Dogfight over Europe Ryanair: Case Study Analysis

Problem statement:

Ryanair, an Irish low-cost airline was started in 1985 by Cathal and Declan Ryan and Tony Ryan.
Their father Tony Ryan, a former employee of Aer Lingus had 10% stake in Guinness Peat
Aviation, an airline leasing company which gave him sufficient wealth to invest a million Irish
pounds in his sons’ airlines.

Initially they used a 14 seat turboprop aircraft to fly between Waterford in the south east of Ireland
and Gatwick airport, a secondary airport in London. Later in 1986 Ryanair obtained a licence to
fly between Dublin and Luthon, another secondary airport in London. The Ryan brothers were
planning to expand their business by flying on a lucrative route between Dublin and London.
Ryanair faced stiff competition in this route as British Airways and Aer Lingus were established
airlines also flying on this route.

Short term problems:

1. Market competitors: Competitors in the form of established airline companies as well as

other modes of transportation like ferries and railways.
2. Low customer base: Due to the fact that it was a new company in the aviation industry
and not many people knew about them.
3. Low seating capacity aircrafts: As Ryanair did not have licenses to fly big airlines unlike
Aer Lingus and British Airways.
4. Single fare for tickets: In order to attract customers Ryanair kept a fixed price of I€98 for
the ticket from Dublin to London.

Long term problems:

1. Political factors: Some airlines may be favoured by the government in future in order to
prevent competitors from capturing the market.
2. Economic factors: The economic factors include high operation costs and fluctuation in fuel
prices.
3. Social factors: As Ryanair is a low cost airline, they might not be able to provide quality
service to the customers due to budget constraints and scare new potential customers.
4. Technological factors: Advancement in technology with reduced operational cost and user
friendly interface.
5. Environmental factors: To reduce carbon footprint airlines should try to use alternative fuel
sources.

Decision facing the manager/key person:

1. The immediate decision that the managers of Ryanair face is trying to attract new customers
and battle the competition in the form of British Airways, Aer Lingus and other forms of
transport.
2. The other problem that the manager faces is trying to generate revenue with the limited
resources that he has and build the brand of Ryanair.

Causes of the problems:

Short term problems:

The primary competition that Ryanair faces is from the two well established airlines - British
Airways and Aer Lingus. British Airways is a flag carrier airlines of the United Kingdom and one
of the big players in the aviation industry. Though BA suffered thin losses in 1981, with a new
chairman John King on board, it recovered quickly and started operating in one of the world's most
extensive airline route networks, serving 145 destinations in 68 countries. With a fleet of 163
aircraft, ranging from 44-seat turboprops to Boeing 747s with room for nearly 400 passengers, BA
had established itself as one of the biggest airlines in the world. Ryanair entered the competition
challenging such a giant in the game with low-cost, budget-friendly airlines.

Another major airlines in the market was the Irish airline - Aer Lingus which was initially in
alliance with BA which had a 40% stake in the company, later withdrew its stake due to rift caused
by Aer Lingus’ desire to establish its own trans-Atlantic route. Ryanair intended to operate
between Dublin and London where Aer Lingus and BA were already operating their carriers. It is
the only route on the Aer Lingus network that has the volume of business t allow itself a reasonable
return on capital.

Aer Lingus’ and British Airways’ least expensive, unrestricted round trip fares on the route were
priced at 208 Irish Pound and the discount fares as low as 99 Irish Pound which forced Ryanair to
keep its fares to 98 Irish Pound. As Ryanair is a low-budget airline it cannot compete with the
other two airlines if they reduce their prices even further as Ryanair has to compromise on the
quality of the service. The other means of transport in the form of sea ferries and rail also gave
Ryanair a tough competition, as the customers preferred to travel by land and water even though
the journey is longer compared to air. It was cheaper to travel in sea ferries and rail as the cost of
the ticket was just 55 Irish Pound.

As the Ryan brothers did not have permission to fly larger jet aircraft on Dublin - London route
they had to fly with a 44 turboprop. This limited their seating capacity and did not allow them to
increase the customer base of the airline. As Ryanair was a low cost airline it focussed on the
economy class, hence was compelled to keep the ticket prices low and adopted a single fare system.
This prevented them from attracting the business class people.

Long Term Problems:

Aer Lingus, a major competitor of Ryanair was a flag carrier which might drive the government
to find ways to favor its growth. Ryanair can expect higher taxes aimed at curbing its growth by
the government in order to favor national airlines. There might be regulations that set a ceiling on
flying hours which helps preventing pilot’s fatigue. This in turn will force Ryanair to hire more
employees increasing its operational costs.
Ryanair usually operates over secondary airports in the country to avoid any extra costs which they
are likely to incur at the primary airports. Fuel prices data show the erratic nature of jet fuel prices
and crude oil prices which will be a potential problem for Ryanair in its goal to keep low fare
prices.

Ryanair might face challenges in satisfying the customers as they might demand better service
quality, refunds for cancelled or delayed flights and a safer experience, which would imply
increase in Ryanair’s operational costs. To provide user friendly services, Ryanair will have to
keep up with the latest technologies of ticketing systems, building a website and new marketing
techniques.

