Dogfight over Europe: Ryanair

Introduction

Analysis of Ryanair company in 1986, new Dublin-London route

Competitors analysis

Ryanairs profitability of the new route

How Aer Lingus should respond?

How British Airways should respond?

Which competitor should Ryanair be more afraid of?

assessment of Ryanairs strategy

Whats going on?

Ryanair is already
operating since 1985, and
were flying between
Waterford (Ireland) and
Gatwick (London, UK)

1986 Ryanair
announced, that
they will start
flying between
London and
Dublin

Quick facts
British
Airways

145 destinations in
68 countries
Fleet of 163 aircraft
Own passenger and
ground services
171 retail shops
49,000 independent
travel agents
Full range of classes
of service

Ryanair
1985, Ryan
brothers
Dublin-London
(secondary
airports)
4 round trips per
day with a 44seat
Single fare for a
ticket with no
restrictions

Aer Lingus
Partnership with
BA until
development of
trans-Atlantic
routes
Losses in the
1970s prompted
to diversification
Maintenance
service, engineer
training, computer
consulting, hotel

Revenues of Ryanair

Ryanair managers assumes that plane will be always full

44 seats in the jet

4 trips a day

365 days in a year

98 Irish pounds per ticket

Number of passengers in a year = 365*4*44 = 64240

Revenue = 64240 * 98 = 6 295 520 Irish pounds per year

Costs of Ryanair
Ryanair
The case do not provide
possible costs of Ryanair.
However, there is given
average revenues and
average costs of
competitor (British
Airways) for the same
Dublin-London route
British Airways average
price of ticket: 166,5 Irish
pound
Profit of 11,4 Irish pound

British Airways costs (prices in Irish pounds):

Staf

35,7

Depreciation and amortization

8,6

Fuel and oil

31,8

Engineering and other aircraft costs

9,8

Selling

18,0

Aircraft operating leases

3,4

Landing fees and en route charges

11,7

Handling charges, catering and other

16,6

Accomodation, ground equipment and other

19,5

TOTAL

155,1

Costs of Ryanair

Load of competitors were only 6070%, load of Ryanair will be 100%.

Ryanair costs (prices in Irish pounds):

Staf (reduced by 31,8%, multiplied by 65%)

15,8

Competitors in Europe staff was not

as efficient as in US (in average,
708,2 passengers per staff member
in US, 341,2 passengers per staff
member in Europe).

Depreciation and amortization (multiplied by 65%)

5,6

Fuel and oil (multiplied by 65%)

20,6

Engineering and other aircraft costs (multiplied by

6,3

Staff efficiency of British Airways

482,9 passengers per staff member
(31,8% difference from US)

65%)
Selling (reduced by 31,8%)

12,3

Aircraft operating leases (multiplied by 65%)

2,2

Landing fees and en route charges (reduced by

8,0

Costs where staff is included (variable

costs) will be lowered by 31,8%.

31,8%)

Fixed costs will be spreaded for more

passengers (multiplied by 65%)

31,8%)

Handling charges, catering and other (reduced by

Accomodation, ground equipment and other

11,3

12,7

(multiplied by 65%)
TOTAL

94,8

Profit of Ryanair

Total revenue per ticket = 98 Irish pounds

Total costs per ticket = 94,8 Irish pounds

Profit per ticket = 3,2 Irish pound

Yearly profit = 3,2 *64240 (number of passengers) = 205 568

Irish pounds

Aer Lingus scenarios

Lowering prices

Aer Lingus sustains short term losses

155-98=57 Irish pounds lost per person

64240*57 = 3.6 million Irish pounds lost

If Ryanair retreats, old prices may prevail again

Leaving the market

Losses in trans-Atlantic flights

Low operating profit: 0.5 million Irish pounds

High operating profit in other activities

Maintenance services - 12.7 million profit

Non-airline services 17.1 million profit

British Airways scenarios

Expanding in other routes

The best time to expand in other routes and countries

Try to continue reach as many customers as it can

Leave Ryanair in local market

Push Ryanair out from the market

Lowering prices

Try to push out Ryanair from the market

Attract as many customers as it can

Which competitor Ryanair should

afraid more?

British Airways

Government support

Not afraid of losses

May compete with Ryanair for flight prices

Findings

The new route was profitable (profit of 3,2 Irish pound per ticket)

Very low price (significantly lower than competitors)

With such low price, Ryanair have an ability to attract travelers by

ferries (price difference is 48 Irish pounds, time difference is 8 hours)

However, Ryanair had nothing more to offer, besides lower price.

possible strategies of Aer Lingus

Most likely, they will let Ryanair come to the market, and will focus on
other kinds of businessess, in which they do perform well

possible strategies of British Airways

They will compete with Ryanair, because they can loose profit, while
theyre government funded company