Case Study of European Budget Airlines

Case Study of European Budget Airlines Ryanair is one of the leading airline companies of Europe. This airline company is known for its low cost and high quality service. It operates more than 1,400 flights per day from 44 bases and 1100+ low fare routes across 27 countries, connecting 160 destinations (Ryanair-a, n.d.). This paper endeavours to analyse Ryanair, with special emphasis on situation analysis, decision making, planning and controlling process, leadership and organisational structure. This paper will conclude with some plausible recommendations on future growth and progress. Situational Analysis SWOT is a very helpful management tool for analysing the situation of a company. Ryanair was established in 1985, and despite its shortcomings it established a strong position in the market. Strengths Ryanair has developed a strong brand name in airline industry as a low cost service provider. Ryanair has been in the airline company since the last 25 years and has gained sufficient experience in it. Ryanair has developed its internet facilities and has made it an important selling point. This helps the company to eliminate the costs of agents. Ryanairs fleet includes aircrafts with high sitting capacity and low maintenance cost. Ryanairs services performance is of high standard with punctual fleet timing. Weakness To save cost, Ryanair charges its passengers for services like refreshments, wheelchair etc. It creates very impression among passengers about the company. It is not a preferred airline with the high class passengers. Opportunities The European Union market is expanding with time and most of the passengers prefer low fare for their air travel. Regions like North America and Asia have greater scope for low cost provider like Ryanair. Threats The existing airline companies are following strategies that lower the cost and hence competition within the industry is increasing with time. The oil market is a major supplier to airline business. In recent years, price of oil has increased significantly. The customers are becoming very price and service sensitive. Porters 5 Forces The bargaining power of suppliers is very high as the number of aircraft manufacturer and oil suppliers are very less in the market. Availability of proper airports is also very important for this industry. However, airports bargaining power is quite low as they depend on aircraft companies. The bargaining power of customers is very high as they have many airline service providers to choose from. The barrier entry of airline industry is quite high as it requires heavy investments and technical expertise. Airline is the fastest mode of transportation for overseas and long distance travel. No other substitute can match the service of airline industry. Competition among existing rival is the most import factor in this industry. The rivals are competing with each other for increasing their market share. In European Union, Lufthansa, Ryanair, Easy jet etc are leading airline companies. 3. Decision Making 3.1. Decision Making Process in Ryanair Ryanair provides low cost and high quality airline services to its customers. It places customer satisfaction above all other priorities. The decision making process is primarily centred on concerns regarding ways to provide higher customer services. Fleet planning, airline fare, fleet scheduling etc are some of the chief aspects of Ryanairs effective decision making process. 3.2. Decision Making Approach Decision making approach can be defined as strategic approached of an organisation. Ryanairs management team aims to follow rational decision making approach. The rational decision making approach is an ongoing and dynamic process. This approach helps to identify the underlying problems and to find relevant solutions (Kroon, 1995 p.187). For example, in 2004, when the company was passing through a financial crisis, rational decision making approach not only helped it to overcome it but also paved the path of growth. 3.3. Types of Problems and Decisions Making In Ryanair In 2004, Ryanair was one of the worst performers in FTSE Eurotop 300 index. During that period, competition in airline industry was very high in the European nations as many new companies entered the market. Despite the stiff competition, the company enjoyed a healthy growth rate till 2003. But the managements inability to understand and rectify the inherent weakness of its decision making process stunted its growth. 3.4. Decision-Making Conditions in Ryanair While framing the strategic move for any decision making process; Ryanairs first priority will be to analyse the elements of external competition. The European airline industry is crowded with many leading companies like Lufthansa, Virgin, Aer Lingus, and British Airway etc. Consumers needs are also very important for Ryanairs decision-making. Prior to 2003, the companys concern for customer service was very low, except the low fare advantages. 