Ryanair: Its Vulnerability and Exposure to the Environment

Ryanair Its vulnerability and exposure to the macroeconomic purlieu Business vulnerability is a measure of how susceptible an organization is to remote events and the possible consequential impact on its business represents and profits. In this essay, I give assess the vulnerability of Ryanair and its degree of expose to macroeconomic shocks. I will also hit the books Ryanairs per fleshance since 2000 in comparison to its rival BA, as well as their strategies in how powerful they ar in raising profits and minimizing their exposure.Ryanair is a low salute Irish air hose and one(a) of the most profi table in the airway industry. However, it stool be seen as vulnerable and exposed to macroeconomic shocks. To a degree this is referable to Irelands disseminateness. Desmond Gillmor describes it as one of the most open of economies, and beca rehearse of this in steep spirits gear degree of openness, the economy is strongly bendd by the external conditions regular in the international economic system. (Gillmor 1985, p. 5) The airline industry in which Ryanair ope pass judgment is middling e digestic as shown below. (Knight, B. 2006, p. 14)From the graph, one peck see that if the GDP attachs or decreases by 1 per cent, the demand for air pass away will increase or decrease by 1. 7 per cent air travel and Ryanair is fairly exposed. A firms comely total toll arch (shown below) and the precipitancy of it coffin nail express the firms vulnerability. The steepness of the curve is mainly determined by the scale of mulish cost and as a result, those firms will experience to a greater extent volatility in their pecuniary performance. In addition, increasing returns to labour which is particularly found in professional services also impacts on the gradient.Furthermore, firms which are dependent on external inputs, for example, in construction, are vulnerable to shifts in the curve cod to increases in the be of their inputs. output saucer e. g. shoe shiner transverse flute e. g. airlines ATC output saucer e. g. shoe shiner flute e. g. airlines ATC The flute curve shown above reinforces the vulnerability of Ryanair collect to its steepness. This can be explained by high fixed costs such as a large yield of fleet and the heavy dependency on external inputs such as fuel.The graph below shows that since 2003 Ryanair has more than ikond their fleet to 163 aircraft. (Ryanair, 2008, p. 3) The latest chairs Report released by Ryanair reports on the effect of fuel prices The high and rising price of fuel is of major concern to Ryanair and the entire aura industry. Last year our hedging programme delivered fuel at an clean cost of $65 per barrel. Today we are facing prices of approximately $cxxx a barrel. Ryanair has responded to these higher oil prices by reducing costs crosswise all separate areas. (Ryanair, 2008, p. ) They are also exposed to fluctuations in out situation exchange rates, the extent to which they made a loss of everywhere 5m due to changes in the American dollar and British Sterling exchange rates against the euro. This exposure can be minimized by hedging with fiscal derivatives. Even though Ryanair incur costs that they take hold little promise over such as fuel, there are others that will influence the costs per seat-km flown that they can influence. These include aircraft utilisation, aircraft turnround times, seat pitch, the use of fewer crew and cheaper secondary airports, along with direct selling and paper little ticketing. (Pitfield, D. E. 2007, p. 77) These factors all form a part of Ryanairs strategy to penetrate the securities industry just and hack its vulnerability by exploiting commercialize imperfections. Ryanair has responded to these higher oil prices by reducing costs across all other areas. A beau monde wide pay freeze was implemented and redundancies have been suffered at our capital of Ireland call centre. Significant cost reductions have also been ach ieved on airport, maintenance, and intervention contracts, and we will benefit from the addition to our fleet of cheaper and more fuel cost-efficient aircraft.We have also increased our send outs for baggage and airport check-in as we continue to encourage passengers to avail of web check-in and travel with air on luggage only. (Ryanair, 2008, p. 4) They have even gone as outlying(prenominal) as intend to close down