Porters 5 Forces of Ryanair free essay sample

Forces Before the idea of Ryanair or indeed any low cost carrier was even devised the European airways industry was, as already illustrated, highly regulated. Therefore post 1992 and deregulation, great changes came about. By identifying with Porter’s â€Å"five forces,† one is able to ascertain what this meant for Ryanair within the European air transport market. These five factors are threat of entry, competitive rivalry, bargaining power of suppliers, bargaining power of buyers and the threat of substitutes. Threat of entry analyses the threat that new entrants may enter the industry and diminish the returns of established companies. In the case of Ryanair a strong brand identity built up over the period since deregulation has meant that any potential new entrants would have to outlay quite an amount of money in terms of sunk costs in advertising to compete on a level playing field. Allied with this, direct bookings on the Ryanair website has meant that there have been savings in the region of 42. We will write a custom essay sample on Porters 5 Forces of Ryanair or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 6% in marketing and distribution costs. Competitive Rivalry The cost of increased competition can be quite high with customers benefiting from price wars between rival airlines. This is why Ryanair has an advantage over other airlines because their policy of bundling low frills and low prices together means that they are competing for the more price sensitive customer. Demand for short haul flights around Europe is ever expanding. It is however vital that Ryanair were among the first movers because many ‘copycat’ airlines have tried to follow suit. Davy (2003) believes that there are only two pan-European low cost operators where first mover advantage and scale and cost efficiencies gave the two largest players, Ryanair and Easyjet, a significant advantage. In fact, since deregulation, of the 80 low cost operators that had begun operations, 60 had gone bankrupt (Lee, 2000). Michael O’Leary is so confident that this particular aspect of Porter’s 5 forces is almost inconsequential for Ryanair that he has said â€Å"at the lower end of the market Easyjet and Go don’t really compete with Ryanair. Having said this, the threat of competitive rivalry is important for the industry because fierce competition can lead to a decline in sales. Bargaining Power of Suppliers At a very basic level the airline industry suppliers are limited in two areas: actual purchase of planes and the supply of fuel. Ryanair has a very healthy relationship with the main aeroplane supplier, Boeing. With the downturn in the economy airlin es were putting their purchasing on hold. Not Ryanair however, as O’Leary saw this as the perfect opportunity to buy. In addition to the 2002 contract with Boeing where they will supply up to 150 737-800 type aircraft for Ryanair, they are also required to provide various ancillary goods and services to Ryanair. These include technical support and training, spare parts support, training of the flight crews, software and field services engineering. On writing this essay, it was made public that Ryanair has ordered an additional 100 new Boeing 737-800’s to facilitate Ryanair’s rapid European growth plans. On the same day as this news was made public, Ryanair opened up four new destinations in Europe, bought the airline Buzz and had thousands of seats on sale for 1 Euro. Ryanair also has also increased its option orders by 78 to 125. This will, over the next eight years, give Ryanair a fleet of 250 Boeing 737-800’s, making it the youngest carrier in Europe and the second largest worldwide behind Southwest in the U. S. In terms of the fuel price there is very little that Ryanair can do, because the price of fuel is governed by world trade and the Middle Eastern countries have market dominance. Bargaining Power of Buyers There are many determinants to the power possessed by buyers in the airline industry. These include the standardization of the product, elasticity of demand, brand identity and the quality of the service. In this respect buyer power in the European airline industry in quite strong because switching costs are very small. For low cost carriers, the switching costs may be found by simply clicking on a rival’s website. The fact that most low cost carriers sell their seat via the internet means that any price discrepancies can be found very easily. This means that Ryanair have to keep their prices competitive in relation to the industry level. The Threat of Substitutes The threat of substitutes to the airline industry comes in three main forms. These are road, rail and to a lesser extent the boat service. Of these, rail would seem to offer the greatest threat because, certainly around Europe, it offers an excellent continental service around the major cities that Ryanair fly to. Rail travel has several advantages over air in terms of the fact that they can be more localised and more accessible but one must endure a longer journey also. Ryanair can offer a faster journey at prices that can often be far cheaper. As an example, a return ticket from Frankfurt to Amsterdam costs between 121. 20 Euros and 175. 60 Euros. This compares with Ryanair’s average fare of less than 50 Euros (Davy, 2003). In fact, there is even the perception that there is much greater penetration of fast trains in the EU than in the like of the US, and that this is a limiting factor on demand. However, trains in continental Europe are very expensive, which is reflected in the fact that Europeans think nothing of driving from one country to another to make a saving. Car travel offers similar advantages to that of the railways but Ryanair will always be able to boast shorter journey with less hassles. Another, less obvious threat comes in the form of global communications. As technology develops there may be less of a need to actually meet with people as business meetings could take place via video conferencing. Although, relatively speaking, this is not very prevalent at the moment, there may be less of a need to physically meet up with associates in the future.

