Transport is a factor in which is inherited into our everyday lives. Granted that all transport is equally important it appears that in fact air transport is one of the key forms of world growth and is incredibly significant when it comes to world trade growth.
Air transport allows and facilitates global economics, not only this, it ensures that domestic and international tourism is enriched allowing social growth to flourish. This produced the competitive airline industry. Legacy airlines had been known to dominate the airline industry, this was until the introduction of low cost carriers were introduced. The low-cost airline carriers originated in America with American domestic carrier Southwest, in the seventies, this was the first introduction of a low-cost supplier.
The low-cost budget trait soon stuck and became available in Europe. Sticking to the same model as Southwest, the first two budget airlines of Europe were founded in 1995, they both originating in the United Kingdom and Ireland. These budget airlines being known as EasyJet and Ryanair.
This report will focus solely on the two Europe founded budget airlines, EasyJet and Ryanair. The research within this report analyses how the low-cost budget cutting airlines have operated in order to survive. The initial aim of this dissertation is to critically evaluate the management operations of two different low cost rivalry airlines. Through comparing and contrasting the organisations against each other a overall indication of how each manage and maintain their market share can be assessed.
Through comparing the operations profiles against management theories an appropriate management operational strategy for each organisation can be recommended.
The evaluation will allow knowledge along with insight into which management operational strategy works best for budget airlines. The report will contain qualitative secondary data, this secondary data will be taken from the two organisations individual public reports along with published data accounts. Other secondary data will be taken from literature such as news articles, journals and textbooks.
Table of contents
Background of the study
Introduction to the topic
Aim of the study
Objectives of the study
Importance of the study
Introduction to the organisations
Chapter Two - Literature Review
The rise of low-cost carriers
Organisation Structure and Operations
Strategic analysis tools
- Porter’s Five Forces
- PESTEL analysis
- SWOT analysis
- Value Chain
Chapter Three - Research Methodology
General outline of methodology
- Primary Research
- Secondary Research
- Quantitative or Qualitative Research
- Appropriate Methodology
- Data Collection
Chapter Four - Findings and analysis
Operations of EasyJet
Financial Performance overview of EasyJet
Operations of Ryanair
Financial Performance overview of Ryanair
Strategies of low-cost airlines
Comparison of operating strategies of Ryanair and EasyJet
List of Figure’s
Low Cost Airlines (Figure one)
Mintzberg Diagram (Figure two)
Risk Management Process (Figure three)
Porters Five Forces (Figure four)
SWOT Analysis (Figure five)
Chain Value (Figure six)
EasyJet Strategy (Figure seven)
Capability and Maturity Model ( Figure eight)
List of Tables
IATA Airline Increase (Table one)
Destination Popularity (Table two)
EasyJet Finance Figures (Table three)
Ryanair Finance Figures (Table four)
Background of the study
“When considered and analysed amongst the many other aspects, a strategy for an organization is like a plane which can help an organization to achieve the goals and objectives”(Mintzberg,1999)
There are five core strategies to consider when investigating operational strategy. The five are known as;
- Corporate Strategy
- Customer- Driven Strategy
- Developing Core Competencies
- Competitive Priorities
- Product and Service Development
“The real purpose of strategic management is to work upon and choose organisational goals, the real means as to achieve those goals and then ensuring that organization is standing at a sustainable position so that it can work towards achieving those goals. Along with that these strategies are used as a basis for managerial decision making.” (Porter, 1980)
Corporate Strategy is a strategy that involves separating a organisation into separate entities. The whole system of a organisation is divided to become a new system of interconnected parts. Although the organisation may work to achieve the same overall goal, each department is segregated in the strategy. To make this successful all department needs to play a vitally equal role.
When any organisation wants to be successful it is vital they include a customer driven approach into their operational strategy. A organisation needs to meet the desired needs of its target market and exceed their expectations, for them to accomplish this they have to familiarise themselves with consumers demands. To achieve constant consumer satisfaction, a organisation must evaluate and adapt to the changing environments. When a organisation stays on top of changing trends and the changing environment they get first-hand knowledge of threats, but they also get to see rising opportunities.
Developing Core Competencies
Core competencies are the strengths and resources that a organisation has. Core competencies consists of aspects such as specialised professional staff, prime business location, expert marketing department, exceedingly good financial expertise. All organisations will have core competencies that differ, as all organisations will have strengths in different areas of the business. When a organisation knows its own core competencies it can then develop areas less successful. This enables organisations to start a development process.
When a organisation wants to create competitive priorities it has to consider aspects like operational costs, the quality of products and services, fixability, volume and customization. Along with this the organisation must evaluate aspects such as reliability and efficiency they are. A organisation wanting to apply competitive priorities would have characteristics such as a corporate strategy or a market analysis. A successful example is a organisation that can effectively provide a good quality product and service that meets the constant changing needs of the consumer.
Product and service development
When focusing on organisational strategies it’s important for the organisations to make the right decisions with their products. The strategies behind the products have to be consistent, innovate and provide value for the consumer. Releasing a product at the appropriate time could be the victory or failure for a organisation, it must implement a appropriate strategy to release a product. This means deciding if they want to be the leader in introducing a new product to the market or they would rather wait for the introductions on innovations and then apply improvements.
Introduction to the topic
The first introduction of a business strategy was in the 1960s. This was when the term strategy first emerged. Businesses began to plan how they would survive long-term. Since the 1960’s the variety of different interpretations and concepts of strategic operations has grown rapidly. Operation strategy is the heart beat of a organisation, it’s said to be how they get from A to B, and “in other words it’s a commitment of present resources to future expectations” (Drucker,1999). To better understand a organisations operational strategy you have to gain more knowledge on what they aim to achieve. EasyJet and Ryanair are low cost airlines battling for the top spot in the airline market.
