Sustainable Corporate Strategy: The Case of Ryanair
Introduction
In competition there is motivation in every company to improve and develop their objectives. For an enterprise to succeed in global competition there is a continuous plan to develop new products with higher quality than its competitors. (1993) analyzes that new product and new business development must be highly effective and efficient, however that alone won’t ensure its competitiveness. It must be supported with a suitable culture throughout the enterprise. It must have a group of body that supports, encourages, and promote innovation for the company to succeed in the end.
Corporate World is very classy and every move they made seems to make an impact on the life of the people. Every aspects of our everyday world have been influenced by modernization, consequences of countless business decisions. Business activity integrated into our way of life, and culture changes in accordance to the rapid growth of “business culture”. In other words, people are one of the main reasons why corporations and different business establishments seek to develop different strategies that will make them stand out among their competitors so as to maintain and sustain their existence. They want to create an impression so that people will patronize their products and eventually lead them to financial success.
This paper discusses and analyzes the sustainable corporate strategies that Ryanair adopted in order to remain competitive and the subsequent benefits it contributed to the growth of the business.
Q.1) Outline contemporary views of the terms “sustainable’ as it apply to large companies. On the basis of what is presented in the case, give your views as to whether Ryanair was a ‘sustainable’ company in early 2004?
Prior to the common use of the term sustainable industries, the terms sustainable economy and sustainable development were common. They coined the most broadly used definition of sustainable development as, development that meets the needs of the present without compromising the ability of future generations to meet their own needs (1996; 1997). Sustainable development demands that the search for ways of living, working and being that allow all people to guide vigorous, satisfying, and economically safe lives without destroying the environment and without endangering the potential interests others (1997). Sustainable development is an economic state where the demands placed upon the environment by people and commerce can be met without reducing the capacity of the environment to provide for future generations; is economic development that has a positive long-term social and/or environmental benefit; and meets the needs of the present without compromising the ability of future generations to meet their own needs (1994). People anxious about sustainable development recommend that meeting the needs of the future depends on how well we balance social, economic, and environmental objectives–or needs–when making decisions today. It requires an understanding that operating has consequences and that we must find inventive ways to change institutional structures and influence individual behavior. Merely it is about taking action, changing policy and practice at all levels, from the individual to the international (1997).
Ryanair continues to make risks because of increasing and overlapping cost pressures. However, if it sticks close to its low-fare model as it has been intending to, it may continue its sustainability because true to the Walmart model, the cheapest product always wins. Eventually being the lowest cost and lowest fair airline will attract several passengers that will compensate for rising fuel costs especially since Ryanair is good at increasing passenger seats and expanding routes.
Q.2) 2002/03 was a difficult year for the world’s airlines, but Ryanair “…was seen to be unique among airlines worldwide…” . Describe the main corporate strategies used by Ryanair to achieve this outcome and why they were so successful when compared with other airlines.
Ryanair is a No-Frills airline meaning to say, it gives customers what they want without the added costs. By constantly saving money by making premium and attaching amounts on services that are commonly free in airlines, Ryanair is not only able to cut down a significant amount of costs, but it is also able to have increased space in its airline truly resembling a public transport such as a bus or a train on air. In addition to increasing more seats are its regional destinations and cheaper routes and hubs. Despite not being placed directly in the main hubs, Ryanair still accomplishes its mission of getting the customers to the intended location with no frills. It defines Customer Service not through friendly and amiable treatment, but through the delivery of customers from one destination to another in a price that is skinned down to its essentials: punctuality, fewer cancellations, lost bags and complaints. They believe that each plane customer is not really so much concerned of the convenience as they prioritize the cheapest plane more than anything. By only promising the basics, lessening accountabilities as well as responsibilities and by charging prices for anything beyond this (refreshments, meals, accommodations, wheelchairs etc), the airline is able to achieve this. Somehow Ryanair is able to take advantage of the depressed airline industry by offering the best deals in a time of financial crises. Ryanair keeps on finding ways to cut down costs in these crucial years. For instance, it has introduced its website in the year 2003 to cut down further on their “Staff costs, agents’ commissions, and computer reservation charges” while increasing growth.
