Primary External Factors Affecting Ryanair
The European airline business is competitive as the region has many players and attracts a huge customer base (Campisi, et al., 2010). The high costs of air travel has seen the battle of skies skyrocket with the entrance of budget airlines.
Ryanair, an Irish airline, markets itself as a low cost and short-haul airline company. Its head office is at Dublin Airport, Ireland, with a secondary base at London’s Stansted Airport (Ryanair, 2015). The firm competes in the eurozone. For years, Ryanair has won accolades for low cost jets with its vision of reaching all its destinations at a lower cost than its competitors. It is also marketed as the most convenient airline, flying to most destinations in Europe. The eurozone, with its many low cost airlines, is very competitive but Ryanair prides itself on being the most profitable, thus topping the list as the market leader in EU countries. One of its major campaign tools is creating long-term relationships and going beyond expectations in meeting customer needs and ensuring satisfaction.
The firm has had successes with profits increasing year on year. This report analyses the primary external factors that have influenced the company and the forces that shape its decision making. Porter’s PESTEL analysis is used to discuss the external factors in Task 1. These are given against the backdrop of the airline industry and the considerable financial and economic crises experienced in the market.
A PESTEL analysis opens up the macro-environment forces that have an influence on the way Ryanair makes its decisions. They are included in Porter’s five forces in the industry structure –political, economic, social, technological, environmental and legal factors as discussed below.
Ryanair operates in the eurozone countries (Ryanair, 2015). Therefore the political climate in this region affects its decisions. The region has had a peaceful political climate, with this being good for business and enabling ongoing operations.
Because the European Union’s directives do not allow direct government subsidies for airlines, there is a level playing field for airlines in the eurozone.
Trade unions have increased pressure on the airline industry (Carballo-Cruz & Costa, 2014). Demands have been made on governments to either reduce or promote costs. Security levels at airports have increased. These changes may see Ryanair pass the cost to the customers.
Because the EU countries promote their national carriers, Ryanair has to develop alternative routes so that its profits do not dip. The tax regime in different countries also affects its pricing decisions in every country in the EU where it operates, resulting in complex operations (Müller, 2011). Politically, the governments in the EU have promoted tourism. This continues to give Ryanair increased profits as it has created convenient routes and travel schedules.
Globally, the airline sector has experienced falling revenues as air travel has decreased. Further, travellers are making bookings at the last minute and ticket prices have fallen. The economic downturn has reduced the purchasing power of customers (Walder, 2012) with fewer people travelling by air.
These economic factors have affected Ryanair’s profits. The firm has had to adjust its schedules to maximize peak-time travel and avoid wastage during low travel periods. The economic recession had made customers re-evaluate their flying choices, with fewer travelling in business class. Ryanair has had to re-evaluate what it offers in economy class to get more profits there.
The economy has seen improvements in speed trains, which now offer an alternative to air travel. Ryanair had to come up with a marketing strategy to attract new customers and retain loyal customers. Increase in the taxes and interest rates has hurt the pricing and promotional strategy. Oil prices have not helped much as they continue to fluctuate. All these economic factors have cost implications. To beat these variables, Ryanair has adopted a flexible market response strategy in each and every area of operation.
In the eurozone, consumers are more aware of the transport prices. Their attitudes change according to their preferences as they are able to compare different modes of transport. In this case, if a client wants to travel from London to Dublin, they will be able to choose between the airlines, road transport and even rail transport (Rachet, 2014). Their preferences inform their choices, leading to customers demanding low costs from their airlines.
Competition in the market has given customers choices. Low-end customers tend to always be on the lookout for the lowest cost and best quality airline. Ryanair’s successful presence in the market has been boosted by being keenly aware of their customers’ attitudes amidst increasing competition and poor economic performance. Culturally, the clients are loyal to an airline they can trust. Ryanair attempts to make lasting relationships and create a culture of mutual trust.