Ryanair Ltd are currently booming the low-cost airline industry with a gross profit of £4.01 billion in the year 2016, which is excessively more than 2015 when Ryanair received a gross profit of 2.32 billion. 2016 has seen Ryanair’s best year in the previous five years. 2016 was a successful year for Ryanair, not only due to the huge profit they received but more so the fact they had rebuilt their clientele after their reputation received a backlash in 2015. In 2015 Ryanair saw a fall to their reputation which in turn led to a severe decrease in profit. Ryanair have succeeded in regaining revenue and sales.
Whereas EasyJet compete to gain their reputation and they strive to work harder and offer more than the basic low cost airline. Furthermore, EasyJet offer an extensive range of domestic and international flights, which are constantly expanding. They have a vast advantage on competitors as they offer 803 different routes. Most of all EasyJet prides itself with consumer satisfaction, currently EasyJet have 74% of its consumers returning annually. EasyJet believe that their success is built upon their strong balance sheets, they believe that a strong balance sheet enables them to facilitate low funding costs along with permitting them to be flexible. They have a liquidity of 3.2 million per 100 seats and a yearly net cash of £213m which allows them to reinforce their success annually.
Although it may seem both airlines offer a range of similar services, the way in which they operate and control their procedures may differ. Each organisation working in the same market share will have aspects of their operation strategy that have reflecting features, although with this being said how the organisation executes the strategy could be completely different.
Aim of the Study
The main aim of this study is to show that operational strategy is an important part of today’s business world. The study will show how operational strategies differentiate in similar businesses but along with this the study will allow understanding of what makes a strong successful operations strategy. The organisations operations is a way in which they get things done. It’s known that operation strategy is “The direction and scope of an organization over the long-term, which achieves advantage in a changing environment through its configuration of resources with the aim of fulfilling stakeholder expectations” (Johnson et al., 2005). Strategy within a organisation is the way in which they seek to survive, the decisions and actions chose within the operations have a impact on the overall success. That airline industry is a fast paced ever growing sector, it is a important part of the current economy. The airline industry is a industry that experiences many high’s and low’s. It is therefore of interest of the researcher to find out what operation strategy two low cost airlines use and find out how or if they are successful, along with what differences and similarities they may have. The understanding of the operations will enable recommendations and suggestion’s to be made. The study will focus upon EasyJet and Ryanair.
Through the use of relevant literature a understanding of the topic can be constructed. The research can then answer some of the questions that study aimed to achieve.
The main question is to discover what operations strategy both EasyJet and Ryanair use?
Through Comparing and contrasting the organisations against each other a overall understanding of how both EasyJet and Ryanair manage and maintain their market share can be established. When comparing the management profiles against management theories an appropriate management operational strategy for each organisation can be recommended. Do the financial statements reflect a positive operational strategy?
Evaluation of financial statement will allow indication of how the management is performing within the organisation. This will show if the operational strategy is working effectively.
Once both operational strategies have been established for the two individual airlines, a clear indication into how the two-rivalry low-budget airlines succeed and work. Evaluating and distinguishing the organisation operations against each other will give an overall indication of how each manage and maintain, and allow insight into where they want to be long-term.
Objectives of the study
To accompany the aim are four objectives:
- Firstly, the management operational strategy of both EasyJet and Ryanair will be established using appropriate theoretical analysis tools.
- Critical analysis of both airlines finances.
- Evaluate if the operational strategy is successful and establish how it has positively or negatively impacted the appropriate airline.
- Suggest appropriate recommendations that could improve the operational strategies for both organisations.
Importance of the study
The topic of this dissertation is most certainly relevant considering the low’s and highs of the budget airline market. A considerable amount of low cost airlines don’t survive in the challenging market, although Ryanair and EasyJet are leading examples of budget airlines. On a scale Ryanair is top of the budget airlines in Europe followed very closely by EasyJet. The study will provide an in-depth analysis into the operation strategies. The strategies should be prime examples of what other budget airlines should incorporate. The business environment is constantly changing and so organisations will be constantly enhancing their planning for the long-term. All organisations are striving to make the biggest profit they can, to achieve this they need to have precision planning and execution.
In the airline industry, its oddly said to be more difficult to maintain returning customers as expectations are so high. To be profitable and strategic comes knowledge and experience. The business models and values may differentiate between both Ryanair and EasyJet, although they may operate the same.
The study will be separate into different parts. Firstly, there will be a section to introduce both Ryanair and EasyJet. This first section of the study will allow a introduction to both the airlines, this will allow insight into their goals and visions. This will intern allow a better understanding of both organisation’s. Followed by this will be a extensive literature report which will provide background on operation strategy and how it has evolved and became a serious aspect of organisation’s. the literature review will allow a developed understanding of operational strategy. The literature and findings will enable recommendation to be made for both companies.
Throughout this dissertation, a hypothesis/Null Hypothesis will be formed. This either being one of the following;
Hypothesis- ‘A well conducted management operational strategy of a low-cost airline can lead to market domination and success’- The operations control the success of the airline.
Null Hypothesis- ‘Management operational strategies of low cost airlines do not contradict the success’- the operations are not the only aspect incorporated within success.
Introduction to the organisations
As previously stated the two main airline organisations used within the study will be Ryanair and EasyJet. They are used for the purpose of analysis throughout the dissertation. The following section allows a introduction for both airline providers.
