PEST Analysis

RYANAIR

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PEST Analysis

Political

The political environment in Ukraine was ideal for Ryanair. Firstly, the Ukrainian government was making an effort to reform the industries in its country, attract new investments and players in its different industrial sectors. Secondly, Ryanair, was formally invited to come to Ukraine by one of Ukraine’s government minister, Omelyan. He acted as the government’s ambassador in bringing Ryanair into Ukraine, and he played an important role in the company’s negotiations. Thirdly, the Ukraine-EU Association agreement had led to the creation of a visa-free regime, which created new travelling opportunities in Ukraine (Kolios & Read, 2013). The likely result of this initiative was that there was going to be an increase in air travel passengers travelling to and from Ukraine.

Economic

Passenger traffic in Ukraine airports was increasing significantly. For instance, in 2016, passenger traffic through the airports in Ukraine increased by 20.9 percent to 12.9 million people. In that same year, the number of passengers being transported by the Ukrainian airlines increased by 31.3 percent to total approximately 8.3 million people (Sammut-Bonnici & Galea, 2015). Ryanair was likely to get competition for the Ukrainian market from the 10 Ukrainian airlines, which operated regularly between Ukraine and 42 different international markets (CAPA, 2017). The main competitor in this case will be UIA, which was the largest domestic carrier in Ukraine, and controlled approximately 76 percent of the Ukraine market. An important point to note is that, there is no information of the marketing strategies that are used by Ukraine airlines main players in terms of their airlines tickets (Huettinger, 2013). The most likely competitor in the international, and which used a similar marketing strategy as that of Ryanair in terms of low costs was Hungary’s airlines, WizzAir. However, it had a limited presence in Ukraine as it had only transported 418,000 people to and from Ukraine in 2016. This was a significantly low number to what Ryanair planned to transport in its first year of operations in Ukraine. What made Ukraine an ideal market for Ryanair from an economic perspective was that, the country had an unreformed airline sector, the country wanted to increase competition in its domestic airline sector, and build more routes in the EU market.

Social

Ukraine has a potential market of 42 million price-sensitive customers. The country was experiencing an increase in airline passenger travel. This is signified by the increase in passenger transportation by the different Ukraine airlines (Marinović-Matović & Arsić, 2020). For instance, in 2016 alone, UIA had increased its passenger’s transportation by 24.9 percent, and Azur Air increased the number of passengers that it transported by 17 percent. Additionally, Windrose had increased its number of passengers by 75.8%, and Atlas-Jet by 10.5%. It is an indication that a majority of people in Ukraine had a positive attitude towards flying, and it seems that they had the financial capability, which allowed them to fly (Ginieis et al., 2012). It is an ideal market for Ryanair as it is regularly expanding.

Technological

Ukraine has several airports that have the capability of facilitating international flights. The main airports are KBP and LWO. In addition to that, there are a variety of small airports, which are also capable of supporting international flights such as IEV, which has the capability of supporting both the passenger and freight traffic to and from the airport (Shabanova et al., 2015). An important point to note is that, based on the investments in the new modern terminal and airstrip improvement, it has facilitated the airport to serve up to 500 passengers per hour.

Problem Statement

Ryanair entry into the Ukrainian market has been threatened by its broken deal with KBP. The main issue is that, KBP refused to grant all the requirements that Ryanair had put in place, especially in terms of reducing its service tariff to be at $7.5 instead of the $20 that was being charged to the other flights that were operating in this airport. KBP management felt that if it granted Ryanair this special treatment, other airlines such as British Airlines and Ukrainian International Airlines would request a lower service fee, and they would be forced to grant it to avoid being perceived as being discriminatory. The dispute contributed to the Ryanair canceling all its flights to Ukraine.

Problem Analysis

Ryanair is considered one of the main players in terms of international travel in Europe. Its potential entry into the Ukraine market was something that was anticipated, and highly supported by the government as it was personally backed by the Minister of of Infrastructure, Volodymyr Omelyan. Initially, in July, 2017, Ryanair had signed a service agreement with the Lviv Danylo Halytskyi International Airport, and had negotiated a growth agreement with KBP, and were on course to formalize their terms of cooperation. However, as of July 10, 2017, Ryanair received a service agreement from KBP, which was significantly different from their initial agreement (OLESHKO & HEIETS, 2018). An important bone of contention was that KBP stated that it would not grant Ryanair a preferential tariff to its flights to London. This meant that the company would have to pay a $20 tariff as was the case with the other airlines that flew to and from Ukraine to London.

Looking at this situation critically, it seems impossible for KBP to grant Ryanair a preferential tariff. Firstly, this would mean that it would be discriminatory against other airlines that are already traveling in this route, and which it has offered a $20 service tariff. Secondly, there is a high likelihood that the two other airlines would legally force KBP to grant them lower service fees (Savych & Shkoda, 2020). If this is achieved, then it would mean that the airport revenues would significantly reduce. Thirdly, from an economic point of view, Ryanair would only increase the airport’s revenue by only 0.5 percent as it would only increase the weekly international flights to the airport by 15 weekly flights (Allred et al., 2011). In addition to that, KBP was currently running a profitable business, and this meant even without the addition of Ryanair, it would most likely achieve its intended revenue targets.

