Analyse the external environment of Ryanair and the UK airline industry using Pestel.

• Ryanair Porters Five Forces Analysis 2018

1.0 Introduction

Ryanair is an irish budget airline founded in 1984. with its headquarters in swords Dublin Ireland. Ryanair is Europe’s largest airline and the world’s fifth airline with more than 2000 daily flights. the airline has become the first in European airlines to carry over 1 billion customers in 2017. Ryan air’s subsidiaries include; laud motion, viva air Colombia and Ryan Atlantic among others.

Due to its low cost business model, ryanair has had a steady growth with its revenue growing year on year. as of 2017, the company’s turnover was £6,647 million from £6,537millions in 2016 while adjusted profit rose by 6% from £1,242 million to £1,316 million (annual report 2017).

Figure 1: Annual revenue of Ryanair from 2013 to 2018 in million Euros (Statista 2018)

2.0 Ryanair Pestel Analysis 2018

2.1 Political environment

• The UK government charges the highest taxes for commercial air travel globally on passengers flying from UK both on short and long haul (O’Shea 2018). Long haul passengers’ tax increase from £75 to £78 and £13 for short hauls as of 2018 (Salmon 2018). According to O’Shea (2018), this tax has more than tripled in the last 24 years and is expected to grow further; this could scare away tourists as well as trade partners planning to visit UK. This could also affect the profits of airlines like Ryanair with travelers on short hauls opting for buses and trains.

• In June 2016, Britain voted to leave the EU, a move that has resulted into both political and economic uncertainties. Britain leaving the EU could disrupt the EU UK flights unless there is some sort of agreement by 2019 (Fox 2018). UK Airlines like Ryanair which operate multiple routes across EU countries could lose this privilege; this will restrict expansion and revenue generation (Mintel 2017d).  However, Ryanair has prepared itself by applying for a British operating license (Fox 2018).

• This could also result into loss of ownership and market shares for Airlines like Ryanair since 50% or airlines capital share must be owned by EU in order to freely operate among EU states. In case UK exits EU, Ryanair will have at least 20% of its shares classed as foreign which means some would have to sell their stake unless it convinces pension funds to shift from holding shares in UK to EU (Mintel 2017d).

2.2 Economic environment

A weak pound and economic uncertainty post Brexit have negatively affected the UK airline industry. The weak pound has put a squeeze on the consumer spending resulting into a fall in leisure travel expenses (Megaw 2017).

2.3. Social environment

However, low cost carriers like Ryanair and Easy Jet have continued to benefit. Despite the rising cost of living, British people still love traveling abroad for holidays which means opting for low cost flights thus Ryanair lines, Easy Jet and Norwegian (Mintel 2018).

The UK aging population is also a threat to the airline industry. According to Mintel (2017a), when it comes to holiday traveling, millennial are more likely to travel more than the older generation. At least 25% aged 16-24 and 27% between 25-34 went on five or more holidays in 2016 making them an important demographic for airlines (Mintel 2017a).  However, the population of 20-34s is forecast to decline by 1% between 2017 and 2022 which could impact the airlines holiday travel business (Mintel 2017b).

Uncertainties like the collapse of Monarch airlines and cancellation of journeys by Ryanair in 2017 could boost domestic tourism as prudent customers opt for staycations thus affecting the airline business (Mintel 2017b).

2.4. Technological environment

From biometrics to virtual reality, internet is totally changing the flight experience. Some airlines have adapted to Alexa skills developed by WPP which allows customers to know which movies will be shown on the flight with details about actors and ratings as well as travel advice (Mintel 2017c). An IFE Panasonic upgrade with biometric technology has also been developed and it enables secure payment authorization on board and other services like personalized programming catalog.  Airlines like Easy Jet and Delta have imbedded these services in their airlines (Mintel 2017c).

Summary and conclusion

In conclusion, Ryanair’s analysis has revealed a number of business shifts and trends in the UK that are likely to impact the company. Some of the major trends the airline should watch out for is the uncertainty of the Brexit, in case UK leaves the EU, Ryanair is likely to be negatively impacted unless measures are taken. The extremely high UK government taxes for commercial air travel are another issue that could affect the company’s revenue. One other big issue is the company’s culture of profits over customers and employees; this is also likely to cost the company unless organizational change is implemented.