Decision Criteria and alternative solutions:

The various criteria based on which we can evaluate the potential solutions are:

1) Feasibility
2) Economic constraints
3) Challenges experienced from competitors
4) Consumer acceptance
Alternative Solutions:

1) Differentiation in fares and services:

Ryanair should adopt the system of differentiation in air ticket fares and services. They can
charge different rates depending on the traffic and the time of travel.
Even for the same flight they should sell some exclusive seats at higher prices to generate
more revenue.

Pros:
● With different fares Ryanair can generate revenues from higher priced tickets while
still maintaining its customer base of cheap air travel.
● With different rates depending on the services Ryanair would be able to attract
different segments of the people in the society and will be able to brand itself
beyond the image of a low cost airline.
● They can come at par with the airlines which have already implemented and are
benefitting with the different fare system.
● Ryanair can increase their customer base through this scheme.

Cons:
● Increased expenses due to improved quality of the services and increase in the
customers travelling with Ryanair.
● With increase in the fares and service quality Ryanair will no longer be an exclusive
low budget airline.
● With the expansion in services Ryanair has to hire new recruits with professional
experience or should train them according to the requirement of the business which
inturn increases the expenses.

2) Providing first time flyer and frequent flyer benefits:

A major challenge with Ryanair is to attract potential customers who use ferries and rail as
a mode of transport. Ryanair should woo these customers with offers, loyalty programs
and perks

Pros:
● This will enable Ryanair to expand the existing market by attracting the customers
who have not started using airlines as a mode of transport.
● Ryanair will get the advantage of creating a loyal customer base without any risk
to the existing revenue creation. In fact, the new customer base will be an addition
to the revenue even at low fares.
● By taking the middle class to the skies, Ryanair can bring about a revolution in
transport and benefit from it.

Cons:
● It will be a challenging task to come up with a pricings that ensure revenue
generation along with being comparable to the prices of rails and ferries.
3) Increase in the fleet size by leasing aircrafts:
Due to restrictions on the size of aircraft that Rynair can fly, it would be a great way to
counter the license restrictions imposed on it.

Pros:
● Penetrating untapped regions which will result in business expansion into other
parts of the world.
● More revenue will be generated from the new routes.
● More revenue generation by increasing frequency of flights in lucrative routes.

Cons:
● More expenses as rent has to be paid for the leased air crafts.
● Challenges in acquiring licenses in other countries to fly in those routes.

4) Inflight sale of Food and Merchandise:

Ryanair can convince bigger brands to invest in its airlines by promoting them via
magazines, selling their merchandise inflight

Pros:
● Another source of income as on-flight merchandise can be sold at a high cost.

Cons:
● Requires additional space in the air craft apart from the cabin luggage.

5) Sell leftover space for transporting cargo and consider providing cargo services via small
aircrafts:
Ryanair can start transporting goods between countries. It can start its own international
courier services. This can be done by sending mails and cargo by the passenger aircrafts
and by utilising the small aircraft for transporting goods.

Pros:
● Ryanair can increase its earnings by utilising the aircraft space to its maximum. By
offering available space for shipping cargo, Ryanair can add a source of revenue
generation.
● By setting up a minimum bidding price, Ryanair can set the minimum amount it
can charge per ton, depending on its demand forecasting. Ryanair can benefit by
increasing the bid price in seasons of high demand
Cons:
● It is difficult to manage overbooking by forecasting available space.
● There can be higher chance of flight delay due to additional time required in loading
cargo.
● This service will impose some additional operational costs.
Recommended Solutions:

Considering that the major problem being faced by Ryanair, apart from the erratic fuel
prices, is theits limited aircraft capacity and increasing competition, we recommend
Ryanair to adopt the following measures :

1) Differentiation in fares and services:

Ryanair can do this by creating 2 separate classes in their airline: Business class
and Economy class. By incorporating this strategy they can increase their customer
base and help create loyal customers. After the customer get adjusted to the fare
scheme, Ryanair can increase the fare for both the Business and Economy classes
to increase its revenue. As the customers are loyal, Ryanair will not lose its
customer base and also increase its revenue.

This will also help to build the brand image of Ryanair as not only a low cost airline
but also an airline that can cater to the needs to the business class like Aer Lingus
and British Airways.

2) Promote middle class air travel :

There is a huge potential customer base that has not turned to airlines as a mode of
transportation. By providing first flyer advantages and propagating the idea that
saving time is equivalent to saving money will help Ryanair to compete with rail
and ferries.
This approach has less risks as the existing customer base is not affected and the
aim is to increase revenue by increasing the market size.

3) Increasing fleet size by leasing air crafts:

As Mr.Tony Ryan had a major share in Guinness Peat Aviations, he can help them
in getting aircraft for lease at subsidised prices. By having more number of aircraft
Ryanair can expand their services to uncharted locations and increase their revenue.
As they do not have permission to fly bigger aircraft, having more number of
smaller aircraft will be a perfect alternative to it. Therefore, Ryanair will still be
able to compete with the other bigger airlines even after several restrictions
imposed on it.