Value Chain Ryanair Case Study
THE VALUE CHAIN
In addition to studying the external environment characterized by threats and opportunities, it is also essential to analyze the internal environment of the company, to identified the types of activities that form the production process. An analysis tool that helps identify what are the key activities of the production process of Ryanair and which are auxiliary or complementary is the analysis of the value chain (value chain). The value chain, in fact, lets to consider the enterprise as a system of value-generating activities. This value is defined as the price that the consumer is willing to pay if the service meets and satisfies fully their needs. Within the value chain it is possible to identify a set of five primary activities that directly contribute to the final output and secondary activities that support the process.
Aiming to negotiate favorable agreements with its suppliers in order to achieve the low-cost strategy. Dependency on suppliers to deliver fuel as well as food, drinks and duty-paid products to be sold on-board; they need to be stored, handled and controlled upon delivery Fuel surcharges are not applied following the hedging strategy Choice of secondary airports away from urban centers of reference in order to reduce airport fees by reference to reduce airport taxes
Development of a policy to reduce costs on all fronts (no frills philosophy) Homogeneous fleet of aircraft (Boeing 737 only) reducing the cost for training, maintenance, purchase and storage of spare parts. Quick turn-around times for aircraft that enables high aircraft utilization Point-to-point flights to offer direct non-stop journeys, avoiding the cost of providing through services for connecting passengers and delays caused by late arrival of connecting flights Maximizing the number of passengers per flight
Check-in is almost exclusively online
Choosing secondary airports that guarantees a quick turnaround time and provide a reliable service in terms of punctuality of flights
Minimize lost or delayed luggage
Marketing And Sales
Purchase of the servic
e almost exclusively through the website Using very few advertising agencies doing internal management (in-house advertising) Low fares promotions
Controversial advertising: disseminate declarations of future controversial intent at issue is not actually brought to a conclusion, with the goal of “making news” and then generate free publicity
customer service simple and basic (low-cost), which uses few resources additional services for a fee during the flight (food, magazines, telephone, bathroom) agreements with hotels, car hire, insurance, guides etc …
In the 1991 Ryanair lived an big change of culture and structure, when Tony Ryan decided to nominate Michael O’Leary such as new CEO who started to guide a young and expert team. He has a great charisma and he brought innovative ideas that determinated the succes of the company. From that moment the strategy of Ryanair was very clear: do high profits minimizing the costs (no frills), according to the idea that for the consumers the price is more important than the quality. Continuing the policy of cost reduction, the company has reduced the cost of the administrative offices in the area, lowering the number and the size.
Ryanair is a pioneer in the application of new technologies, especially if they lead to actual savings. The use of the internet is a key element to its business, indeed the sales are handled almost entirely through its Internet website, from the booking of the flight until the time of check-in. It also uses modern technology (change tabs) for the reduction of noise pollution that also ensures a higher performance and a reduction in fuel consumption by 2%.
Human resource management
Ryanair currently has a team of more than 9,500 professionals. Low-cost strategy regarding to their staff is:
Staff Training low-cost; aircrew limited; contracts pay based on performance. It does not give discounts on the tickets to employees and some training costs, food, water and uniforms are paid by the employees. Ryanair has been accused several times of the non-recognition of trade unions and poor working conditions (eg. Charging phones, acceptance obligation contracts, lawsuits)
The fleet consists of aircraft from a single supplier (Boeing), which provides discounts on the price; Ryanair buys fuel. The price of that one increases from year to year, but despite this, the company does efforts to not put increase its rates, trying to buy with a relatively fixed price and to reduce the other costs. In addition, the company has outsourced complementary activities such as baggage handling and ground staff.
Their expectation is that these additional aircraft will allow Ryanair to double in size to over 84 million passengers each year by 2012. Moreover, Ryanair currently employs a team of 4,200 people, comprising over 25 different nationalities (About Ryanair).
Ryanair's competitive strategy is quite simple. The company offers the lowest fares of any airline operating in Europe. The firm has succeeded by holding its average fare below 50, which is about a third lower than even EasyJet's, its strongest low-price competitor. The company sells seats on a one-way basis. Fares are set on the basis of demand for particular flights and by reference to the period remaining to the date of departure of the flights; higher fares are charged on flights with higher levels of demand made nearer to the date of departure.
The secret of Ryanair's success in their business could be drawn out of how they were able to narrow the value network by eliminating non core activities and to shorten the value network by eliminating processes that are part of the value chain. The company's aircraft handling, ticketing and other services at certain airports are handled by third party contractors, which is Servisair. The company has its own internet booking facility and reservation centre, and generates the majority of its sales through direct selling (through website and telephone reservations).
Ryanair also provides various ancillary services and engages in other activities connected with its core air passenger service, including non-flight scheduled services; in-flight sale of beverages, food and merchandise; and internet-related services. As part of its non-flight scheduled and internet-related services, Ryanair offers accommodation services, car rentals, rail tickets, and travel insurance through both its website and its traditional telephone reservation offices.
Exploring how the company started, we can draw Ryanair's roots back in 1985, where it was established by the Ryan family with a share capital of GBP1, and a staff of 25. The company launched its first service that year with daily flights on a 15-seater Bandeirante aircraft, operating daily from Waterford in the southeast of Ireland to London Gatwick. It was said that Ryanair's first cabin crew employees have to be less than 5ft. 2ins. tall in order to be able to operate in the tiny cabin of the aircraft! Finally, in 1986, Ryanair obtained permission from the regulatory authorities to start operations on the Dublin-London route (About Ryanair).
However, in 1990, three years after the rapid growth in airline industry, routes and intense price competition with airline giants, Aer Lingus and British Airways began to injure the smaller Ryanair. This is why Ryanair accumulated 20m in losses and goes through a substantial restructuring. So, the Ryanair management re-launched the low fare model under a new management in 1990.
One of Ryanair's formidable competitors during that time was British Airways. British Airways' competitive advantage in the leisure market is slight, it makes sense to make provision for it. It has often seemed attractive to airlines to focus exclusively on business travellers, observing the substantially higher fares they pay, but such airlines have generally failed (as is also true of other focused airlines such as those specialising in backpackers or budget travellers). The ...Show more