An Internal and External Business Environment Analysis of Ryanair
The objective of this research paper is to conduct an analysis of internal and external business environment of a service company. For this purpose airline global industry has been chosen as a case study because of its importance in the current economic and political scenario. International investment, world trade and economic growth are some important factors deriving this industry (Porter, 1986). The present paper will undergo strategic analysis of internal and external environment of Ryanair in relation to its performance in the global Airline industry. It will allow identification of factors that affect the profitability and popularity of a company. In the end recommendations will be suggested accordingly. Lets look at the Ryanair business environment.
Company Background – Ryanair Business Environment
Ryaniar has a long standing reputation amongst low cost airlines in Europe. Ryaniar Ltd was founded by the Ryan family in 1985 and within ten years of its establishment the company gained immense popularity because of its image as a low rent airlines. The company provides scheduled services between the UK and Ireland through its 297 Boeing aircrafts. The company still manages to maintain its image as popular airline of the world. The Ryaniar Company focuses on budget conscious leisure and business travelers for its services. People who choose other transport services to reduce the expanses of their travelling remain to but the primary target of the company. The company also aims to expand and improve its services in low fare market. The mission of Ryaniar Ltd is to become the most profitable and attractive low fare airline in Europe low cost carriage sector by brining continuous improvements in its services.
Market Description
Currently the growth and development of low cost airline is being favored in the European Airline industry and it remains the main determining factor for the evolution of an airline company. Almost 18 percent of the transport supply is being done by low cost airlines and the seats are mostly limited to medium and short haul flights. These low cost carriages are also deemed important for the passengers who want to find seat for point to point moves.
Belobaba et al. (2009) writes that global airline industry has grown by 12 percent in 2010 and the major player in this context remains to be the United States of America. The market growth is further expected to increase in years to come. It is believed that by 2015 the growth will reach to $714 billion and the number of passengers will also grow to 3 billion. Domestic market shows the leading market segment in the global airline industry and America holds about 45% value of the industry. A number of challenges are also being faced by the global airline industry after global financial crisis. By 2010 many consumers started to cut back their leisure spending and relapsed air travel by train or other cheaper means of transport. This fall in revenue is mainly fueled by increased unemployment rate and economic uncertainty (Belobaba et al., 2009).
Some negative events have also declined the business of airline industry and amongst them rising fuel prices increasing the cost of operations are most common in the history. Several times they have put a dent on the industry’s operations. Along with that, other negative players are also there amongst them increased security threat, political unrest, uncertain and exchange rates are at the top of the list.
According to a report Published in the Telegraph UK the low cost sector has increased its growth by 12 pc in the last decade. However, even the low cost airlines are not free of the negative market affects that undermines overall activity of the industry but still they are making more business that the high cost European airlines (The telegraph, 2014).
Competition
After its establishment Ryaniar faced a great deal of competition. European Union deregulation in 1990 resulted in some substantial changes on the British industry. The most important of which is the focus of people on budget airlines offering comparatively shorter routes. These airlines provided a great deal of competition and grew on expense of traditional British airlines. Later increase in fuel prices after 2008 economic crisis also resulted in further decline of luxury airlines. Competition is also not very strong as the industry is not in a healthier state to support the business of expensive airlines and a number of airlines are under the threat of disappearance because of bankruptcy. European Union promotes low wage, low cost and low income flag carriers.
Challenges Faced By Ryaniar
Operating environment of the airline industry is being affected by a number of challenges that range from safety issues to consumer preferences, spending patterns, political instability, weather, security and natural disasters. All these factors affect the operating environment of Ryaniar Ltd also and most of them are beyond the control of the management of any airline. The expenses of flight cannot be controlled regardless of the number of passengers travelling in the plane. In addition to this, when shrinkage in airline industry happens, the remaining cost of operations remains the same that presents immense challenges to the management. Dobruszkes (2006) adds that operating environment of some low cost airlines has become favorable because they have adopted some cost reduction strategies that mainly include the management of the marketing cost, fleet reducing services, airport maintenance, route alteration and recharge policies. Appropriate techniques for maintenance of Engines, maintenance cost of hangers, management of staff cost and marketing cost to increase productivity are also adopted. In this scenario, companies that focus on small operating basis and start internet ticketing generate more revenues (Dobruszkes, 2006).
