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Executive Summary
The COVID-19 pandemic had far reaching implications on the global economy. The air travel industry is arguably the most affected from the crisis as traveling was halted by the measures put in place to curb its spreading. Ryanair is a major industry player whose stability and performance were negatively impacted by pandemic due to low revenue generation. Financial reports on the companys performance indicate that the company suffered a record loss of £ 702 million in the recently concluded financial year. Following the setback there is need for revival and revitalization of the company in the post COVID-19 era. The following recommendations were made for the recovery of Ryanair.
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Implementation of cos effective strategies including use of larger air crafts that are more economical.
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Focus on leisure and social travel
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Re-evaluation of the companys pricing logic
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Venture into the booming cargo transportation niche
Introduction
The COVID-19 pandemic was a great disruption for business across the world. Other than the visible social impact, the pandemic resulted in unprecedented economic damages that threatened the survival of major businesses (Craven et al.,2020). Measures to curb the spread of the pandemic such as travel advisories and lockdowns were a major setback especially to the travel industry (Kökény et al. 2021; Chang et al., 2021). The sector hit its bottom low due to a rapid drop in traveling volume and a decline in stock prices (Ramelli & Wagner 2020; Bucsky, 2020). In order to have a speedy recovery and bounce back from the impacts of COVID-19, organizations must re-evaluate and reimagine their business model. Industry players, who will adapt faster, take on resulting opportunities, and effectively handle challenges are expected to be better off placed to succeed and accommodate the needs of the new normal. This report focuses on the impacts of the COVID-19 pandemic on the air travel industry with a focus on Ryanair and gives strategic recommendations for the company to effectively bounce back in the post-Covid 19 business environment.
Literature Review
Effect of the high magnitude crises on the Air travel industry
The air travel industry is characterized by a high degree of uncertainties and economic risks making it one of the most delicate industries to venture into. Numerous reports indicate that the airline industry has for a long time been characterized by financial turmoil, with a good number of airline companies entering the Chapter 11 bankruptcy protection, and employees subjected to remuneration cuts. Following the continued financial troubles major airlines were forced to reduce their domestic capacity in response to the financial crisis (Simpson, 2006). An analysis of literature however reveals that the majority of studies in relation to previous crises on air travel focus on the 9/11 attack. According to studies, the 9/11 attack had a global effect on the air travel industry pushing it into financial meltdown. Before the attack, the United States airline industry had registered profitability in 24 financial quarters (Blunk et al.,2006). According to Blunk et al., the industry reported a total of $7.9 billion as net profits in 2001. In the same period, the Federal Aviation Administrations reports showed that the daily average seat availability in the industry was 2.64 million. This was, however, during the economic recession that was experienced at the beginning of early 2000.
However, following the 9/11 attack, the industrys performances fall drastically to a tune of 20 % in comparison to the status in the previous year at such a period (September December). Recovery efforts for the industry followed but the industry failed to replicate its earlier performance four years after the crisis. According to Simpson (2006) in spite of the recovery, the industry failed to match its previous record on average seat availability. In 2005 the industry reported a daily seat availability of 2.31 million. In response to the reduced demand for air travel majority of the airlines resorted to cutbacks for survival. Cost reduction was the number one strategy applied to deal with the situation and to avoid loss incidences. In line with the cost reduction strategy, capacity for major carriers was reduced to cut costs, improving the airlines pricing power. According to Albers and Rundshagen,( 2020), air travel companies reduced the number of flights on specific routes and also ditched large planes that were costly and high on fuel consumption in favor of smaller planes. The strategy to reduce capacity resulted in a limited supply of seats which in turn increased demand giving the airline companies the leverage to increase prices; thus profitability.
Discussion
Ryanair, just like other major airline companies has had negative implications as a result of the Covid-19 pandemic. Financial reports on the companys performance indicate that the company suffered a record loss of £ 702 million in the recently concluded financial year (Sillars, 2021). This was majorly due to applied measures to curb the health impacts of COVID-19 and the safety concerns of the majority of travelers. The companys passenger level dropped by 81 percent to only 27.5 million indicating massive revenue loss during the period. The company was kept afloat by government schemes while employees had to accept pay cuts (Garcia, 2021). According to Bouwer et al. (2021), the airline sector is expected to struggle at least until 2024. Unlike the 2008 Global financial crisis that was purely touching on the economy resulting in the weakening of consumers spending power, the COVID-19 has been unique and has had more profound impacts on the industry as it has impacted consumer behavior in addition to the economic aspect of it.
