How to Achieve Competitive Advantage by Improving Employee Welfare

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HOW TO ACHIEVE COMPETITIVE ADVANTAGE BY IMPROVING EMPLOYEE WELFARE

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A CONSULTANCY REPORT FOR RYANAIR

1.0 Executive Summary

1.1 Introduction

1.2     Ryanair’s Situational Analysis

Ryanair was founded on 28 November, 1984 and the low-cost Irish airline has its head office in Dublin, Ireland. Voted Europe’s Largest Airline in 2016, the company is reputed for its large number of international passengers and total flights flown in both local and international routes. The airliner currently operates 220 routes with a fleet size of 450, and is remarkably expanding business operations by dint of its innovative business model and EU’s 1997 deregulation of the aviation sector (O’Halloran., 2016).

For fiscal year 2018, Ryanair documented €7.151bn as total revenue whereas operating income, net income, total assets and total equity stood at €1.667bn, €1.145bn, €12.36bn and €4.469bn respectively. The 2018 annual revenue, according to Statistica, is approximately an increase by 46% compared to a total €4.88bn the company earned in 2017. Ryanair commenced operations on 8 July, 1985 and has justified its slogan, “Low fares, made simple,” by offering cheapest flights according to industry records, however its major problem lies with incompetent leadership (Higgins., 2007; Southwest Airlines., 2007; Klophaus & Fichert., 2019).

Figure 1: Ryanair’s Annual Revenue (2012-2018)

Source: Statistica

Considering the achievements and potentials of Ryanair, its long list of problems appears to have had less impact on customers and investors as well, but not pilots, as acknowledged by the Irish Air Line Pilots’ Association (IALPA). The airliner’s culture of disrespect to its workers and customers has been a matter great concern to the organization and, negligence on the part of Ryanair management, was necessary for the avoidable disaster and more that followed until 2 October, 2018, when two Ryanair planes almost collided mid-air. On 25 September, 2018, an accident was avoided in Porto, Portugal, when the crew on the Ryanair’s Boeing 737-800 sighted an unidentified object on the runway. Further, there are documented evidence of hydraulic failure, dropped nose wheel, flaps problem, bird strike, and more than thirty passengers taking ill aboard a flight. On 23 August, 2018, the company’s first officer lost consciousness aboard a flight from London to Italy. The incident was alleged to exhaustion possibly due to lack of pilots on the company’s payroll (Cullen., 2017; Klophaus & Fichert., 2019).

Effective crisis management mechanisms are lacking at Ryanair and the pilot body has suffered most. This disrespect has led to dissatisfaction, loss of motivation, and consequential resignation from quality pilots which has become a recurring incident at the company. Ryanair management therefore needs to understand that no organization in a competitive market environment can implement expansionist strategies, whether aggressive or not, through a negligent culture. In addition, the airliner’s use of short-term employment model for a large number of pilots has affected workers’ loyalty thus leading to loss of experienced professionals to competitors. According to a survey conducted with 1,000 pilots on the company’s payroll, Ryanair Pilot Group found that over 80% of them wanted a permanent employee contract. Research findings from the U.S. Securities and Exchange Commission (SEC) show that, between 2011-17, pilots at Ryanair work for an average of 4.6 years, with a mean size of 390 pilots leaving the company since 2012. This average has been on the increase (Bratton & Gold., 2007).

Ryanair has a total of 13,000 employees, according to its 2017 Annual Report. The Chief Executive Officer (CEO) is Michael O’Leary. David Bonderman holds position as the Non-Executive Chairman.

For further understanding of Ryanair’s current situation, the researcher will adapt a SWOT analysis and other analytical models below:

1.3     SWOT Analysis of Ryanair

A SWOT analysis is required to identify factors that are considered as strengths, weaknesses, opportunities and threats in Ryanair’s business. The visual presentation below is expected to enhance productivity and attainment of organizational goals, if properly applied by management as contained in the proposals from this study (Caputo et al., 2019).

Figure 2: Ryanair’s SWOT Analysis

Source: The Author, 2018.

