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Case Summary of Dogfight over Europe: Ryanair

Following WWI, airline companies were owned and subsidized by European governments. These airlines offered very limited intra-country service, mostly to the capital, and instated high prices to subsidize international service. Following WWII, air travel became more economical for the first time. To thwart the US from dominating international air travel, European governments made multilateral and bilateral agreements via pooling agreements where international flights and profits into and out of countries were restricted to the two respective national carriers. 1950s The collapse of European governments and advent of trans-Atlantic jets forced European carriers to refocus heavily upon international travel. 1960s The inefficiency, undercapitalizion, and high prices of national carriers caused increasing consumer dissatisfaction. This allowed start-up charter companies to draw customers away by offering inclusive tours which bundled flights with lodging. 1970s Europes flag carriers were heavily unionized and had high fixed cost, which left them rigid and unable to deal with the introduction of large-capacity Boeing 747 jets in addition to the OPEC oil embargo. 1978 Deregulation of domestic US airline industry helped to decrease the price of air travel. During 1978-1980, 22 new low-cost carriers entered the US market. However, the more wellestablished airlines such as American, United, and Delta consolidated their efforts by using huband-spoke routes and computerized reservations systems leading to the failure of most of the charter companies. 1986 A similar call by consumers to consolidate the European airline market by was defeated by the flag carriers and their unions. British Airways 1979 Election of Prime Minister Margaret Thatcher started the push towards privatization and deregulation of state-owned BA by opening BA on the stock market. John King BA Chairman prepped BA for privatization by reducing staff, surrendering lossmaking routes, and closing maintenance stations and training colleges. Colin Marshall BA Chairman who focused heavily upon customer satisfaction and helped improve in-flight amenities for business class passengers. 1986 Due to efforts of King and Marshall, BA became the largest airline network where 2/3 of their passengers were international fliers and provided 9/10 of its revenue. Ticket sales were largely sold via 49,000 Independent travel agents >>>> telephone and retail shops.

Aer Lingus Bilateral agreement with BA allowed Aer Lingus to stop in Manchester and continue onto continental Europe while BA was allowed to land at Shannon and continue on trans-Atlantic flights. 1970s Decreased tourism and erratic seasonal demands forced AL to seek new sources of revenue and profit (maintenance service and engineer training to other airlines, computer consulting, hotels, hospital management in Baghdad, etc).

Ryanair Tony Ryan worked as an aircraft leasing manager for AL before co-founding Guinness Peat Aviation aircraft leasing company. 1985 Funded the venture of his 2 sons to start Ryanair. The airline started operating a 14-seat turboprop aircraft to run scheduled service between Waterford Ireland airport and Gatwick London airport (secondary airport). 1986 After establishing credible service, Ryanair obtained a license to fly between Dublin and Luton (another secondary airport). At the time, BA and Aer Lingus provided airfare from Dublin-London at a price of 208. Ryanair decided to compete by offering a non-restricted ticket of only 98 that provided first-rate customer service, that required a 1 month advance purchase.

Case Analysis of Dogfight over Europe: Ryanair


1. What is your assessment of Ryanairs launch strategy. After establishing its ability to transport passengers from Ireland to secondary London airports (i.e. Luton and Gatwick), Ryanair entered competition with British Airways and Aer Lingus to provide air travel from Dublin to London. They were able to complete with these wellestablished carriers by: A. focusing intently upon first-rate customer service and amenities comparable to BA and AL B. offering a simple ticket w/ no restrictions C. pricing of 98 in comparison to BA or AL price of 208

2. How do you expect Aer Lingus and British Airways to respond? Why?

Both carriers were already well-established in the Dublin-London route and the route provided a high volume of business and return on capital especially for AL. In order to eliminate loss of passengers to Ryanair, both carriers would probably opt to offer lower fares and greater frequency of flights.

3. How costly would it be for Aer Lingus and British Airways to retaliate against Ryanairs launch rather than to accommodate it? Marginal cost would be higher than marginal benefits for BA or AL to retaliate.

4. Can the Ryan brothers make money at the fare they propose? Theyve concentrated all their efforts and resources upon very specific travel between Ireland and England that allows them to be competitive and cost-efficient compared to BA and AL.

dogfight over europe: ryanair 1. What is your assessment of Ryanair's launch strategy? What do you think about their approach?

Company operates a low-fares scheduled passenger airline serving short-haul, point-to-point routes primarily between Ireland and the UK. Cost containment and operating efficiencies has always been vital part of the way things are done at Ryanair. Primary targeting fare conscious or business travelers who might otherwise not travelled at all or use other methods of transport such as ferries or trains. Low fares can be used to stimulate demand. Ryanairs air was be able to reduce or control expenses on aircraft equipment cost; customer service costs and airport handling and access costs. Ryan positioning is among the pure low cost airline segment and focuses on targeting this market. The company has limited its entire fleet to the Boeing 737, which the company claims lets them save on training costs as all staff are only be trained for one type of aircraft and are then mobile throughout the entire fleet. The company also saves on maintenance supplies and labor as only one type of parts and skills are needed. Ancillary sales: In adjunct to airline ticket sales, ancillary sales are becoming more important component of low-cost model and generate additional high net margins. These could include car hire, hotel bookings, excess baggage claims and credit card fees. Expand aggressively the development of the internet as the core form of distribution that will provide a low-cost model a competitive cost base, scalability across the entire European market and platform from which ancillary sales can be derived.

2. How do you expect Aer Lingus and British Airways to respond? Why?

Their cost base would not allow them to effectively compete on short-haul routes. Aer Lingus and BA can partner with their franchises sharing some ticketing and other distribution systems. Another option to achieve competitive advantage is moving nearer to the low-cost core business model by cutting their costs and differentiating in the services they offer to their customers, i.e. cutting costs and improving efficiency. The key is to remain competitive on price they could focus more on long haul operations to offset or lack of profitability on short-haul routes. They can tighten up by increasing aircraft utilization and reducing turnaround times which will result in possibility of reducing workforce in line. Also consider to outsource of functions to reduce costs.

3. How costly would it be for Aer Lingus and British Airways to retaliate against Ryanair's launch?

Financial analysis

4. Which competitor is more threatening to Ryanair

British Airways is more threatening as it operates in UK and Ireland. Ryan air does not offer transatlantic flights and would therefore have a limited growth and would depend on short-haul routes. Ryan Air has made a unsuccessful bid to buy AL with the intention to propel outside of its growing European footprint. Increasing airport charges or fees that airlines must pay in order to use airports are rising significantly throughout many of RA hubs. Low airport costs have constituted an important part of RA's low cost structure. The cost of jet fuel may increase operating costs for RA.

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