1. What's What's your assessme assessment nt of Ryanair Ryanair's 's launch strategy strategy? ? Ryanair was launched with two important strategies in mind. They wanted to deliver rst-rate customer service, with meals and amenities comparale to what !er "ingus and #ritish !irways provided. They wanted to e positioned in the same comfort category as the mentioned airlines. They were planning planning on estalishing a comparative comparative advantage in terms terms of the price that it o$ered. They charged a simple, single fare for a tic%et with no restrictions. restrictions. &n announcing its ulin-"ondon service, Ryanair pulici(ed a fare of )*+. The disadvantage of %eeping such a low-fare lies in the cost management. Ryanair had to %eep a tight control of its epenses. &n line with Ryanairs Ryanairs cost-cutting policies the same set of employees would tic%et the customers on a ight, oard them onto the plane, and provide in-ight service. When aircraft were delayed at ulin !irport, employees would rush from the head o/ce to the gate to ma%e sure that the passengers were ta%en care of. Ryanair tried to %eep prices roughly10 elow the est prices o$ered y competitors. Ryanair was trying to attract the ferry users. The tra/c on the &rish 2ea ferries fe rries fell sustantially. Ryanairs passenger volume grew 3uic%ly ut so did its losses. 2o much so that the company was staring at an%ruptcy y 1**1. The company evaluated several options to re4uvenate its ottom line and nally adopted a no-frills approach. The company cut its cost to the one, and dropped its fares to levels unheard of in 5urope. "oss-ma%ing routes were dropped and planes redeployed on a handful of remaining routes. 5$orts to preserve and generate cash ecame paramount. !ll in- ight amenities, such as free co$ee and snac%s, were eliminated. 6reed of co$ee and snac% service, ight attendants egan to emphasi(e in-ight duty-free duty-free sales more prominently7 over time, duty-free items ecame an important source of revenue and margin. "aor contracts were renegotiated so that pay reected productivity. productivity. 6light attendants, for instance, egan to e paid in part ased the numer of ights they ew and in part as a function of their duty-free sales. 2ta$ memers at head3uarters reported that they would ring pens from home ecause pens were in short supply at the o/ce. The space ehind seat-ac% trays was leased out to advertisers. The company no longer longer distriuted meal vouchers vouchers to travelers whose whose ights were delayed y ad weather. Ryanair, almost eclusively, served secondary airports. &ts 8aris service landed at #eauvais !irport and its #russels service landed at 9herloi. ue to minimal air tra/c, Ryanair Ryanair did not have much troule in otaining landing slots and the ights were punctual. 5mphasis on secondary airports enaled Ryanair to negotiate with airport authorities for low landing fees, low turnaround turnaround costs, and other incentives. Ryanair avoided epensive :air ridges; and made passengers wal% across the airport tarmac and oard y climing metal stairs. Ryanair Ryanair only considered a route if it could rea%-even in three hours and the passenger tra/c could grow y at-least 100. The commission paid to agents was reduced from * to <.=. >round operations such as chec%ing in aggage with connecting ights were not permitted. 1
#oeing <@< aircraft were purchased during recession at almost half the oom price. Ryanair reduced the turnaround Acleaning, servicing, refuelingB time of its ights to = minutes.
. Cow do you epect epect !er "ingus and #ritish !irways !irways to respond? Why? !er "ingus and #ritish !irways were well estalished in the ulin-"ondon and several other routes operated y Ryanair. Ryanair was ta%ing over !er "ingus and #ritish !irways mar%et share. Ryanairs single-low-fare pricing strategy was attracting passengers. !er "ingus and #ritish !irways were left with a very limited numer of opportunities. !er "ingus The primary option option was to reduce reduce the fares along the the routes on on which Ryanair operated. !andon its airline sector and put more emphasis on other divisions of its usiness. •
•
#ritish !irways #ritish !irways, in order to prevent its rand dilution y reducing its fares and underta%ing cost-reducing cost-reducing measures, could introduce susidiary airlines. 9oncentrate more on international trans-!tlantic trans-!tlantic routes and let Ryanair control the Dlocal mar%et. •
•
ue to the sheer si(e of !er "ingus and #ritish !irways, cost cutting measures measures would re3uire a fundamental switch from the policies which had wor%ed well for their ottom-line prior to Ryanairs arrival. "eaving the mar%et mar%et in its entirety was not an option that could e considered y the two airlines, as the 5uropean mar%et was an ever-growing and protale mar%et. mar%et. They could alternatively focus on another segment of the same mar%et mar%et and concentrate their mar%eting mar%eting e$orts on a less price sensitive segment. @. Cow costly costly would would it e for !er !er "ingus "ingus and #ritish #ritish !irways !irways to retaliate against Ryanair's launch strategy rather than accommodate it? irect "oss Eumer Total Total Eumer of passengers passengers on ulin-"ondon ulin-"ondon route Ryanair Eumer of round-trips per day
8roof AFentioned in the =00000 caseB
G AFentioned in the
9apacity per ight Total Total Eumer of Ryanair Ryanair passengers on ulin"ondon route Aer Lingus & British Airways Eumer of passengers left for !er "ingus and #ritish !irways !verage revenue per person for !er "ingus or #ritish !irways !verage revenue after Ryanair was launched
caseB AFentioned in the GG caseB 1+G+0 AGHHGGH@I=B
@<1=0 A=00000-1+G+0B AFentioned in the &58 1II.=0 caseB AFentioned in the &58 *=.00 caseB
IEP 47,955,600. A@<1=0HA1II.= Total Total Revenue Revenue lost y !er "ingus "ingus and #ritish 00 *=BJ1+G+0H1II.=B !irways comined The aove cost of almost almost &)G+million was shared shared y !er "ingus "ingus and #ritish !irways as lost revenue due to the arrival of Ryanair. !er "ingus and #ritish !irways had average epenses per passenger of &)1==.1. &n order to remain protale protale at the new price of &)*= they were forced to ring down their epenses and even e ale to sustain losses for a few years.
