119m duty tax (Independent.co.uk, 2011). The threat of passengers paying higher prices as a result of increased tax for their airline tickets can lower profits for airlines. This can affect low cost airlines such as Ryanair and Easyjet as the higher taxes cut profits for the company for example Easyjet stated they had lost £21m of its £153m in 2011 (IATA.com, 2011). Acts of terrorism can also be a major threat to the airline industry. Initiating further routes is an opportunity for low cost airlines to other destinations in Europe with its growing economy and additional 15 EU countries that joined in 2004 such as Lithuania, Poland, Slovakia, Latvia can offer new opportunities for new routes to increase the number of passengers(Delfmann, 2005). There has also been a threat with the plans to sell Stansted airport, the main location for low budget airlines after the Competition Commission to reduce its dominance in the market. This will bring greater competition to low cost airlines and benefit passengers with more low fare airlines from regional airports such as Gatwick and Stansted competing more (Telegraph.co.uk/travel, 2011).
The threat of rising oil prices caused global airlines to lose $16 billion in profits which did rebound in 2010 with higher traffic. The threat continues with oil prices averaging $110 a barrel and estimated to further increases in the industry’s fuel bill which will rise from $10 billion to $176 billion (Bangkokpost.com, 2011). This threat has also been warned by Willie Walsh, the chief executive of British Airways and Iberia who...
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Figure 2.1: Porters value chain
Source: (Cherunilam, 2007)
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