Sunday, 18 April 2010

Ryanair and Air France KLM: SWOT and PESTLE

About Ryanair
Ryanair is an Irish airline with headquarters in Dublin and its biggest operational base at London Stansted Airport. It is Europe’s largest low-cost carrier and one of the world’s largest and most successful airlines in terms of profits, number of flights and number of passengers flown.
Ryanair was founded in 1985 by Tony Ryan and its first flight, operated through a 15 seat turboprop aircraft, was between Waterford and London Gatwick. In 1986, the carrier expanded its route adding a flight between Dublin and London Luton, transporting 82.000 passengers in a year.
Today the carrier is the first airline in Europe per passengers’ traffic, 66 million, boasts more than 950 routes in 26 countries, 36 bases and is recognised as one of the most punctual airline in Europe.
At November 2nd, 2009, Ryanair had a fleet of 202 Boeing 737-800 series and 1300 scheduled short-haul flights per day, serving 151 locations in Europe and Morocco.
Michael O’ Leary, the current flamboyant CEO of Ryanair is res¬ponsible for launching the first unique low fares, ‘no-frills’ airlines in Europe on the model of the American Southwest Airlines, still considered by Ryanair its guide and mentor.
In its ruthless aim to reduce costs, new recruits, with the excuse that training is delivered by a third party provider, are required to pay for their training programme and once hired, crew also need to pay for their uniforms and meals.
The carrier has often been object of bad press, although things seem be working better now, especially in 2005, Ryanair “had sealed its reputation for stinginess and greed”, by banning staff to charge their mobile phone at work, in that on doing so they would have steal company’s electricity and by printing poster saying: “If you don’t like the company then get out”.
The International Transport Workers’ Federation even set a website, www.ryanair-be-fair.org, to offer the staff “the freedom to discuss their work, conditions and any problems they have”.
Ryanair holds a 29.8% share in Aer Lingus, which it has unsuccessfully tried to grow, blocked by the European Commission on competition ground.
The carrier at March 31st, 2009, employed 6616 staff, of whom 1852 pilots, 3808 flight attendants, 99 managers, 257 administrative, 14 reservations, 202 maintenance and 384 ground operations.
Top competitors: British Airways Plc, Air France KLM, Lufthansa, Aer Lingus, SAS AB.
Low-cost competitors: easyJet, Monarch Airlines, Bmibaby, Air Berlin, Germanwings, Transavia, Jet2, SkyEurope, Vueling, WizzAir, Flybe, Thomsonfly and TUIfly.

About Air France – KLM
Air France was founded in 1933, as the result of a merger of five carriers, whilst KLM Royal Dutch Airlines was founded in 1919. By the end of World War II, Air France owned a fleet of 85 aircraft operating over four networks. After the war, the organisation was nationalized acquiring rights to all French airline routes existing in 1945.
Since then the carrier has pursued a continuing growing and expansion activity, till 2004 when it merged with KLM.
Today the Group works in three main activities: passengers, cargo and maintenance, and develops support activities in Component overhaul, Engine overhaul, Air commissionership, Charter flight services, Airport logistic services, Airline catering and Leisure, through Transavia and Martinair.
The group also includes some regional subsidiaries: BritAir, RĂ©gional, CityJet, VLM and
Cityhopper which are particularly important on the short-haul network coverage and has tightened strategic partnerships in Europe with both Alitalia and CSA Czech Airlines.
At September 30th, 2009 the Groups has served 123 destinations in Europe and carried 51.044 passengers, with a fleet of 413 aircrafts.
Top competitors of the airline are: British Airways Plc, Lufthansa, Virgin Express Airways, Swiss Air Lines Ltd., SAS AB as well as low-cost carriers: Ryanair, easyJet, Monarch Airlines, Bmibaby, Air Berlin, Germanwings, Jet2, SkyEurope, Vueling, WizzAir, Flybe, Thomsonfly and TUIfly


