DOGFIGHT OVER EUROPE : RYANAIR (A)

Analysis by Group 4

AUGUST 19, 2013

GROUP-4
SECTION-B

Submitted to
Prof.Sabita Mahapatra
Indian Institute of Management
Indore

Submitted by
Alok Chaurasia
2013PGP029
Devang Jain
2013PGP123
Nitya Saxena
2013FPM08
Sabyasachi Satpathy
2013PGP335
Sandeep Gupta
2013PGP343
Shweta P Pai
2013PGP387

Dogfight over Europe: Ryanair(A)

What is your assessment of Ryanairs launch strategy?

Ryanair has recently acquired the permission to commence service between Dublin and
London. Its main competitors are British Airlines (BA) and Aer Lingus (AL), who have been in
the business for a long time and hence its strategies are aimed at offering customers better
incentives so as to steal them from their competitors.

1. Firstly, Ryanair is charging 98 for a simple, single fare ticket without any
restrictions. This price is even lower than the BAs discounted air fare which is 99 but
needs to be booked 1 month in advance. Thus, this decrease in the air fare provides
Ryanair with a better edge over its competitors
2. Secondly, Ryanair has decided to run 4 round trips per day with a 44-seat turboprop.
This strategy has dual benefits. First with the increase in frequency of trips, it provides
the customer with greater flexibility of choosing their time of travel. Secondly, with a lowseat aircraft of only 44, it almost guarantees Ryanair a load of 90% as compared to only
a load of 67% load for BA.
3. Thirdly, Ryanair has decided to land at one of Londons secondary airports, Luton
rather than Heathrow. Since, Heathrow is the busiest airport in London; the landing
charges are quite high. Instead, by choosing to land at a secondary airport, Ryanair will
reduce its operating expenses.
4. Fourth, its employees would offer first-rate customer services. By offering meals and
amenities comparable to BA and AL, Ryanair has made sure that it is on level ground
with its competitors. Moreover, by offering first-rate services, it is trying to retain its firsttime customers.
5. Fifth, the low air fare of Ryanair has made it possible for it to get new customers:
travellers who use rail and ferry. With only 40 difference between the air ticket and the
ferry ticket (as compared to about greater than 100 pound difference in the case of BA
and AL), Ryanair has made customers think about which is more important, time or
money. With far more reasonable fares, the customers will have to make a trade-off
between 40 excess fee and 8 hours of wasted time.
Thus, the launch strategy applied by Ryanair is highly competitive and will grab the attention
of its competitors. By distinguishing itself from the flag carriers in three of the most important
aspects for customers (price, frequency and service), Ryanair is bound to attract customers.

How would Aer Lingus and British Airways react and why?
Aer Lingus and BA could retaliate in any of the following ways.

British airways can start budget airlines to counterattack the rising threat of
Ryanair. This shall help them to attract the target segment of Ryanair by their already
existing brand image. Please note that Aer Lingus is already needs to replace ageing
jets in near future so starting budget airline for it wont be a feasible option.

Further innovation and value addition like increase in safety measures shall help
them to assure that new customers dont trust a new airline.

British Airways gets nine-tenth of its revenue through international flights. Also British
airways targets mainly on the business class and operates from the primary airport of

SECTION-B

GROUP-4

Dogfight over Europe: Ryanair(A)

London. So British Airways may overlook Ryanair and continue with its operations
as it is.

Since British Airways and Aer Lingus are well established players in the market and
both have alternative source of incomes apart from running airlines on Dublin-London
route, they may slash down the prices to completely wipe out Ryanair from the
market as they know that Ryanair is relatively new airline and cannot bear losses for
long time.

Aer Lingus is an airline that is more associated with the benefits it brought to the Irish
community, national development apart from just making profits. Also given that
already the airline is operating on very thin profits, it may chose to be inactive to this
situation.

Thus, looking at the current situation of BA and AL, there are equal possibilities of both going
inactive as well as going hard after Ryanair. So a further quantitative analysis is required to
understand the situation better.

How costly it would it be for Aer Lingus and British Airways to retaliate against
Ryanair launch rather than accommodate?
Irrespective of their choice of strategy, both BA and AL will incur heavy losses as a
result of Ryanairway's entry into the market.
British Airways:

9/10th of their revenue was coming from international routes, therefore loss of
little business on this route will not affect them greatly.

They have recently purchased 55 new aircrafts for 700 million, and are
planning to operate in Europe, thus passenger loss on the Dublin-London
Route will have minimal affect on BA.

Therefore, it would be beneficial for British Airways to Accommodate and

not respond to RA by changing the Prices.

Aer Lingus:

AL would choose to Retaliate, because it is a matter of national pride for them and
is run to promote tourism and culture. Also, it is funded by the government.

As airlines accounts for only a minor part of AL's revenues, it would be able to cover
these losses from its non airline businesses.

AL also has a strong egoistic motive in retaliating as Ryanair is run by a former AL

employee.

Can the Ryan brothers make money at the 98 fare they propose?
Qualitatively, following can be arguments in support and against whether Ryanair can
operate at such a low fare or not

SECTION-B

GROUP-4

Dogfight over Europe: Ryanair(A)

Low and single no-restriction price scheme is the strongest point in favour of Ryanair
as it will pull in a lot of existing air travellers as well as sea travellers.

Ryanair have started their service with 14 and 44 seater turboprop airplanes and the
tickets are priced at a flat discounted fare. So certainly they can expect more
occupancy rate.

Frequency is also an advantage for Ryanair, since it offers 4 round trips from Dublin
to London per day.

Ryanair flights would be landing at secondary airports of London, Luton. Therefore

Ryanair would be saving a considerable amount on landing fee en-route charges as
well as handling fee. Hence less operating cost.

Ryanair also focuses on providing first rate customer services comparable to that
offered by BA and AL and this would contribute to retaining customers.

However, assuming that AL would choose to retaliate, a fierce Price-war would

ensue, and RA being a new, un-established player with very low differentiation,
would not be able to sustain in the market. Thus, there are chances that RA will face
heavy losses, and might even go bankrupt.
Though, it is possible for them to stay in the game by bringing in differentiating
factors, reducing their operating cost etc. This could be done by modelling
themselves like South-west Airlines.
An insight into quantitative analysis can better clear of the picture where Ryanair
stands over all. Though from qualitative analysis it seems, at first Ryanair might not
be able to generate profit from its present strategy but in the long, by reducing their
Operating costs and differentiation, they might be able to make some profit.

SECTION-B

GROUP-4