CASE ANALYSIS DOGFIGHT OVER EUROPE:RYANAIR

Presented by : Group 03

ArunaSrinivasaraoCK Sharma

BUDGET AIRLINES - RYANAIR

Dictionary meaning of Dogfight:“A violent fight between or as if between dogs”

Rightly describe scenario of airlines business in Europe and America

INTRODUCTION

Set up by Ryan family in 19851975- Formation of Guinness Peat Aviation which became the largest aircraft leasing company in the world.Innovative step by the founder Tony Ryan- Leasing of excess capacity to other airlinesLeasing provided revenues to launch airline.First route : Waterford – Gatewick , 14 seater aircraft , done wellIdentified potential for business, yet to decide.

EUROPEAN AIRLINESPost WW1, Commercial Airlines sprang up

Small Airlines Converted to National Flag Carriers(Tail of the plane)

Colonial aims fulfilled by respective Govts. (Ex. Imperial Airways)

International Routes focused upon, intra country service was sparse. Domestic fares kept high to subsidize international flights.

WW2- A great leap forward in aviation. Bilateral, multilateral agreements did a task of protectionism.

EUROPEAN AIRLINES……contd.

IATA( International Air Traffic Association)-fixed fares.

Pooling agreement in Europe (Ex. Route b/w France and Italy given to Air France and Alitalia)

Revenue and capacity divided in an agreed upon manner by the Flag Carriers.

Restrictions also involved compulsory operations (begin or end) in the domestic soil; New entrants discouraged.

EUROPEAN AIRLINES – A LEAP FORWARD

Introduction of jet engines capable of crossing Atlantic-caused the flag carriers to reinforce on their efforts on routed across Northern Atlantic in late 1950s.

Troubling factors:

Collapse of unification of France, Germany, Belguim & Italy.

Inefficient, undercapitalized and unprofitable venture.

Increase in jet fuel prices & recession reduced the demand of air travel (1970)

High fixed costs and unionisation of staffs added to worries. (1970)

EUROPEAN AIRLINES – A LEAP FORWARD…

1960s- Leisure travel lead to an increase in the charter flights

Shipping Cos. Funding, cheap fares and ‘inclusive tours’ offered on non scheduled flights

Flag carriers’ discounts under IATA and charter subsidiaries started themselves

1970s- Introduction of 747s

EUROPEAN AIRLINES – DEREGULATION US AIRLINES

1978- US Congress decision to deregulate domestic US airlines industry

New entrants, 22 new low cost carriers between 1978-1980

Introduction of new routes; American, Delta, United airlines successful.

1984- Counter reforms: Introduce Deregulation in European Aviation Industry.

Proposal : Remove pooling agreements, price fixations, Govt. subsidiaries.

BRITISH AVIATION AND AIRWAYS…..OUTLOOK

1971- Airline regulator encouraged the establishment of British Caledonian (B.Cal) to compete with British Airways.Labor party protected BA Margaret Thatcher Bill stated equal weightage to consumer and operator, focused on the privatization of state owned enterprisesBA not doing well as compared to US counterparts Profit trend was slumping and went into losses

BRITISH AVIATION AND AIRWAYS..LEAP FORWARD

1985-John King reduced the BA staff strength from 54,300 to 38000.Loss making routes removedMaintenance stations and trg school closed

Profit scaled up, although deregulation scenario slowed down during the BA’s turnaround.

1986- BA had the most extensive network

145 destinations, 68 countries; Almost 80% passengers passed through Heathrow Airport.

Invested 700 million in the purchase of 55 new aircrafts; Tickets sold over telephone, 171 retail shops, 49000 independent travel agents.

AER LINGUS…OUTLOOK

Govt and Private parties formed Aer Lingus Britain govt 40% stake in Aer Lingus in 1946Initial route – Great Britain and Ireland

1930s & 40s Losses between 20% and 100% of the revenue

Monopoly of Aer Lingus over Irish Sea.

AER LINGUS…OUTLOOK

Onwards right in Europe, start of Bilateral Agreements.