In the European market variation related to differences in the geography and scope of the airline persist. Most of the short and middle haul airlines focus on Western Europe and the distance for flight is 1.4 hours during this time an area of 634 kilo meters is covered. The total area covered by Ryaniar and most of the other low cost airlines is less than 1000 kilometers and in most of the cases international connections are not present. In addition to this, most of the low cost airlines influencing Easy Jet and Ryaniar are poorly penetrated in central and Eastern Europe markets. Some networks are also designed for tourists to take them to their desired destinations. These airlines do not focus on the capital city but they also maintain their attention to small cities and towns where low cost flights are easier to be managed (Mason, 2001).
Services Provided By Airline Industry
The services delivered by the airline can be divided into three main categories mainly including freight services, logistics and rail passenger’s airbus. Superior services are usually delivered to the clients that are willing to pay more. Product scope of Ryaniar Ltd is large as it promotes many services. It offers a range of destination around in Europe. In addition to this, hospitality, carriage, aircraft control system and assistance in booking rest houses is also provided. Like all other airports, services at the Ryanair airports are also available that include flat beds lounges and fast track security system.
Intangibility of Services
Ryanair business environment services are intangible and cannot be smelled, touched and tasted. It cannot be processed physically possessed.
Inseparability of Production and Consumption
Inseparability of production and consumption means the production of a service cannot be separated from its consumption by customers happen simultaneously. Customers buy specific type of product and take it home but services cannot be taken home, instead they are provided in a specific manner.
Perishability
Perishability is another characteristic of the service that means once services are produced they cannot be stored because of which supply demand gap arises.
Heterogeneity
Heterogeneity means that variation in the quality of services because of which standardization cannot be maintained. This makes the maintained of quality of service delivery a difficult task for service providers.
Challenges
Customer safety and quality issues are at the heart of any service sector and same is true for the airline industry. Here the quality of services acquires central place for the organizations. Quality of services is assured by the notion of truth that primarily reflects the importance company gives to handle each and every customer. Therefore, for service industries it becomes extremely important to design and manage activities in a way that can assure good quality services to the passengers (Janawade, 2013).
According to Janawade (2013) service quality management is still the subject of debate for the management of airline companies. The diversity of the airline services makes it harder for the administration to maintain good standard of services at each front. The quality of flight meals clean and airy airports, luxurious waiting areas, hygienic environment of washrooms, customer care and maintenance of airplanes are some areas of quality that remain the focus attention of the administration. Sometimes it becomes harder for the company to maintain superior quality services when budget is low and economic uncertainty prevails in the market. This is the reason for which some airlines fail to maintain good quality in-flight environment. The issue of measuring service quality has always been raised by the customers who pay a huge amount to travel across the world. Business class customers are often more cautious about the way they are treated at the airport and also in the airplane. Some other areas are also there that create major issues for the management and they include mishandling of baggage, late flights and misinformation (Janawade, 2013).
Along with the quality of services the rate of accidents and incidence also becomes the prime concerns for passengers who opt to travel in an airline. Total rate of incidents, rate of accidents, mid air collision and pilot’s deviations are some of the events that affect the safety of airline operations. The overall safety ratio of the global airline industry has declined in the past decade. Many technological issues arise because of poor maintenance of the aircraft. Moreover, the entire industry is under the threat of customer safety issues mainly generated by political unrest and legal bindings of the company. Airline industry remains the center of attention of the government and public as far as the passenger’s safety issues are concerned and many times these issues have resulted in serious debates that presented the industry with a number of challenges (Janawade, 2013).
There are a number of regulatory issues as well that affect the service delivery in the airline industry. Airline industry remains the center of attention of the government of a country and hence is mostly subjected to extensive regulations of the government. Many legal compliance and regulatory requirements are there for the industry. In the US airline industry FAA (Federal Aviation Administration) regulations matter greatly, which change from time to time and put airline industry under scrutiny. Same is true for other areas including Europe, Australia and Asia. Other acts such as transport security act result in federalization of some security procedures. Government of the UK keeps proposing increase in taxes that directly affect the revenue generation of the industry. In addition to all this, other regulatory changes are also expected that may range from security concerns to fuel emission and environment safety issues. All these factors may further affect the business deleteriously.