3.5. Decision-Making Styles The decision making style of Ryanairs management team seems to be affected by different factors. However, the decision making methods are quite flexible. After analysing its rapid growth during 2002-2003, it can be claimed that it focuses on short term objective rather than long term goals. Creativity is another major feature of its decision making style. 3.6. Decision- Making Biases and Errors Ryanairs temporary fall during 2004 brought into fore many drawbacks of its decision making process. Robbins has identified some unexplained prejudices and errors of decision making like biases relating to overconfidence, anchoring, confirmation, availability, escalation of commitment etc (Robbins, 2009, p.126). Ryanairs decision was affected by two major biases i.e. anchoring biases and status quo biasness. Its decision making was based on the past success that failed to take in to account unfavourable macro-economic conditions resulting from 9/11 attack on WTC. 4. Planning 4.1Vision and Mission Statement Vision and mission statements help an organisation to prepare a roadmap for its operational activities. Ryanairs official website does not have the vision and mission statement of the company. However, the public statements of Michael OLeary and other higher executive member of Ryanair indicate that it aims to achieve growth and success by being the lowest cost provider in airline industry (Box and Kent, 2007). 4.2. Purposes of Planning In general, the purpose of planning is to bring effectiveness and efficiency in the operational activities of a business. The implied mission and vision of Ryanairs clearly states its purposes of planning. To counter the increasing competition, the company has decided to follow low cost strategy. Hence, its planning is designed after taking into consideration this objective. 4.3 Planning And Performances in Ryanair According to Riezebos, planning is a very crucial element of operational activity that affects the performance level (Riezebos, 2001, p.12). Planning is one of the major tools of motivating participants to achieve the common organisational goal. Due to rational decision making approach, the company is able to plan its operational and strategic activities properly. Ryanair is able to achieve its target with the help of an efficient planning process. 4.4 Types of Goals in Ryanair The primary goal of Ryanair is to become the lowest cost airline service provider in Europe. The idea of offering low fare proved successful for the company. However, initially it failed to understand the necessity of good service for customer. Currently, the company is committed to provide lower fare, high quality service and punctual air schedule (Ryanair-b, n.d.). 4.5 Types of Plans in Ryanair Ryanairs decision making process follows rational approach and it also follows rational model for its planning process. Basically, planning can be divided as short term goal and long term goal. The companys management team was concerned only with the short term goal. The company often changes its plan as per the requirements of the market. In 2002, the companys plan was to provide low cost fare and after 2004, its planning process also took note of service quality. 4.6 Contingency Factors in Planning Ryanair faces three major contingency factors. Firstly, the organisational level affects the operational planning of middle and low level managers. Secondly, the uncertainty of macro-environmental or other external factors affects the planning process. Therefore, Ryanair aims to develop a flexible planning system. Thirdly, the long and short term objectives of Ryanair affect its planning process. The company always tries to concentrate on its current objective. 4.7 Objectives The primary objective of Ryanair is to attain cost leadership in European airline market. However, to achieve this objective, the company needs to concentrate on other long term goal. These include increasing its operational activities to enter new markets like North America, developing customer centred business model and increasing the use of internet as a major selling point (OCuilleanain et al, 2004). 4.8 Management by Objectives (MBO) Management by objective (MBO) approach of management leads to increase in the performance of organisation. MBO is a result-oriented, non-specialized managerial process for the effective utilization of organisational resources by integrating individuals with the organisation and the organisation with the environment (Goyal, 2005, p.304). During 2004, in order to overcome its crisis situation, the company introduced MBO approach to improve its performance. 