Q.3) The ‘idea’ between Ryanair and Charleroi Airport is set out on p.833 of the case. Discuss this idea from the viewpoint of the “Corporate Governance” of (i) Charleroi Airport and (ii) Ryanair.
Corporate governance can be defined as a system that is used in order to direct and control companies. As a matter of fact, this idea applies to all business sectors all throughout the world such as the banking institutions, financial corporations and other types of businesses such as the retailing industry. As a term, it has come to imply good, in the non-moral as well as the moral sense. Its non-moral applications include efficient decision making, appropriate resource allocation, strategic planning, and so on. Nonetheless, in its moral sense good corporate governance has come to be seen as promoting an ethical climate that is both morally appropriate in itself, and consequentially appropriate in that ethical behavior in business is reflected in desirable commercial outcomes (, 2000). Thus, the links here are with due diligence, directors’ duties, and the general tightening of corporate responsibility.
In particular, corporate governance refers to the examination of the control of a company as utilized by its directors. In accordance to theory, the directors of public companies are held responsible for their action by their shareholders. On the other hand, the authority of the shareholders to influence the behavior of the company directors is limited in practice and is rarely exercised. This then provides directors of considerable power to take action as they see fit. However, this is not always the case as it appears to be relatively different form that of the government in which the action of the officials is slightly restrained by certain actions of the people it governs.
Ryanair has incidentally been receiving state-aid subsidy from Charleroi Airport. The Charleroi route was one of the airline’s methods in maintaining lowest fares while at the same time, Charleroi benefits on Ryanair’s exposure to its route. The EU Commission was appalled at the discounts Charleroi is giving Ryanair thus endangering the fair competition the Commission is upholding. By removing the Charleroi route, will cancel a significant number of flights and reduce activity. There are two sides of the argument: Fair Competition versus Charleroi airport’s exposure. Charleroi has thrived because of Ryanair and it will suffer if Ryanair should pull out. The Corporate Governance responsibility rests on the EU Commissions which must allocate resources and balance decisions that will benefit both Ryanair and Charleroi. It will be worse in the long run should Ryanair be given special preference and discount over other airlines despite the fact that it has been aiding Charleroi. Eventually, Ryanair and Charleroi decided on new fees which will continue operations but not in a manner that will have state-aid subsidies which will go against the rules of Competition laid by the EU Commission.
Q.4) In 2003, Ryanair acquired “BUZZ”, the loss-making budget subsidiary of KLM (p.840). It then reduced BUZZ’s staff from 610 to 170. Discuss what you believe Ryanair’s “Corporate Social Responsibilities” might have been in the circumstances of the case.
What Ryanair has performed is a form of Mass Layoff as it shed off hundreds of staff. It is a touchy subject that must be dealt with care. Employers in their part must not only offer explanations, but they must also express their utmost regret and at the same time, gratitude to the unfortunate worker (2002). Layoffs should be ended with a sense of respect and justice. Most often than not, mass layoffs are performed with a lack of consideration in the employees’ part. This is because a mass layoff may not sound as unfortunate as it seems and employers end up appearing as “executioners”. In order to save the company, the employees must be sacrificed in its expense. Employees will tend to feel undervalued and be generally resentful of such a decision ( 2002,). Employees who have to undergo immediate displacement are most often than not, shocked and greatly dismayed especially if they would have been serving the company for decades. To cut their employment short is also an interruption to their way of lives and a waste of training and skills. Most likely than not, the employees will need to be retrained to be adjusted in their next employments after having spent a great deal of time with the company. They will have to compete along with the new entries in the workforce for jobs. Some may be lucky, but some will certainly take a long time before they can truly get back on track and adjust to the layoff which is why the company needs total involvement in order to stimulate adjustments. For hundreds of skilled workers to be unemployed for a long time will be a loss and a dent to the economy growth as a whole. In mass layoffs the workers are in the losing end. The company must take upon themselves to help these displaced workers in coping with the change of employment especially if the employees served for a long time. This case only emphasizes how layoffs are tricky situations and would require the extra efforts of the employer to truly attempt to end the lay off in a manner that is with fairness and respect. They and their families need their own special compensation. The gradual layoff example presented how employers should ideally confront the situation which is through a comprehensive compensation package and not merely by severance packages and career counseling. Continuous dialogue in the part of the management themselves is essential in order to appease and support the dismayed employees.
