Ryanair: Defying Gravity
Questions:
1. What is your assessment of Ryanair’s launch strategy?
1. Focused to develop core competence in low-cost short-haul airline.
2. Strategy was “lower than lowest current fares” on short high-demand high-growth routes.
3. Cut win-win deals with under-utilized 2nd tier airports.
4. Marketing objective: Acquisition-Stimulate demand with eye on stealing share from flag European carriers.
5. Target market was fare conscious customers who otherwise wouldn’t have travelled by air.
2. How do you expect Aer Lingus and British Airways to respond?
There could be 4 ways to respond:
1. Start price war with Ryanair by immediately reducing AL and BA prices: unsustainable due to high overheads.
2. Gradual cost cutting (staff reduction, less customer service, less perks, lower quality travel, outsourcing of services, etc.) to bring pricing structure in line with Ryanair: without losing core competence, brand value and profit at bigger stage where they are now profitable. However subsidizing non-profitable short-haul business with profitable long-haul business is unsustainable in long run.
3. Most likely response: Stick to own core competence as a high quality long-haul global airline. Let Ryanair fly on short-haul European routes and make tie-up with Ryanair or similar low-cost airlines to fly to small destinations for multi-point travelers to save own costs.
4. Acquire Ryanair and operate it as independent division maintaining Ryanair’s old management.
3. Reasons behind Ryanair's profitability?
Profitability:
1. Low Fixed Costs:
• Long-term deals with secondary airports asking low-fee that are closer to major airports.
• Purchase second-hand or low-cost planes.
2. Low overheads:
• Commonizing entire fleet to fuel efficient 737’s, reducing overheads and complexity in maintenance, training, servicing, quantity discount.
• Outsourcing of support services, e.g catering, baggage handling, maintenance, call centers.
• Variable pay to employees
1. What is your assessment of Ryanair’s launch strategy?
1. Focused to develop core competence in low-cost short-haul airline.
2. Strategy was “lower than lowest current fares” on short high-demand high-growth routes.
3. Cut win-win deals with under-utilized 2nd tier airports.
4. Marketing objective: Acquisition-Stimulate demand with eye on stealing share from flag European carriers.
5. Target market was fare conscious customers who otherwise wouldn’t have travelled by air.
2. How do you expect Aer Lingus and British Airways to respond?
There could be 4 ways to respond:
1. Start price war with Ryanair by immediately reducing AL and BA prices: unsustainable due to high overheads.
2. Gradual cost cutting (staff reduction, less customer service, less perks, lower quality travel, outsourcing of services, etc.) to bring pricing structure in line with Ryanair: without losing core competence, brand value and profit at bigger stage where they are now profitable. However subsidizing non-profitable short-haul business with profitable long-haul business is unsustainable in long run.
3. Most likely response: Stick to own core competence as a high quality long-haul global airline. Let Ryanair fly on short-haul European routes and make tie-up with Ryanair or similar low-cost airlines to fly to small destinations for multi-point travelers to save own costs.
4. Acquire Ryanair and operate it as independent division maintaining Ryanair’s old management.
3. Reasons behind Ryanair's profitability?
Profitability:
1. Low Fixed Costs:
• Long-term deals with secondary airports asking low-fee that are closer to major airports.
• Purchase second-hand or low-cost planes.
2. Low overheads:
• Commonizing entire fleet to fuel efficient 737’s, reducing overheads and complexity in maintenance, training, servicing, quantity discount.
• Outsourcing of support services, e.g catering, baggage handling, maintenance, call centers.
• Variable pay to employees