For the exclusive use of J. SICINSKI
Harvard Business School
Rev. November 21, 2007
Dogfight over Europe: Ryanair (A)
In April, 1986, the upstart Irish airline Ryanair announced that it would soon commence service between Dublin and London. For nearly a year, the new airline had operated a 14-seat turboprop between Waterford, in the southeast of Ireland, and Gatwick Airport on the outskirts of London. The founders of Ryanair, brothers Cathal and Declan Ryan, felt that service on that first route had developed well. They knew, however, that the Dublin-London route would pose new challenges. For the first time, they would face Aer Lingus, British Airways, and other established competitors on a major route. European Aviation
The environment in which the Ryan brothers launched their fledgling carrier had long been shaped by Europe’s national governments.1
Privately owned, commercial airlines sprang up in Europe following World War I. Soon, however, the governments of Britain, France, Germany, and other countries began to amalgamate the first, small airlines into national “flag carriers.” Each of these airlines literally carried the flag of its nation on the tails of its aircraft. Figuratively also, each airline carried the flag, serving as an international emissary. Predecessors of British Airways, Air France, Lufthansa, and others gradually became owned by, and subsidized by, their national governments. The route structures of British, French, Dutch, and Belgian flag carriers developed to serve the colonial aims of their respective governments. For instance, the aircraft of British Airways’ predecessor, the aptly named Imperial Airways, were familiar sights in India, South Africa, Australia, and other British outposts by the 1930s.2
Service focused on international routes from each nation’s capital to colonies, other areas of national influence, and the capitals of other European countries. Intra-country service was sparse, largely connecting provincial cities to the capital. Fares on domestic routes were often kept high to subsidize international service. World War II brought advances in aviation that made air travel widely economical for the first time. The aftermath of the war also brought the threat of American dominance in air travel. Had free competition been permitted on international routes, the efficient, privately owned carriers of the United States would likely have won the lion’s share of the market.3
A set of multilateral and bilateral agreements averted this outcome. The International Air Traffic Association (IATA), essentially a government-endorsed cartel of the major airlines, emerged to set international fares. Governments negotiated bilateral agreements that regulated all aspects of air travel between pairs of countries. In Europe, “pooling arrangements” became common. Under pooling, the routes between, say, France and Italy would be given strictly to Air France and Alitalia. The two flag carriers would Professor Jan W. Rivkin prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2000, 2007 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. This document is authorized for use only by Jan Sicinski in Strategic Management IBP 10-11 taught by Dr. TOMASZ LUDWICKI from October 2010 to April 2011. 1
For the exclusive use of J. SICINSKI 700-115
Dogfight over Europe: Ryanair (A) pool their capacity and revenue, then divide the proceeds in an agreed-upon manner....
Cited: Exhibit 4 British Airways Average Revenue and Cost per Passenger, 1986
Source: Case writer calculations, based on British Airways Prospectus, February 11, 1987.
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