Q.5) In early 2004, Ryanair’s profitability is under threat. If you were designing the first draft of a ‘Balance Scorecard” management reporting system for Ryanair (to help it monitor the implementation of its strategies), what main “perspectives” and “metrics” would you suggest?
In order to maintain competitive edge in a manner that is low-cost, they should keep the following perspectives or metrics in mind: The maintenance and operation in a manner that is low-cost, effective marketing schemes, development of their brand and the skillful management of their routes. These metrics are reflective of the major operational decisions which determine how their daily management and performance should be properly decided. Low cost operations are performed through decisions that have to do with balancing utilities which would be in favor of increasing passenger loads, flight time, and making premium the free services mentioned above. This is basically where airlines cater to more passengers at a lower rate and is thus also known as Financial Perspective). Marketing and Brand enhancement is responsible for providing the facelift and attractiveness and promotion of a product which it performs through its shockingly low prices and give Customers the value of their money and encouraging them to be loyal (which would be the Customer and Business Process Perspective). Route management is the product catered to customers. This is where the airline finds its audiences and consumers. This is where they can choose to cater to tourists who travel for pleasure or business. By managing their Route networks, they may determine which customer segment they should focus and have the most profits possible. This route network may be enhanced through the increase of new hubs that will have the more customer preference and access. Customers always look for the cheapest flight available and Ryanair providing this will certainly benefit. By expanding Routes it is possible for Ryanair to open to new niche where there is no frontal competition. This can also be the Innovative Perspective approach.
Q.6) What is your assessment of Ryanair’s launch strategy? What is Ryanair’s strategic intent? What factors may have played a part in determining this strategic intent?
Flight fares are always known to be overpriced. This discourages traveling and usually leads to unnecessary expenses. The added fees are supposed to make convenient the entire flight experience. Ryanair intends to rebel against all of the said ‘free’ services. It believes that every airline goal is to take customer from Point A to Point B with no questions asked. Thus this is the No Frills Strategy where it cuts down on marketing costs, staff costs, airport charges, contracting out of services and fleet commonality . Ryanair itself is appalled of the high airline fares that has been dominating the Industry and boastfully asserts that traveling does not need to take so much money. In fact the flight fares Ryanair offers cost as little as cents to none at all (excluding the taxes and other costs). It truly serves traveling to the masses. Coupled with its boisterous attitude led by its dynamic and arrogant CEO, , Ryanair does not only seek to reshape the airline industry but spark a campaign and revolution led by the low fare airlines as the best valued airlines while putting down the impractical overpriced airlines (by calling them as idiots among other derogatory callings, ). People willingly subscribe to Ryanair’s services which although inconvenient, have been proven irresistible because of the cheap airfare. Ryanair does not focus quality but it promises to deliver which is the whole point of the transport business. In this manner Ryanair becomes a frank, straight to the point, and a very practical alternative for airline solutions. Customers are always looking forward to save money during flights and certainly they would not mind a business bare to its essentials especially if they will save as much as hundreds of Euros. It is indeed a daring move which is made even more impressive because Ryanair is profitable, until the various external factors of 2004. In a time of inflation, increasing interest rates among other costs, more and more customers would not mind risking convenience in plane travel at all. Ryanair is made ideally for such a situation.
Q.7) What are the most significant issues revealed by an assessment of Ryanair’s external environment?
