MGT 472; Strategic Mgt.
Ryanair Case Study
1.) What are the characteristics of the European aviation environment at the time of the case? (20 points) When Ryanair was established in April of 1986, there were many factors to consider in order to properly assess their current environment. In order to attain a firm grasp of their current atmosphere, we must delve deeply into its external, general, industrial, and competitive facets.
European aviation at the time was dealing with different pressures from innovation and quickly advancing technology. Additionally, privately owned commercial airlines began to emerge in addition to the “flag carriers” of several European nations. Before long, the airlines service began to focus on international routes while at the same time tagging domestic routes with high fares so as to allow the subsidizing of international service. Eventually, there arose a large threat of the Americans dominating the skies due to the free competition and privatization. To avoid this monopoly of sorts, the International Air Traffic Association (IATA) set international fares through government regulation of the major airlines, to include all aspects of air travel between countries. Looking at the general environment, we must consider its demographic, economic, political/legal, sociocultural, technological, and global segments.
Demographically, at this point in time there was a large, diverse population just waiting to discover air travel. Since the airlines introduced another travel alternative, the service providers began to show a large geographic distribution across country borders.
Due to “pooling arrangements”, the industry had a rough economic start due to the pooling of the providers’ capacity, routes, and revenues. However, despite the European flag carriers shifting their focus to international flights/routes across the North Atlantic, which proved quite lucrative, these carriers eventually collapsed due to disparate national interest. “The basic trouble”, as was concluded, “remains that the world [had] too many airlines, most of them inefficient, undercapitalized and unprofitable (Rivkin 2).” Additionally, by the mid-1980’s, charter flights were transporting sixty-percent of all European passengers. This led to a large boom within the Flag carriers since their reaction was to create new flight discounts and by also starting their own charter subsidiaries. Just when things were looking economically sound, the OPEC oil embargo in the 1970’s created a dramatic increase in the price of jet fuel, and subsequently a large disinterest in air travel. Looking at Exhibit 1, it is obvious how there has been a rollercoaster of highs and lows when speaking of economics- one boom and recession after the next. One would argue that the industry was economically volatile at this point.
Politically, there were several types of regulation throughout the time of this case. For example, there were the European regulations, American regulations, and the deregulation of the U.S. airline industry. Moreover, the European Commission proposed the abolition of “pooling arrangements, price fixing, and government subsidies. What’s more, the 1986 Single European Act created a unified European market so they could “comprise an area without internal frontiers in which the free movement of goods, person, services and capital [was] ensured… (Rivkin 2).”
As far as the sociocultural and technological aspects, along with the pendulum of profits, the amount of employees varies depending on the productivity of the airline. Exhibit 2 shows a range of approximately 17,000 to over 50,000 employees. Since this was a quickly growing industry, it became a significant target for job-seekers. Speaking of a growing industry, the technology had a large impact on the company’s welfare (and competitive advantage). For example, American, United, and Delta each used a hub-and-spoke route structure and enjoyed...
Cited: Hitt, Michael A., R. Duane Ireland, Robert E. Hoskisson. Strategic Management:Competitiveness and Globalization Seventh Edition. Mason: Thomson Higher Education, 2007.
Rivkin, Jan W. “Dogfight over Europe: Ryanair(A)”. Business Case Study, 23 October 2000. Harvard Business School. President and Fellows of Harvard College. 2000.
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