Dogfight over Europe: Ryanair (A) |
Case Analysis |
MGMT 480 BUSINESS PLANNING AND STRATEGYDR. Ayman Ismail DR. Iman Seoudi |
Farah Amin |
I. External Environment Analysis
A. PESTEL Trends Analysis
Political and Legal:
Deregulation of airline industry in the late 1970s.
In the 1970s there was a general trend to deregulate the airline industry which had previously been mainly controlled by governments. So each government set fares rates, routes, customer service policies, entry and exit, intercarrier agreements, mergers, and consumer issues for its flag carriers as well as private businesses. However, in 1978, the US airline industry became partially ...view middle of the document...
Irish Immigrants in the UK
In the 1970s many Irish immigrants lived in the United Kingdom and would travel back to Ireland for their families during the holidays. As a result of this social trend, demand for air travel increased.
There was an increased demand on air travel especially among Irish and British vacationers who were looking to travel to the North Sea for sunnier weather. This social trend increased demand on air travel and made charter airlines especially popular among those tourists for their promotional fares and reduced air travel prices.
Introduction of wide-bodied aircrafts in the 1970s
In the 1970s the Boeing 747 was introduced. This wide bodied aircraft increased capacity of passengers per aircraft which finally lead to an increased capacity on the North Atlantic route.
Computerized Reservations in the 1980s
Computerized reservation trend appeared in the 1980s and for many airline companies, it contributes with huge percentages to their revenues. For example, for British Airways, computerized reservations comprised 84% of their revenues. Also, independent travel agents were able to book tickets for their clients through computerized reservation systems including the British Airways’ own system.
B. Industry Analysis and Competitor Analysis
1. Porter’s Five Forces Model
The low cost carriers market has an intense competition. However, Ryanair enjoys a low level of existing rivalry because its two main competitors, Wizz Air and EazyJet do not serve the same routes as Ryanair. However, if those airlines decided to serve the same routes, there will be a heavy pressure on Ryanair’s profitability as it will have to pressure prices and margins downward, since its main differentiating factor is price4.
Bargaining Power of Suppliers
Ryanair’s main supplier is Boeing. And other than Boeing it has only one option for a supplier which is Airbus. Also, Ryanair’s switching costs are high because if it switches suppliers it will have to retrain all the mechanics and the pilots. Also, the cost of jet fuel affects the price aviation. However, Ryanair uses hedging to control the variability in oil prices. Big airports, where Ryanair’s competitors operate, have greater bargaining power, so Ryanair’s policy is to avoid them4.
Bargaining Power of Buyers
From the buyers’ side, switching costs are not high since all airline tickets are now available online, so it’s a simple and inexpensive process. They are also price sensitive, so they will go to whoever supplier who offers them the lowest price4.
Threats of New Entrants
The airline industry has some barriers to entry. For example, a high capital investment is required. Further, airports have restricted slot availability, so it is difficult for airline companies to find suitable airports. Also, flight authorizations and obtaining licenses are difficult to get4.
Threats of Substitutes
Passengers can use other modes of...