Essay: Capability And Organizational Performance Of Ryanair - A Strategic Analysis.

Discuss about the Capability and Organizational Performance.

This is a business strategy report of Ryanair; a company operating in European aviation industry. The objectives of the report includes exploring the internal, external environments affecting the Ryanair and recommending the strategic direction of the company in future. In the internal environment, factors such as competitive ability, strategic capabilities, resources and competitive advantages are explored. In the external environment, the macro environment and the industry five porter forces are analyzed. Lastly the reports offers the strategic direction of the company with the focus on business-level and corporate-level strategies based. The strategy proposed is based on the previous part of the paper namely the internal and external environment of the organization.

The internal environment comprises the aspects and the factors inside that has direct effects on the operation and performance of the firm. An example includes current employees, competitive environment, corporate culture, unique resources, core competencies, technology, and others. This section explores the internal environment of Ryanair namely the organization resources, competencies, strategic capabilities and competitive advantage of the enterprise (Walder 2012).

The company has many core competencies which are essential to sustaining a competitive edge over the rivals and enhancing its performance in the industry. For instance, the core competencies include the maintenance and disposal of the fleets. Ryanair's aircraft fleet comprises a physical asset which can be used in the understanding the firm’s policy and the management practices. Through the policy, the management is devoted to ensuring the cost of maintenance constantly remain low as possible. The strategy to realizing the objective is by reducing the average age of the fleet and maintaining it using cost efficient way (Rachet 2014). Besides, the companies also has policies that ensures constant checking the condition of the aircraft fleet on a routine basis. For instance, the aircraft return to its bases every evening to be examined and any problem detected are solved immediately. These actions implemented by the firm has myriads of benefits and helps in achieving competitive advantage over the industry’s rivals (Dobbs 2014).

Further, the core competencies of the organization have been embedded in its culture. The company provides ancillary services such as non-flight services, insurances, in-flight sales, commissions, accommodation services, car rentals, excess charges amongst others (Hinterhuber & Liozu 2014). These are core competencies that form vital elements of Ryanair's culture. Nonetheless, when the management spots an opportunity to design and implement new kinds of service, actions and decisions are taken fast to satisfy the market. For example, provision of a range of ancillary services associated with the existing passenger service which is meant to enhance the capability of Ryanair. Therefore, the paper argue that the core competencies of the firm emanate from its ability to provide services in a standardized way and use of unique strategies to deliver them to their consumers and this is what differentiate them from other companies (Malighetti et al. 2010).

Strategic Capability

The strategic capability of Ryanair includes the use of the Internet to popularize its brand name. The company has the largest travel website in the continent as recognized by Google due to its ability to build and manage its brand on Google. Therefore the unique business capability is its ability to turn its web traffic to an e-commerce through advertising to gain more revenues. Moreover, its excellent brand image forms a unique asset that leads to Ryanair competitive advantages (Costantino et al. 2016). Besides the company has developed strategic ability to benchmark in the industry to a level where no company can match. For instance, the firm makes landing in many regional and other airports where there are lower landing fees. Further, they are capable of calculating the cost per passenger and creation of monopoly through budgeted airline industry. All these factors indicate its distinctive strategic capability achieved by the organization (Abdi et al. 2016; Walder 2012).

According to Barney, Mackey and Borbély nature of unique and intangible resources that are inimitable is a basis for the competitive advantage. Ryanair source of unique resources is their talented managers who use an aggressive approach that is the basis of their competitive advantage (Barney & Mackey 2016; Borbély 2016). The managers’ talents arm them with the capability to implement and design a model that enables low-cost services. Therefore it is hard for the rivals to imitate that unique resource and personalities which serve to the advantage of Ryanair (Button 2012). For instance, the managers utilizes their personalities and revolutionary business models to offer services such as commissions on all board sales and payments based on the number of flying hours which makes the firm compete successfully in the industry.

Further, the managers also train pilots to gain knowledge on how to fly an aircraft with the use of a minimum fuel to respectively reduce the amount of fuel used and the cost of delivering consumers to their destination (Chen et al. 2014). As such, the unique resources of the organization is the personnel such as senior managers and lower staff. As seen, Ryanair has capitalized on the development of the human resources skills in a bid to improve their abilities and enhance the capability to provide services to diverse consumers. An example includes the pilot, managers and young talented workers who have skills that are required in the evolving environment (Burrell 2011).