Ryanair was originally founded in 1984 by three individuals, Christopher Ryan, Liam Lonergan and Tony Ryan. Ryanair’s first known name was Danren Enterprises although shortly after the name changed to Ryanair. Ryanair quickly began business in 1985 and now owns three hundred and seventy different aircrafts. Ryanair have a solid vision which embarks on eight different steps. They strive to abide by the steps which are as followed;
- They hope to always improve and get better at what they do.
- They want to keep focusing heavily on value, with this they hope to promise the lowest value fares.
- Choice, they believe in offering the best choice of destinations.
- Safety, they wish to always prioritise the passenger’s safety.
- They strive to make travelling an enjoyable experience for all passenger’s.
- Reliability, they want to be Europe’s most reliable airline.
- Transparency, they promise to be transparent and always be there for the consumer.
- Innovate, they wish to make travel exciting yet simple.
In the short haul market, there is said to be over 200 different carrier within Europe fighting for the biggest amount of market share. Ryanair is first when it comes to the leading airline although not lagging by much is EasyJet. Although EasyJet have a strong force and they are incredibly widespread it appears 2016 was a year of struggles for the budget airline. They stated “2016 has been a year of uncertainty. The aviation industry in particular has faced many challenges: low oil prices and interest rates; the continuing impact of terrorism; the decision for the UK to exit the European Union; and increased market capacity sustained by a low fuel price, have all contributed significantly to the position of our business today. However, in these unpredictable times easyJet has continued to pursue its strategy for disciplined growth and long-term shareholder value.” (EasyJet Annual Reports and Accounts, 2016). Throughout the hard times EasyJet don’t differ from their vision which has always been the same. EasyJet’s vision states “Our vision is simple – to be Europe’s preferred short-haul airline, delivering market-leading returns, and making travel easy and affordable for all. It’s a vision that we – and all of our people – are working towards every day. We’ve already made giant leaps to get where we are, but there’s still work to be done. The future holds immense potential – and you could be part of it.” (EasyJet, 2017).
Chapter 2- Literature review
The Rise of Low-cost carriers
The airline industry has grown considerably over the past decade. The International Air Transport Association (IATA) document the growth of the airline industry. Table one displays the findings of the IATA. The table shown displays how revenue within the airline industry has increased considerable. Between 2010 and current day the revenue gained through the airline industry has increase by £172 billion.
Table one (IATA, 2017)
The first break through for the low-cost airlines were in early 2012 when a financial crisis began to challenge the airline industry. Throughout the economic downturn, the cutting cost airlines became increasingly popular. Vidović et al. state “Low-cost airlines (LCA) have revolutionized the medium-haul market as a result of liberalization and deregulation of the aviation market in Europe in a way that they provide air travel at significantly lower prices.” (2013). Figure one shows how low-cost airline increase in 2012. Consumers struggled financially and resulted in more passengers travelling low cost.
Figure One (McCarthy, 2013)
Giovanni Bisignani Director General & CEO of IATA claims “Cost efficiency is critical for an airline’s ability to compete and survive. Yet, this does not mean that every airline should seek to be the lowest cost operator. Instead, it is important that the costs appropriate for the standard of service provided to the customer are achieved in the most efficient manner.” (Airline Cost Performance, IATA, 2006).
Operations and strategy can be categorised in different ways. Slack et al. (2004) states that there are five operations performance objectives. They are split it to five different categories of cost, quality, speed, dependability and flexibility. The reason for cost is all organisations need the ability to produce products at a low cost. Quality is a aspect they believe is important as they state all organisations should be able to produce products within an allotted time with error. Speed is a necessary component as it encourages organisations to be more efficient, the faster a organisation responds to consumer demands and the quicker they make, sell and dispatch a product the overall turnover will improve. Dependability and flexibility were the last two operation performance objectives, dependability is the ability to produce the product and provide the relevance service, if the organisation can accomplish this they could meet the consumer needs. Lastly Slack et al. expressed that flexibility covered four different aspect. It covers the ability to change the volume of production, the ability to decrease the amount of time taken to produce or deliver a product, the ability to become more diverse and provide a range of different products and services and lastly a organisation needs to be flexible enough to innovate and create new products and expand services.
The airline industry expanded on the objectives and began deliberating on their own set of operation objectives. The International Air Transport Association (IATA) states that airline operation objectives are; Weather, Political, Economic, Competitive. The complexity and frequency of required planning changes and daily operational decisions are ever increasing. Every day is an irregular operation from the planning phase to the day of execution. (Bill Johnson, 2013). The IATA believe that all of which drive cost.
EasyJet declare, “To deliver our operations effectively we need to ensure that we have the right people in the right roles with supporting infrastructure to ensure they can deliver the required business performance.” (EasyJet, 2017). Whereas Ryanair arguably state they focus on reducing operation cost, they’ve segmented three areas to focus upon which are, aircraft equipment costs, they aim to reduce the amount spent on the aircrafts to enable them to offer better value fights. Personnel productivity along with customer service costs and airport access and handling costs.
Organisation Structure and Operations
Henry Mintzberg made a suggestion that changed the proception of operation management. He segmented an organisation into three different dimensions.
- Key part of the organisation
- The prime coordinating mechanism
- The type of decentralisation used
Mintzberg stated that the main body is the key part of the organisation, this is the part of the organisation that determines success or failure. The prime coordinating mechanism is how the organisation conducts and delivers and finally the last point covers the amount of subordinates a organisation allows to involve in the decision making process (1992). Mintzberg claims that through the use of the three basic dimensions a organisation can begin to create a management strategy. Once a strategy has been adapted Mintzberg expressed how the strategy results in five structural configurations which are simple structure, machine bureaucracy, professional bureaucracy, divisionalised form and lastly adhocracy.