Ryanair SWOT Analysis
Strengths
• trong Pan European brand (36 bases)
• Biggest and most profitable LCC in Europe
• Focused, aggressive and innovative management
• Effective business model that coherently delivers low fares
• Secondary and regional airports allow cost reduction and fast turnaround
• Strong balance sheet and cash generation allow to face eventual problems, increase capability to attract finance, enhance capability to take risks and face new challenges
• Competitive price on aircraft purchase
• Reduces barriers to its entry in new markets, whilst contributing to increase barriers to new entrants
• High seat occupancy rate and lowest cost seat-mile in short-haul flights
• Uniform and modern fleet saves on maintenance, training cost, enhance safety and fuel efficiency
• High rate on punctuality and low baggage loss rate give reliability to the organisation
• High rate of aircraft utilisation, allow to increase revenues
• Point-to point flight, as opposed to hub-and-spoke, allows services cost reduction
• Low labour non-unionised cost
• Low cost due to flat and simple form of organisation
• Major earnings from innovative ancillary services

Weaknesses
• Exposed to regulation on airport deals and passengers compensation
• Distance of secondary airports from main locations
• Lack of appropriate frequency in certain routes
• Brand is strictly linked to a low cost model and maintain the position could be challenging
• Too exposed to outsourcing
• Market extremely sensitive to price elasticity
• Prone to bad press in that its top management is perceives as arrogant and provocative
• Poor customer service
• High seat availability could be a problem when flying to less popular destinations
• Limited slots in main airports could be a problem in the future
• High sensitivity to new taxes
• Low level of empathy for employees
• Low employees morale
• Constant innovation requirements to sustain the business model
• High turnaround could increase CO2 emissions

Opportunities
• European market still offers considerable potential for developing the business model
• Underway industry consolidation offers opportunities for new routes and airport deals
• EU enlargement allows to expand in new markets
• Demand based on price should remain high independently of economic cycles
• Bad condition of Italian air industry gives opportunities for consolidation in the Italian market
• USD weakness makes Boeing aircrafts cheaper
• Good leasing aircraft rates will facilitate expansion
• High fuel price will drive out unprofitable competitors
• Better industry margin as unprofitable competitors cease trading
• Operating within Europe not exposed to geopolitical risks
• Mergers/acquisition could allow to expand to popular business and leisure destinations
• Increased mobility of middle-class population is expected and time becomes the more and more scarce
• Possible withdrawal of traditional players from less traffic-intense destinations
• During eventual financial downturns, part of the fleet could be leased out

Treats
• New entrants in the market and increased competition in the near future
• Some flag carriers have tried to reposition as low cost carriers
• Some other traditional carriers have reduced fares which could undermine the market share
• Dependent on oil market
• A serious accident could endanger trust on low cost industry
• Environmental taxes
• Hi-speed trains and land transport
• Exclusive reliance on the internet as distribution channel could endanger business activity in case of disruption
• The lack of union recognition could seriously undermine the brand
• European Court decision exposure may constrain expansion plans
• Risk of increasing air control charges
• Different strategy with main competitor flying from and to main airport, if the strategy should one day be the same it would give ground to fierce price completion, to the detriment of revenues
• Mergers/acquisitions could threaten the existing low cost structures