Analysis of the External Environments

Michael Porter's theory explains to us that companies use three primary strategies to gain a competitive edge over others and these include focus, cost leadership, and differentiation. The company has chosen the second approach as it provides low-cost services to producer and consumers in Europe through selling standardized products on a mass scale and this is a source of its competitive advantage of the firm (Hinterhuber & Liozu 2014; Dobbs 2014). Besides, low-cost services are not the only advantage because there are airlines that somewhat offer similar prices but the quality of the services makes them distinct and attractive to consumers. For instance, makes it easy to aggressively offer their products and services at significantly lower costs which lead to competitive advantage and make Ryanair realize success (Burrell 2011).

On the other hand, competitive advantage is understood as the ability of the firm to have a better return on the capital invested over a particular or defined period. The advantage can be measured regarding the management capability, technology, location, market share and the strength of the brand (Burrell 2011). To this regard, Ryanair competitive advantage is due to they fly to many destinations that are less popular and not served by other companies in the industry. Therefore, it offers people living in this destination on the continent have a chance to access flight services at the nearest airport. Also, the company has talented management and support staff with necessary skills and use of technology to reach consumers and provide services are some of the issues that make it competitive when compared to others in the industry (Burrell 2011).

This section explores two macro-environmental trends namely technological and environmental forces and evaluates how they affect the firm’s operations (Iñiguez, et al., 2014). The term external environment comprises the factors outside the organization and have immense influences on its functioning. Companies need to act and reacts to the changes in the environment to avoid any effects on its operations. The macro environment is made of global forces that the business has no control of and the success of the company is dependent on how the management maneuvers and adapt to these factors. Each of the factors and the influences it has must be taken into account in the formulation of strategies by the organization (Rothaermel 2015).

The technology used in the industry and by firms operating in the industry offers a lot of advantages because it improves the efficiency and enhance fuel utilization (Iñiguez, et al., 2014). Ryanair is identified as a budget airline and therefore prefers to procure low-cost fuel jets. Although the jets are expensive, they utilize cheap fuels leading to considerable cost savings, and high profits are realized. Besides, technology has changed the way companies in the industry are offering services and this has resulted in the rise of m-commerce and e-commerce airline ticketing, online check-ins and internet sales. These developments in the sector are trending, and airlines have increased the efficiency of the operations as the customers are not required to queue as services are met at ease (Mayer et al. 2012).

Changes in weather and climate have led to change of policies which aim at solving the issues in the environment. In Europe, there is a demand for airlines to reduce the level of carbon emissions significantly and Ryanair will be affected as it makes many flights per day (Burrell 2011). Therefore, it is one of the targeted airlines which needs to make significant improvements to reduce carbon emissions footprint. The implementation of environmentally conscious policies will make or break the companies because customers will prefer to use environmentally conscious airlines in the future (Mayer et al. 2012).

Michael Porter in his book written in 1980 titled competitive strategy identified the five forces that shape the structure of industry’s competition. According to Porter understanding and determine the five forces by a firm is paramount as it helps to spot products and services that can increase the revenue generated and the potential for profit in the sector. In cases where the forces are intense on end in industries like airlines, then it becomes extremely hard for the company to achieve higher profit returns on their investment made (Porter 2008). The five forces identified by Porter includes the threats of the entrance, the power of consumers and suppliers to bargain and the level of rivalry between companies, probability of substitute products and the threat of new entrants (Magretta 2013). The analysis focuses on Ryanair regarding European airline industry.

To enter in the industry where the operators compete to provide low fares for their consumers combined with substantial cost leader such as Ryanair makes it hard for new entrants. For new entrants to successfully compete in such an industry which is strong, there must be intensive capital, excellent supply chain management to achieve high economies of scale. Therefore without these, it is very hard for new entrants to survive in such as a sector and this means the low threat of new entrants for Ryanair (Magretta 2013).