References

Annual report (2017) “Annual report and financial report” [Online]at https://investor.ryanair.com/wp-content/uploads/2017/07/Ryanair-FY2017-Annual-Report.pdf

Fox Benjamin (2018) “UK underestimating ‘serous disruption’ risk to flights post Brexit, warns Ryanair” Euractive [online] at https://www.euractiv.com/section/uk-europe/news/uk-underestimating-serious-disruption-risk-to-flights-post-brexit-warns-ryanair/

Hamilton Peter (2017) “Ryanair punctuality worsens as customer complaint volume worsens” The Irish Times [Online]at https://www.irishtimes.com/business/transport-and-tourism/ryanair-punctuality-worsens-as-complaint-volumes-increase-1.3182401

Johnson G, Scholes K and Whittington R(2008) “Exploring corporate strategy”8th edition; Prentice Hall.

Lewin Kurt (1947) “Frontiers in group dynamics: Concept, method and reality in social sciences; social equilibria and social change” Human relations, 1947; 1:5

Masters Brooke (2017) “Ryanair flies into customer storm of its own making” Financial times [Online]at https://www.ft.com/content/916de1e8-a4ee-11e7-9e4f-7f5e6a7c98a2

Gupta Parvinder (2003) “Managing organizational change” Management and labor studies; Vol 28 No 3

McClean Paul and Barker Alexander (2018) “Will Brexit complicate landing rights for UK flights?” Financial Times [Online]at https://www.ft.com/content/57c0c01c-ef9c-11e6-930f-061b01e23655

Megaw Nicholas (2017) “UK airline passenger growth to halve due to Brexit: Moddy’s” Financial Times [Online]at https://www.ft.com/content/f0645f31-eef3-3970-9be3-265c3d71def2

Mintel (2017a) “Fewer young people” Mintel academics

Mintel (2017b) “Decline in population of 20-34s” Mintel Academics

Mintel (2017c) “Airlines worldwide - international -December 2017” Mintel Academics.

Mintel e (2017d) “A bumpy road ahead for UK airline” Mintel Academics

Mintel (2018) “British lifestyle: Reinvigorating brand Britain - UK -April 2018” Mintel Academics.

Hugh, Morris (2018) “Why is BA so keep to buy up its low cost Norwegian rival” The telegraph [Online] at https://www.telegraph.co.uk/travel/comment/norwegian-british-airways-takeover/

O’Shea Ronan J (2018) “Air passenger duty tax: Why is the rate changing and what does it mean for British travelers” The Independent [Online] at https://www.independent.co.uk/travel/news-and-advice/air-passenger-duty-tax-rates-change-why-when-flight-prices-long-haul-british-travellers-a8279286.html

Powlay Tanya (2017) “Easy jet warns of tough market from rising competition” Financial Times [Online]at https://www.ft.com/content/43e36540-6d2d-11e7-b9c7-15af748b60d0

Salmon James (2018) “The £172m tax raid that’s hitting your sunshine getaways: Rise in air duty will hit all long haul flights from the UK” Mail Online [Online]at http://www.dailymail.co.uk/news/article-5461235/Rise-air-duty-hit-long-haul-flights-UK.html

The Economist (2017) “British Air Ways is turning into a no frills airline “The Economist [online] at https://www.economist.com/news/britain/21719832-although-airline-facing-plenty-criticism-its-strategy-looks-sound-british-airways

Zumbach Lauren (2017) “Passengers feel the squeeze: Airlines cut legroom for more seats” Stuff Travel [Online]at https://www.stuff.co.nz/travel/travel-troubles/90130954/passengers-feel-the-squeeze-airlines-cut-legroom-for-more-seats

Reference

Hugh, Morris (2018) “Why is BA so keep to buy up its low cost Norwegian rival” The telegraph [Online] at https://www.telegraph.co.uk/travel/comment/norwegian-british-airways-takeover/

Johnson G, Scholes K and Whittington R(2008) “Exploring corporate strategy”8th edition; Prentice Hall.

Powlay Tanya (2017) “Easy jet warns of tough market from rising competition” Financial Times [Online]at https://www.ft.com/content/43e36540-6d2d-11e7-b9c7-15af748b60d0

McClean Paul and Barker Alexander (2018) “Will Brexit complicate landing rights for UK flights?” Financial Times [Online]at https://www.ft.com/content/57c0c01c-ef9c-11e6-930f-061b01e23655