Results from the SWOT analysis highlight Ryanair’s dominance in the European market. The company has a quality workforce, strong financial base, and is very attractive for investors due to its high level of profitability, a probable reason the recurring problems have not affected revenues.

Figure 3: Ryanair’s Stock/Share Price between 2015 – 2018

Source: Ryanair (2018)

The identified weaknesses include low or fluctuating price of stocks due to the company’s business predictability level which has also affected its business ratings. Ryanair is infamous for its poor crisis management mechanisms, which have led to loss of quality, experienced and productive workers. Further, negligence and lack of training for top management is a major weakness that needs urgent attention for long-term sustainability and incremental profits (Budd et al., 2013; Litrico & Lee., 2018).

Also, the SWOT analysis showed some threats to business growth. These include terrorism within Britain, Europe and other continents where the company operates. While downward review of profit estimates could lead to sanctions from government agencies, high tax rates in local, regional or foreign markets has a huge impact on profits. Additionally, poor work conditions, managerial incompetence and waning public image could create unforeseen problems in the future if not properly and timely handled (Karaman et al., 2018).

Importantly, Ryanair, as the “Number 1 International Airline” operates in 37 countries from over 215 airports and more than 1,800 routes, with higher than 2,000 flights completed every day. The company boasts of a 33-year unblemished record for safety, an industry-highest punctuality rate, with 88% timely arrivals out of 600,000 flights it documented in a one-year period (Klueber & O’Keefe., 2013; Beria et al., 2017).

Figure 4: Remarkable achievements by Ryanair

Source: Ryanair (2018)

In Addition to the numerous opportunities, Ryanair is rated above competitors on punctuality index. The opportunities for expansion and growth are unlimited considering Ryanair’s effective use of profit-oriented and market-oriented business strategies, especially if proposals from this research are implemented.

1.4     Fielder’s Contingency Model

To ascertain how negative public image and ineffective leadership may affect Ryanair’s long-term sustainability, the researcher applied a contingency model, which explains that no one leadership style is acceptable to all employees. Problems at the airline have lasted over a decade with no existing innovative strategies. A practical approach is therefore required to confront Ryanair’s managerial issues, with regular reviews conducted for adjustments in line with organizational goals (Ashour., 1973; Beria et al., 2017).

Fiedler’s Contingency Model was used to evaluate the existing leadership style and current business situation at Ryanair. To achieve valid results, a Least-Preferred Co-Worker (LPC) which has been added as Appendices A was also utilized.

Figure 5 indicates that leadership rating at Ryanair is low due to its profit and market-oriented strategies which do not cater for worker’s welfare. Poor staff-management relationship is a threat, despite the huge earnings documented in the company’s annual reports. The researcher therefore examines Ryanair’s Situational Favourableness in line with methods propounded by Fielder to gain insight into the company’s power structure, administrative roles, activities, as well as relationship between staff and management. According to Strategic Direction (2007), leadership at the airline is criticized for its ill-treatment of pilots with regards to welfare packages, contracts, job security, remuneration, and tight job schedules.

Figure 5: Fielder’s Contingency Model of Ryanair (A)

Figure 6: Fielder’s Contingency Model of Ryanair (B)

Source: The Author, 2018

According to Fielder’s 1958 work “Leader Attitudes and Group Effectiveness,”

the contingency model provides organizations with the most productive leadership structure. However, Rowe (2007) notes that lack of a much-needed leader-follower approach makes it less effective. In addition, the model lacks flexibility, especially for the fact that Fielder believes a natural leadership style is permanent and connected to a person’s personality traits. Instead, research findings show that leaders can switch from being task-oriented to people-oriented, and can always abandon their natural leadership style (Strube & Garcia., 1981).