The social preferences can be linked to the economic downturn as now passengers keep a close watch on their finances to mitigate future economic uncertainties. Also, with the recent rise in terrorist activities, customers are scared to fly. Ryanair has made a decision to instil in customers the confidence that despite the poor economic performance, it can still be the airline of choice with its low costs.
Among the improvements in the airline industry are the technological advantages that allow jets to operate with improved efficiency in fuel utilisation. As Ryanair is a budget airline, it will most likely go for low cost fuel utilizing jets (Chesbrough, 2007). The jets are expensive to buy but in their operations they generate considerable cost savings, leading to operational profits.
Ryanair’s purchase structure of technologically advanced airlines is placed as a long-term investment to avoid hurting its current financial performance. This is a strategic decision as in the current economic climate, the airline market has low passenger numbers and unmet revenue targets.
The rise of e-commerce and m-commerce in airline ticketing, internet sales and online check-ins have increased efficiency in the airline’s operations. Customers no longer wait in long queues and schedules are met with ease.
The world’s leaders have increasingly raised concerns about establishing environmentally conscious businesses globally. Demands have been made of airlines to lower their carbon emissions (Graham & Guyer, 1999). Ryanair makes many flights per day. Therefore, it is among the targeted airlines to be asked to make improvements in reducing carbon emissions. Ryanair has a business model which motivates its staff to have many of its aeroplanes in the air for a long time. The increased business model will likely need to change in an effort to reduce its carbon footprint.
In the airline industry, other airlines may not respond to the calls to be more environmentally friendly as they try make their finances look better in difficult economic times. The contrast in the environmental awareness goals, presents an opportunity to Ryanair to be more ethical. By having its operations going green it will attract environmentally conscious customers, thus increasing business in the long-run.
The EU directives against offering subsidies to airlines form a legal factor in their applications. The countries in the EU will start to apply the directives (Barbot, 2006). The move will see legal factors pushing for a fairer working environment. Ryanair can bank on this and boost its competition by being able to compete with other airlines such as British Airways, that traditionally has received government subsidies.
Ryanair operates in an environment where there are multiple players and customers who are aware of the choices they have. Under such conditions, the company ought to have a unique understanding of its environment. This was explained by with external factors that affect the airline.
The factors are explained using the PESTEL analysis. These factors are political, economic, social, environmental and legal issues. The success of the firm depends on how it effectively responds to these issues. Ryanair management has understood the market and it rapidly responds to its needs. This has enabled the firm to remain ahead of the competition.
Appendix 1: Company Profile
Ryanair started operations in 1985. The firm entered the market as the lowest cost carrier in the European Market. Its success in the European market, which is largely attributable to Europe’s free market conditions, has lead to it being the market leader and most profitable low-cost airline.
The airline is the most popular in the world since it operates over 1800 flights per day. It operates low cost flights in over 28 countries with over 168 terminals. Since its inception in 1985, the company now has over 10000 employees and carries over 80 million passengers annually.
It has its head office in Dublin, Ireland, with an additional operations base at London’s Stansted Airport. It has been characterized by expansion amid hard economic times in 2011 and 2012. The firm has a fleet of three hundred Boeing 737 aircrafts. The company has also orders for 380 Boeing 737 aircrafts. This is part of its expansion strategy aimed at lowering the fares and growing the capacity of passengers from 105 million annually to 180 million by the year 2024.
The company was set up by the Ryan family with a share capital of one pound and a starting staff of 25. The first route was with a 15-seater Bandeirante aircraft. In the first year of operation, the firm served about 82000 passengers and operated two routes that were dominated by British Airways and Aer Lingus.
In 1987, Ryanair acquired a jet aircraft from the Romanian State Airline after it leased its three BAC1-11 aircrafts. These increased the network to 15 routes from Dublin to Liverpool, Manchester, Glasgow and Cardiff as well as new routes from Luton to Cork, Shannon, Galway, Waterford and Knock. By now it had increased its passenger level to 322000 annually and a staff capacity of 212 people.
