Economic Business Strategies of Ryanair

Economic logical argument St straygies of RyanairRyanairIntroductionThe scotchs of worry vary, both depending upon the industry where they operate and the dash and scheme adopted by the management. Within this report card it is intended to judge those economic factors as they relate to the low-cost air hoses. To assist with this assessment Ryanair, angiotensin converting enzyme of the leading low-cost air hose operators in Europe, provide be apply as an example.Existing incarnate StrategyFollowing the liberalisation of the airline industry, the consumer demand for air pass began to accession. However, when operators much(prenominal) as Ryanair, an Irish ground company, was one of the first-movers (Faulkner and Campbell 2006). in adopting a low-cost strategy for Europe, similar to the instance madely introduced by Southwest Airlines (2007) in the US, the levels of demand increased dramatic totallyy. As usher out be seen from the numbers of riders using UK airports (see table 1).Table 1 Airline passengersYearPassengers (m)1980501990902000180The demand for airline stooges is excessively forecast to more than treble by 2030 to or so louvre hundred million UK passengers.Ryanair is an Irish airline operator that commenced clientele in the mid 1980s with one 15-seater aircraft, has grown to a demarcation that now has a fleet of over 150 aircraft and carrying over cardinal million passengers (About Us 2007). Since the beginning of the century, the companys addition rate has improved substantially, to a position where it is now communicateing air travel to rough forty million passengers (see figure 1), with an expectation of this rising to 70 million deep down the next few years (Ryanair 2007).The company has achieved this growth by supplying consumers with consistently low prices. It confineed these low fares by creating a no frills price advantage (Pettigrew et al 2002), which differentiated its go from the established airline compet itors (Porter 2004, p.207 and Kotler et al 2004, p.407). In other words Ryanair offered bald-faced fares with lower levels of improvement. For example, free in-flight meals were eliminated. At one stage the no-frills policy intromitd not providing ice for in-flight drinks (Creaton 2004, p.169), although this was reintroduced following complaints.However, to moderate this position, as kill (2006) and Faulkner and Campbell (2005), who submitted that to achieve and maintain low price in the market place, the air itself had to be structured in a way that provided a special cost base. Ryanair has achieved this situation by taking a number of measures, which include Maximising use of resources by using one aricraft type, increase employee roles and trim airpot turnaround times.Ticketless and direct selling via the Internet or phone, which served to reduce administrative costs.Use of secondary rather than main airports. This move enabled the business to do lower airport fees.Sin gle class travel, elimatiion of free inflight services and seat reservation helped reduce business costs.All of these measure have stipulation Ryanair the flexibility to be able to maintain a flexibility of price, from 99p owards, and service and helped it to react utilely to industry changes.In terms of profit and the financial contribution that Ryanairs strategy has achieved, as hatful be seen from the following financial data taken from the relevant companys website, shows how successful Ryanairs appraach was in 2003, when compared with its main competitors (See table 2 below).Table 2Net profit percentages participationPercentageRyanair17.81%Easyjet7.98%British Airways7.28%ChallengesThere are prodigious future challenges approach the low-cost airline industry in general, and Ryanair in particular, which pass on withdraw to be addressed. Amongst these are the following CompetitionIt increased regional and orbiculate harmonisation and wear outment of air travel Ryanair i s bound to face increasing competition within the next five years. This could materialise from developing nations within Europe, where there is significant scope for refreshful entrants (see figure 2)It could in like manner case from the recently signed open skies agreement between the EU and US (Milmo and Gow 2007). Both of these actions could result in loss of market share to new entrants, which would impact adversely upon Ryanairs menstruum level of success and financial results. Similarly, Ryanairs own growth predictions could reduce its profitability levels. Whilst growth brings economies of scale, it can increase management costs, which is counter-productive to efficiency (Creaton 2004, p.250).TaxationAt present the airline industry is heavily subsidised. As identified with the Bized (2004) report, this benefits the industry players by around 6 billion annually. These benefits