The European Airline Budget Sector is expected to continue to grow over the next five years. Ryanair is well positioned to take advantage of this growth. However, the company's low-cost business strategy is coming under attack. Differentiation of service and investment in its people are critical to the long-term success of the company.
Macroeconomic factors such as fuel prices, the advantage of a recession (which makes customers price-conscious), and the regulatory environment are all shifting in unfavorable directions for Ryanair. Since the company has few other barriers to its markets than low costs, developing differentiation of services is required to keep the market share it already has.
In particular, the free tickets will be seen as a direct threat to competition. They can be used better, though, as promotions, compensation for marketing research, and fringe benefits for underpaid workers.
Finally, the company should reduce its risk exposure through developing customer loyalty. This is especially true of routes where the new, larger planes will be bringing more seats to fill and more expenses to pay.
Ryanair has established itself as the lowest priced airline in Europe through a low-cost strategy. They have been quite successful in acquiring new destinations and defending them, reaching customers through low-cost methods, and maintaining financial health. However, the attraction of customers through a low-cost method is not sustainable in an airline industry. The company will need to identify which market niches it is serving and focus on building customer loyalty in those niches in order to survive price wars when business is good.
The difficulty with a low-cost cost-leadership strategy in the airline industry is that market position is unprotected by barriers associated with economies of scale. In other industries, scale economies create barriers by presenting potential entrants with a choice of ei...