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INDIAN INSTITUTE OF MANAGEMENT, UDAIPUR

Dogfight Over Europe: Ryanair (A)


Case Analysis

GROUP 7
P.Swetha (111030) Anupam Bara (111008) Vaibhav Baweja (111056) Jasdeep Singh (111018) Pritesh (111037)

Overview Cathal Ryan and Declan Ryan have started Ryanair since 1985. For nearly a year, Ryanair had operated a 14-seat turboprop between Waterford and Gatwick Airport on the outskirts of London. The airline targeted low-fare segment market. It initiated service from Londons secondary airports. In terms of competition, Waterford and Gatwick didnt pose any challenges. In 1986, Ryanair gained a license to operate between Dublin and Luton, another secondary airport of London. In that year, they announced the commencement of service from Dublin and London. On this route, British airways (BA) and Aer Lingus were already operating. This route is considered to be the lucrative and competitive route in Europe. Ryanair claimed to give first-rate customer service at I 98. The price posed by Ryanair was cheaper as compare to price posed by BA and Aer Lingus. Ryanair was founded by Cathal and Declan Ryan with the help of their father, Tony Ryan, who invested I 1 million. Ryanair primarily targets fare conscious and business travellers who might otherwise not travelled at all or use other methods of transport such as ferries or trains. Case Analysis Using triangulation technique, we shall be analysing the case on viewpoints of Ryanair Market strategy against existing air carriers British Airways Defending market share Aer Lingus Market Challenger strategy

Ryanair Market strategy against existing air carriers: To capture the market share from the market leader British Airways and Market Challenger Aer Lingus, it is important for Ryanair to identify its competitors strengths and weaknesses.
Customer Awareness E F Product Quality G F Product Availability E P Technical Assistance E G Selling Staff E G

British Airways Aer Lingus

Price P F

*E = Excellent G = Good F = Fair P = Poor British Airways is the market leader, and the only front for it to attack British Airways is at the price point. Ryanair publicized a fare of I98 for a ticket with no restrictions. Aer Lingus and BAs least expensive, unrestricted round-trip fares on the route were priced at I208. Discount fares as low as I99 were available, though they had to be booked one month in advance.

Nevertheless, Ryanair needs to evaluate its operating expenses and check whether such a drastic drop in market prices can be sustained by it. British Airways Defending market share British Airways, being the market leader in the given market scenario can take the following steps to protect its market share 1. Reduce prices to compete with Ryanair As can be understood from the analysis given below, if British Airways can cut its staffing by 25%* and increase its utilization to 90% from 60%, it shall be able to reduce the prices significantly to I104, still I6 more than Ryanair. As British Airways is a renowned market leader, people would be inclined to travel by British Airways by paying the I6 extra than by a relatively unknown carrier Ryanair. Also, such a reduction in tariff on all of BAs routes might not be necessary. It can very well position separate flights/routes for this rate so as to offset any reduction in utilization through profits in other routes.
BA with 90% capacity utilization and reduced staffing
I

British Airways
I Percent of Revenue

BA Optimized
I

Ryanair
I

Total Revenue Customers Revenue per Customer Operating Expenses Staff Depreciation Fuel Engineering Selling Aircraft Operating Landing Fees and En Route Charges Handling charges, Catering Accommodation, Ground Equipment Total Operating Expenses Gross Profit

3,06,36,00,000 1,84,00,000 166.5

2,87,78,93,400 1,84,00,000 156.4

2,87,04,00,000 2,76,00,000 104 98

35.7 8.6 31.8 9.8 18 3.4 11.7 16.6 19.5 155.1 11.4

21% 5% 19% 6% 11% 2% 7% 10% 12% 93%

26.775 8.6 31.8 9.8 18 3.4 11.7 16.6 19.5 146.2 10.2

22.30 5.37 19.86 6.12 11.24 2.12 7.31 10.37 12.18 96.9 7.1

21.2 5.1 18.9 5.8 10.7 2.0 7.0 9.9 11.6 92.2 6.8

Profit Percentage

7%

7%

7%

7%

*The cut in staffing is assumed to be plausible as per Exhibit 2 of the case sheet, US Airlines operate at half the staff per aircraft compared to European Airlines.

2. Position itself as a luxury business carrier BA can effectively position itself as a luxury business carrier with improved customer services to attract a limited number of customers who give better profits. 3. Contraction defence From the above analysis, it can be inferred that BA only marginally loses by giving up a small amount of its market share to Ryanair. Therefore, a contraction defense strategy might be a better bet for British Airways. This however, does leave the market open for the new entrant Ryanair and leaves potential chances for Ryanair to become a direct competitor to British Airways in other routes also. Conclusion
The entry in airline industry is easy but the exit is difficult due to high amount of investment involved in this industry. Therefore, Ryanair should weigh its expenses before announcing such cheap ticket prices. British Airways is a market leader having wide reach in the industry and Ryanair shall hardly affect its market. Therefore, BA should assess its operating expenses before starting a price war with Ryanair. It is better for British Airways to excel in its customer service. It can also cut its operating costs by reducing number of staff and increasing effective utilization by giving attractive packages to bulk consumers or by having tie ups with corporates.