Ryanair, SWOT Analysis Example

Strengths: One of Ryanair’s major strengths is its leadership which doesn’t only have an extensive industry experience but has also been leading the company for decades now. Ryanair’s CEO Michael O’Leary has been leading the company since 1994 and such a long tenure means he has a solid understanding of the company. Ryanair’s second strength is its economies of scale. It is the largest low-price operator in Europe which is also due to the cost advantages obtained through large scale. The company also has an extensive network which means its revenue stream is diverse and provides adequate hedge against sales decline in any single market. Ryanair’s strengths also include its brand name which enjoys high recognition rates in European markets and allows the company to expand operations within Europe with minimum marketing.

The company’s strengths also include out-of-the-box thinking and a competitive culture. Some of the company’s initiatives might have been controversial such as eliminating airport checkouts but it shows that the company is not afraid to try new things in order to improve operating efficiency as well as profitability. Over the years, several competitors have tried to compete with Ryanair but the fact that many withdrew from markets served by Ryanair demonstrates the competitive spirit of the company. The company earned 12.20 percent profit margin in the last fiscal year which is impressive given the intensity of competition and is sitting on over €2.5 billion of cash reserves which again demonstrates the financial strength of the company.

Weaknesses: The company operates in a highly competitive industry where there is a constant downward pressure on profit margins. The company’s weaknesses also include negative publicity it receives from time to time that may prove more damaging over time than the company could anticipate. There is even a website called www.ihateryanair.org that appears as one of the top Google searches which may indicate that the website receives a substantial amount of web traffic.

Another weakness is high debt as demonstrated by the debt-equity ratio of 107.30. High debt levels also increase the long term default risk. Moreover, debt also eats into profitability due to interest obligations. High debt may also be due to the fact that the company has been expanding too much and a better strategy may be to opt for controlled expansion.

Ryanair’s weaknesses also include poor customer service. A quick search on the web will reveal several websites filled with customer complaints. As of April 25, 2012, the company had a satisfaction score of only 2.9 out of 10 or 29 percent on SkyTrax which claims to be the world’s largest airline review website.

The company’s weaknesses also include poor public relations skills. The company is criticized in the media for several reasons including customer service, treatment of employees, and controversial claims by its management and these negative perceptions have only strengthened over the years. The company might have been doing fine so far but these allegations could prove more dangerous in the long term if a competitor tries to differentiate itself through better customer service, fair business practices, and better treatment of all stakeholders.

Opportunities: Ryanair has proven itself a market leader in the European markets and the company could explore opportunities in Asia which has some of the fastest growing markets including China and India. The benefits in Asia are that there will be lot of room to grow due to still relatively infant private airline sector as well as lower competition. Ryanair’s low-cost model is especially suited to Asian markets where average income levels are lower than the richer European countries.

Ryanair could also introduce a little upscale though still discounted service aimed at business travelers, borrowing the model from JetBlue in the U.S. The service aimed at business travelers may cost a little but the higher price will be accompanied by food and other value-added services. Business travel will continue to grow due to globalization and Ryanair has a great opportunity to capture the business travelers’ market segment. One benefit of focusing on business travelers will be higher profit margins because many business travels are sponsored by companies which are less sensitive to price and won’t mind paying a little for more enjoyable travel experience for their employees.

The company could improve its profitability by leasing more jets instead of buying them and this will also improve asset utilization rates. Ryanair has an opportunity to improve its image by leading the charge in greener operations through more environmentally friendly business practices. Global warming has become a major issue and the company has a great opportunity to set apart from its competition through higher standards of corporate social responsibility.

Threats: One of the threats is declining profitability in the near future, both due to greater intensity of competition as well as legal obligations such as lower environmental pollution. Another threat to the company are rising costs such as fuel which account for a significant proportion of total operating costs. The company has no control over the price of oil in the market yet oil prices have the potential to materially affect the company’s profitability. Even though the company’s huge scale allows it to achieve low average costs, the size may also become a disadvantage. There is a possibility that huge scale forces the management to lose focus and small players make major gains in individual markets through more focused approach. Large scale may also make it difficult for Ryanair to immediately respond to changes occurring in individual markets. Similarly, the company’s top management has been in place for a long time which may lower the morale of some other talented employees who could leave due to little chance of promotion.

The company’s negative publicity regarding treatment of employees may also turn off prospective talent who may flock to the competition. While the current management has been doing a great job, there is also a possibility that the high reliance on current management may prove expensive once the current leaders retire, leaving a huge leadership gap behind. Another possible threat is a potential accident or jet crash which could force the company to pay a significant amount in compensation to the victims. While airline crashes are not common, the danger is always there.