Essay Porter Five Forces Analysis of Ryanair

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Essay Porter Five Forces Analysis of Ryanair

Essay Porter Five Forces Analysis of Ryanair

Founded in 1984, Ryanair is an airline based in Ireland that operates in the low-fare category. The headquarters are based in Dublin, Ireland. In 2016, with regard to scheduled passengers flown, Ryanair was Europe’s largest airline. Also, it carried more international passengers than any other regional competitor. In 1997, the aviation industry in Europe was deregulated. This led to the sudden expansion of many of the airline operators. Ryanair also expanded and currently operates 403 Boeing 737 aircraft. Ryanair’s low-cost business model is one of the prime reasons for its success. Ryanair flies to 205 destinations in 34 countries across Europe, Africa, and the Middle East. In 2016, Ryanair reported revenue of more than 6 billion Euros. Currently, 11,458 employees work for Ryanair at various locations across the countries it flies to.
Following is a detailed Porter Five Forces Model Analysis of Ryanair

Competitive Rivalry – High

There are a number of low-cost airlines operating on the routes similar to Ryanair. These include Easy Jet, Go, Wizz Air, and so on. The competition to cover a maximum number of routes at the least cost is intense. Each player in the industry is striving to minimize their costs by reducing onboard passenger facilities and airport outlay costs. The focus is on short-haul flight routes. On many routes, Ryanair has been able to drive out competition due to its experience and large fleet size. However, on many routes, the competition is still intense. The deregulated airline industry has made the entry of other airlines easier into the European region increasing competition for the local operators such as Ryanair. All of this reflects a high competitive rivalry for Ryanair.

Threat of New Entrants – Low

The aviation industry is an expensive industry to enter for new entrants. The entry barriers are high. Purchasing or even leasing jets is expensive. Then getting slots at desired airports is costly and tough especially for new airlines, inventory of spares is not economical, and so on. In order to generate awareness, huge marketing costs would need to be incurred. The staff required for an airline such as pilots and stewardesses are not cheap nor it is easy to find qualified such staff. Developing the low operational costs that airlines like Ryanair have developed takes experience and economies of scale (Bagdanskas, 2016). Only then can low-fare flights be profitable. Thus, the threat of new entrants is not high for Ryanair.

Bargaining Power of Suppliers – High

There are only two manufacturers of airplanes: Boeing and Airbus. Ryanair purchases its planes from Boeing. This Duopoly has led to these manufacturers charging high prices for the aircraft. However, since Ryanair is the highest purchasing customer of Boeing in Europe, even during the 2005 post 9/11 era, Boeing holds a soft corner for Ryanair and gives it rates less than standard market rates. The other suppliers are of jet fuel. The prices are governed by world trade, therefore Ryanair cannot attempt to bargain the prices of jet fuel from the suppliers (Field, 2017). Therefore, the bargaining power of the suppliers is high against Ryanair.

Bargaining Power of Buyers – High

The low-fare airline industry lacks customer loyalty or brand loyalty. Customers are only loyal to low-fares. Any player that offers the lowest fares wins the greatest number of customers. The switching cost for the buyers is almost zero. If any player attempts to increase fares, buyers will shift to the other airlines causing the airline to lose business. All low-fare airlines are working towards reducing their operating expenses and providing the flyers with greater facilities. All of this further adds to the bargaining power of the buyers. This makes the bargaining power of the customers high.

Threat of Substitutes – Low

Within the European land, there are a number of other systems such as train, buses, and cars that can be used to travel over the short-haul routes. However, the train fares are not cheap. They also take considerably longer time. Ryanair tackles this by providing a comparison of their rates and the train fares over a number of routes on their website, encouraging people to use their services over non-flying means of transport (Dudovskiy, 2012). This reflects a weak threat of substitution for Ryanair.

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Essay Porter Five Forces Analysis of Ryanair