Mintzberg created a diagram (Figure 2) to show the different structures within a organisation. He uses the three main objectives to separate different areas of a organisation. The key parts cover the operating core, the middle line, strategic apex and supporting staff.
The coordinating mechanism covers direct supervision, standardisation of work process, standardisation of skills, standardisation of output and lastly mutual adjustment. The extent of decentralization covers three area vertical decentralization, which is the power to distribute power down the chain of command. Horizontal decentralization which is where non administrators or shared authority are left to make decisions and lastly, selective decentralization.
When it comes to the term organisation structure it refers individual groups within a organisation, the groups are allocated tasks, responsibilities and the authority enables the organisation to run smoothly (Galbraith, 1987).
Operations Management is about how organisations produce or deliver the goods and services that provide the reason for the existence. Operations can be seen as one of many functions (e.g. marketing, finance, personnel) with the organisation. The operations function can be described as that part of the organisation devoted to the production or delivery of goods and services. This means all organisations activities because every organisation produce goods and/or services (Albert Porter, 2009). Greasley (2008) states operations management is about the management of the processes that produce or deliver goods and services. Not every organisation will have a functional department called ‘operations’, but they will all undertake operations activities because every organisation produces goods and/or delivers services.
There are numerous opinion’s in regard to what strategy is, along with this there are different proceptions on how to approach strategy. Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences, Johnson et al (2009). Michael E Porter (2008) states competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value. Many authors have expressed how strategy and concepts of strategy are constantly changing. Porter (2012) then stated that, Positioning- once the heart of strategy- is rejected as too static for today’s dynamic markets and changing technologies. According to the new dogma, rivals can quickly copy any market position, and competitive advantage is, at best temporary. John Kay (2000) arguably also stated that strategy is no longer about planning or ‘visioning’ – because we are deluded if we think we can predict or, worse, control the future – it is about using careful analysis to understand and inﬂuence a company’s position in the market place. As well as, Hamel (2000), claims that the best strategy is geared towards radical change and creating a new vision of the future in which you are a leader rather than a follower of trends set by others.
Its been found that the current operating environment is much more demanding and therefore a rather integrated risk management approach should be applied (Bolvin et al. 2007). Theoretical tools such as the PESTEL analysis tool and SWOT analysis can be used to achieve a risk management strategy. EasyJet have a well thought out risk management process which is displayed in figure 3. EasyJet establish risks through holding regular workshops in which allows them to identify issues. The meetings are held with the executive management team along with senior managers. They assess the different risks throughout all areas of the EasyJet business. When the risks are specific to a certain activity the risks will be managed, and maintained on a regular basis, the most significant risks are regularly managed by the risk evaluation group. The way in which EasyJet operate their risks is a similar structure to in which they operate the whole organisation.
Figure 3 (EasyJet Annual Report, 2016, P24)
Ryanair state “The directors have overall responsibility for the Company‘s system of risk management and internal control and for reviewing its effectiveness. The directors acknowledge their responsibility for the system of risk management and internal control which is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss.” (Ryanair Annual Report, 2014).
Strategic analysis tools
Organisations have to analyse the external and internal environments when conducting operations. Successful and extremely popular models for assessing external factors are Porter’s Five Forces Model (1980) and the PESTEL model which is a extended version of the PEST analysis created in 1967 by Harvard professor Francis Aguilar in his book “Scanning the Business Environment.”. When conducting internal analysis, some of the most commonly used models the is the SWOT analysis model which originated between the 1960s and 1970’s from data collected from top companies, Albert Humphry led the research. “Business Policy, Text and Cases” (1965) referenced the SWOT analysis for the first time. The Value Chain is another model used to analyse internal factors, Michael E. Porter introduced the basic value chain model in his published book “Competitive Advantage” (1985). Each tool is subsequently developed to ensure a organisation better understands it current environment to better operate.
Porter’s Five Forces
The model made by Porter is simple yet influential tool, the tool allows identification of where power lies in a certain business situation by using the outside-in perspective (Johnson, Scholes & Whittington, 2008). Figure one shows Porter’s Five Forces diagram (1985). Porter’s Five Forces is used to get a industrial organisation theory approach (IO),the IO is used to establish the attractiveness of a industry, in which a individual organisation operates, this then is determined through the market structure. The market structure affects the behaviour of market participants (Raible, 2013). Porter’s model is still used In today’s business industry, with this has brought questioning to if the model is still relevant to use. Thyrlby (1989) stated that the Five Forces model of Porter is static and does not take account of time. Dulčić et al. (2012) are very critical when it comes to Porter’s model in today’s business industry. Their opinions match those of Thyrlby, they criticise the fact that ‘time dimension’ is not a major function within the model. They expressed that managers would better understand market trends and changing environment if they considered time dimension.
Figure 4. Porter’s Five Forces
Porter’s five forces has many different components. It covers;
- The threat of new entrants. This refers to organisations that may enter a market and cause problems for those already competing within the market. The more competitors there is in a market the harder it becomes to stand out.
- The threat of substitutes. This is a external threat from outside the industry, it’s a battle between different industries to maintain the consumer they need.
- Bargaining power of suppliers. Organisations battle for the best supplies, although bargaining power of suppliers consists of those supplying the goods to the chosen industry. The suppliers have the say to increase price or lower the quality of goods supplied.
- Bargaining power of buyers. These are the faithful consumers who never stray from a individual organisation’s product or it could also be the organisations who transfer products to users. Buyers can challenge with the price when they know a organisation is struggling with sales or consumers.
