Question

perform a 5 forces analysis for Ryanair

Answer 1

Ryanair is one of Europe's low-cost budget airlines founded in the year 1984. It is known for its strong cost leadership in the industry. Its headquarter is in Ireland.  It operates at London, Dublin, Brussels, Milan, Stockholm, Rome, and other European destinations

1) Competitive rivalry-

There are a number of low-cost airlines that are operating in the routes similar to Ryanair. For example, Easy Jet, Go, Wizz Air, etc. The competition in the Uk airline industry is very high ranging from budget airlines like the Easy jet, Norwegian and legacy carriers like British Airways and Air France. Each player in the industry trying to minimize their cost by reducing onboard facilities and airport outlay costs. The fewer restrictions in the airline industry have made entry easier into the European region increasing competition for the local operators such as Ryanair. Thus there is a high competitive rivalry in the industry.

2) Bargaining power of customers -

Ryanair is at high risk if there are any price reduction measures introduced by its competitors as it lacks in brand loyalty associated with the airline industry. Ryanair customers enjoy high barging power because switching to another airline is simple and not associated with additional expenses. All the other airlines are working towards reducing operating expenses and providing the customers with greater facilities.

3) Bargaining power of suppliers -

There are only two manufacturers of airplanes i.e Boeing and Airbus. This duopoly leads to the high bargaining power of suppliers. Ryanair purchases its airplanes from Boeing. Since Ryanair is the highest purchasing customer of Boeing in Europe, Boeing offers planes at less price compared to the market price. The other suppliers are of jet fuels which are governed by world trade thus Ryanair cannot attempt to bargain prices of jet fuel from the suppliers. Thus the bargaining power of suppliers is high against Ryanair.

4) The threat of substitutes -

Substitutes such as sea transport, railroad network, and rental car companies generate relative value for customers the same as the airline industry. Europe is well known for the railroad networks but the barrier is travel time. As there is no much difference in the cost of Ryanair and railroad services, the airlines take less time than tarin to reach the destination. Thus the threat of substitutes is low for Ryanair in Europe.

5) The threat of new entrant -

To enter the low fares industry, when there is a strong cost leader Ryanair is very difficult. The barrier of high capital required to enter the market is high due to the acquisition of aircraft, maintenance, and airport slots. Having the low operational cost that airlines like Ryanair have developed takes time, experience and economies of scale. Only then low fare flights are profitable which is highly impossible for the new entrants. Thus, the threat of new entrants is low for Ryanair.