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1. What's your assessment of Ryanair's launch strategy?

Ryanair was launched with two important strategies in mind. They wanted
to deliver first-rate customer service, with meals and amenities
comparable to what Aer Lingus and British Airways provided. They wanted
to be positioned in the same comfort category as the mentioned airlines.
They were planning on establishing a comparative advantage in terms of
the price that it offered. They charged a simple, single fare for a ticket
with no restrictions. In announcing its Dublin-London service, Ryanair
publicized a fare of 98. The disadvantage of keeping such a low-fare lies
in the cost management. Ryanair had to keep a tight control of its
expenses.
In line with Ryanairs cost-cutting policies the same set of employees
would ticket the customers on a flight, board them onto the plane, and
provide in-flight service. When aircraft were delayed at Dublin Airport,
employees would rush from the head office to the gate to make sure that
the passengers were taken care of. Ryanair tried to keep prices
roughly10% below the best prices offered by competitors. Ryanair was
trying to attract the ferry users. The traffic on the Irish Sea ferries fell
substantially.
Ryanairs passenger volume grew quickly but so did its losses. So much so
that the company was staring at bankruptcy by 1991. The company
evaluated several options to rejuvenate its bottom line and finally adopted
a no-frills approach. The company cut its cost to the bone, and dropped its
fares to levels unheard of in Europe. Loss-making routes were dropped
and planes redeployed on a handful of remaining routes. Efforts to
preserve and generate cash became paramount. All in- flight amenities,
such as free coffee and snacks, were eliminated. Freed of coffee and snack
service, flight attendants began to emphasize in-flight duty-free sales
more prominently; over time, duty-free items became an important source
of revenue and margin. Labor contracts were renegotiated so that pay
reflected productivity. Flight attendants, for instance, began to be paid in
part based the number of flights they flew and in part as a function of
their duty-free sales. Staff members at headquarters reported that they
would bring pens from home because pens were in short supply at the
office. The space behind seat-back trays was leased out to advertisers.
The company no longer distributed meal vouchers to travelers whose
flights were delayed by bad weather. Ryanair, almost exclusively, served
secondary airports. Its Paris service landed at Beauvais Airport and its
Brussels service landed at Cherloi. Due to minimal air traffic, Ryanair did
not have much trouble in obtaining landing slots and the flights were
punctual. Emphasis on secondary airports enabled Ryanair to negotiate
with airport authorities for low landing fees, low turnaround costs, and
other incentives. Ryanair avoided expensive air bridges and made
passengers walk across the airport tarmac and board by climbing metal
stairs. Ryanair only considered a route if it could break-even in three hours
and the passenger traffic could grow by at-least 100%. The commission
paid to agents was reduced from 9% to 7.5%. Ground operations such as
checking in baggage with connecting flights were not permitted. 21

Boeing 737 aircraft were purchased during recession at almost half the
boom price. Ryanair reduced the turnaround (cleaning, servicing,
refueling) time of its flights to 25 minutes.

2. How do you expect Aer Lingus and British Airways to respond?


Why?
Aer Lingus and British Airways were well established in the Dublin-London
and several other routes operated by Ryanair. Ryanair was taking over Aer
Lingus and British Airways market share. Ryanairs single-low-fare pricing
strategy was attracting passengers. Aer Lingus and British Airways were
left with a very limited number of opportunities.
Aer Lingus
The primary option was to reduce the fares along the routes on
which Ryanair operated.
Abandon its airline sector and put more emphasis on other divisions
of its business.
British Airways
British Airways, in order to prevent its brand dilution by reducing its
fares and undertaking cost-reducing measures, could introduce
subsidiary airlines.
Concentrate more on international trans-Atlantic routes and let
Ryanair control the local market.
Due to the sheer size of Aer Lingus and British Airways, cost cutting
measures would require a fundamental switch from the policies which had
worked well for their bottom-line prior to Ryanairs arrival. Leaving the
market in its entirety was not an option that could be considered by the
two airlines, as the European market was an ever-growing and profitable
market. They could alternatively focus on another segment of the same
market and concentrate their marketing efforts on a less price sensitive
segment.
3. How costly would it be for Aer Lingus and British Airways to
retaliate against Ryanair's launch strategy rather than
accommodate it?
Direct Loss
Number
Total Number of passengers on Dublin-London
route
Ryanair
Number of round-trips per day

Proof
(Mentioned in the
500000 case)

4 (Mentioned in the

Capacity per flight


Total Number of Ryanair passengers on DublinLondon route
Aer Lingus & British Airways
Number of passengers left for Aer Lingus and
British Airways
Average revenue per person for Aer Lingus or
British Airways
Average revenue after Ryanair was launched

case)
(Mentioned in the
44 case)
128480 (4*2*44*365)
371520 (500000-128480)
(Mentioned in the
IEP 166.50 case)
(Mentioned in the
IEP 95.00 case)

IEP
Total Revenue lost by Aer Lingus and British
47,955,600. (371520*(166.5Airways combined
00 95)+128480*166.5)
The above cost of almost I48million was shared by Aer Lingus and British
Airways as lost revenue due to the arrival of Ryanair. Aer Lingus and
British Airways had average expenses per passenger of I155.1. In order
to remain profitable at the new price of I95 they were forced to bring
down their expenses and even be able to sustain losses for a few years.