The threat of new entrants is high within the aviation industry which meant that low fares would help drive away any further competition. Several examples of firms pursuing a cost leadership strategy are illustrated below.
The ability to charge low prices and still make a profit is challenging. Perhaps the most famous cost leader is Walmart, which has used a cost leadership strategy to become the largest company in the world. However, with the global financial system recently suffering its greatest crisis in more than 70 years, existing business models of many aviation firms are coming under great strain.
Cost Focused - Used SouthWest Airlines Model It really addresses the market for flyers who looked for a cheap basic and efficient service rather than luxury.
Additionally, as the credit crunch takes its toll, traditional airlines are not in a position to cut fares and the threat of new LCCs is virtually eliminated due to the lack of financing.
Beyond existing competitors, a cost leadership strategy also creates benefits relative to potential new entrants.
Ryanair has a number of affiliates such as Hertz car rental, Acumus insurance and booking. The human resource policy is again directly related to reducing costs. Resultantly, attracting new employees could become impossible and this will hinder their expansion plans.
In order to cut costs, Ryanair close all its airport check-in desks and have passengers check-in online instead. For Ryanair to be successful, prices had to be low to attract the public, and resist strong competition from substitutes like Eurostar.
Ryanair should also create a frequent flyer program to establish a fixed customer base and encourage customer loyalty. Low fares are designed to stimulate demand, attracting fare-conscious travelers, those who may have used alternative forms of transportation or even those who may have not traveled at all.
In many settings, cost leaders attract a large market share because a large portion of potential customers find paying low prices for goods and services of acceptable quality to be very appealing.
Exercises What are three industries in which a cost leadership strategy would be difficult to implement? Advantages and Disadvantages of Cost Leadership Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success.
A firm following a cost leadership strategy offers products or services with acceptable quality and features to a broad set of customers at a low price Table 5.In particular, since Ryanair has adopted a cost leadership strategy in order to gain a competitive advantage (Schermerhon, ), the report focus on how the airline manages to maintain cost leadership in the airline sector.
Ryanair's cost-leadership strategy is based on the intent to outperform competitors by doing everything it can to establish a cost structure that allows it to provide its air travel service at a lower unit cost than they can.3/5(3).
Ryanair is a year-old international air carrier based in Dublin, Ireland. It is now the largest low cost airline in Great Britain and Europe and has modeled its operations (since ) on the very successful Southwest Airlines Low Cost Leadership model.
Ryanair’s cost-leadership strategy is based on the intent to outperform competitors by doing everything it can to establish a cost structure that allows it to provide its air travel service at a lower unit cost than they can. Case Study: Ryanair Business Strategy Analysis Ryanair is an Irish low cost airline headquartered in Dublin founded in It operates aircrafts over routes across Europe and North Africa from 31 bases.