Introduction
Ryanair is one of Ireland’s low cost airline, with headquarters in Dublin International Airport and its largest operational bases located at Dublin International Airport and London Stansted Airport. It currently employs a team of 5,961 people, comprising over 25 different nationalities. The family—with a share capital of just £1, and a staff of 25 introduced Ryanair in 1985. It launched its first route in July with daily flights on a 15-seater aircraft. The total passengers that year were 5,000. In the near future, Ryanair will be delving into the People’s Republic of China and spread the buzzword around the city.
Key strategies Ryanair must acquire in entering PRC
With a current growth of 25% per year and a mission to firmly establish the Ryanair brand as Europe’s leading low-cost passenger airline, Ryanair needed strategies that keep costs low, but still provide the accurate and up-to-date information its executives need to make decisions. The airline realized that to achieve its objective it needed to update its IT infrastructure. Ryanair needed a robust and fully integrated IT solution that could support the airlines continuing expansion to the PRC. Undoubtedly, the most significant cost initiative in recent years was the launch of the Internet site. Its immediate success and instant customer acceptance enabled the company to increase the proportion of direct bookings to almost 75%, which generated large savings in central reservations systems fees and travel agent commissions.
Creating a sustainable marketing strategy for Ryanair means to organize its future. To plan the future one has to know the present in a broader perspective. Penetrating PRC fosters both advantages and challenges. And this could be the starting point of an environmental analysis, which identifies the internal and external parameters of the particular environment an organization is operating in (1999) and translates it into useful plans and decisions. Since the airline, the industry was very much influenced by changes taking place in the environment and has undergone rapid and dramatic changes during the last decades. For the low cost strategy prices of fuel, taxes, and government regulations are especially important. The airline deregulation not only helped Ryanair but also increased competition and air traffic. This has lead to increased regulations by the EU government in terms of safety and environmental rules. This again increases operating costs within the EU. When Ryanair wants to maintain its low fares it has either the possibility to cut costs elsewhere in order to compensate increasing costs for safety and environmental taxes or it has to finance those costs by increasing ancillary services revenue (1999).
Challenges and Competitiveness
Efficiency and low prices are due not the least to the company’s lower labor costs. Ryanair controls these costs through a performance related pay structure. This system is dependent on EU social/employment legislation, which is always subject to change. A major problem is the uncertainty of the oil price, which is again tied to political developments, would be one of the major problems Ryanair will face in plunging into the airline world of PRC. Since the political situation in most major oil producing countries will stay unstable for the foreseeable future, the oil prize will remain a major predicament for airlines. The fuel cost difficulty is exacerbated by unpredictable currency exchange rate fluctuations since aircraft fuel prizes are denominated in US dollars. Nevertheless, the weak dollar has compared to sterling positive impact for Ryanair.
Business Model
Ryanair’s profit could be halved due to ever risen fuel cost and a weaker UK pound. The quarter of 2007 net profit dropped with as much as 27%. Applying the Southwest business model it is well know for being a “no frills airliner” generating sound financial figures. The business model is mainly focused on the price sensitivity of customers. PRC being in general an “affluent” country can be appalled and attracted by this. Being able to shell out much money but not getting the due end result could spell disaster for Ryanair.
On the one hand, it the created a compromise by cutting costs out of the traditional airliner model; the usage of Internet for reducing channel costs, no food served and additional charges for luggage, use of smaller airports, and a single model aircraft is being utilized. On the other hand, the business model focuses on stimulating revenue streams by maximizing the utilization of aircrafts and yield management pricing strategies. The ever-rising fuel prices drive costs, but not in the parts of the business model Ryanair controls. The combined effect in addition to the downturn on the whole industry of these recent developments result in weakening profits and possibly what Ryanair’s CEO calls “a perfect storm” (, 2007). Venturing into PRC can be bittersweet for the company.
References
Credit:ivythesis.typepad.com
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