End of British stake from Aer Lingus; latter formed its own trans-Atlantic route.

Causes of losses in North Atlantic Route in 1970s

Mostly tourists were the fliers who demanded high concession and promotional fares. Tourists stayed home during the 1970 recession.

AER LINGES…A LEAP FORWARD

In 1970s seek new sources of revenue and profitDiversification through: Engineer training and Maintenance Service to other airlines. Computer consultancy and data processing

1986- Hospital Management in Baghdad, Investment in Robotics.

Air Lingus experienced modest operating profit within air transportation and non airlines business had performed well.

RYAN AIR..A STRATEGIC ICON

In 1986, RYANAIR gain license to operate in Dublin-London route trip where biggies like BA and Aer Lingus were already successfully operating.

Intended to run 4 round trip with 44 seat turboprop.

Launch cheapest fare of British Pound 98 as against lowest fare of B.A and Aer Lingus of British Pound 189 at one time.

RYANAIR……A STRATEGIC ICON

Strategic factors when he launched

Chose the most lucrative route possible (at the moment one of

the most lucrative routes for their competitors), and with a

potential growth if they can attract passengers from train or

sea ferries.

Their position as late-movers, allowed them to enter in the

market with a lower price than its competitors- good strategy

to quickly gain market share.

RYANAIR: ENTRY STRATEGY

Ryanair has strategized to focus on the following:

First rate Customer service

Provide better meals and amenities than Aer Lingus and BA

Single fare with no restrictions

Target large Irish immigrant population working in England since they were suffering from long 9 hour journey and flights were unaffordable.

This target segmentation clearly identified their niche market.

RYANAIR ENTRY: THREAT INCREASE

Ryanair late entry was just right as deregulation will lower the barriers to entry and has potential in market as first mover advantage.

Demand emerges for New routes and need to reach critical mass

Quickly capitalize on many routes that can only sustain one airline.

No frills and serve point to point networks.

RYANAIR ENTRY: THREAT INCREASE cont’d

Pose serious threat for others to sustain in business long in this route or where Ryanair operates adopting low cost carrier strategy.

This strategy can stimulate demand and build brand power.

Can take away traffic/business from ferries and other transportation companies

RYANAIR ENTRY: SUPPLIER POWER

Suppliers’ power shall decrease as owners of these airports were willing to accept essentially any offer.

High Airport fees can be negotiated to less comparatively.

RYANAIR ENTRY: RISK ANALYSIS

Scope and timeframe of airline deregulation

In case of increased passenger volumes, ability to cope• Reliably handle additional traffic• Necessary infrastructure/secondary airports

Development of IT technologies to enable better capacity utilization and scheduling

Improvements in aircraft reliability, maintenance requirements and fuel economy to support low cost.

Low cost booking mechanism through call centers and internet although these means were new concept yet.

Development of cheaper complementary transportation to/from remote airports to points of general interest.

RYANAIR ENTRY: SUCCESS DRIVERS

Low cost structure (i.e. competitiveness) Adopt low general administrative costs Direct sales only High crew productivity Low compensation costs Lower airport costs Lower ground handling costs create innovative value chain different from traditional ones

Gain new customers through fare drops rather than to find opportunities to raise fares without loosing customers.

RECOMMENDATION

RYANAIR shall opt to launch Dublin –London route. However, challenging is

not only to compete with British airways, Aer Lingus and other airlines

but also to sustain on the core business driver, a low cost structure.

Moreover, yearning for success drives organization towards innovative

strategies to operate business rather than in a traditional way.

AER LINGUS AND BRITISH AIRWAYS – OPTIONS TO RESPOND

Two different choices to react

maintaining their current level of prices,

start a price war with Ryanair.

But both companies have a significant disadvantage, they have a cost structure very difficult to cut (Staff + Accommodation, ground… + Selling + Handling and catering represents more than 45% of the costs per passenger, and they need to add landing fees and oil); also it was too difficult to start an strategy based in differentiation because Ryanair was trying to offer a service of a similar quality to these companies (first-rate customer service).

We make History

We make things happen just right

RYANAIR, 1986