- The industry competitors. In all industries organisations will have its rivalries which they compete with. As a industry grows the attractiveness of the industry grows and this in turn creates wide spread rivalry and competition. Thecompetition can be so fierce due to the fact that all organisations want to be market leaders within their industry.
Although criticism has risen regarding Porter’s Five Force, Grundy states in his book ‘Rethinking and reinventing Michael Porter’s five forces model’ that the Five Forces framework “went beyond a more simplistic focus on relative market growth rates in determining industry attractiveness” (2006).
A PESTEL analysis covers six different areas, political, economic, social, technological, environmental and legal. The origins of the PESTEL analysis are rather vague and researchers can often become disorientated when searching for individual who created and established the PESTEL analysis model. One of the first publications was that of Francis J. Aguilar (1967). The analysis is a measurement tool which is used to assess the position and market growth of a organisation (Chapman, 2010). The Oxford University Press state “There are many factors in the macro-environment that will effect the decisions of the managers of any organisation. Tax change, new laws, trade barriers, demographic change and government policy changes are all examples of the macro change. To help analyse these factors mangers can categorise them using the PESTEL model.” (2007). The PESTLE technique is straightforward to use. Typically, each element will be considered in turn and any potential issues for that area documented. Once all of the elements have been considered, the factors listed are evaluated in order to identify those most likely to aﬀect the organisation. This results in a list of key external inﬂuences that could cause it to take action – either to gain from an opportunity that appears to be present or to ensure that any threats are removed (Cadel et al., 2010).
The PESTEL analysis allows airlines such as Ryanair and EasyJet to understand the potential threats surrounding them. Political implications constantly impact upon the aviation industry. The industry took a hit in 2010 after the general election. David Cameron stated, “No ifs, no buts, there’ll be no third runway at Heathrow.” (Jeffries, 2015). This was a huge disappointment for the airlines operating within the UK. Heathrow operates at 98% of its capacity, the runway would have allowed airline providers to operate in a more efficient manner. Terrorism is a factor that impacts the airline industry hard. Travelzoo did a survey to show the impact terrorism has had on selective holiday destinations. Table 2 shows the shift between different holidays consumers chose to take.
Table 2 (Coldwell, 2016)
In 2015 a attack in Tunisia and a suicide bomb in Turkey left consumer’s in a state of fear. The table one clearly displays how flights declined throughout 2016. 2015 has no flight record for Egypt and Tunisia and terrorism was such a major concern flights got suspended to both destinations. Although when the routes were reopened in 2016 interest was incredibly low as seen on the table. Travelzoo saw a considerable amount of holiday maker’s opting for the UK holiday rather than the traditional sun and see holiday, all due to the fact that travellers were anxious to travel.
When investigating a organisation and how it operates the first aspect to evaluate is the strategy the organisation use. One should consider the internal strengths and weaknesses but also look at the external factors that are the opportunities and threats. One of the best way to achieve this is through the SWOT analysis model. The theorist behind the model was Ken Andrew.
A SWOT analysis enables organisations to strategically observe what is taking place within. “There are various frameworks and approaches used in the analysis of a company’s strategic position. One of the most straightforward is the SWOT analysis, SWOT being an acronym for strengths weaknesses, opportunities and threats.” (Terry Hill, 1997).A SWOT analysis model is what summarises the key issues within a business environment and it allows them to see prospects for strategic development (Johnson et al, 2008). When using this analysis, the weaknesses and strengths that are within a organisation can correspond to the opportunities and threats in the business environment so that effective strategies can be developed (Helms and Nixon, 2010).
The SWOT analysis has maintained its place is business history although reservations continue to rise due to its application. Critical of the model, Henry Mintzberg, expressed that he felt the SWOT analysis model formalised the strategy making process, he stated that many strategic plans of this nature had already failed (1994). Although the SWOT analysis was originally developed all the way back in the 1960’s, it may only cover basic organising principles but the model has remained largely unchanged in the field of strategic management (Kotler et al., 2013).
Figure 5 (Indu Kandasamy, 2017)
Research has shown how the SWOT analysis can be used efficiently. Figure 5 shows a brief indication on what a SWOT analysis of a aviation industry should represent. Valentin states that the SWOT analysis model is a conventional approach and It allows insight into how to discover desired alignments (2001). The SWOT analysis has remained a demanded tool to be used in the field of business strategy, it allows organisation’s to build upon internal and external factors to build a strategy. The strategy them becomes the way in which they operate. Although with this being said Panagiotou states that the open nature and unstructured model that is the SWOT analysis offers very little help for organisations, he states that planners are left without any indication as to where they should search for such variables, along with this they have no analysis of how to incorporate finding’s into a strategy formulation (2003).
In 1985 M E. Porter described the value chain as “A systematic way of examining all the activities a firm performs and how they interact is necessary for analysing the sources of competitive advantage.” (The economist, 2009). The Harvard business professor released the Value Chain in his book Competitive Advantage: Creating and Sustaining Superior Performance, 1985. Many theorist’s struggled to understand the concept of Porter’s Value Chain as it has an expensive amount of area’s within the model. Figure 6 shows how Porter displayed his Value Chain when he first developed the model.