Success of Organization in the Management of Challenges
As stated above a number of challenges are being faced by the airline industry and they are regulated by the key players in the industry. Key players in the airline industry are those that have direct or indirect affect over the business and amongst them airline manufacturers, air navigation service providers and air-port construction teams are important, along with them, political atmosphere of a country and fuel price are also some intangible factors that affect the business of the airline industry. Policies and procedures of the ‘department of the trade and industry’ can positively or negatively affect then business (Mason, 2001). Along with this, employee’s turnover rate has become a major problem for the companies that tend to develop and make progress. A good human resource management system can aid companies to reduce turnover rate by keeping employees satisfied with the job. Companies with a high rate of employee’s turnover often face a great deal of pressure in terms of the management and training of their employees (Richard et al. 2001). The global airline industry has managed its growth by maintaining its operations in suitable limits of economy. Dobruszkes (2006) explains that European airline industry is the one that prefers evolution of low cost airline networks. Because of the demands and competition trend in the market this concept became famous after 1995. The European low cost airline scope has actually met by Ryaniar and Easy Jet that have felicitated customers who previously chose other transport system because of high rent of the airlines. Ryaniar airline alone has carried 70 million passengers in the year 2012 and is expected to increase its size.
Bamber et al. (2013) writes that though turnover rate of employees in an industry vary greatly with time and many factors play their part in this context. Sometimes nature of the job and low wage becomes the cause of a high turnover rate in case of some industry such as fast food and call centers. When compared to the other sectors the rate of employee’s turnover in airline industry is comparatively low (Bamber et al., 2013).
Richard et al. (2001) also say that airline industry show low turnover rate compared to any other industry of the world. Overall turnover rate of the industry is 9 percent that shows employees are not replaced very quickly over a particular time period. However, increased fuel prices and deregulation act in the late 1980s have made the industry less attractive. Operating cost has increased to a considerable extent and worker’s pay has reduced. Many other airline companies in the world including that of American and Asia have also decided a wage cut off to reduce the cost of operation within the system. In addition to this, 100,000 employees of only American airline industry were laid off after deregulation act. This has given rise to an uncertain working culture and some of the employees opt to find jobs in another industry that is less uncertain than the airline sector (Richard et al. 2001). Bamber et al. (2013) conclude in their research paper that airline industry needs to maintain its attractiveness in order to keep employees happy and contented with their jobs.
Forces Deriving the Airline Industry
A number of forces derive the airlines industry that range from customer satisfaction issues, strategic planning, point to point roots, terminal and aircraft facility, online booking services, reduced lines at the ticket corner and economy of scale. Along with customer safety other factors are also there that create management challenges for the airline companies. Staff safety at the airport is also one of the major concerns of the administration that results in poor working morale of the staff members.
References
Bamber, G. J., Gittell, J. H., Kochan, T. A., & Von Nordenflycht, A. (2013). Up in the air: How airlines can improve performance by engaging their employees. Cornell University Press.
Belobaba, P., Odoni, A., & Barnhart, C. (Eds.). (2009). The global airline industry (Vol. 23). John Wiley & Sons.
Dobruszkes, F. (2006). An analysis of European low-cost airlines and their networks. Journal of Transport Geography, 14(4), 249-264.
Hanlon, J. P. (2007). Global airlines: competition in a transnational industry. Routledge.
Janawade Z., 2013, customer perception quality of complex services, France, Paul Cezanne University, p. 2-14.
Mason, K. J. (2001). Marketing low-cost airline services to business travellers.Journal of Air Transport Management, 7(2), 103-109.
Porter, M. E. (Ed.). (1986). Competition in global industries. Harvard Business Press.
Richard, O. C., & Johnson, N. B. (2001). Strategic human resource management effectiveness and firm performance. International Journal of Human Resource Management, 12(2), 299-310.
