Module Code: ILP 301
Module Title: Business Strategy
Date Due: 8th May 2009
Module Title: Business Strategy
Date Due: 8th May 2009
Text book:
Johnson, G., Scholes, K. and Whittington, R., (2007) Exploring Corporate Strategy, Harlow : FT/ Prentice Hall, 8th Edition
Question 1
Analyse the competitive environment of the European budget airline industry, indicating clearly whether this is an attractive market to enter.
External analysis – PESTLE
PESTLE analysis is a short form for political, economic, social, technological, environmental and legal (Channon, 1997). PESTLE analysis has provided a comprehensive detailed list, possibly affects successful or the defeat, especially strategy (Johnson and Scholes, 2007).
In the political and legal environment Ryaniar face allegations of misleading advertising. In the case Standards Authority rebuked Ryanair’s misleading advertising. In 2005 Europe set up new regulation in order to reduce the inconvenience caused to air passengers by delays, cancellations and denied boarding. In 2006, Ryaniar enter to Europe member states market, such as Poland , Hungary and Slovakia UK
In the economic environment, the fuel price increases is effect Ryanair because its low-fares policy limited its ability to pass on increased fuel costs to passengers throughout increased fares. Beside that it was promised it would not impose any fuel surcharges on its customers. Beside that Ryanair need to compensate to passengers who are overbooked, cancelled flight and reimbursement of delayed base on the Europe Commission rulings
In the social-cultural environment, the passengers for now are not only requires cheap fares they also require comfortable seats, safe never lose their luggage, best amenities and etc.
In the technology environment, Ryanair use environmentally-friendly aircraft, the larger seat capacity of the new aircraft did not need more crew. The newer aircraft produced less emission，less fuel burn and lower noise emission per seat. A winglet modification programme on the fleet was providing better aircraft performance and it also can reduce fleet fuel consumption.
In the environment, aviation caused the carbon emissions increase.
Internal analysis –Porter’s five forces framework (refer appendix 1)
Porter's Five Forces is an important tool for analysis of the organizational structure of the process of strategic industries. It is use to understand a corporate strategy should meet the opportunities and threats in the organizations external environment (Dagmar Recklies, 2001).
Threat of entry
In Europe the low-cost carriers were increased in 2006. Although the airline industry in Europe is signified by the large number of entrants and rivals, but as many as 50 have gone bankrupt, been taken over, disappeared or never got off the ground. Therefore the threat of entry that Ryanair face is medium.
Threat of substitutes
Passengers would choice trains because don’t want to face the inconvenience and expense of checking in luggage and spent extra time in airport security queues. Train is the only substitute of airline therefore the threat of substitutes of Ryanair is low.
Power of buyer
Although passengers were complaint that they feel disturbed about Ryanair always trying sells them something in the aircraft. Although passengers were definite that they require comfortable seats, safe never lose their luggage, best amenities and etc. Although Ryanair was voted the world’s least favourite airline in the poll but Ryanair do not want to change and continue focus in cut cost to provide low fares. Therefore the bargaining power of buyer is low.
Power of supplier
The actual purchase of planes and the supply of fuel is the two main supplier of airline industry. The suppliers are unable to control the fuel price, although Ryanair is sensitive with it so the fuel suppler can not affects Ryanair. About the actual purchase of planes, Ryanair has a very healthy relationship with the main aeroplane supplier, Boeing (Brophy and ST. George, 2003). The supplier can not bring big effects to Ryanair.
Competitive rivalry
The competitive rivalry in airline industry is high. Although Ryanair is the first movers who perform no-frills carrier but other competitors was also perform low-fares already. Beside that they also plagiarize some strategy of Ryanair. For example, Aer Lingus and FlyBE were also introducing charges for hold luggage after Ryanair perform it.
Conclusion
This is an attractive market to enter because in the five forces, only the competitive rivalry is high therefore In Europe the low-cost carriers were increased in 2006 but as many as new players have gone bankrupt, been taken over, disappeared or never got off the ground. It is an attractive market but not every new entry can remain long in this industry.
Question 2
Examine the business model upon which the budget airline compete in terms of the value chain and competitive advantage.
Business model – Porter generic strategy
Although the industry may be lower than the average level of profitability, but the company is the best location can generate superior returns. Michael Porter believes that the ultimate strength of a company is divided into two headings: cost advantage and differentiation. Through the use of these advantages can be broad or narrow scope, three generic strategies result: cost leadership strategy, differentiation and focus (QuickMBA.com, 2007).
(Source: http://www.coursework4you.co.uk/generic.htm)
Ryanair’s business model is cost leadership it offered the lowest fares as much as possible to passengers. Because of this cost focus strategy Ryan has been so far the lowest cost in Europe , about 40% lower than its closest competitors (Joseph L. Rodman School of Management, 2008).
Value chain
Value chain framework is uses to analysis the specific activities of an organization, so that enterprises can establish a competitive advantage (QuickMBA.com, 2007 and NetMBA.com, 2007).