include zero VAT, capped landing charges and raise tax exemption. It is anticipated the removal of these benefits, by introducing the relevant takes could reduce passenger levels by over 22% as a result of the increase in prices. Whilst it is not expected that all these subsidies result be eliminated at once, there is little doubt that for political, treasury and environmental reasons some adjustments will be seen in these areas will be seen within the next five years.EnvironmentThe major challenge facing Ryanair relates to its impact on modality change. Following recent IPCC, the EU are becoming increasingly touch on with the airline industries contribution to this global issue. As a result, these organisations have develop industry targets that are expected to be met within the next 5 years and beyond (see table 3).Unless Ryanair adapts its corporate strategy to take into bankers bill these targets, the result addition costs, or reduction in service will impact severely upon its ability to remain cost efficient and to maintain its present levels of profitability.Future StrategyAs has been advised by a number of researchers (Lynch (2006) and Faulkner and Campbell (2006)) every business take to review its corporate strategy to address future challenges. There are two ways that Ryanair can address the challenges that have been outlined in the previous section of this paperIn terms of reducing the impact of competition, and making it more catchy for new entrants, the business needs to continue to seek ways to sustain its cost reduction programme. This not only means that it has to ensure that the inwrought management structure efficiency of the business needs to be as efficient as it has been in the past, but excessively that the business needs to seek new measures of cost reductions. For example, expanding its automatic check-in processes through all its locations would greatly reduce the business human resource cost. It can in addition sustain its lower price policy by transferring the cost of temporary from ticket cost to other aspects of the travel, for example luggage. This specific action could also offset any potential airport cost increases.However, the most effective strategy to adopt in order to address all of the challenges is to develop a plan that increases the supply to meet anticipated demand, whilst at the equivalent time reducing the cost of that supply and the effects of increased taxations and meeting its environmental commitment. The most effective plan for this achievement is the conversion of the current fleet to higher passenger capacity aircraft. For example, the introduction of a significant number of Airbus models would double capacity on those flights. From an economic viewpoint it would also reduce costs. For example the maintenance and servicing costs would remain the equivalent because aircraft numbers have not been increased, but will reduce as a percentage of the ticket cost. Similarly, airport costs and other taxes, such as fuel tax would also be reduced per passenger capita. Finally, be cause of the increased load, and higher efficiency of these aircraft, the emissions level per passenger km would also see a reduction, thus helping the business to meet its environmental targets.ConclusionAs has been seen from this research, over the past two decades the business economic strategies that Ryanair has employed have been successful in helping it maintain rivalrous advantage, achieve passenger growth and fulfil its objective of increasing business value.However, with the future challenges facing the business from increased competition, rising taxation and environmental concerns, the business will need to adopt a that is flexible to change, whilst at the same time enabling it to continue to sustain and achieve the successes of the past. This will mean combining cost reduction with a production and supply system that reduces the impact of potential tax increases, whilst at the same time enabling Ryanair to meet the increasing demands of reducing its environmental impact. BibliographyBized (2004). Low go Fares An End to Cheap, No Frills? Retrieved 27 July 2007 from http//www.bized.co.uk/current/leisure/2003_4/010304.htmBrassington Frances and Pettitt, Stephen (2006). Principles of Marketing, 4th edition, Pearson cultivation Ltd. London, UKChannel 4 new-mades (2007). If you care about the environment, you should fly Easyjet. really? Retrieved 16 whitethorn 2007 from http//www.channel4.com/news/articles/society/environment/factcheck+how+green+is+easyjet/509642Creaton, Siobhan (2004). Ryanair How a Small Irish Airline Conquered Europe. Aurum Press Ltd. London, UK.Faulkner, David and Campbell, Andrew (2006). The Oxford Book of Strategy A Strategy Overview and Competitive Strategy. New ed. Oxford University Press. 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