their check-in desks and the possibility of charging passengers to use the on-flight toilet facilities. Source Ryanair Annual Reports Ryanair is one of the largest airlines in terms of passenger numbers (REF) and has continuously grown in size and value over time as shown above.The extent of such an expanding firm is conveyed over the last eight years as Ryanairs profits have more than quadrupled. However, there have been drops in profits in 2004 and 2008. In 2004, the airline was hugely affected by the conflicts in Iraq, the re invigorateded threat of act of te rrorism and endless increasing oil prices. However, in this same period, Ryanair managed to launch freshly bases in Rome and Barcelona, launch 73 new routes, takeover their competition Buzz for a knock-down price and carry more passengers than BA in the European market.The reason for the decrease in profits in 2008 was due to increases in fuel prices and significantly increased airport charges, particularly at their largest bases at Stansted and Dublin. British Airways, a competitor to Ryanair, has reviewed its short-haul operations and is planning to spend a portion of its marketing budget promoting shorter haul flights. However, they commit that services such as in-flight refreshments and business class seats are expected by their customers, and intend not to hurt back on these services but focus on this differentiation and thereby force market imperfections.In the journal article titled Easyjet and Ryanair flying high on the Southwest model, Chris Avery, an analyst at JP Mor gan, believes that the answer to the threats from low cost airlines by BA has been perfect. They acknowledged that they were no longer the publics favored provider and have interpreted measures to, not only, protect their chief(a) market, but also to learn from their rivals. With BAs key financial figures reported in British pounds and Ryanairs in Euros in their several(prenominal) annual reports, there is difficulty in comparing them. Nevertheless, I will look at other key statistics. (Ryanair, 2008, p. ) Looking at the figures above, one can see that Ryanair charges passengers considerably get off, including no fuel surcharge. This is one for Ryanairs USP and such low costs form a barrier for new entrants. (Ryanair, 2008, p. 7) With regards to consumer satisfaction, Ryanairs service is greater than that provided by BA. Source Mintel From above, one can see that Ryanair have the second largest number of active aircraft behind BA. Nevertheless, if the average age of the fleet is taken into account, Ryanair has one of the largest young fleet. However, one cant disregard the different sizes of the cardinal firms.Since British Airways is a bigger firm compared to Ryanair and offers different services, as well as owning a big fleet of aircrafts, it may be more greatly exposed to the external environment. To be able to manage these uncontrollable external shocks, Ryanair needs to reduce its vulnerability and exposure to the market. To do this, its total cost curve needs to become gentler (and like a saucer as shown on rascal 2). This can be explained by reducing the airlines fixed costs and that a downturn in demand will start profits to fall but not as much as previously.Also, with the average fare being 22 cheaper than its local rival Easyjet (see rapscallion 5), Ryanair could raise their price and still retain their customers. Ryanair operates in an oligopoly Q value Q Price Above the kink, the demand is relatively elastic as all other firms prices rem ain unchanged. However, below the kink, demand is relatively dead because all the competitors will introduce a similar price cut which would eventually lead to a price war. Consequently, the optimal output is that at the kink. Ryanair have decided to offer all passengers on all routes their final fare guarantee.On those very rare occasions when passengers find a lower promotional fare on a competitor airline for a similar itinerary then we will happily refund them double the difference. (Ryanair, 2008, p. 6) This ensures customers, especially in a downturn were consumers are looking for the cheapest prices. Consequently, if Ryanair indispensability to achieve supernormal profits, they need to erect barriers to entry and make the airline industry non-contestable. Such barriers can be placed by enhancing Ryanairs current supply chain.For example by solely operating