The Ryanair's Strategy of Development

Companies use business strategy to gain competitive advantage in the industry by exploiting their core competencies. These rare resources and capabilities provide unique and premium value to customers. Ryanair is using focused cost leadership strategy. They are reducing operational costs to formulate the lowest cost per unit as possible and provide low price products and services for a specific customer segment.

Ryanair has tried to stand out in the competitive market by providing low-cost transportation service for target customer segment. While other companies have been competing to attract competitors’ customers, Ryanair focused on catering specific customer needs. With their low prices they target price-sensitive travellers, who’s priority is to get the cheapest flights between destinations and do not care as much about the traditional customer services, such as meals, assigned seats and other travel amenities. Ryanair has adopted many cost-conscious strategies which can be regarded as innovative in the airline industry, to gain their competitive advantage in the market. They have strategically invested into new, larger airplanes in times of economic crisis and tailored the interior design to cater their needs. This contributed to economies of scale, reduction of maintenance costs, larger inventories and any other unnecessary costs. They spent money only on activities and assets, which would be beneficial to their revenue stream and crucial to their business operations. One of their key economic decisions was the selection of destinations and choice of airports. Since this represented a major source of costs, they made agreements with secondary airports. These airports are usually located in the suburban areas of metropolitan cities with lower landing charges, which complies with Ryanair’s strategy to minimize the costs. Ryanair also focused on point-to-point service to eliminate the transfer baggage costs or unintended delays. Their marketing budget is set extremely low, since they do not try advertise their services but try to focus on comparing their low prices with competitors’. They outsource many of their operational services from contracted service providers to reduce additional costs. Ryanair use the reverse cost approach and offer other companies to pay for advertising on their exterior design of planes. Catering service companies who had a contract with them, had to share a portion of their sales with Ryanair in exchange for information and data for analysing the demand patterns. By eliminating the traditional airplane food service, they reduced food waste and related costs, consequentially being able expanded their seat capacity, as well increased the volume of duty-free products, which were important for their sales revenue. Modern technology and changing customer needs, forced Ryanair to shift to online system. They created a company website, through which the customers can book a flight or other accommodations. With this change they eliminated the intermediary costs, such as travel agencies, and were able to initiate real-time demand-based pricing.

Ryanair has used many practices to lower their operational costs and provide their customers with low-price services, but many of them can be perceived as unethical. They decided to cut the salary base of their employees and developed more variable compensation-based approach. Salaries reflect their overall performance, by using different evaluation metrics, such as punctuality, sale of goods (duty-free) etc. This resulted in extremely high expectations and strict regulations, which consequentially led to unsatisfied employees.[

Due to high competition in the industry and higher quality requirements, Ryanair was bound to change a few things in their strategy. They have become known for their strict baggage regulations and poor customer service, which is why they focused on improving their brand image. They have become known for extremely bad customer services which started to negatively affect their business. Ryanair realized that due to intense competition, relaying simply on low prices will not guarantee satisfied customers. Through innovation they intend to improve their operations, but not at the cost of low prices, since it represents their main competitive advantage. On January 31, 2018, they initiated their new 5-year plan called “Always Getting Better”. This is a customer experience improvement programme, which will include cheaper and more on time flights, increased baggage allowance, ground transportation, connection flights and other. It also includes an environmental plan, through which they intend to eliminate all non-recyclable materials from their operations (switching to wooden cutlery, bio-degradable cups etc.) Since Ryanair is using focused cost leadership strategy, their limited demand can be a problem for future growth. This is why they expanded to other markets, such as business travellers and families, to ensure future growth and increase their market share. It includes new flexible fares, with ability for business passengers to alter their booking according to their changing schedule. Families travelling with their children will get discounts or “kiddies’ fares”, allocated seating and check-in bags.

Ryanair’s strategy has been successful in the past, but due to changing business environment and increasing competition, they have to change many of their operational areas to continue to grow in the market. Their bold, cost conscious strategy has helped them gain competitive advantage through low prices, but unfortunately resulted in poor brand image. Their extreme decisions and actions are one of the main reasons, other companies avoid implementing such excessive strategy. Customers rather opted for higher prices of competitors than risk having unpleasant traveling experience with Ryanair. This was also a consequence of dissatisfied employees, who were working under strict regulations and requirements. Ryanair has to focus on finding a balance between reducing costs and providing their customers the expected experience. They have to keep in mind that in the end, they are in customer transportation service and cannot neglect the customer needs and satisfaction.

References

1. Mulligan J. (November 15, 2013). Ryanair to target businesses, families with 'flexible fares'. Retrieved on December 5, 2019 from: https://www.independent.ie/business/irish/ryanair-to-target-businesses-families-with-flexible-fares-29756355.html
2. Ramaswamy K. (2018). Ryanair: Can a Leopard Change Its Spots?
3. Ryanair (Jan 31, 2018). Ryanair Unveils 2018 “Always Getting Better” Plan including 5 Year Plan To Eliminate Plastics. Retrieved on December 5, 2019 from: https://corporate.ryanair.com/news/ryanair-unveils-2018-always-getting-better-plan-including-5-year-plan-to-eliminate-plastics/