Dogfight over Europe: Ryanair

Contents [hide] 1 Basic Information of Dogfight over Europe: Ryanair 2 Case Summary of Dogfight over Europe: Ryanair 3 Case Analysis of Dogfight over Europe: Ryanair 4 External Link of Dogfight over Europe: Ryanair 5 Relevent File Cabinet of Dogfight over Europe: Ryanair 6 Article Purchase Link of Dogfight over Europe: Ryanair

Basic Information of Dogfight over Europe: Ryanair

Author: Jan W. Rivkin
Publisher: HBR
Case Number: 9-700-115
Publication Date: Jun 12, 2000
Revision Date: Nov 21, 2007
Course Category: Strategy

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 – Europe’s 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 well-established airlines such as American, United, and Delta consolidated their efforts by using hub-and-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 loss-making 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 Ryanair’s 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 well-established 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 Ryanair’s 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?
They’ve 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.