Dogfight over Europe: Ryanair (A) 1) What is your assesment of Ryanair? s launch strategy? The Ryanair's launch strategy was not the best for that moment. They began flying between Ireland and London, in a very saturated market, which competed with two strong companies owned by the government and with great experience: Aer Lingus and British Airways (who also had come together to improve their perform). And also entered the market independent carriers Such as British Midland.
Another important factor was that the Dublin-London route was the only one that provided reasonable returns for Aer Lingus, so it was not going to let customers easily take him by force, and Ryanair will be difficult without a really differentiating strategy. Ryanair's differentiate notion was delivering first-rate customer service "with lower fares”. But for a new company as Ryanair would not be able to compete in prices following the same strategy as other companies in the market focus on meals and amenities and good service.
Ryanair also has high fixed costs (characteristic of this industry) and has enough volume in order to face a price war (economics of scale). Although the market was saturated, Ireland is a small country with a small population and the two big companies were operating at 60-70% capacity. If since 1986 was using new Boeing 747s with room for nearly 400, means that every plane carried 360 passengers on average, which was down the performance of the planes.
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But on the other hand, Ryanair could only get a license for aircraft with room for 44 Passengers, so it had to make eight flights, with the maximum capacity to carry the same number of passengers than BA or Aer Lingus. This could decrease the efficiency of Ryanair and increase the cost per flight management. Although it also because of the low initial demand Ryanair (only 4 flights per day to 44 passengers, 176 passengers) can be a good strategy to distribute the flights throughout the day and get more customers.
Moreover this market consists mostly by Irish emigrants who resided in the UK. These clients are marked by strong seasonal character, and the most important, the majority of customers traveling in economy class and they are very price sensitive, so we are going to be interested in low prices and discounts and are not interested in great facilities and services. Again we see that Ryanair's idea was not the most appropriate for this market, ecause although Ryanair turn down the price, customers will be more interested in large decreases in the price. Meals also make little sense in a flight of one hour duration. In favor of Ryanair we have to say however, that it test the initial service between Waterford y ? Gatwick Airport, which was a small service, in order to prove the company? s ability to operate. So if the company had problems or losses would be on a large scale and this would give you the ability to identify problems and improvements.
Similarly, although Ryanair did not get expected outcomes, with their low prices, I think it would get take away some customers to the other companies and have started to consider the proposal in the market. To sum up, The Ryanair? s launch strategy wasn? t successful from my point of view because it did not do a good analysis the market to which was coming and did not calculate the chances of success between these two great companies.
They were strong companies with experience and great brand recognition, so if prices dropped to the level of Ryanair and Ryanair provides the same service to the market, customers will continue to use the companies that are already used. 2) How do you expect Aer Lingus and British Airways to respond? Why? As I said earlier, the only differentiation of was in the price Ryanair, therefore the immediate reaction of Aer Lingus and British Airways will be reduce the price. If these two companies started a price war, Ryanair would have no chance.
They were flag carriers and they had the support of the government, so they can have loses during a while of time, at least until they get Ryanair out of the market. On the other hand, B. A was one of the biggest aircraft of Europe and it has an operating margin of 6. 9%, because of B. A can decreased the price at Ryanair level (? 98). While, the Dublin- London route was the only for Aer Lingus, with reasonable return of capital. Therefore is not going to let easily Ryanair steal their clients. ) How costly is it for Aer Lingus and British Airways to retaliate against Ryanair? s launch? Even though, as we think the launch of Ryanair was not successful or at least the outcomes did not reach the expected ones, was a new competitor in the market and also with a more competitive price than theirs so it is threat their capability to meet demand.. With price-sensitive customers such as travelers between Ireland and UK I believe that the two companies would lose customers. Furthermore, a price war is never good for any company, even if it will be winner.
These two companies would have to reduce their prices to more than half the normal price, which would generate losses until they get Ryanair out and this would weaken the two companies. If these companies reduce so much the price, once they get Ryanair out of the market, they can not automatically raise the price to the previous number because customers would feel cheated and companies would lose their credibility. If Aer Lingus and British Airways didn? t get Ryanair out with the war of Price, they would get only weaken themselves and lose the most profitable route for Aer Lingus.
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