Dogfight over Europe: Ryanair Essay

Ryanair was launched at a time that did not seem highly favorable to the airway industry. As a matter of facts, in 1986, the market was mute recovering from the aftermaths of the OPEC oil embargo and the 1979s oil crisis which led to an important increase in the jet oil prices, along with a recession that dismiss demand for air travel and thus gave an impulse to the aircrafts cheaper substitutes, such as trains and ferries.Despite that high bargaining power of suppliers and threat of substitution products that make the immaterial environment unfavorable, the Ryan brothers wish to launch their airline did not diminish. The companys first service was launched in 1985 between the southeastern Irish city of Waterford and Gatwick Airport, find on the outskirts of London. One year later, the refreshingborn company started operating between Dublin and the British capital. Two major(ip)s Airlines operated on this latter route at that time British Airways and Aer Lingus, the Irish flag- carrier company.Moreover, some strong US airlines reached out for new routes into Europe after the deregulation of the domestic help US airline industry, which made the pressure of competitors even more intense in the airline industry. Last unless not least, charter flights, which thrived during the 1960s to bypass the European regulations and to tap the change magnitude demand for leisure travel, were transporting 60% of all European passengers by the mid-1980s.Despite this high unwelcoming rivalry in the market, Ryanair made the preference to stress on the intriguing Dublin-London route, which was reputed to be quite lucrative for both British and Irish flag-carriers. At that time, data showed that three-quarters of a million round-trip Dublin-London travelers opted to use rail and sea ferries rather than aircraft. This information, high spot the high pressure and threat that the airline industry was undergoing on behalf of the substitution products, confirmed the unattract ive character of the local market. In spite of this fact, Ryanair initiated service on the Dublin-London route in 1986, using a 44-seat turboprop during its early stages.Ryanair adopted a launch strategy that differentiated it from its competitors in two of import ways. First, it employees would focalisation on delivering first-rate customer service second, the company would charge a simple, single fare for a ticket with no restriction, while British Airways was oblation a spectrum of ticket prices with varying restriction and the full cast off of classes of service.The company publicized its first Dublin-London service fare of I98 dollars, whereas Aer Lingus and BAs least expensive, unrestricted round-trip fares on the route were priced at I208. At the alike time, Ryanair would offer meals and amenities comparable to what Aer Lingus and British Airways provided. Thus, the newborn company benefited from the extraction from a distinctive business model focused on low practicab le costs and low fares, but which was not undermining the quality of its services.These low operational costs are partly linked to the companys choice to operate on secondary airports, located outside London. Indeed, Gatwick and Luton airports were charging low landing and take-off charges compared to Heathrow main airport, which allowed Ryanair to keep its overhead costs at a lower level than British Airways, and thus gave it a competitive advantage toward other airline companies. However, this choice of secondary airports could also arise as a weakness of the company, since it prevents it from reaching a broader target of customers who predominately go through main airports such as Heathrow.Finally, British airways and Aer Lingus tickets for the Dublin-London round-trip were priced at I153 higher than the cheapest rail-ferry ticket (costing I55), which may have deterred most travelers of flying the route. When launched, Ryanair charged fares which were only I43 higher than the rai l-and-ferry ones for this journey. designed that the journey took nine hours by rail and ferry and only one hour by air, the newborn company could therefore tap into a element of customers who might be ready to pay an additional I43 for gaining 8 hours while travelling comfortably, which might be a valuable offer. Thus, this price strategy could enable the company to gain large shares in the market of these potential customers.(2) How do you seem (a) Aer Lingus and (b) British Airways to respond? And why do you expect each of them to respond that way?Ryanairs launch is 1986 put a pressure on its two major competitors who are operating on the same challenging Dublin-London route. Indeed, the newborn company, benefiting from low costs, setting low fares, but offering a similar level of quality, would rapidly gain market shares over its competitors. British Airways and Aer Lingus had therefore to respond on an efficient way to retaliate to Ryanairs entry in the airline industry.a) W hen Ryanair was launched, Aer Lingus domestic and European routes earned a low operating profit while its trans-Atlantic flights sustained operating losses for the sixth time in seven year. Despite these difficulties, Aer Lingus, whose main profits where coming from its diversification in the hotel business (among others), was still backed by the Irish government, and aiming at its objectives of providing an air transport service that was safe, efficient, reliable, and profitable. Moreover, for being the only Irish airline before Ryanair, the company, which was touting the many benefits it brought to the Irish community, might have been benefiting from a good reputation and reliability in its local market.Thus, thanks to the state support but also to its reputation, Aer Lingus operations were well established in Europe, but also in the United States, where the airline has been operating for years. These resources and capabilities, reinforced by the recent roaring introduction of a computer reservation system, therefore gave to the company a temporary advantage toward the newborn Ryanair. To retaliate to this latters entry, we expect that Aer Lingus reduces its European routes fares to match Ryanairs ones.Thus, relying on its value of safety and efficiency, and implementing a low cost / low fares business model on its European and domestic flights, the company could protect its market shares from Ryanairs potential growing success. Besides, it may be all the more attractive to customers since it was spending tens of millions of pounds in renewing its lapse of jets, while Ryanair was just starting to operate with turboprops, and still did not have permission to fly larger jet aircraft on the route.b) As Ryanair started operating in 1986, British airways (BA) had been earning record profits for the last years, and its forthcoming privatization in 1987 was planned to improve these performances. The companys strategy was mainly focusing on worldwide routes a nd intercontinental flights. Indeed, BA was operating one of the worlds most extensive airline route networks, serving 145 destinations in 68 countries. This focus is highlighted by the fact that international journeys accounted for roughly two thirds of the seats that the company sold, and nine tenth of its revenues.One of British Airways advantages is its establishment in Heathrow airport, a major international transportation hub, through which 80% of the companys passengers were passing. This focus on Londons main airport therefore arises as a competitive advantage toward Ryanair, whose flights, which are taking off and landing in secondary airports, hamper it from reaching a broader target of customers. Besides, British Airways large range of offers, implying from first class to economy tickets, distinguishes it from a low cost company as Ryanair, and may also arise as an advantage to some customers, flavour for a better quality of service. As a result of this importance differ entiation in service, and from our analysis, British Airways reaction to Ryanair entry should not be as thundering as Aer Lingus one.Indeed, BA already operates on a different segment than Ryanair, targeting business class and international customers. Since BA is mainly operating on international flights from and to main airports, Ryanairs new focus on point-to-point flights and minimizing overhead costs should not arise as a threat to the British company. Moreover, with the prospective deregulation of the European airline industry whose foundations were laid by the 1986 Single European Act, British Airways should benefit from a major opportunity to expand to new European routes, relying on its valuable international experience. These forthcoming benefits and growth therefore make British Airways a company which does not share the same resort area with Ryanair.