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External Analysis of Ryanair - Diamond Model

Essay by   •  June 28, 2011  •  Case Study  •  1,408 Words (6 Pages)  •  5,978 Views

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The Diamond Model assumes that the national home base of a firm plays a key role in shaping that firm's competitive advantage in global markets. The model can be used to analyze the global competitive success of a national industry. But, although Ryanair is based in Dublin and Stansted, it mainly operates throughout several destinations across Europe. Therefore, the Diamond Model does not seem to be an ideal tool for analyzing Ryanair and PEST (Political, Economic, Social and Technological) analysis seems to be more relevant. The PEST analysis of Ryanair is as follows:

Political

The political aspect has represented a considerable advantage for Ryanair, since the European Union (EU) is a completely stable political region and the EU integration has allowed the carrier to expand its activities and routes. The expansion of the EU offers a large potential market for Ryanair to expand in.

On the other hand, the airline is affected by the decisions posed by political organizations like the OPEC, the organization that unite the oil producing countries and decide on the oil costs. As discussed in the relevant case, Ryanair was especially vulnerable to the rising fuel prices from 2005. Since the company could neither predict nor control the prices, it relied heavily on hedging. The incredibly high cost of fuel has strongly affected Ryanair revenues, showing how the industry is particularly sensitive to oil cost fluctuations.

Ryanair's advertising, which is often used to make direct comparisons and attack its competitors, has been causing deliberate court controversy and has been resulting in occasional court actions being taken against the airline.

Over the years, different political issues have been a source of major concern for Ryanair. Airports have been privatized or are run by private sector firms on behalf of public sector owners. In the early days, the airline industries were heavily regulated but it changed in 1993, when the airline industry de-regulated in Europe.

Economic

As for the Economic factors, the rise in the fuel prices has heavily affected the company's revenues. Economic activity is the major force behind the demand for travel in general, and the demand for air transport in particular. As Ryanair operates globally, exchange rates are very important in determining what prices can be charged within each country it operates.

Another relevant indicator is the increase in pro capita income, which let transpire increasing possibility for the industry. Current fluctuation, especially with reference to the fuel hedging activity put in place by Ryanair, could affect the carrier strategy and bring in business risks. The migration trend within the European region, nonetheless, can bring benefits to the airline development and revenues.

The low unemployment rate reflected a relatively high growth rate of the EU, and in this situation, consumers tend to spend more heavily because of higher disposable income and greater job security. However, the continuously high growth rate of economy might affect the market of low-price airlines. When consumers are ready to spend more money, importance will be given to the quality and convenience of the services rather than price.

Ryanair cuts its costs in the following ways:

1. No frills

2. Ryanair controlled its fuel costs through hedging

3. Ryanair replaced its fleet of old aircrafts with new ones. According to the case, the new aircrafts had larger seat capacity but did not require more crew. Also, a winglet modification program on the fleet was providing a 2% decrease in fleet fuel consumption.

4. According to the case, Ryanair, introduced cost-cutting/yield-enhancing measures for passenger check-in and luggage handling. Estimates were that these tactics could save an average of more than 1 euro per passenger. One such measure was web-based check-in and priority boarding, saving Ryanair's costs on check-in staff and airport facilities. Another was charging for check-in bags, which encouraged passengers to travel with fewer and, if possible, zero check-in bags, again saving on costs.

5. Ryanair reduced airport charges by avoiding congested main airports, choosing secondary and regional airport destinations.

6. The company has come under fire for refusing to recognize unions and allegedly providing poor working conditions. For example, staffs are banned from even charging their mobile phones at work in order to reduce the company's electricity bills.

7. There were reports on Ryanair's training and cabin

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