Figure 6 (Porter, 1985)
Porter created the value chain analysis to show the amount of activities that go on within a organisation. The Harvard Professor believed that all products and services follow a specific flow throughout an organisation, understanding how the services flowed from A to B would allow organisations to understand the chain in which they travelled. He suggested that once a organisation fully understood what was taking place within a organisation they could then establish them to create competitive strength. Porter’s reasoning behind the model was that a organisation should have the ability to perform particular activities and through doing that they must be able to adequately manage the linkages between the activities. He stated that when a organisation could successfully do so they has a source of competitive advantage. Porter has divided his model into two areas. Primary activities and support activities. The primary section of the model covers aspects that deal with the creation or delivery of a product or service. These primary activities intertwine with the support activities which allows the organisation to become more efficient and effective (Recklies,2001). The value chain allows organisations to gain a understanding of what is going on within the organisation so that they can in turn increase consumer satisfaction.
Chapter 3 - Research Methodology
General outline of the methodology
There are two different ways in which a researcher can gain data, this can be through either primary research or secondary research or they could gain quantitative or qualitative research.
Primary research involves interaction. Primary research is collected data that is collected first hand by the individual conducting the investigation. A individual can conduct primary research in many different ways, they may produce surveys which they can collect selective data from or the researcher can conduct interviews to gain specific knowledge on a area. Surveys and questionnaires are a popular method used to collect information. Other ways in which a research could collect data could be through observation checklists or focus groups. The data can be collected in a formal or informal manner depending on what approach the researcher takes to receive the data.
Secondary research is where the researcher uses already published data. In some cases researchers don’t need to conduct primary research if the area has already been researched and the findings have been published. Data can be gathered from many different sources such as books, journals, articles, websites or even podcasts. Any form of published material may hold relevant data that can be used. Published documents can be used to form an analysis on a subject. To gain a deeper analysis its often-found researchers conducting secondary research may take the case study approach. Collecting data through case studies can allow a individual to gain defined knowledge.
Quantitative or qualitative research
Quantitative research is when a research aims to gain evidence for their research through statistical analysis. The statistical data will support or answer the research question provided by the researcher.
Qualitative research is known to be slightly more versatile. The research conducted when obtaining qualitative doesn’t include statistical data. The information gained is more theoretical information.
There is a huge volume of resources surrounding operation strategy. Finding resources that provide the most relevant information is important to carry out a dissertation. The research throughout this dissertation links to exploratory study as the dissertation aims to retrieve answers to current events. Most of the research will solely be secondary qualitative research. The fountain of information consists of published material that consists of much needed theoretical information. Many published items such as books and journals have provided relevant and substantial information, the use of online resources has also created a wider knowledge on both airlines. The case study method was used to try and build defined knowledge of the different areas that link with operation strategy. The research was to find the current operational strategy used by two individual airlines, the outcome could have changed throughout the research due to organisation changes. Therefore, the events throughout the study are out of the researchers control. This emphasised that the case study approach was a appropriate approach to use throughout. Some quantitative data is retrieved through company data although the dissertation consist of majority case study findings. The literature allows the researcher to gain an in-depth understanding and create a concrete analysis of what operational strategy both airlines are using in the current business industry. The two main focuses within this study are Ryanair and EasyJet.
The researcher can establish which research methodology best suits their research and in which way they intend to conduct their research. The methodology for this dissertation consists of several steps so that she can provide sustainable information and data. The research methodology is increasingly important as it provides supporting information to better achieve the aim. Understanding different research methodologies allows a logic on what works best for a individual it can also set a guideline so that the researcher can better structure their findings. There are three main points which guided the research methodology and structured the way in which the research was processed, firstly the data was collected, then the researcher focused upon her findings and analysis which then led to assessing the research. One the research had been assessed the researcher could provide adequate recommendations.
Chapter 4 - Findings and analysis
EasyJet is a British airline, it has its headquarters based at London Luton airport. EasyJet offer 803 different routes to different locations both domestic and international fights. Although EasyJet offers a great deal to its consumer its hasn’t yet gained the top spot in the low-cost battle, Ryanair is still top of Europe’s budget airlines. EasyJet describe themselves as a “point-to-point airline” as they can offer direct flights from one network to another and still provide affordable prices (EasyJet Annual Report 2016, P2). Making a profit can occasionally be hard for low cost airlines although for EasyJet they seem to flourish when it comes to making a profit, is known that EasyJet has the highest credit rating when competing against some of the strongest airlines in the world. In 2016 EasyJet had a strong capital base of £4 billion and it has net cash position of £213 million (EasyJet Annual Report 2016, P4).
Operations of EasyJet
EasyJet has a simple vision statement which is “Turn Europe Orange” and with this comes their strategy. John Barton, Chairman of EasyJet states “EasyJet’s strategy is founded on leadership positions at many of Europe’s foremost airports, providing the frequency and wide range of convenient destinations demanded by customers combined with a relentless focus on cost control which allows us to offer excellent value fares, making travel easy and affordable. Despite challenging market conditions characterised by multiple terrorist actions, industrial strikes, geopolitical instability and currency movements as well as excess market capacity, easyJet’s lean business model and effective strategy continue to identify opportunities for highly targeted and profitable growth, which will deliver long-term value to shareholders.” (EasyJet Annual Report 2016, P6).
EasyJet’s Strategy focuses upon six areas that they feel are important. The six strategic pillars are what provide guidance for EasyJet.
Figure 7 (EasyJet Annual Report 2016, P9).
The state that their six pillars are;
“1. Build strong number one and two network positions
2. A lean cost advantage
3. Customer and operational excellence
4. Data and digital
5. Grow revenue
6. The best people”.
(EasyJet Annual Report 2016, P9)
Throughout figure three created by EasyJet they have intertwined every aspect of their strategy with safety. Safety is a huge aspect for EasyJet and that’s why every section of their strategy has safety embedded into it.
