DOGFIGHT OVER EUROPE: RYANAIR (A)
QUESTION 1: What is your assessment of Ryanair’s launch strategy?
Ryanair is an airline company established in 1985 with its headquarters in Dublin. Ryanair started its activity with one 14-seat turboprop aircraft from Waterford to London-Gatwick until becoming one of the most successful and large company of Europe. In our opinion, Ryanair´s launch strategy was quite successful. In the text we can find a few reasons that we are going to explain as follows. To begin with we have to say that establishing Ryanair company was easy due to the financial resources. The story was started from Tony Ryan. That man is a co-founded Guinness Peat Aviation. It is the largest aircraft leasing company in the world. That firm needed not a lot of time to grow. It was happened really fast. After that Tony Ryan also a father of Cathal and Declan Ryhan decided to invest a million Irish pounds in his sons’ efforts to launch an airline. It was really easy for them because they already had a budget to invest. Cathal and Declan Ryan at that time when they started to run a business were quite young. They were in their 20s but that fact did not interrupted in a success. From the youngest years they essentially grew up in the airline industry. For sure that experience helped them to be succeeded. We think also that it was a good idea to start from a small plain. The plain was 14-seat turboprop aircraft. At first they operated of course using a schedule between Waterford in the southeast of Ireland and Gatwick airport, one of London’s secondary airports. This initial service was intended. They proved to people that the company has ability to operate a scheduled airline successfully. After a year Ryanair gained a license for another route between Dublin and Luton, another of London’s secondary airports. The firm did everything with a small steps but it was a great idea because they were growing up really fast. We should say that this was their first and big thrust to expand. That second connection is a very profitable route. It is already operated by Aer Lingus and British Airways. Ryanair knows that the planes from those companies were 60-70% full of people. They did know that half of million round-trip passengers flew the route each year. Also important information that they get was that the number of passengers on the route from the years (10 years) is still the same. So we can assume that it was a perfect opportunity for Ryanair to find new customers.
As we now from the article the price of Aer Lingus and British Airways for a round-trip in this route was £208. It is quite expensive if we compare price to rail-andferry tickets which was as law as £55. They roughly that three-quarters of a million round-trip travellers prefer to use rail and sea ferries rather than aircraft. The reason was that the first option was cheaper. Ryanair also knew that Aer Lingus and British Airlines have a special kind of offer that if you booked a ticket one month in advance before trip it will cost £189. It was still much more expensive than second option (rail-and-ferry). One of the two most important things that the Ryanair would charge a simple, single fare for a ticket with no restrictions. That’s why in announcing its Dublin-London service the company publicized a fare of £98. It was a really low price that’s why new customers started to fly with them instead of transporting by train or ferries. It was also faster and economic. Another important thing that distinguish Ryanair from others is that its employees would focus intently on delivering firs-rate customer service. People like if stuff are carry about you. Moreover, another thing that distinguished Ryanair from their competitors was the fact that they offered meals and amenities comparable to the competitors. Ryanair run four round trips per day with a 44-seat turboprop. They transport more people in each round trip than before. They also apply for permission to buy new; bigger one jet aircraft and they expected to get it soon. It would give them a good profit margin to reduce prices for customers. The idea of having more seats for passengers and expanding their routes made easier obtaining benefits and in consequence, reduce costs and prices. Finally, Ryanair has followed a good launch strategy following a cost leadership strategy in order to become the airline with cheapest fairs and it also was expanding its market by adding new routes to their flights.
QUESTION 2: How do you expect Aer Lingus and BA to respond - Create scenarios and discuss which is the most probable. Aer Lingus is the national airline of the republic of Ireland, was funded in April 1936 and it is based in Dublin airport, serving Europe, Africa and North America. British Airways was established in 1973. Is the largest airline in the UK and the second largest in Europe, it is therefore, one of the world´s largest with more flights between Europe and North America. Then, by 1985 Ryanair entered in the airline market becoming gradually in one of their largest competitors, due to, as we have mentioned before, its quickly expansion and its low fairs. Based on what we have read in this case about these three airlines, we are going to consider the following scenarios for Aer Lingus and British Airways responses: One possible scenario could be reducing their prices but this could be a non profitable action because these two companies are flag carriers’ airline and Ryanair is a low cost airline, their objectives, costs and service are not the same, so they could not act the same way as Ryanair because of doing that they could be harmed greatly. But, if they chose to take part in the same game as Ryanair, it would caused a price war, thus, they could apparently obtain higher short-term benefits but not for longer because of having high costs which they could not cover with those gains, so they will be reduce to losses while Ryanair obtains benefits and gets, by contrast, a better advantage to its rivals. Another scenario could be maintaining their current prices while offering new services or focusing on new customers that Ryanair can not focus on because of its cost reducing strategy. For instance, they could offer better customer services, wider seats, better quality,... so that they will distinguish from Ryanair because Raynair´s aim is to transport people from one place to another at the lowest price possible but they do not focus on quality. As we have mentioned, lowering their prices is quite risky so if they decide to maintain their current prices they have to make a big effort in improving their services because Ryanair is providing customer with comparable services and with a much lower price. Another scenario would be that these two companies create a strong advertisement campaign focusing on flying secure, good conditions of planes,... with the aim of being positioned as a well-known secure and comfortable company. In this way, they won’t attract people sensible for prices that would be attracted by Ryanair but they would attract people who want to travel for long hours and look for comfort in their flights.
In conclusion, we think that Ryanair is a very strong competitor and the most probable scenario Aer Lingus and British Airways could take is following a diferentation strategy so as to maintain prices as they have but gaining some other customer by offering new facilities and confort that Ryanair could not offer to keep such low prices. And also it would be a good idea to increase the frequenty of their flights.
