Before the idea of Ryanair or indeed any low cost carrier was even devised the European airways industry was, as already illustrated, highly regulated. Therefore post 1992 and deregulation, great changes came about. By identifying with Porter’s “five forces,” one is able to ascertain what this meant for Ryanair within the European air transport market. These five factors are threat of entry, competitive rivalry, bargaining power of suppliers, bargaining power of buyers and the threat of substitutes.
Threat of Entry
Threat of entry analyses the threat that new entrants may enter the industry and diminish the returns of established companies. In the case of Ryanair a strong brand identity built up over the period since deregulation has meant that any potential new entrants would have to outlay quite an amount of money in terms of sunk costs in advertising to compete on a level playing field. Allied with this, direct bookings on the Ryanair website has meant that there have been savings in the region of 42.6% in marketing and distribution costs.
The cost of increased competition can be quite high with customers benefiting from price wars between rival airlines. This is why Ryanair has an advantage over other airlines because their policy of bundling low frills and low prices together means that they are competing for the more price sensitive customer. Demand for short haul flights around Europe is ever expanding. It is however vital that Ryanair were among the first movers because many ‘copycat’ airlines have tried to follow suit. Davy (2003) believes that there are only two pan-European low cost operators where first mover advantage and scale and cost efficiencies gave the two largest players, Ryanair and Easyjet, a significant advantage. In fact, since deregulation, of the 80 low cost operators that had begun operations, 60 had gone bankrupt (Lee, 2000). Michael O’Leary is so confident that this particular aspect of...