4.9 Strategic Management Process Ryanairs strategic management process is based on its objective of achieving cost leadership in European airline industry. The company has improved its positioning by implementing proper strategic management process. The key elements of its strategic management include low fares, high frequency of point-to-point flight within short routes, proper route choice, reduction in operating cost, increase the internet use for selling, maintenance of safely and high quality service etc (OCuilleanain et al, 2004) 5. Organising 5.1 Organisation Structure and Design: Proper organisational structure and design helps to develop efficient management performance. There are four elements of organisation structure and these are departmentalisation, span of control, centralization and formalization. Appendix 1 depicts the organisation structure of Ryanair. Michael OLeary is the CEO of the company and there are seven Directors and a Chairman. For each department like customer services, finance, HR etc, there are individual head management personnel having a team. 5.2 Chain of Command The Chain of command in Ryanair is based on its organisational structure. The appendix 1 portrays that the CEO is the chief person of command of the organisation. However, the decision making process in Ryanair includes all the senior managers of each department. To maintain high level of transparency and to develop two-way communication system in cross functional departments, the chain of command is very essential. 5.3 Span of Control The span of control in Ryanair is effective and helps to maintain a sound organisational growth. The span of control of the CEO Michael OLeary is the highest and most effective. As per appendix 1, the entire department is required to report on the ongoing activities to the CEO. The CEO along with the Directors and Chairman is responsible for making the final decisions of the organisation. However, for better planning and implementation, the employees should be involved in the decision making process. 5.4 Centralization and Decentralization The decision of centralization or decentralization depends on the nature and expansion of business. Ryanair is a multinational company having different units in European countries and North America. For the airline industry, decentralization is more preferred over centralization. However, Ryanair follows a centralized organisational model. Decentralization of organisation will help it to compete with the major competitors of different markets. 5.5 Mechanistic and Organic organization The mechanistic organisations are those having a well defined hierarchy. Ryanair has a centralized organisational structure and it is an example of mechanistic organisation. Appendix 2 shows the major difference between the mechanistic and organic organisation. The company has been very strict in maintaining its relationship with the employees. However, such organisational structure of Ryanair creates biases and errors in decision making process. 5.6 Contingency Factors There are many factors that affect the organisational structure of a company. The industry trend, the growth structure, the social and demographic characteristics of employee customers and vision and mission of the company etc are the major contingency factors that help in designing the organisational structure. The leadership quality of the higher management also affects the organisational structure. The organisational structure of Ryanair is also affected by external competition and its leadership style. 5.7 Job Characteristics Model One of the primary objectives of Ryanair is to provide high customer services and in this respect the employees are the most important resource. In order to enrich the quality of job, the company motivates its employees to achieve the common organisational goal i.e. growth. The company aim to offer competitive salaries with excellent benefits that are simple and easy to understand (Ryanair-c, n.d.). 6. Leadership The leadership style is an important influencing factor organisational growth and success. The major leadership skills of Ryanairs management focus on the low cost fare for airline. The fleet of Ryanair includes single-class aircraft that increases the seating capacity. However, the leadership skills of Ryanair have led to its success of 2002-2003 and failure of 2004. The leadership in Ryanair strives to focus on position, seniority and authority. Control 7.1 Control Process The control process is the key element for Ryanair as it wants to achieve the lowest cost leadership. In order to facilitate effective and efficient control system, employees must be properly organized. Ryanair has developed proper system for regulating the control process by managing its employees. 7.2 Types of Control Ryanair strategic moves and policies control various aspect of the organisation. Firstly, cost controlling activity is the major criteria for low cost fare airline and it includes labour cost, marketing cost, airport charges. It also reduces the service cost by controlling many activities. For example, in 2003, it did not offer meals of refreshments to passengers who faced delays (O Higgins, 2004,). 7.3 Managerial Approaches to Implement Controls Ryanairs management team approach for implementation of control, strives to bring down the financial expenses. However, proper organisation culture and operational activities are also very important to improve its service qualities. Fleet control and market control are necessary for achieving the competitive strategy. The market control managerial approach of Ryanair involves the comparison of profit and expenses with that of its competitors. 