An In-Depth Critical Examination of the External and Internal Factors That Might Affect Ryanair’s Strategy in the Next Three Years.

Introduction

For an organisation to achieve its objectives over the business life cycle, it needs strategic management that involves strategy formulation, implementation, and evaluation. Strategy formulation, which is the focus of this essay, is choosing actions to ensure an organisation exploits and maximises its strengths and opportunities while minimising the effects of threats and weaknesses in the business environment. This process involves identifying an organisation’s internal strengths and weaknesses and its external opportunities and threats, which can be done using the internal factor evaluation (IFE) and external factor evaluation (EFE) matrices. These analytical frameworks give forecasts and best estimates of the impacts of identified factors on the firm’s performance and ability to achieve set objectives. For a more in-depth understanding of strategy formulation and, more generally, strategic management, this essay examines the external and internal factors that might affect Ryanair’s strategy in the next three years. It begins with an overview of the company, then an internal and external audit, which informs the conclusions of the most critical factors that might affect its long-term strategy.

Company Analysis

Overview

Ryanair is an airline company under the parent company Ryanair Holdings plc, considered Europe’s most green and clean airline group (Ryanair, n.d.). The Irish-based airline is Europe’s biggest airline and among the largest in the World. While it began as a small airline operating daily flights from Waterford to London, it has grown to flying about 121 million people in 2021 and competing with other major airlines, including American Airlines, United Airlines, and Delta Airlines (O’Halloran, 2022). Like any other company, its performance is influenced by various forces in today’s dynamic business environment, as discussed in the sections below.

External Audit

Country Environment Analysis – EFE Matrix

As mentioned, an external audit of Ryanair can be done using an EFE matrix, which summarises and evaluates the company’s external business factors and competitive information. External business factors will be considered using the PESTEL analysis to identify the opportunities and threats (Perera, 2017) that will inform the matrix’s evaluation. Some political factors in the UK currently influencing Ryanair’s business include government instability marked by the rapid successions of prime ministers and senior ministers (Belam, 2022) and the ongoing conflicts within the Conservative party (Bush, 2023). The implications of Brexit have also caused political instability (White, 2023), especially in policy-making, which is reportedly complex, causing geopolitical tensions (Dudley and Gamble, 2023). These have trickled down and exacerbated economic issues in the UK, such as the cost of living crisis (House of Commons Library, 2023). The rise in global energy prices has caused high inflation rates in the country, as shown in Figure 1 since the country is over-reliant on imported gas (Schomberg, 2023). This has, in turn, affected household income, evidenced by the fact that millions of UK citizens now live in poverty (McRae et al., 2023), reducing their purchasing power. Again, “currency fluctuations affect the company’s results” (Ryanair, 2023, p.63). Still, the large number of international students (Universities UK, 2022) and tourists the UK attracts yearly (ONS, 2022) boosts the economy through travel earnings.

Figure-1:

High Inflation Rates in the UK compared to other Countries

(House of Commons Library, 2023)

A look at sociocultural factors affecting the organisation reveals that the UK has a vast consumer market with growing consumer confidence (Romei, 2023) despite the economic outlook. Also, a considerable percentage of the country is ageing, meaning various commercial and operational provisions will have to be made for these prospective passengers (Graham et al., 2019) who are increasingly travelling for leisure and socialising (Glover, 2020). While this would mean additional costs for the airlines, there is an opportunity to gain from this population through innovations that create pockets of privilege in their flight network (Bouwer et al., 2022). There is also an opportunity to harness the UK’s healthy and well-placed technological sector (Department for Culture, Media & Sport, 2022), whereby developing age-friendly technological innovations may encourage travel among this demographic and benefit the airline industry (Glover, 2020). Regarding technology, the country’s high internet connectivity and usage (Petrosyan, 2023) creates opportunities for boosting business operational needs such as marketing, sales, and inflight connectivity (Khamis, 2023).

The analysis thus far depicts the UK as a country bolstered by human activity, which has affected the physical environment. Evidence of this is seen in different manifestations of climate change, such as extreme weather events: high temperatures (Department for Energy Security and Net Zero, 2023), heavy rains, and strong winds (Banfield-Nwachi, 2023). These threaten airlines and airline manufacturers’ business due to delays, cancellations, and additional costs of manufacturing planes that withstand harsh weather conditions (Curello, 2023). These conditions may also deter travel, causing losses. Fortunately, the country’s advanced legal environment is punctuated with laws and regulations, such as the Climate Change Act 2008, that help reduce the impact of business activities on the environment. Organisations such as Ryanair that engage in sustainable business activities (Ryanair, n.d.) stand to derive strategic advantage following the growing trend of responsible and eco-friendly consumption (Rice et al., 2020). Besides, the advent of sustainable aviation fuels (SAF) introduced by the SAF mandate in the UK will not only decarbonise the sector but also provide investment opportunities (Open Acess Government, 2023; Thomsen, 2023) for the airline. However, implementing this and other such laws (Ryanair, 2023, p.61) may increase costs and thus affect pricing strategies) (Ryanair, 2023, p.61).

From this analysis, the EFE matrix can be presented as follows:

Table-1:

EFE Matrix

(Author’s Own, 2023)

From Table 1, the effectiveness of the firm’s strategy in dealing with the threats and opportunities in the market is just above average, with a total weighted score of 2.62 based on the two crucial factors of earnings from tourist and international students (opportunity) and economic instability (threat). These two factors are considered the most important since they determine the organisation’s financial performance to a more significant extent, as discussed under PESTEL. It can be concluded that the company is responsive to external factors. Also, the gap between the weight score of opportunities (1.66) and threats (0.96) is significant enough that the opportunities can offset environmental threats.

