Success of any organisation is dependent on proper business planning and development. It is necessary for the top management of the organisation to make sure that they do an in-depth internal and external analysis before designing a proper business strategy for the expansion of the business or improving the state of the business. The concept of strategic management is a process of managing resources associated with the organisation to achieve business goal and objectives both in short and long term basis (Varbanova, 2013)There are two distinct school of thoughts associated with the process of strategic management. One is the prescriptive approach which discuss about how the strategies are developed by the top management in the organisation. Another important point associated with the strategic management is the descriptive approach which discusses about the process of implementing the strategies into practice (Kachru, 2009).
This paper is focusing on one of the leading low cost airlines Ryanair and its market strategy keeping in mind the micro and macro environment analysis of the airline sector in the UK and in the EU.
Ryanair is one of the leading low cost airlines in the UK and European market. The organisation started its operation in 1985. It started as one stop airlines and now become one of the leading airlines in the European market. There were more than 8500 employees associated with this organisation till 2012 and the number is increasing continuously. The organisation introduced a revolutionary step in the UK and European airline industry from 1990 to 1993, by starting low cost approach in this sector and introduce itself as Europe’s first low cost airline service provider (Ryanair: About US 2014). The organisation continued its expansion strategy from 2005 to 2012 by reaching out to most of the European routes and increases its number of passenger from 34,768,813 to79, 325,820 by investing in 175 Boeing aircraft (Mintel, Airlines, 2014). Here is the financial overview of the organisation for the financial year 2016:
Image 1: Financial Performance of Ryanair in 2016
(Ryanair Annual Report, 2016)
Generally there are two distinct environmental scenarios associated with the business operation analysis and those are macro and micro environment. Macro analysis associated with a detail description and review of various external factors which affects the business operation of any organisation but the organisation cannot control the same. It only can change and modify its business strategies to control the impact of the same (Jockers, 2013). Jockers (2013) in his review has also mentioned that PEST analysis is one of the most well-known tools for the macro analysis. It helps to analyse the 4 key external factors under which organisation is operating namely political, social, economical and technological. Following is the detail PEST analysis of Ryanair:
The organisation started its business operation from Cardiff and now with the changing political scenario it is looking for expanding their operation. Moreover, new countries were enlisted as the member of the EU which helped the organisation for a long period of time to expand their business operation. The Cardiff airport received a fund of £13m more renovation and increase its space to attract new airline operation. This will to some extent increase the level of competition for the company (BBC, 2014a). The EU Emissions Trading Scheme of 2012, set a new rule which mentioned that the all the airlines organisations must follow the environment safety rule as these are not exempted from the EU ETS policies. It will increase the cost of maintenance to some extent (BBC, 2014b). At present, UK is out of EU so there will be new rules and regulation for the industry operation. Hence a certain degree of uncertainty still exist among the organisation regarding how it going to offer its low price strategy bin most of the routes which was the USP of the company for such a long time.
According to the recent analysis, the volume of passenger in the airline sector is supposed to increase at the steady pace. In 2014, number of passengers in the aviation sector from UK increased by 4.4% compared to that of 2013 which helped the organisation to boost its financial performance. By the end of 2019, the number of passenger supposes to increase by 14.7% compared to that of 2014 (AOA, 2015). One major point that the organisation must keep a close look at is oil price. If one compares the overall scenario, fuel consumption in 2014 was increased by 1.9% on a monthly basis and experts predicted $51/ barrel price for crude oil in 2017 in the US market. The price of the air ticket is dependent on the crude oil prices and the low cost airlines design their business strategy keeping in mind this point (US Energy Information Administration, 2016). Lower oil prices are helpful for the organisation to keep its fare low in order to attract customers from every segment of the society. According to Farrell (2015) “the company said it had hedged its fuel costs at $92 (£61) a barrel for next year, limiting the carrier’s gains from falling oil prices that have slumped below $50 per barrel. The organisation set the fare at €40 (£30) and will continue to do the same as much as possible to fill up their airlines. After UK separated from the EU, the value of currency may get more instable which can affect the service of the organisation. If one look at the overall financial scenario, oil price in US dollar, regular fluctuation in the exchange rate, economic instability in the UK market from 2009 to 2011 going to increase the risk level associated with the organisation’s performance.