The industry is characterized by high bargaining power of buyers. The consumers in the industry can quickly switch to rival airline brands because there are no extra expenses incurred.  For instance, there are many airlines which customers can switch to like Aer Lingus, Virgin Express, and EasyJet. Each of the operators has their cost leadership strategy that makes it for consumers to switch companies quickly. Therefore for the Ryanair, the challenge that faces them in the sector is the existence of businesses that compete with it by providing low prices and similar services (Barney & Mackey 2016).

In the industry, there are there myriads threats of substitutes including the railroad transport, sea, road transport such as busses, rent-a-car firms that provide excellent and comparable services similar to those offered by the airline industry (Whyte & Lohmann 2015).  For example, the train services in the continent are the most notable and therefore significant threat to the airline's sector. Rail network is capable of replacing the services offered by the airline because they are not too costly as compared to airlines companies (Diaconu 2012). Further, the continent Europe has a well-established network connected by railroad example being Eurail that connects the west with central and southern regions and therefore one can use it to access various destinations in the continent. However, the barrier of the railway sector is the time taken to connect from one route to another while using a plane take the significantly shorter time to connect from one destination to another. As such; one can conclude that the threat of substitutes in the industry for the Ryanair airline is significantly low (D’Alfonso et al. 2011).

The bargaining power of the suppliers of products and services in the industries are very high (Witt 2013). In this case, there are two primary producers of major aircraft brand in Europe which includes the Boeing Company and Airbus. Therefore, the suppliers’ bargaining power is very high because of the high costs associated with switching of brands. This means to switch the suppliers there is extremely high capital required and training of pilots. For Ryanair’s, the supplier of their products is Boeing although it possible for the airline to change suppliers due to positive cash flow. For example, back in 2014, the company tried to procure aircraft fleets from Airbus aircraft, but later the plans were canceled and requested from Boeing aircraft (Burmann & Schade 2017).

In the European airline industry, the intensity of the rivalry between different firms can be said to be medium but there is high threat of entry (Chen et al. 2014). The reason for this is due to rise in some companies trying to copy its cost leadership strategy with the focus of being an Airline leaders regarding budget. The development of the aviation sector in Europe is feasible because less than 30% of budget airline’s market participate in the entire industry. As such, there is little chance of the firm becoming successful in broadening its strategy (de Wit & Zuidberg  2012).

An analysis of the five forces model reveals some implications in the Europe airline industry. The paper argues that there is a huge competition for services and prices by the companies operating in the firm and the power of suppliers to bargain forms one of the strongest forces in the sector. Therefore, the level of competition is very high between the enterprises and new companies planning to enter the market will find it hard to make a profit and therefore may be edged out due to lack of enough capital to sustain the industry practices. The forces wielded by suppliers are significant due to the intensive and high cost required to procure the aircraft and related maintenance, and any changes can lead to a severe loss on the part of the company. Besides, there are a couple of factors and forces which are present in the industry have a weak threat to the firms. Therefore, for businesses, it is time-consuming and expensive for a new company to penetrate the market with a lower risk of entry. The low costs of switching in the industry and the availability of substitutes in the market is an indication that buyers have weaker force.

Ryan Air is known for being a low budget airline, and the main focus is geared toward cost reduction. The section discusses it generic strategy and makes recommendations on how it can better its strategy. The analysis outlines three generic strategies used by the firm namely cost Leadership, differentiation, and focus. The section comments on whether the company should change or continue with its generic approach in the market and some of the strategies that should be applied based on the changes in the environment such as the use of technology.

Cost Leadership strategy is when the organization manages it value-adding plans to make it the lowest cost airline in the industry (Moreno et al. 2015). The strategy is driven by the goal of the airline as the business seeks to compete with the rivals by proving the lowest costs. The company has become popular to European citizens who embraces air travel to move from one point to another. The company strategy was informed of the economic recession from the last decade, and other factors in the industry that forced the consumer to search for cheaper options when still maintaining the quality of the services provided. In such a case, the firm created demands for its tickets and thus high demands for it services (Moreno-Izquierdo et al. 2016).

The focus is one of the generic strategies used by organizations and acts as a moderator of both cost leadership and differentiation strategies. The focus of Ryan air is to attract customers to low-cost airlines getting from point to point (Julie 2014). Thus, Ryanair is oriented toward accommodating clients and passengers by implementing low budget policy compared to that of competitors. Ryan Air provides no frills, and this makes it extremely low-cost and high-quality level of service for customers who needs to connect various destinations. Regarding this strategy, Ryan focus is to be the lowest-cost airline, but this has been the firm to be less differentiated (Mullane 2015).

