Ryanair's Business Level Strategy: A Cost-Leadership Strategy

Essay by WardieUniversity, Bachelor'sC+, November 2004

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A company's business model is management's model of how the strategies they pursue will allow the company to gain a competitive advantage and achieve superior profitability.

Business strategies are the actions management take to execute a business model.

At the heart of any business level strategy is the objective of developing a firm-specific business model that will allow a company to gain a competitive advantage over its rivals in a market or industry. (Hill and Jones 2004 ). 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. At the very heart of this strategy is the intent to keep its fares as low as is conceivably possible and thereby live up to its name as "The Low Fares Airline". Ryanair, in pursuing this cost-leadership strategy seeks to achieve a competitive advantage and above average profitability by primarily focusing its attentions on lowering its cost structure.

A company is said to have a competitive advantage over its rivals when its profitability is greater than the average profitability for all the firms in that industry. The greater the extent to which a company's profitability exceeds the average profitability for its industry, the greater is its competitive advantage.

Hill and Jones propose that two major advantages accrue from a cost-leadership strategy. Firstly, they say, that if industry rivals that compete in the same price range or market segment charge similar prices for their products or services, the cost leader achieves superior profitability than these competitors because of its lower costs. Secondly they argue that because of its lower cost structure, the cost leader is able to charge a lower price than its competitors,