Financial Performance overview of EasyJet
2016 was a difficult year for airlines. They were faced with a variety of uncertainties which they had to overcome. Terrorism is 2016 was incredibly higher than in recent years which cause sales to decrease and safety regulation to increase. Political factors within the United Kingdom have impacted the aviation industry. The UK’s decision to exit the European Union cause implications, along with low oil prices and increased market capacity. Although with this being said EasyJet state“This year we have made considerable investments in our business. We have further strengthened the network, continued to invest in projects to deliver customer benefits and cost savings and reinforced the balance sheet. This will enable us to target long-term earnings growth and drive long-term value to our shareholders.” (EasyJet Annual Report 2016, P1).
Table 3 (EasyJet Annual Report 2016, P18)
Despite the difficult times the aviation industry faced EasyJet made a increase in the amount of passengers that flew with them. In 2015, 68.6 million consumers flew with EasyJet whereas in 2016, 71.3 million passengers travelled. This is a significant increase and a huge achievement for EasyJet. The disappointment for EasyJet was that they made a decrease in profit per seat. Seat sales fell from £9.15 per seat in 2015 to £6.20 per seat in 2016. Table 3 shows that throughout the whole of 2016 EasyJet managed to make a profit operating of £498 million which Is considerably lower than the previous year.
Ryanair is a Irish airline, it has its headquarters’ based in Swords, Ireland. Ryanair operates out of two major airports, Dublin and London Stansted. Ryanair already had a huge clientele base although it seems 2016 it grew even bigger. Ryanair’s scheduled passengers grew from a already huge 90.6 million to 106.4 million in 2016, this was a 18% increase for Ryanair in just one year. Along with this in 2016 Ryanair opened seven new bases and with that brought more than 100 new routes. Ryanair has begun expanding due to consumer demands and market changes.
Operations of Ryanair
Ryanair wish to remain the leading low cost airline in Europe and to achieve this they know they must implement a successful strategy. Ryanair are constantly expanding on their products to keep up with the demanding needs. Throughout Ryanair’s strategy they state that they “seeks to offer low fares that generate increased passenger traffic while maintaining a continuous focus on cost-containment and operating efficiencies.”(20F statement 2016, P21). There are many key elements that link together Ryanair’s Strategy. Some of the main focus points are;
- Low Fares
- Customer Service
- Low operating costs
- Safety and quality maintenance
- Focused criteria for growth
- Respond to market challenges
Low fares were one of the first aspects of Ryanair’s long term strategy. The reason behind this was that Ryanair wanted to sell more seats on a one-way basis. Ryanair believed that the low prices they were offering would in turn stimulate demand. This strategy clearly works successfully for Ryanair as they dominate the low-cost airline industry. Customer service was another area that Ryanair felt was important to their strategy. Ryanair want to ensure that the consumers who travel with them are satisfied and they want to deal with passengers accordingly. Ryanair aims to deliver the best customer service that it can and to achieve this they gain passenger feedback to improve on aspects.
Ryanair incorporate low cost operating into their strategy. They focus on reducing costs and expenses in four different areas. They aim to reduces their yearly costs on aircraft equipment, personnel costs, customer service costs and lastly costs within the airport and handling costs. Ryanair have strategically planned to only purchase and use Boeing 737-800s, with this they only need to purchase equipment for specific aircrafts. This strategy aims to help reduce aircraft costs. They aim to keep this strategy implemented until 2019. Ryanair strategically plan on reducing personnel costs through controlling the cost spent on labour. Customer service costs and airport access and handling costs are both equally important within Ryanair’s strategy. Customer service costs are stated with the strategy of Ryanair as they wish to save where they can, Ryanair have external contractors when it comes to customer service in several different airports. Ryanair want to ensure that all the actions they make are cost efficient.
Financial performance overview of Ryanair
Ryanair don’t have much to cause concern when it comes to investigating their finances. Table two shows how positive 2016 has been. Unlike the decrease of EasyJet’s operating revenue Ryanair gained a 16% increase from year 2015. The increase in operating revenue was due to the 17% that was gained through scheduled revenues.
Table 2 (Ryanair Annual Report 2016, P2)
Profit after tax increased by a considerable amount which Ryanair claims is due to a 18% increase in traffic and a stronger load factor. Ryanair saw a positive increase on many financial areas throughout 2016. Michael O’Leary, chief executive of Ryanair made a statement about 2016 stating “What is pleasing is that this growth was delivered on the back of lower air fares (down 1%), while unit costs were reduced 6% during a year when our “Always Getting Better” (“AGB”) customer experience program stimulated an 18% increase in traffic to 106.4m customers and a 5 percent jump in load factors to 93%. We plan to keep lowering air fares and costs while continuing to improve our customer experience under Year 3 of our AGB program. Our punctuality last year was industry leading with 90% of all flights arriving on time.”(Ryanair Annual Report 2016, P5).
Strategies of low-cost airlines
EasyJet and Ryanair have differences within their strategies. At first glance they look to incorporate the same aspects such as reducing costs, meeting the needs of the consumer, provide the best routes. Although EasyJet and Ryanair’s strategies differs in the fact that EasyJet serves primary airports and Ryanair serves secondary.
EasyJet covers a wide variety of the primary airports. It covers 132 primary airports in 31 different countries. This will impact on the cost’s EasyJet spend, this is why EasyJet have a high frequency of flights. Ryanair reduce costs as they don’t fly from primary airports, instead them choose to manage with secondary airports. Operation from a secondary airport means Ryanair are reducing their costs and don’t need to offer a high frequency of flights to break even. Ryanair therefore reduce the amount of flights they operate.