The best leadership model includes management strategies that build and nurture cordial relationship between rank and file, allow inputs from workers during decision-making activities, and create conducive work environment devoid of discrimination and exploitation of any kind. Fielder et al (1969) categorized factors that affect leaders’ effectiveness as:

• The group composition: Though the staff-management relationship is a crucial factor that determines leadership style, the impact of how group members feel about the organization and leader cannot be ignored. For instance, followers tend to trust, obey and sacrifice themselves to achieve goals supported by sociable leaders who show unwavering trust. On the other hand, authoritarian leadership often experience rejection, opposition and disloyalty.
• The nature of roles and activities: Workers perform better when they have well-structured roles and understand their jobs. This makes it easy to work with less supervision and eliminates unnecessary conflicts. Where roles are intertwined, leaders are bound to experience unproductiveness, chaos and losses.
• Leader’s influence: A competent leader is distinguished by his/her knowledge, skills, temperament, ideas and practical performance. However, those who are naturally gifted with leadership influence and possess exceptional interpersonal skills tend to earn recognition from employees and are therefore dependable in difficult situations.

1.5     The Leader-Member Exchange Model (LXM)

Considered one of the most effective approaches to understanding organizational leadership, the leader-member exchange theory (LMX) concentrates on interactions between leaders and followers. The two-way relationship-based approach argues that every leader has a unique way of communicating with subordinates (Graen & Uhl-Bien., 1995). On this premise, LMX claims that the quality of these “dyadic” relationships influence workers’ overall performance based on the fact that cordial relationships at work often lead to emotional attachments which go beyond jobs. LMX is widely used among managers because it provides employees with a positive work experience, improves productivity and strengthens relationships within organizations (Deluga., 1998; Leavy., 2003).

Figure 7: The LMX Concept

Source: Adopted from Dulebohn et al (2012)

The researcher conducted oral interviews to understand the existing categories of workers at Ryanair and found, using the leader-member relationship approach, that employees, particularly pilots, are separated into “In-group” or “Out-group”. Members of the first group enjoyed a cordial relationship with managers and are therefore trusted, with other benefits that include financial rewards, promotion, job security etc. On the contrary, members of the “out-group” face difficult challenges ranging from mistrust, unconducive work environment, dissatisfaction, as well as other harsh management practices (Dulebohn et al., 2012).

Figure 8: Ryanair’s Leader-Member Exchange Model (LXM)

Source: Forsyth (2006)

With about 85% of pilots working on short-term contract-based employment model, a greater number of employees at Ryanair are understood to be frustrated, insecure and uncertain of their future at the company. Out-group members are excluded from the decision-making process. They work more for less pay and do not have opportunities for growth. This work condition affects their relationship with management, commitment to organizational goals, and overall performance (Northouse., 2007). According to Newstrom and Davis (1993), the “In-group” members are a contrast of their “Out-group” colleagues. The former is involved in decision-making processes, with better understanding of their roles, opportunities for growth, easy access to managers and are trusted (Nolan et al., 2014).

1.6     Changes to be Adopted by Ryanair

In line with findings from Ryanair’s business environment, the Consultant therefore propose the following changes:

Theme	Strategy	Responsibility
Performance Analysis	Collaborate with the recruitment agency for regular assessment of inputs from workers, with adjustments made where necessary (Fan., 2013).	Ryanair board and management of the recruitment agency.
Employee Contract	Reassess employee contracts with the recruitment agency, with focus on what criteria differentiate members of the In-group and Out-group.	Ryanair board and management of the recruitment agency.
Salary Structure	Adopt a uniform salary scale, pay salaries on time or not more than 2 days after the due date, with adequate compensations for overtime and workers in high-risk jobs. Monthly and yearly awards should be offered to appreciate outstanding employees and motivate others.	Workers’ Union Executives
Human Capital Development	Increase investment in periodic, on-the-job training of staff members, starting with an effective induction programme for clarification of roles and understanding of company values and objectives (Fan., 2013).	Management
Working Conditions	Prioritize workers’ safety by providing standby medical personnel, security staff, washrooms, and first-aid items. Offer periodic trainings on security matters, especially for workers on high-risk jobs.	Management
Employee Welfare	Adequate preparation for emergency situations. This includes medical and security staff, as well as adopting equality and fairness in dealing with members of both “In-group” and “Out-group”.	Ryanair management and Workers’ Union executives
Feedback Channels	Channels of communication between management and staff should be available, safe-to-use and responsive, especially for handling abuse reports, suggestions, complaints and conflicts. Investigations should be fair, open and timely. Staff meetings should hold every month (Maria Ugolini et al., 2014).	Management
Workers’ Union	Workers’ Union executives should hold periodic meetings with management twice a year or as may be necessary, to deliberate on employee welfare and other issues.	Ryanair management and Workers’ Union executives
Corporate Governance	Ryanair top executives should evaluate activities and processes daily to gain understanding of performance and identify problem areas. Policies should be comprehensive for all workers to interpret and implement. Ryanair board should periodically enrol for training and have their performance or managerial abilities evaluated for competency (Maria Ugolini et al., 2014).	Ryanair Board of Directors