Bergner Construction Case Essays

Bergner Construction Case Essays Bergner Construction Case Essay Bergner Construction Case Essay Discuss the Company: * Located in Cleveland, Ohio * Mechanical contracting business, specializing in specialty construction projects in food and beverage manufacturing facilities. * â€Å"Custom-built† contractor, using primary stainless steel to build the vessels and piping necessary for assembly lines in food beverage processing. * They work on a project-by-project basis, for which it provides engineering design and construction expertise to its clients. * Required relatively little, complex specialized production equipment , and most inventory was associated with specific job in progress * Thinly capitalized (equity less than debt) History: * The company was incorporates in 1982 by president John Bergner * He did business with FirstOhio Bank of Cleveland, where his account was handled by Peter Davis and a good relationship was kept between them for five years from 1982 till 1987 * In December 1987, Mr. Davis accepted a new position at Westside National Bank. Located in Cleveland * Therefore, a new loan officer was appointed for the company in January 1988 Present Position: Bergner Construction Company had recorded a small net operating profit of $13,088 (net income of 16502) in 1987 * During the first four months of 1988, the company’s completed jobs slumped, leading to a loss of $53,556 (net loss of 47682) due to problems encountered on one project, for which a former estimator had underestimate a construction cost. (If no single project is excessively dominant, then a loss on one does not imply that the firm’s profit potential would be significantly affected). * The company enjoyed a sales growt h rate of 23 percent over the past 2 years, and projected sales by the end of 1988 were $1. million Management of the company: * The company’s president: John Bergner was 40 years of age. * He had a degree in mechanical engineering from Ohio State University. * Bergner began his career as a foreman for a large construction company that manufactured specialty food and beverage facilities. He formed his own company, which was incorporated in 1982 Operations of the company: * Bergner construction company had limited its operations to the Midwestern market, generally within a 500-mile radius of Cleveland * Mr. Bergner had always been anxious to expand his business, and specially to search for contracts in other part of the country to achieve greater geographical diversification. The case: * Bergner had successfully bid for a renovation project at Pepsi-Cola bottling plant in Boulder, Colorado in April 1988 * Increase line of credit from $100,000 to $250,000 to finance a large construction project that his company had just been awarded to cover his losses. * But the new loan officer of FirstOhion bank refused the request so he wanted to transfer his account to Westside National, where he hoped his business would continue to be handled by Mr. Davis. * Mr. Davis recommended John Bergner’s company at the bank’s loan committee, stressing his honesty and positive business attitude. * He was prepared to approve a loan because of his honesty even if the client’s financial statements might be considered somewhat weak. * So Mr. Davis had a meeting with the Loan Review Committee and requested the following: 1. The sum of $100,000, which would be CD secured, the proceeds of which would be used to pay off Bergner’s outstanding debt at FirstOhio bank. ( he must not take loan to repay another loaN OR a loss) 2. A $250,000 revolving line of credits to be secured by accounts receivable and inventory (replacing an existing line of $100,000 at FirstOhio). The company’s inventory consisted mainly of work in progress and raw materials. (Inventory mostly work in process so it can’t be used as collateral, but with regards to A/R it can be used as collateral due to its large amount BUT if 250000 was used as collateral he would not be able to pay-off his A/P) 3. A total of $128,000 in various equipment loans. These loans were secured by filings on various pieces of equipment, such as trucks, cars, forklifts, air compressors, and other tools. These loans were already approved and funded at FirstOhio. The loans and related security arrangements would also be moved, but this represented no increase in balances outstanding on this equipment. In most cases, the bank financed 100 percent of the original cost of equipment purchased. * By expanding his business, it would represent the largest single construction project that his company had ever undertaken ($400,000), and he projected a 15 percent pretax profit of 60000 as part of his winning bid. Its successful completion would, he hoped, improve prospects for future profitability.