Ryanair Analysis
Section A. 1. Analysis of the Business Environment
In order to analyze the airline industry, we need to conduct the PESTEL Analysis.
Political and Legal
- Regulations for the air travel industry are getting even more stringent. The European Union authorities demand that airlines operate in an open, transparent manner. Any state subsidies to airline companies are prohibited in order to make working conditions equal to anyone and to boost competition in the industry. There are also regulations in place for airlines not to exceed certain levels of noise and air pollution. All of the legislation and regulations make operating in the industry harder. - Trade unions are powerful in Europe and have a great
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He also repeatedly challenged his rivals in very outspoken and extraordinary ways (e.g., challenged EasyJet sitting on top of a tank etc). His leadership style can be seen as transformational rather than transactional because under his management people tried to work harder and achieve challenging goals and felt commitment to what they were doing. FT called O’Leary one of the 25 greatest European business stars (‘A head for numbers, a shrewd marketing brain, and a ruthless competitive streak’).
4. The Competitive Environment
In order to understand the competitive environment, it is useful to carry out the Porter’s Five Forces Analysis:
Barriers to Entry • High because as the case suggests only early entrants such as Ryanair can succeed. There has been much industry shake-out and many airlines have gone bust. • High entry costs due to the necessity to buy expensive aircraft and equipment, pay to airports, and advertise massively. In the market where one competes on cost and not on differentiation, it is hard to attract customers from incumbent airlines.
Threat of substitutes • Medium to high. Although low-cost carriers have taken over some share of car ferries and buses, high-speed trains in Europe, especially on short-haul routes are posing an increasingly serious threat. The speeds of the train are ever increasing and new routes are constantly being added, which compounds the situation.
Bargaining power of buyers •
The threat of new entry is high because there are no significant barriers of entry in the airline industry. For example, airplanes can be easily leased, defraying the large initial capital investment. Additionally, exit cost in the business is
The task instruction is: Analyze Company G’s competitive environment utilizing Porter’s Five Forces Model of competitive forces. While headings below may provide some guidance for how to organize the paper, please refer to the recommended text (index topic: “Porter’s 5 forces model”), the learning community, and recommended web sites. As you will see from the reading, Porter’s 5-forces is a way to examine threats to a company’s success – which was competition imposes.
The sector employs more than 3 million people. Prior to the 1990’s, the air transport industry in Europe had been traditionally highly regulated and dominated by national carriers and state owned airports. Since then a single market for aviation has been created. The single market has seen the removal of all commercial restrictions for airlines flying within Europe. These include restrictions on routes, number of flights and the setting of prices.
Overall, the five forces model suggests that the overall intensity of competition in the airline industry is likely to be severe. Back in the early 1980 's competition was very intense. During the late 1980 's the monopolization of major routes by a few major carriers, the limited availability of free landing spots at major hubs and the emergence of limited brand loyalty and tacit price agreements have all helped reduce the intensity of competition. However, as already mentioned, slumping demand in the early 1990 's plunged the industry once more into a severe price war. Airline travel is a commodity-type product, with limited potential for differentiation.
Porter’s Five Forces was next used to determine the competitive environment. The Five Forces method is used to determine a company’s profit potential for a particular industry.
Porter’s Five Forces was developed in 1979 by Michael Porter as a framework to assess and evaluate the competitive position of a company in an industry. It is based on the theory that there are five forces which identify the attractiveness and competitive strength of an industry. It is helpful to gain an understanding of a firm’s current positon and the position that the firm may look to capture in the future. Porter’s five forces are also used to
This analysis is conducted on the Porters Five Forces theory that is crucial for effective strategic decision-making, the five forces that shape industry competition are:
The risk of entry into the airline industry by potential competitors is low due to the “liberalization of market access, a result of globalization. According to the IATA (International Air Transport Association), about 1,300 new airlines were established in the last 40 years,” (Cederholm, 2016). The cost structure of businesses in an industry is a determinant of rivalry. In the Airlines Industry, fixed costs are high, because before the organization can make any sales, they must invest in air crafts, fuel and service employees. These items come attached with hefty price tags. Industries that require such enormous amounts of start-up capital as predicted by many analysts
Hard to compete against the large airlines not only for customers but space at the airports for their airplanes.
Porter’s Five Competitive Forces Analysis is a framework developed by Michael E. Porter of Harvard Business School for study of industry analysis by analyzing five competitive forces which define industry and its business strategy. These five competitive forces determine the competitive advantages, disadvantages and attractiveness or profitability of industry.
Porter’s Five-Forces Model of Industry Competition is the most widely utilized tool to evaluate the competitive environment (Dess, Lumpkin, Eisner, & McNamara, 2014). Dess, Lumpkin, Eisner & McNamara (2014) define Porter’s model
Porter’s five forces analysis is a tool is useful for us to analyse the threat of competition in an industry. Porter believed that the industries were influenced by five forces; competitive rivalry, threat of new entrants, bargaining power of suppliers, bargaining power of buyers, and the threat of substitutes. Analysing these areas can allow you to see attractiveness of the market and find a competitive advantage.
If it were to be successful Ryanair would have to change their strategy, as it would not be able to keep low costs, as passenger on long haul flights would want the additional add-ons at no extra price. This would result in increased price and pose a challenge for Ryanair to maintain cost leadership.
Porter's Five Forces can be applied to particular companies, market segments and industries with the step-by-step analysis of market structure and competitive situation. First of all, when implementing this module in organizations, it is necessary to determine the scope of the market to be analyzed. Following, all relevant forces for this market analyzed and key forces are identified (Gerry and Kevan, P.117). Actually some organizational strategy and the longer-term goals are mainly based on or consistent with the key forces. Hence, it is not necessary to analyze all elements of all competitive forces with the same depth. Moreover, the key forces in the competitive environment will vary in different industry. Different forces take on prominence in shaping competition in each industry (Porter,
It may be lower risk in in the aviation markets because of entry regulations that a high level of governmental barriers to open the freedom of flights, also the industry needs high fixed costs and assets of airline operation, but based on the increasing demand of travelers by air, it's given the high intensity of rivalry.