When It comes to assess the strategies, it can be difficult to examine if the strategy is good or bad. Hayes and Wheelwright (1979) produced a capability and maturity model which allowed insight into the way operations could build a organisation. At the beginning of both EasyJet and Ryanair they would have been at stage one of the model, internal neutrality. This would have meant both organisations were at the basic level of operations.
When focusing on Figure 8 its allow a slight insight into where EasyJet and Ryanair stand with their operations and their strategies.
Figure 8 (Aesthetica Technica, 2017)
EasyJet is at stage three of the model as its operations strategy now corresponds to the overall aim of the business strategy. EasyJet are able to internally meet the objectives within its own strategy although they haven’t yet made number one in the low-cost industry. Ryanair with their operations and their strategy would be at stage four of the capability and maturity model. Ryanair are the leading low-cost airline so are confident in what they do. Ryanair are now capable as market leaders to redefine and change industry expectations.
Comparison of operating strategies of Ryanair and EasyJet
Both Ryanair and EasyJet conduct a service that has no-frills. They offer a basic flight at a low-cost in a hope to gain profit. Both low-cost airlines used to point-to-point operations. EasyJet operates from primary airports at a higher cost whilst Ryanair operates from primarily secondary airports. The similarities between the two LCC’s strategies is that they both intensely focus on price. They incorporate reducing the cost within all aspects of the organisation. Improving and expanding on cost efficiency was a must for both airline providers. The airlines compete against each other for passengers and market share. Higher frequency shares are associated with disproportionately higher market shares (Fruhan, 1972). EasyJet offer twice as many flights than other low cost carriers to increase flight frequency. EasyJet’s operation strategy focuses upon operational excellence, safety, customer, people and driving financial performance. The difference between a low cost airline and a fully chartered airline’s operational strategy is that low cost airlines focus all aspects around cost efficiency whereas legacy airline fixate on the consumer. Throughout finding’s many authors have questioned the strategies of low cost carriers as so many were quick to fail in the beginning, although despite this Ryanair’s budget strategy has gained them a giant share of the aviation market. In the year 2000 Ryanair has seven million passengers travelling with them, over the period of ten years that rose to a estimated seventy million passengers (Ryanair, 2010).
When it comes to determining what operation strategy EasyJet and Ryanair use its apparent that they both obtain similarities. Both airlines have competitive priorities which they embody into their strategies. EasyJet focus upon developing their core competencies whereas Ryanair focus time on innovation and value.
The airlines operate through the objectives set out within their strategy.
Ryanair’s operating model structures firstly focuses upon the airports. They use the secondary airport’s as way in which they can reduce costs through reduced taxes. They implement the point to point model instead of the hub and spoke model as they can reduce customer transfer costs. Ryanair sell directly online to distribute their product straight to consumer; this way Ryanair reduce the costs they would face through travel agents. EasyJet incorporate the similar operating model as Ryanair although they operate from primary airports.
Ryanair execute their low cost operational strategy model through four objectives. They aim on reduces costs through labor, professional fees, salaries and aircrafts. Ryanair are so successful at reducing costs they now have the lowest labor rates throughout all of the low-cost airlines.
Alike Ryanair, EasyJet set out different strategic goals to ensure they operate successfully. Rather than solely focusing on cost EasyJet also consider customer service and consumer satisfaction as a highly important part of their strategy. EasyJet are effective in consumer satisfaction as their recent Key Performance Indicator (KPI) shows that in the past three years’ consumer satisfaction has increased by 10%. EasyJet incorporate the marketing P’s within their strategy to ensure they provide the best services they can. The three marketing P’s are product, process and price. They establish their product, the flight, they ensure the price is as low as it can be, then attract customers.
Although EasyJet seem to have a solid foundation and a compact operational strategy it’s thought its claimed the top spot of Ryanair due to the financial failings. EasyJet now operate over 800 different routes which may leave many to believe their profits would rise. Although reports show this is not the case. EasyJet’s rise in flights has meant employment numbers have risen to compensate. In 2015 EasyJet spent 505 million on crew salaries, in 2016 this increased considerably to 542 million. It shows rather than focusing on reducing costs EasyJet are spending more. As well as this Ryanair are partly more successful for the fact they use secondary airports rather than primary airports. EasyJet spend 1,122 million on airport costs in 2015 which again saw a increase in 2016 to 1,267 million. If EasyJet were to consider focusing on secondary airports rather than primary its possible that they alike Ryanair could save on airport expenses.
Ryanair have a impeccable operational strategy that allows then to each a rising yearly profit. They successfully reduce costs annually in different areas and efficiently save as and where they can. A recommendation that Ryanair could make towards their current strategy is to achieve better consumer satisfaction. A business theory that could apply to Ryanair’s current situation is the “leaky bucket” theory (Kotler et al. 1996. The leaky bucket theory is a theory which states a organisation that gains consumers one week and then loses them the next is a example of a leaky bucket. Ryanair operates every aspect of the organisation under a no-frill system. The low costs may initially attract a passenger although they are quick to feel dissatisfied.
Through research it’s been found that both organisations operate under a structure very similar to that of Southwest Airlines. EasyJet and Ryanair have the same structural set up in that;
- They both have directors of the board who oversee all aspects of the strategies presented by the airlines.
- The directors then pass on instructions to the CEO’s who control and monitor daily activities.
- They monitor they three segmented areas of the organisations. The three sectors are the commercial sector of the organisation, the business sector and the business operation.
Both operating strategies are successful and achieve different aims. EasyJet achieve offering low-cost with added extra’s. Although Ryanair offer a similar service they make a much larger profit through no add-ons.
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