The paper argues that the company should continue to use the strategy in the industry to attain and maintain the lead against the rivals. The best strategy to implement cost leadership is through reduction of prices by understanding the market experience, modify supply chain, economies of scale, overhead control, and tight price and cost minimization in areas like provision of service and advertising (Walder 2012). The strategy has been used by other companies such as Wal-Mart and made it successful of all time. Therefore, Ryanair should not change the strategy, but some modification should be used to respond to the changing forces in the market.  Charging a lower price for the services will lead to a larger volume in the future, and this means it will increase revenue and massive profits and further expand to upcoming market. Also, the strategy will also make it difficult for new firms to enter the market due to high capital investment and low-profit margins.

Further, the company will develop many competencies and techniques that can be utilized to lower costs and gain a definite advantage. For example, pursuing the strategy will help the management come up with the overall company’s culture which continually seeks greater efficiency and which in itself produces a competitive advantage. Therefore to meet the demand of the evolving environment, the firm needs to look into any wasteful practices where the cost of operations can be reduced further. It is also paramount to monitor the changes in the structure of the industry and the behaviors of other companies and adjusts it cost leadership strategy to ensure profitability and the survival of the organization.

There are various level strategy which can be employed by the organization to create the value in the industry. Corporate level strategies used by the companies are concerned with the formulation and implementation of strategic decisions that has an affect the whole firm. These includes moves like mergers and acquisitions, financial performance, HR development and the allocation of resources among others. There is various corporate level strategy that Ryanair can employ to create additional value. This organization includes value creating, value-neutral, and value reducing. The firm can use value-creating strategy for the purpose of increasing the competitive ability and further gain more market share in Europe and other destinations.

The company can use the strategy to add both perceived and real value of the firm’s services and products through exploiting the economies of scope. These includes the use of capabilities and resources of the business that can be shared by the entire company in a bid to increase efficiency and reduce the costs of operations. The idea of a value-creating strategy to be adopted by the firm should be oriented toward diversification of services, goods, and market to increase consumers and dominate the whole market.

Further, the management should consider venturing into new routes in European countries. The focus can be directed to routes where the services are more expensive and served by the traditional carrier as this can help attract more passengers by offering cheaper and no-frills options. The strategy can also encompass increasing the frequency on the routes where it has an operation. Both plans are significant as they can help take a proportionate share of the customers from traditional carriers which can contribute to increasing the current market share.

Ryanair is experienced in short haul routes between cities. However, with the changing environment, the firm can extend the services to haul routes, and this move can be best achieved through using of connecting flight. As the level of competition increases between rival companies, Ryanair needs to Improve and enhance the level of customer loyalty and satisfaction to prevent their consumers from switching to other businesses. For instance, when consumers are not satisfied with the level of services provides, they could switch to other carriers such as easyJet, Norwegian, Vueling and Wizz Air even when their services are a little expensive compared to Ryanair. Besides, because the market is very volatile, it is paramount to improve on its oil hedging and currency trading through improving its policy to embrace the use of US dollars to purchase fuel.

Ryanair website is well rated by Google due to its high traffic by consumers, and the platform can be utilized to market its ancillary products better and to explore the possibilities of generating advertising revenue for its website. The firm can also introduce their credit card to add to its portfolio of the products and services. Such can be the way to ensuring the entire bookings is done through the internet and therefore help eliminate a call center that is very costly. Lastly, to improve its scope, the best strategy is to merge with firms operating in other industries such as Hospitality and Tourism to make the services and products comprehensive.

Conclusion

In conclusion Ryanair is a low cost airline operating in the European air industry. The company competitive advantages, unique resources, strategic capabilities is due to the personnel of employees, provision of low cost tickets and maintenance of their fleets. The industry in which the company operates is characterized by low threat of new entrants, high bargain of suppliers and intense rivalry. In future, the company needs to maintain the strategy but modify it based on the changing forces in the environment and adopt strategies such as expanding in routes where the operators are expensive and use of its website to offer all its services to consumers.

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