Competitive Analysis – Competitive Profile Matrix

Another aspect of the external environment analysis is the competitor analysis, which involves identifying competing players and what gives them a competitive edge in the market, industry or sector. With a focus on industry competition, one strategic tool that can be used to analyse competition is the competitive profile matrix (CPF). According to Sohel et al. (2014), this tool allows companies to weigh themselves against competitors based on the industry’s critical success factors (KSFs). Critical success factors are specific competitive elements that affect the ability of companies in an industry to thrive in the marketplace (Grunert and Ellegaard, 1992). In context, the first step of this analysis is identifying some KSFs and attaching weight to them based on their importance. Some of the airline industry’s KSFs include attracting customers through airline service and marketing (Yifru, 2017), managing its people, fleet and finances (McCabe, 2006) and load factor (Jenatabadi and Ismail, 2007).

The next steps include identifying the main competitor of Ryanair and ranking them on the KSFs, and after that, finding the weighted score by multiplying the 1-4 ranking by the weight of the KSFs. An analysis of the competitive landscape reveals that some of Ryanair’s main competitors include Lufthansa, Turkish Airlines, EasyJet and Air France, as shown in Figure 2 below.

Figure-2:

The Competitive Landscape of the Airline Industry in the UK Based on Brand Popularity

Statista Research Department (2023)

An evaluation of Ryanair’s ranking on the KSFs against its two main competitors shows the following:

Table 2:

The Competitive Profile Matrix of the Airline Industry in the UK

(Author’s Own, 2023) W- Weight, R- Rating, WS-Weighted Score

From the analysis that informed this competitive profile matrix (see Appendix), Ryanair is lagging behind its competitors, who enjoy more competitive advantages by a margin of 0.16 and 0.87.

Internal Audit

Internal Analysis -IFE Matrix

Apart from the external environment, an internal environment analysis also matters for strategy. The analysis looks into different aspects of the company, such as management, operations, accounts, finance, marketing and research and development (R&D), to identify strengths and weaknesses that determine if a company can strategically position itself to exploit opportunities and avoid threats (Indris and Primiana, 2015). The internal audit of Ryanair can be done using the IFE matrix, which will be informed by the SWOT tool. First, some of the company’s strengths include a high load factor, valuable strategic partnerships, cost-efficiency, valuable human resources despite associated issues, high bargaining power with suppliers, airports and governments (Prichinet and Le Duc, 2020), structured management and large company size (Madar, 2018). Contrarily, its weaknesses include human resources issues evidenced by frequent employee strikes (Khomyak, n.d.), irregular business income and profitability and poor brand perception (Madar, 2018). These can be ranked in the IFE matrix as follows:

Table-2:

IFE Matrix

(Author’s Own, 2023)

The above-average (2.5) score indicates that Ryanair has a strong internal position. From Table 2, the top two internal factors are high load factor (strength) and human resource issues (threat). These factors are considered top based on their high scores and the fact that the load factor and human resource issues are directly related to corporate, in this case, airline profitability (Renold et al., 2023; Macke and Genari, 2019).

Current Strategy and Culture

Other factors to be considered in an analysis are the firm strategy and culture. From the three generic strategies outlined by Johnson et al. (2020), Ryanair’s current strategy falls under the cost-leadership strategy, which involves pricing products and services at a low price to gain a competitive advantage. According to Saleh (2016), the company maintains this strategy by keeping its costs down through reduced airport charges and cost-cutting measures for passenger luggage handling and check-ins. This strategy is the most appropriate given the competition in the industry, as determined in the section above. Important to note is that Ryanair has aligned the entire company to this price orientation to effectively and efficiently support this strategy (Kraaijenbrink, 2019). Among the areas integrated into this strategy is organisational culture. Organisational culture depends on an organisation’s management style, the employees’ attitudes and belief systems and the environment in which it operates. The internal and external analysis above shows that Ryanair’s organisational culture is market-driven. This culture is more focused on results and performance than on employee satisfaction. While this culture focuses on profitability, human resource issues such as those reported by Khomyak (n.d.) and Madar (2018) may adversely affect the brand and consequently. Ryanair should, therefore, strive to change its culture to accommodate consumer perceptions, which is increasingly crucial in determining brand equity.

Conclusions

The top two internal and external factors that might influence Ryanair’s strategy in the next three years include earnings from tourists and international students (opportunity), economic instability (threat), a high load factor (strength) and human resource issues (threat). These are considered the most important based on the high scores on the matrixes and their current and prospective direct impact on Ryanair’s business operations.

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Appendix

An Analysis of The Competitive Profile Matrix of the Airline Industry in the UK

Ryanair’s revenues for the year 2022/2023 were about 11 Billion Euros (Statista Research Department, 2023), while that of Lufthansa (Lufthansa Group, 2023) and Turkish Airlines was about 33 Billion Euros and 17 Billion Euros (Companies Market Cap, 2023) in 2022. On the other hand, the company operates 558 aircraft (Ryanair, 2023) compared to Lufthansa’s 710 (Lufthansa Group, n.d.) and Turkish Airlines’ 429 (Memon, 2023). Lastly, people management at Ryanair is not as impressive (Boyle et al., 2023) as that of Lufthansa and Turkish Airlines, which do not have reported complaints.