Ryanair Case Analysis
Ryanair Case Analysis
1. Porter’s Five Forces Analysis
Substitute:
In this industry, there are high substitution power because if one airline decides to raise prices then customers are going to switch to a cheaper airline company. The majority of passengers are price sensitive and have the option of taking other forms of transportation such as the rail or ferry. Customers are willing to travel longer if they can pay for a cheaper fare. The round fare for ferry and rail is 55 compared to airplane, which can range from 98 to 208 depending on which airline company they take. Airline companies understand that they offer homogenous products, therefore, they try to add complements such as meals, reservation systems, vacation packages (4) to make their services unique and different.
Supplier power:
Supplier power is high in this industry with little room to negotiate due to limited number of airplane manufacturers. Suppliers have the power to increase prices. Airline companies cannot build airplanes by themselves, so they have to purchase them. This is an oligopoly market with few airplane manufacturers. Due to the high costs of airplanes, airline companies will have small operating margin because of the high fixed costs.
Entry of Barrier: The airline industry has high entry to barrier with few rivals, high fixed costs and route licensing issues. There is a large gap between new competitors and current airline companies, particularly the ones that dominate the industry with years of knowledge and experience. Aside from tangible costs, there are intangible spending we need to consider such as service training cost. In order to maintain high quality level of customer services; airline companies need to spend a large portion of its budget to train employees to service different groups of passengers such as first-class, economy, business, etc. There is also high switching costs because customers are not particularly loyal to a
1. Porter’s Five Forces Analysis
Substitute:
In this industry, there are high substitution power because if one airline decides to raise prices then customers are going to switch to a cheaper airline company. The majority of passengers are price sensitive and have the option of taking other forms of transportation such as the rail or ferry. Customers are willing to travel longer if they can pay for a cheaper fare. The round fare for ferry and rail is 55 compared to airplane, which can range from 98 to 208 depending on which airline company they take. Airline companies understand that they offer homogenous products, therefore, they try to add complements such as meals, reservation systems, vacation packages (4) to make their services unique and different.
Supplier power:
Supplier power is high in this industry with little room to negotiate due to limited number of airplane manufacturers. Suppliers have the power to increase prices. Airline companies cannot build airplanes by themselves, so they have to purchase them. This is an oligopoly market with few airplane manufacturers. Due to the high costs of airplanes, airline companies will have small operating margin because of the high fixed costs.
Entry of Barrier: The airline industry has high entry to barrier with few rivals, high fixed costs and route licensing issues. There is a large gap between new competitors and current airline companies, particularly the ones that dominate the industry with years of knowledge and experience. Aside from tangible costs, there are intangible spending we need to consider such as service training cost. In order to maintain high quality level of customer services; airline companies need to spend a large portion of its budget to train employees to service different groups of passengers such as first-class, economy, business, etc. There is also high switching costs because customers are not particularly loyal to a
Cited: Haselhuhn, M. (Director) (2013, April 10). Class 4: Five forces. MGT 235 Strategy Management. Lecture conducted from University of California, Riverside, Riverside. Haselhuhn, M. (Director) (2013, April 15). Class 5: Cola wars. MGT 235 Strategy Management. Lecture conducted from University of California, Riverside, Riverside. Rivkin, J. W. (2007). Dogflight over Europe: RyanAir(A). Harvard Business School, 9-700-115, 5.