The response of airline companies in previous crises could offer a great framework on how to bounce back from the effects of the COVID-19 pandemic. According to Bouwer et al. (2021) business trips greatly reduced as a result of the 911 attack and the 2008 global financial crisis and took long before full resumption (Hotle, &Mumbower, 2021; De Haas et al.2020) On the other hand, social and leisure trips rebounded quickly and the same is expected in the case of the pre-COVID era (Orîndaru et al., 2021). While this set of travelers does not lead to profitability, the revenue generated is sufficient to cover part of the companys fixed costs. Generally, the airline industry responded to previous crises by effectively responding to specific shifts and gradually bounced back to robustness.
Recommendations
The four major strategic areas of focus during the post-COVID-19 era include revenue recovery, revitalizing of key organizational operations, rethinking of the organization in general, and integration of digital solutions in the business operations. In other terms, Ryanair should move towards the Cost- leadership strategy to bounce back and succeed in the post-COVID-19 era. An analysis of previous crisis reveal that after the pandemic high revenues generating corporate trips will take considerable longer periods of time to pick up and thus focus should be turned to social and leisure travel (Iacus et al.,2020). As such, the company should re-evaluate the economics of its current operations to suit the situation at hand. The company should evaluate its pricing mechanism, networks, and crafts used in the operations. The reduction of corporate travel in favor of leisure travel demands for side-lining of shorter flights and small-sized crafts such as the Boeing 787. Instead, the company should shift focus to large airbuses that are economical and favored by the price-sensitive social and leisure travelers. This is to cut down unit costs that otherwise be incurred when small-bodied crafts were to be used.
Secondly, Ryanair should embrace collaboration with other international airline companies to facilitate the connection of flights for customers traveling to various destinations that could be unreachable at the moment due to route cancellations. The company should also consider investing in IT specifically in automation to increase customer experience, foster efficiency, and convenience. Lastly, due to the drop in passenger service, Ryanair should capitalize on the booming cargo transportation to boost its revenues and become the leader in this particular niche.
Conclusion
The COVID- 19 pandemic had major negative impacts on the social aspect of humanity and even greater undesirable impacts on the economy. Measures to curb the spread and health effects of the virus including lockdowns travel advisories, and social distancing pushed the air travel industry to its knees. However, companies must move with speed to implement recovery strategies or risk imminent collapse. Literature on previous crises indicates that the air travel industry has always bounced back after such a crisis by adapting effectively responding to specific shifts in the busses environment. Therefore, Ryanair should embrace change and respond immediately to the shifts brought about by the pandemic to bounce back to its previous glamour.
Reference List
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Bouwer, J.,Saxon, S., and Wittkamp, N. (2021) Back to the future? Airline sector poised for change post-COVID-19. Web.
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Garcia, M. (2021) Ryanair Plots Fare War As Coronavirus Recovery Tool, But That Tactic Might Make Things Worse. Web.
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Kökény, L., Kenesei, Z., and Neszveda, G., 2021. Impact of COVID-19 on different business models of European airlines. Current Issues in Tourism, pp.1-17.
Iacus, S.M., Natale, F., Santamaria, C., Spyratos, S. and Vespe, M., 2020. Estimating and projecting air passenger traffic during the COVID-19 coronavirus outbreak and its socio-economic impact. Safety Science, 129, p.104791.
Orîndaru, A., Popescu, M.F., Alexoaei, A.P., Cescu, .C., Florescu, M.S. and Orzan, A.O., 2021. Tourism in a Post-COVID-19 Era: Sustainable Strategies for Industrys Recovery. Sustainability, 13(12), p.6781.
Ramelli, S. and Wagner, A.F., 2020. Feverish stock price reactions to COVID-19. The Review of Corporate Finance Studies, 9(3), pp.622-655.
Simpson, D. (2006) Research reveals impact of 9/11 attacks on US airline industry. Web.
Sillars, J. (2021). COVID-19: Ryanair reveals record annual losses but sees recovery on horizon. Web.
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