Additional leases of aircrafts in 1988 saw it expand to flights from Dublin to Brussels. The passenger capacity rose to 592000 and staff levels reached 379. With increased leases and expansion into the Europe Market from 1980s to 2013, the firm opened new markets and served more and more customers.
By 2013 the traffic had grown to 81.7million customers and by 2015 it had reached 105 million customers. The firm has now opened many bases of operations including Athens, Rome, Lisbon, Brussels, Cologne, Gdansk and Warsaw. Its profits have grown to 523000 million Euros with passenger levels of 81 668285 and employee capacity of 9500.
The company profile is adopted from Ryanair website, (Ryanair, 2015).
Barbot, C., 2006. Low-cost airlines, secondary airports, and state aid: An economic assessment of the Ryanair–Charleroi Airport agreement.. Journal of Air Transport Management, 12(4), pp. 197-203.
Button, K., 2014. Opening the Skies: Put Free Trade in Airline Services on the Transatlantic Trade Agenda.
Byus, K. & Box, T., 2007. Guerilla actions as small business strategy: out-witting is more competitively responsive than out-spending.. Entrepreneurial Executive, Volume 12, pp. 51-63.
Campisi, D., Costa, R. & Mancuso, P., 2010. The effects of low cost airlines growth in Italy. Modern Economy, 1(2), p. 59.
Carballo-Cruz, F. & Costa, V., 2014. Success factors of regional airports: The case of Oporto airport. Tourism and Management Studies, 6(10), pp. 37-45.
Cavusgil, S. & Knight, G., 2015. The born global firm: An entrepreneurial and capabilities perspective on early and rapid internationalization.. Journal of International Business Studies, 46(1), pp. 3-16.
Chesbrough, H., 2007. Business model innovation: it’s not just about technology anymore.. Strategy and Leadership, 35(6), pp. 12-17.
Graham, B. & Guyer, C., 1999. Environmental sustainability, airport capacity and European air transport liberalization: irreconcilable goals?.. Journal of Transport, 7(3), pp. 165-180.
Hilmola, O. & Laisi, M., 2015. Shareholder value creation on deregulated transportation sector: Focus on North American railway freight. Expert Systems with Applications,, 42(1), pp. 113-124.
Morley, D. & Parker, C., 2010. Understanding Computers: Today and Tomorrow, Comprehensive. London: Cengage Learning.
Müller, C., 2011. Ryanair case study and strategic analysis..
Olischer, F. & Dörrenbächer, C., 2013. Concession bargaining in the airline industry: Ryanair’s policy of route relocation and withdrawal (No. 73), Berlin: Working Papers of the Institute of Management Berlin at the Berlin School of Economics and Law (HWR Berlin)..
Pisarek, R., 2009. Air transport liberalisation in the European Union and its impact on development of the civil aviation sector in Poland.. Comparative Economic Research, 12(3), pp. 45-58.
Rachet, B., 2014. An analysis of Ryanair competitiveness..
Roosa, S., 2010. Sustainable development handbook. 2nd ed. s.l.:The Fairmont Press Inc.
Rugman, A., 2002. International Business: Strategic management of multinationals. 3 ed. s.l.:Taylor and Francis.
Ryanair, 2015. History of Ryanair. [Online]
Available at: http://corporate.ryanair.com/about-us/history-of-ryanair/
[Accessed 10 12 2015].
Schroeder, J., Salzer-Mörling, M. & Askegaard, S., 2006. Brand culture. s.l.:Taylor and Francis.
Townsend, J., Yeniyurt, S. & Talay, M., 2009. Getting to global: An evolutionary perspective of brand expansion in international markets.. Journal of International Business Studies, 40(4), pp. 539-558.
Walder, J., 2012. A strategic analysis of Scandinavian airlines (SAS)..