1.7     Conceptual Framework

Based on systemic issues identified from the SWOT analysis, Leader-Member Exchange theory and Fielder’s Contingency model, strategies for Ryanair’s business transformation is presented as a conceptual framework below. The Consultant found that Ryanair management, supervisors and staff, including the airline’s employment agency, are the main actors in this research (Avolio et al., 2009).

Also, findings from this study show that the company may face a decline in revenue and consequentially loose its massive market share to competitors due to its management crisis and unceasing neglect of the pilot body (Bass., 1990).

The conceptual framework thus indicates that while implementing proposals from this research, Ryanair needs to improve relationships with and among all stakeholders in the system. Management should also initiate an effective staff training programme, which should be regularly evaluated for proper adjustments in line with organizational objectives (Fan., 2013). To achieve sustainable growth, the management has to restructure work processes, collaborate with reputable recruitment agency, provide conducive work environment and see that contract terms, especially for pilots, aim at increasing the number of “In-group” members and reducing that of the “Out-group” (Huettinger., 2006; Bauer & Ergoden., 2015)

Figure 9: Addressing Ryanair’s Current Situation via a Conceptual Model

Source: The Author, 2018.

The Consultant is optimistic that Ryanair’s proper implementation of this conceptual model will upgrade managerial competence, improve relationships, motivate workers, enhance productivity, and transform business operations for long-term sustainability. In addition, the proposed change and innovation strategies will instil a constructive culture, which management and staff need to make meaningful contributions in their responsibilities as essential parts of a unified-in-purpose system. Ultimately, the benefits will include reduced friction between management and staff, high-level competitiveness and incremental profits (Deluga., 1998).

1.8     Plan to be implemented by Ryanair

1.9     Benefits of Implementing the Proposals

Ryanair has several benefits to gain from implementing the strategic road maps provided in this study such as

1.10 Risk Associated with Ryanair NOT Implementing the Proposal

Research findings identified several risks that may arise if Ryanair board fails to implemented the strategies. The underlying risks include:

1.11   Risk of Implementing Proposal

The benefits accruing from Ryanair’s execution of the proposals are not without costs. These are some of the identified inevitable risks linked to the proposed business growth and sustainability strategies:

1.12   Conclusion

Findings from the study found Ryanair to be market-oriented and profit-oriented, with less attention to employees who are the foundation of growth in any business. The company’s contractor employment model was evaluated by the European Court of Justice (ECJ) in September 2017. The ruling stated that employees of Ryanair have a right to be protected under the laws of the country where they live and work. Therefore, the company was advised to grant basic rights which workers had been denied for many years. Further, the court ordered Ryanair to desist from settling employment disputes in the Irish courts. The company relented, and subsequent industrial actions as well as resignations from pilots have not solved the lingering problems (Cullen., 2017).

However, the Consultant is optimistic that a strict implementation of the proposals will boost the airline’s competitiveness, improve the frosty relationship between staff and management, and increase earnings (Zhu et al., 2012).

It is also worth noting that the effectiveness of all analytical tools (SWOT Analysis, Fielder’s Contingency model and the Leader-Member Exchange model) used in this study determines Ryanair’s sustenance of its industry reputation as the No.1 International Airline.

References