(Source: http://www.12manage.com/methods_porter_value_chain_zh.html)
Primary activities:
l Inbound logistics: quality training, low cost suppliers and airport agreements (Glos.ac.uk.com, 2007)
l Operations: no frills and low cost (Glos.ac.uk.com, 2007)
l Outbound logistics: quick turnaround and reliable service (Glos.ac.uk.com, 2007)
l Marketing and sales: low cost promotions, free publicity, controversial, internet sales and yield management (Glos.ac.uk.com, 2007)
l Service: limited resources, basic or low cost and high productivity (Glos.ac.uk.com, 2007)
Support activities:
l Procurement: Boeing discount, alliances, outsourced, private and low cost (Glos.ac.uk.com, 2007)
l Technology development: internet information, integrated systems, low tech marketing and internet sales (Glos.ac.uk.com, 2007)
l Human resource management: low cost training, limited crew, management control, in-house and performance contracts (Glos.ac.uk.com, 2007)
l Firm infrastructure: Minimum corporate high-quality (Glos.ac.uk.com, 2007)
Competitive advantage – SWOT analysis
| Factor | These factors apply to the method of Ryan |
| Strengths | 1. Have first mover advantage in the following areas: - Brand image and recall - A strong bargaining power to deal with at the airport - Reducing barriers to access to new markets and the airport - The addition of new barriers to entry (Air Scoop, 2007). 2. Lowest fares lead to greater occupancy of the seat (Air Scoop, 2007). 3. Greatly enhance the fleet of new safety and fuel-efficient (Air Scoop, 2007). 4. A single model of aircraft to reduce training, maintenance and supervision (Air Scoop, 2007). 5. The lowest labour costs, due to non-union labour (Air Scoop, 2007). 6. Maintain a positive impact on fuel hedge fluctuations in fuel prices at least (Air Scoop, 2007). 7. Point-to-point flights eliminating through-travel service costs (Air Scoop, 2007). 8. The main income support programs from the innovative (Air Scoop, 2007). |
| Weakness | 1. Increasing demand for technology in the supply of aircraft is less than demand (Air Scoop, 2007). 2. Low level of sympathy for employees (Air Scoop, 2007). 3. Low staff morale (Air Scoop, 2007). 4. Reduce the provision of airport or landing slots or frequently travel to popular destinations (Air Scoop, 2007). 5. Continue to maintain the cost-based business in a dynamic market (Air Scoop, 2007). 6. Promote the adoption of the report to make the impact of negative news of the long-term brand image (Air Scoop, 2007). |
| | 1. Merger or acquisition can be an extension of the popularity of its business (Air Scoop, 2007). 2. Full liberalization of the aviation industry in all the EU market (Air Scoop, 2007). 3. The recent increase in the 4. Ryan merger can help to offset the pressure on costs and fares (Air Scoop, 2007). 5. Players to withdraw from most of the traditional flow from the less intensive use of point-to-point routes |
| Threat | 1. Traditional airlines to cut fares and charges, which may affect the market share of the Ryan (Air Scoop, 2007). 2. The upper middle class may be sought by the greater economic value proposition, that is, only low-fares (Air Scoop, 2007). 3. Slot limit or do not provide the major airports may become obstacles to the expansion plans (Air Scoop, 2007). 4. Mergers or acquisitions may pose a threat to the existing low-cost structure, so that complex (Air Scoop, 2007). |
References
Channon, Derek. (1997) The Blackwell Encyclopedic Dictionary of Strategic Management.
Johnson, G., Scholes, K. and Whittington, R., (2007) Exploring Corporate Strategy, Harlow : FT/ Prentice Hall, 8th Edition
Dagmar Recklies (2001) Porters 5 Forces, [online], Available from:
QuickMBA.com (2007) Competitive Strategy: Techniques for Analyzing Industries and Competitors, [online], Available from:
Brophy,S., and ST. George, D,. (2003) Online deception: Student Economic Review. HOW RYANAIR HAS EXPLOITED THE ECONOMIC THEORT BEHIND AIRLINE CONTESTABILITY AND DEREGULATION, [online], Vol. 17, pp.245-257. Available from: [Accessed 4thMay 2009]
Joseph L. Rodman School of Management (2008) Flying High at Ryanair, [online], Available from:
QuickMBA.com (2007) The Value Chain [online], Available from:
NetMBA.com (2007) The Value Chain [online], Available from:
Glos.ac.uk.com (2007) Ryanair Case Study [online], Available from: <http://online.glos.ac.uk/colin_clarkehill/MB471Web%2004/Ryanair_presentation_group1.ppt> [Accessed 4thMay 2009]
Air Scoop (2007) SWOT Analysis of Ryanair [online], Available from:
Case “Ryanair” from Johnson, G., Scholes, K. and Whittington, R., (2007) Exploring Corporate Strategy, Harlow: FT/ Prentice Hall, 8th Edition pages 694 – 707
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