Dogfight over Europe RyanAir B / C (individual graded) 1. What went wrong? Why did Ryanair move from a successful launch to near bankruptcy? One of the biggest reasons for Ryanair’s downfall was that it tried to position itself as a low fare airline along with having first-rate services. It kept an unrestricted fare while still focusing on the best customer service and relationship. Although the low price was able to get Ryanair the customer base it needed, the increase in sales was not enough to make up for the cost of the amenities that Ryanair promised to its customers.
This business model did not do sell well and proved to be very inefficient. Another significant reason was because of Ryanair’s expansion. It expanded its rounds to where some of its competitors were, specifically Aer Lingus. This overlap in routes led to a price war among the two companies. Ryanair tried to price its fares at 10% lower than its competitors which dug them deeper in a hole. The case also mentions that despite the route separation by the government, Ryanair continued to lose money – up until the January 1991.
Ryanair failed to anticipate and defend against retaliation from its competitors. Ryanair went head-to-head against its competitors in a very tough price-war which undermined the industry structure. The CEO commented that “Aer LIngus will, of course, compete to the very limit of our ability as we have always done”. 2. How did Ryanair move from bankruptcy to become one of the most profitable airlines? – One of the most important reasons why Ryanair turned around was because of their low cost strategy and became a low-cost, low-fare airline..
It dropped loss-making routes and planes redeployed on a handful of remaining routes. Ryanair turned its focus away from customer service and, as a result, was able to generate and preserve cash. For example, the case mentions that all in-flight amenities, such as free coffee and snacks, were eliminated. Additionally, labor contracts were renegotiated so that pay reflected productivity. As Ryanair started to eliminate its amenities and stray away from superior customer service, they dropped their fares substantially which caused passenger volumes to pick up.
U. S. financial analyst would proclaim Ryanair “the Southwest Airlines of Europe”. – In addition, Ryanair exclusively served secondary airports. These airports were not congested and made it easy to obtain landing slights and timely landing and departure times. Prior to opening a new route, Ryanair negotiated vigorously with airport authorities for low landing fees, low turnaround costs, and other incentives. Ryanair negotiated scheduled press conferences to announce new routes while negotiated with numerous airports at once.
These contracts gave Ryanair an edge over the competition because it lowered their fees and the contracts lasted 5-10 years. -Ryanair started using online booking through its website and used several computerized reservation systems which the travel agents were used to. The online booking reduced the number of its employees while the reservation systems increased customer satisfaction. – Ryanair also shifted its fleet to the Boeing 737 aircraft by buying at the end of the worldwide recession in the airline industry and getting very low prices which gave them a competitive edge. Ryanair’s changed its workplace environment also which helped it become more profitable. They made the environment informal and flexible so that it’s the employees could be more efficient and productive. Almost all employees were paid based on their productivity. These incentives were made so that the employees could put more effort. – From a marketing standpoint, Ryanair established itself as a low-cost, low-fare airline. Ryanair advertised in newspapers, radio and television. They relied heavily of word-of-mouth advertising by satisfied customers.
The case also mentions that “many customers found their way to Ryanair not because of advertising, but because they asked their travel agent for the absolute lowest fare. ” – Ryanair had many ancillary services that served as additional sources of revenue. On the flights, the spaces behind seat-back trays and on headsets were sold to advertisers. The case also mentions that “advertisers could emblazon the exterior of a Ryanair plane with a corporate logo for a fee of 150,000 – 200,000 per year”. In-flight magazines were also consisted purely of advertisements.
Ryanair made a profit on its publication, which was not common in the industry. Lastly, charter flights and car rental referral fees also brought in additional revenue. 3. What is the most serious threat Ryanair faces today? Why? How should they address it? Imitation is one of the most serious threats that Ryanair faces today. Even though Ryanair’s entire business model is to have a low-cost strategy, which it has done successfully, it is easily imitated by many entrepreneurial airlines as the case mentions, some of which have been successful and some of which not been so successful.
The ability for Ryanairs business model to be imitated is a big threat which is further extended because of the deregulation by the government which allows many airlines to enter the market and use the same strategy as Ryanair. The most serious threat that Ryanair faces is competition and rivalry from British Airway’s Go. Go has been able to use the strong brand image of British Airways to give their brand a competitive edge. Go is a low-cost airline that is still offering some of the service that British Airways is known for.
Passengers are still given a seat assignment, have available an on-board food franchise from a relatively upscale caterer, and has award winning coffee. All these amenities along with low-cost are going to differentiate Go from Ryanair. Customers will be willing to pay more for Go and they will be able to create and claim more value as a result. Additionally, According to Exhibit 5, Go has a lower average arrival day for all U. K. arrivals at 12. 0 minutes compared to Ryanair’s 15. 6 minutes. Portion of flights that arrive early or less than 15 minutes late are also higher for GO than for Ryanair.
Go is also doing much better than expected. In September, 1999, the company announced its first profitable quarter while Go’s original business plan called for 2001 to be the first profitable year. Because of all this competition, the only differentiating factor to compete on is price. Since prices are already so low, having price-wars have a huge impact on Ryanair’s profit margins. Ryanair needs to address this growing imitation, competition, and rivalry(specifically from a company like Go) before it is too late.
They need to control the low-cost segment of the market and ease Go out of the market. There are many potential ways in which Ryanair can address this issue. One recommendation that Ryanair should consider is the expanding outside Europe to a wider market, such as the transatlantic routes which account for more flights and more customers. By moving into this new market with its low fare strategy and added options, Ryanair can utilize its existing core competencies and further expand and control the low-cost segment of the market becoming a true leader in the market.