7.4 Management Information System For establishing better management system, Ryanair has brought technological advancement in its organisations non-operational activities. For example, it has developed its website for using it as a major selling point. The increasing use of internet has made the managerial activity more efficient. At present, the company is aiming to achieve 100% internet ticket booking. Contingency Factors in Control Like the decision making process, controlling activity of an organisation is affected by uncertainty of macro-economic factors and the cultural and social characteristics of employees. In the airline industry, the major contingency factor is the competition and conflicts related to organisational objectives. Ryanairs management aims to avoid these contingencies factors related to employees by rewarding them for their efforts. 7.6 Corporate Governance Ryanair is listed on London and Irish Stock Exchanges in Europe. The company is responsible for following proper business ethics and compliance as per the corporate governance. The entire management teams including the Directors and CEO are committed to maintain the standard corporate governance. Its business policy clearly defines the role of Directors and other members in meeting its corporate responsibility. Balanced Scorecard Balanced score card is the most popular management tool used by organisations. Ryanairs strategic management system can be explained with balanced score card. To bring efficiency in its operational activities, Ryanair concentrates of four major areas i.e. finance, customer, business process and learning and growth. 8.1 Benchmarking To achieve the objective of becoming the lowest cost provider in the European airline industry, Ryanair has set its benchmark for cost controlling activities. At present, it is the lowest cost provider in the industry and hence, it has developed its own benchmark. For example, in 2003, the company reduced its cost for wheelchairs services by bringing a third party wheelchair suppliers who charged passengers for supplying wheelchairs. 8.2 Value Chain The value chain of the company strives to provide the lowest fare possible. Appendix 4 portrays the value chain which includes other important aspects of the airline industry. To develop a cost effective operational process, the company has combined its balanced score card, benchmarking and value chain. RECOMMENDATIONS To ensure success, Ryanair must bring some changes in its management and business model. Some of the useful recommendations are given below. It must focus on its services to meet the passengers minimum expectation. The company should include the employees in the decision making process. As many other rivals are also following low cost strategy, Ryanair can bring certain innovations in its service process. Internal communication should be encouraged for better transparency and motivation. It should develop its public image by increasing corporate social activities. For maintaining low cost fare, it should emphasise on the financial aspects. 10. Reference Box, T. M. and Kent, B. 2007. Ryanair (2005): Successful Low Cost Leadership. [Online]. Available at: http://findarticles.com/p/articles/mi_qa5452/is_200705/ai_n21289700/pg_2/. [Accessed on November 03, 2010]. Goyal, R. C. 2005. Hospital Administration and Human Resource Management. 4th Edition. PHI Learning Pvt. Ltd. Hellriegel, D. and Slocum, J. W. 2007. Organizational behaviour. 11th Edition. Cengage Learning. Kroon, J. 1995. General Management. 2nd Edition. Pearson South Africa. OCuilleanain, E. S. et al, 2004. Ryanair Plc. [Pdf]. Available at: http://dev.ulb.ac.be/cours/alle/PDF/BuspPresRyanair04.pdf. [Accessed on November 03, 2010]. O Higgins, E, 2004, Case Study Ryanair. Riezebos, 2001. Design of a period batch control planning system for cellular manufacturing. University of Groningen. Robbins, S. P. 2009. Organisational behaviour: global and Southern African perspectives. 2nd Edition. Pearson South Africa. Ryanair-a. No Date. About Us: History of Ryanair. [Online]. Available at: http://www.ryanair.com/en/about. [Accessed on November 03, 2010]. Ryanair-b. No date. About Us: Passenger Charter. [Online]. Available at: http://www.ryanair.com/en/about/passenger-charter. [Accessed on November 03, 2010]. Ryanair-c. No date. Careers. [Online]. Available at: http://www.ryanair.com/en/careers/working-for-ryanair. [Accessed on November 03, 2010]. The Official Board. September 15, 2010. Ryanair. [Online]. Available at: http://www.theofficialboard.com/org-chart/ryanair-holdings. [Accessed on November 03, 2010]. The Performance Institute. 2009. Balanced Scorecard. [Online]. Available at: http://www.performanceweb.org/events/training/program-performance/sub7/. [Accessed on November 03, 2010]. Jack Baskin School of Engineering. No date. Airline Industry Analysis. [Ppt]. Available at: http://www.soe.ucsc.edu/classes/ism158/Winter03/istcch04.ppt. [Accessed on November 03, 2010].