On the other hand, Ryanair reaction to the change of the deal in terms of canceling its flights to Ukraine was an expected negotiation tactic. However, to put it into perspective, this was a negotiation tactic that was likely to be successful if Ryanair was dealing with small regional airports (Belobaba et al., 2009). The deal that Ryanair wanted with KBP was impossible because it threatened the current revenues that the airport was generating, and the revenue that Ryanair was generating was not significant. Secondly, it meant that, Ryanair initial agreement with Lviv Danylo Halytskyi International Airport would have to be canceled (Koba & Koba, 2018). It is important for Ryanair to seek for other workable alternatives to be able to penetrate the Ukrainian market because of the unique expansion opportunity there is in this country.

Ryanair would lose if it fails to expand in this market. The reason for this is that, its low-cost marketing strategy is only effective if has a high volume of customers using its airplanes. Ukraine could be an ideal market because, Ryanair is receiving a lot of government support, and its main competitor in terms of utilizing its low-cost marketing strategy is the WizzAir, which has had a limited market penetration in this market.

Identification of Solutions to the Problem

There are various solutions that Ryanair should explore in order to resume, or start its operations in the Ukrainian market. The first option is to pay the $20 service tariff as is the case with the other airlines that travel in this route. The main attraction of the KBP is that, it will provide Ryanair with the opportunity to provide its services to the majority of the Ukrainians who live in Kyiv (Gillen & Morrison, 2015). In 2016, it served 8.6 million passengers, which is an indication that 68 percent of the Ukraine’s air travelers in that year travelled through KBP. Furthermore, in 2017, the number of air travelers in the region increased by approximately 17.5%.

Ryanair could alternatively seek to sign an agreement with IEV. This is a privately owned airport, which has the capability of supporting international flights. In addition to that, there had been upgrades in this airport in 2012, which contributed to the development of a new modern terminal and airstrip improvement that led to the airport serving up to 500 passengers per hour. In 2016, their airport serviced international flights from 22 countries.

Another option was the use of the state-owned airport, the GML. A unique advantage for Ryanair for utilizing this airport was that, it would be able to access the airport 24 hours a day as the airport claimed to have the ability to service airplanes 24 hours a day all year long (Taraban & Sibruk, 2019). In addition to that, there were no major airlines using this airport meaning that Ryanair would receive the special treatment that it needed.

Evaluation of Solution to the Problem

Ryanair has three possible solutions to its problem in terms of its entry to the Ukrainian market. The first option of paying the stipulated $20 tariff at KBP will be unfavorable for the airline in relation to its low-cost strategy. It means that it will have to pay $12.5 more than what it initially wanted to pay. In addition to that, KBP has centrally placed itself to facilitate the development of UIA, which is the largest domestic Ukrainian airline, and contributes the largest airline passenger turnover to the KBP. This means that while UIA will receive preferential service treatment by KBP, Ryanair will not receive such treatment. In addition to that, Ryanair will most likely face stiff competition from the other airlines- British Airlines and Ukrainian International Airlines, for passengers in the Ukraine-London route. Taking this option will not be favorable for Ryanair.

The second option is the use of the state-owned GML. Due to the high level of government support, Ryanair will receive the service tariff charge that it wants in this airport. In addition to that, the airport operates 24 hours a day, which is an added advantage. However, the airport is far away from Kyiv, as it is located 26 kilometers from the city center (Dimitriou & Sartzetaki, 2018). In addition to that, because it mainly services cargo and charter flights it may be unable to adequately service international passenger flights. Furthermore, it lacks a terminal, which is sufficient to serve a large number of passengers, and it may take time to create a new terminal due to parliamentary elections.

The last option is seeking an agreement with IEV. There had been initial agreements between the two entities but a consensus had not been reached. IEV is privately owned and it is located in within the city limits of Kyiv. It is able to serve 500 passengers per hour. The advantages that this airport has are it is located within the city limits, which is favorable for Ryanair, and because it is a small airport, Ryanair can use its main negotiation tactic to get a favorable agreement. Also, the main airline that is operating in this airport, WizzAir does not have a favorable relationship with IEV. This means that Ryanair can be able to make an agreement and the 0.5 percent revenue that it would have added to KBP may be significantly higher in this small airport. Its only disadvantage is that it has limited space for expansion because of its proximity to railroads and highways. However, this in itself can be turned to an advantage for the company because it will increase access of passengers to the airport.

Recommended Course of Action

The ideal course of action would be to sign an agreement with IEV. The reasons for this are, there is a high possibility of Ryanair and IEV signing a favorable agreement. Ryanair will definitely increase the passenger turnover for IEV. In turn, Ryanair would be able to operate in Kyiv, which was one of the things that it wanted. In addition to that, it will have little competition as Wizz Air does not have a good relationship with IEV to the point that it reduced the number of flights in the region. In terms of addressing the disadvantage, Ryanair could use the airplanes models such as Airbus A320s and Boeing 737s, which the airport is used to servicing.

References

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CAPA. (2017, August 24). Ukraine international airlines Part 1: Expanding rapidly as Kiev emerges as hub for transit traffic. CAPA – Centre for Aviation. https://centreforaviation.com/analysis/reports/ukraine-international-airlines-part-1-expanding-rapidly-as-kiev-emerges-as-hub-for-transit-traffic-363981Dimitriou, D., & Sartzetaki, M. (2018). Assessing air transport socio-economic footprint. Inter-national Journal of Transporta-tion Science and Technology, 7(4), 283-290. https://doi.org/10.1016/j.ijtst.2018.07.00.

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