The European Airline Industry is highly competitive and volatile thanks to the European Union Commission’s desire to enhance competition between airlines. Its ruling against State Aid would be highly disadvantageous to Ryanair and advantageous to more and more airline companies who are also joining the Budget airline trend such as easyJet, Virgin Express, bmlbaby, flybe, MyTravelLite and AerLingus. These rival carriers will put more fuel to the fare wars. Ryanair is one airline that makes more enemies than allies because of its aggressive nature, some of which are its own customers. Ryanair is going to have to adjust to providing the services it has sworn not to provide without an added cost as it is pressured by issues such as the proper treatment of the disabled and the trade prospect of a trade union.
Q.8) How would you assess Ryanair’s resources and capabilities against its competitors? What is Ryanair’s core competence?
In almost anything a consumer does, whether she or he is an institutional buyer, industrial buyer or plain individuals, they will always tend to compare substitutes to find the best deals. This is especially true in hard times where customers demand for premium service as more passengers seek less expensive travel alternatives. Ryanair has a superb cost management, free seats when the company is feeling generous, no frills in flight, and with its aggressive advertisement campaigns which take on its rivals: the overpriced airlines (when they attempt to impede Ryanair’s route) and airport management or the EU Commission (when they would perform moves that would push Ryanair to charge more).
Low-cost airlines rely on a simple business design: one kind of aircraft, one class of passenger, and more seats crammed into the airplane–as well as no airport lounges, no choice of seats, no newspapers, no food, no frequent-flyer programs, no connecting flights, no refunds, and no possibility of rebooking to other airlines. Also, there are no travel agents and expensive computer reservation systems; about 90 percent of Ryanair tickets are booked over the Internet.
By keeping the logistics simple, no-frills airlines cut turnaround times on the ground and maximize revenue-generating air time by minimizing landing and ground-handling fees ( 2002).
Lower costs and higher seat-load factors permit no-frills carriers to offer fares 50 to 70 percent lower than those of the incumbents. This approach attracts price-sensitive and flexible travelers, even those who don’t find the lack of convenience and flexibility the slightest bit appealing. Another strength is the CEO’s brash, no compromise attitude that truly drives the company because a low-cost and low-fare airline would really need a leader who will be daring enough to pedal the company towards profitability despite the circumstances. By his outrageous and oftentimes risky moves, he is able to attract attention and promotion to its favor. Customers cannot resist Ryanair despite the lack of convenience because the seats are sometimes virtually free (or totally free) with the airline making money of the premium services such as food and drinks aboard. It gives customers what they want in a fee that will only pay for the travel which is what airlines are supposed to do primarily. The lowest cost airfare is always sure to win the competition even in the direst, most intense circumstances.
Q.9) What do you think of Ryanair’s strategies? What suggestions would you make to Michael O’Leary to improve Ryanair’s chances of future success?
To repeat: The lowest cost airfare is always sure to win the competition even in the direst, most intense circumstances. This is a significant strength of Ryanair. With its impressive cost management and outlook to increase more passenger seats and expand routes, Ryanair may come off just fine after the 2004 crises. Ryanair knows how to anticipate difficult times due to increasing fuel prices and rivals and set their goal. Bearing these segments and economics in mind, Ryanair must select routes carefully to generate enough traffic to fill the larger aircraft they use.
Profitable markets must also have a large leisure-and private-travel component–the mainstay of the customer base of most low-cost carriers. A majority of these carriers follow the same basic rules, but with some differences in approach. Ryanair, which is as cheap as it gets, operates routes from London Stansted to many secondary airports–for example, to Carcassonne and Biarritz, in southern France, and to Pisa and Verona, in Italy. Low airport fees help keep the carrier’s costs 65 percent below those of a typical scheduled airline. Ryanair can thus offer cheap fares and still make a profit if more than 55 percent of its seats are occupied. Thus it must proceed its goal in expanding to more little known routes and increasing more passengers in their planes while offering more premium services that the customers will end up purchasing for a more convenient flight.
Credit:ivythesis.typepad.com
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