Boeing 737 jets Ryanair can keep training, maintenance and operating costs in check. In January 2003 a massive order for 100 of the latest 737-800 variants worth $6 one million million million was announced in response to the airlines escalating success. (Anon. 2004, p. 5-6) This is unlike its competitors who have more than one type of aircraft. Also, they could try and offshore the administrative side of the organisation to reduce their costs, as well as invest less in advertisement and try to offer more services to repugn against BAs new proposed plan and to differentiate themselves further.Such differentiating ideas include presentation a new all-frills airline for flights to USA. Furthermore, since Ryanair has received previous criticism, they could strengthen the barriers by investing in the brand. Their competitors are forced to incur the same costs to build their brands to contest the industry, as well as new entrants. This reduces market contestability and enhances profits. If they fail, this sunk cost cant be recouped. London to Genoa (GOA), Hamburg (HAM), Pisa (PSA), Stockholm, and V enice. (Pitfield, D. E. 2007, p. 78)The table above shows the market share achieved by Ryanair in 2003, in the basic month and year of operation. There seems to be a difference amongst the Italian destinations and the other two. However, the Venice route also looks closer in book of facts to the other northern European destinations in that although the initial market discernment is good, it does not grow as rapidly as GOA or PSA. This is closely certainly because of the competition offered by easyJet from STN to VCE. It seems that where competition is less and a dominant allele market role is achieved, large market shares can be achieved.The resulting market share is less if there is more competition. (Pitfield, D. E. 2007, p. 79) Consequently, to mediate this threat against opposition, Ryanair could analyse their current routes and maybe switch from more competitive routes to those that are currently non-existent, for example, Norway. Finally, to increase its market share, R yanair could seek to takeover a competitor. Having successfully taken over Buzz in 2003, Ryanair have mixed experiences with this strategy with two unsuccessful attempts to takeover Aer Lingus in 2006 and 2008.In the latter case, the approach was rejected due to valuation and competition grounds an aviation monopoly would not have been in the best interests of Irish consumers. References Anon. (2004) Industrious times at British Airways and Ryanair Winning the battle for the skies. Strategic Direction. 20 (4), 4-6. Anon. (2006) Easyjet and Ryanair flying high on the Southwest model. Strategic Direction. 22 (6), 18-21. BBC News. (2009a). Ryanair to abolish check-in desks. Online. unattached at http//news. bbc. co. uk/1/hi/business/7903656. tm Accessed 15 April 2009 BBC News. (2009b). Ryanair mulls charge for toilets. Online. Available at http//news. bbc. co. uk/1/hi/business/7914542. stm Accessed 15 April 2009 BBC News. (2009c). Ryanair launches new Norway route. Online. Available at http//news. bbc. co. uk/1/hi/scotland/edinburgh_and_east/8024769. stm Accessed 15 April 2009 Black, F. (2007) OLeary plans new all-frills airline for flights to US. Independent. ie, Online Available at http//www. independent. ie/national-news/oleary-plans-new-allfrills-airline-for-flights-to-us-43198. tml Accessed 15 April 2009 Gillmor, D. (1985) stinting Activities in the Republic of Ireland A Geographical Perspective. Dublin Gill and Macmillan Ltd. IATA (2007) schedule Passengers Carried. Online Available at http//www. iata. org/ps/publications/wats-passenger-carried. htm Accessed 15 April 2009 Knight, B. (2006) EC1310 Topic 5. Pitfield, D. E. (2007) Ryanairs extend to on Airline Market Share from the London Area Airports A Time Series Analysis. Journal of Transport Economics and Policy. 41 (1) Jan 07, 7592. Reuters UK. (2009).UPDATE 4-Ryanair concedes defeat in Aer Lingus bid. Online. Available at http//uk. reuters. com/article/rbssIndustryMaterialsUtilitiesNews/idUKLM1588932 0090122? =undefinedsp= avowedly Accessed 15 April 2009 Ryanair. (2008) Annual Report 2008. Online Available at http//www. ryanair. com/site/EN/about. php? page=Investsec=downloadref=2008 Accessed 10 April 2009 1 . BBC News. (2009a) 2 . BBC News. (2009b) 3 . Black, F. (2007) 4 . BBC News. (2009c) 5 . Reuters UK. (2009)