Ryanair PESTLE Analysis
PESTLE is the acronym for political, environmental, social, technological, legal and environmental, and this tool, devoted to carry out analysis considering the external influences to an organisation’s activity, is of fundamental importance to properly develop a reliable strategy.
The political aspect of this tool considers the possible political influence on the strategy pursued by the organisation. For Ryanair this aspect has represented a considerable advantage, in that the European Union is a completely stable political region and the EU integration has allowed the carrier to expand its activity and routes. On the other hand of it, the airline is affected by the decisions posed by other political organisations like the OPEC, the organisation that unite the oil producer countries and that decide on the oil costs, determining its output quantity, distribution and global supply chain. The incredibly high cost of fuel has strongly affected Ryanair revenues, showing how the industry is particular sensitive to oil cost fluctuation.
The social environment is currently mainly characterised by demographic trends, particularly the ageing population and by changing consumers preferences, which are quite difficult to predict and are very much linked to the price of the service. The ageing population factor is likely to impact the travel industry in the next decade and to cause a shift in land transport, easier to access, to use and allowing movements from and to central town/city areas.
Another uncanny social trend is represented by the tendency to the “cocoon effect” every time a terrorism act is carried out, people, following events like these, prefer to avoid travelling and stay home. On the other hand of it, it is very likely that the younger generations are much more likely to use carriers for their travels and are the more and more enjoying the benefits of a common European area where they can move from a capital to another in an average 1 hour 45 minutes time at very low prices.
As for the Economic factors, one of the most relevant indicators is represented by the increase pro capita income, which let transpire increasing possibility for the industry. Currency 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.
As for the technological PESTLE aspect, the video conferencing system could deter business people to travel in many circumstances, but not leisure travels. It must be said that technology has been crucial for Ryanair’s success and it’s likely to be important also in the future. Internet, in particular, has allowed the organisation to avoid lot of costs. But also the aircraft new generation engines, in terms of less emissions and less fuel consumption will allow the organisation to move on through its cost reduction strategy.
The legal aspect has had and could still have negative effect on the carrier’s activity, the emission constraints set by the European Commission, its activity on implementing and monitoring antitrust law and policies, and the EU legislation on working time regulation and union recognition, sooner or later will affect Ryanair’s policies and this could seriously threaten its revenue result.
As for the environmental aspect, the more and more attention is provided to the environment in terms of both emissions and noise pollution and the presence of many non-for-profit organisations fostering and endorsing a law on the quality of air, supported by the European Union, could represent a future threat, mostly as already seen for the likely imposition of new taxes. Ryanair, anyway, has already given evidence of being sensitive to the issue and of being adopting the necessary measures to control the phenomenon.

Air France - KLM SWOT Analysis
Strengths
• Solid network with 4 hubs
• Success of merger and partnerships
• Supply network
• Services diversification
• Inorganic growth
• Strong fleet operation
• Well-balanced network

Weaknesses
• Debt raised by KLM
• Unstable social climate /strongly unionised
• Domestic and EU flight unprofitable
• Declining performance of main activities
• Declining revenues

Opportunities
• Strategic agreement
• Open sky agreement
• Sustainable development
• Cargo market
• Maintenance market
• Differentiation by reliability and quality of the service provided

Treats
• External shocks: Economic recessions, terrorism and viruses spread
• Oil prices
• Fierce competition
• Low cost carriers
• Consolidation in the airline industry

Air France PESTLE Analysis
As for the external political influence on the strategy pursued by the organisation, the European Union represent a stable region and the EU “Open Sky” agreement can offer further development solutions and cross-border consolidation to the carrier. The social environment is particularly unfavourable to the carrier because of the strongly unionised personnel and for the strike risk to which the carrier remains exposed, especially when obliged to reduce personnel in adverse circumstances. As the whole industry, the carrier is subject to the fluctuating consumers’ preference, which makes rather difficult to predict a reliable trend, and to the “cocoon effect” following terrorist attacks. As for the Economic factors, the carrier could be exceedingly dependent on the economic scenario in order to rely more on the business clientele, in general less sensitive to price increases. As for the technological aspect of the analysis, the video conferencing system could represent a threat in that could dissuade business people from travelling. Air France is anyway taking many advantages from technology to offer better services to its clientele and is likely to further improve and take advantage by technology development in the future too.
Although Air France is less sensitive than a low-cost carrier to new taxes, the legal aspect could negatively impact the carrier by imposing new taxes related to emissions issues. The antitrust regulation set by the EU could also comes to play to prevent the carrier to further expand its merger and partnership strategy.
As for the environmental aspect, the carrier is already devoting attention and energy to reduce its impact on the environment, nonetheless the development of technology in this direction will cause further expenditures and investments which will impact revenues.