IIMRAIPUR

Group Number : 3

Bir Bahadur Singh, 12PGP014Rahul Khedkar, 12PGP022Amit Singh Chauhan,12PGP060Saif Uddin Shaik,12PGP092

Group Members

A C SASSIGNMENT

Dogfight over Europe: Ryanair

Post World War I

Europe

• Pooling arrangement

• Domestic Fares were set by government

Post World War II

Air France

Alitalia

•Pool Capacities•Divide their proceeds

• Highly regulated air market was criticized.

• Charter airlines grew rapidly

• 1978 U.S deregulated domestic airlines.

• By 1992 European airlines also gets deregulated.

1950 and Beyond

RYANAIR• Cathal and Declan Ryan Initiated Ryanair in 1985.• 1986 started operation on London-Dublin route.• BA and Aer Lingus reacted aggresively.• Ryanair played price war.• Losses kept on mounting.• In 1991 – on the verge of financial collapse.

• By 1999 – one of the most profitable airlines in the world.

Ryanair

How did Ryan air move from the blink of bankruptcy to become one of the most profitable airline in the world?

Ryanair Initial Positioning

Price Leader Premium Competitive

Features Original Customized Basic

Quality Excellent Average Acceptable

Support Comprehensive Standard Minimal

Reputation Prestigious Respected Functional

Ryanair Launch Strategic framework

• Head-to-Head Competition• Lack of knowledge of Industry

Structure

External Consistency

• Full amenities at low priceInternal

Consistency

• Unable to anticipate retaliationDynamic

Consistency

NO SUSTAINABLE ADVANTAGE

Ryanair New Strategic framework

•Advantage of Deregulation•Early Entry

External Consistency

•Customer/Geographic Scape•Smart destination Selection•Standardised Fleet•Productivity based pay•Multi Revenue Sources•Heavy emphasis on maintenance

Internal Consistency

•Good job of anticipating future.•Least overlapping route.

Dynamic Consistency

Ryanair Launch Strategic framework

• Lower prices than competitors– 50% below previous levels

• Cost Reduction– No frills– Higher utilization of aircrafts– Fewer personnel

• Other source of Revenue– Ancillary Revenue

• Advertisement– Space behind seat-back trays– Aircraft’s exterior– In-flight magazine

– Yield management to reduce fares

Ryanair Strategic framework

• Operation from Secondary Airports:– Torp, 65 miles from Oslo; Char-leroi, 37 miles from Brussels;

Beauvais, 35 miles from Paris.– low airport charges. Some airports paid in return.– less congested airports also helped the company to reduce

turnaround time and increase airtime

• Point-to-point Network: – lower turnaround time– No connecting flights, No flight transfers or luggage labelling

• In-flight sales of Items : 5 -7 % of Ryanair’s revenue

Ryanair Strategic framework

• Zero Frills: – No free food or beverages.

• Reduce per flight attendants from 5 to 2.

– No frequent flyers miles/ loyalty programs or plush airport lounges– Extra pay for food, drink– No printed tickets and encouraged guests for online check-in– No refund for any no-show of guests

• Efficient Aircraft Utilization: – No Seat assignment

• Speed up boarding– Stopped carrying cargo– Turnaround time reduced from previous 45 minutes to 25 minutes– 12 roundtrips a day Stansted-Dublin route

• Simple Standardised Operations: – Harmonized and streamlined operations – Single type of aircraft. Replaced 14 types of planes to single Boeing

737s– Reduced costs of training , maintenance, inventories of spares and

parts– Standard Operating Procedures (SOPs) ensured uniformity of services– Single class seating plan– Avoided expensive “air bridges”

• Leaner Distribution System: – Direct bookings accounted 40%– Avoided complex task of integrating sales offices, travel agents, online

booking system

Ryanair Strategic framework

Current Positioning

Price Leader Premium Competitive

Features Original Customized Basic

Quality Excellent Average Acceptable

Support Comprehensive Standard Minimal

Reputation Prestigious Respected Functional

What are the most serious threats that Ryanair face

today?

THREATS Increase in competition due to Deregulation

131 carriers entered the european market from 1993 -1998

•In 1996, Richard Branson purchased Eurobelgian airlines.•In 1998, operated roughly 40 flights per day.•Healthy Growth in revenues but profit remained a concern.

•In 1995, Haji-Ioannoe founded easyjet.•The company relied on third parties for most of the services.•In 1999, easy jet operated on 29 European routes

•In 1995, Franco Mancassola funded Debonair.•Philosophy “lowest fare with minimal restrictions and no compromise on comfort.”•In 1999, grounded its fleet and called for bankruptcy.

COMPARISONRyanair Virgin EasyJet Go Debonair

Operation

•Used secondary airport.•Reduced commissions to travel agent•Contracted ground work.

•40 Flights per day in Belgium•45% seats are purchased by Sabena

•3rd parties managed all activities•Operated from Luton

•Low fares combined with Style•Used BA’s muscles.

•Lower fares with full comfort.

Marketing & Sales

•No Advertising•Yield Management

•Invested heavily to draw you•Reservation through Call centres.

•Direct Selling Model•Invested heavily on new route promotion.

• Extensive advertising

and branding

•38% tickets sold through own office.•58% Business travellers

Services•No Frills•In flight sales

•Minimum Frills •No Frills

•Minimum Frills•Seat Assignment

•Decent Frills•In flight entertainment system

Other

•Advertising in flight.•Charter flights and car rentals

•Chartered Flights

•Culture Committee elected by staff.

•High Quality Collaborators

•Frequent flyer program

Rise in Fuel Prices – Contributes 16% of total operating costs (Exhibit 2)

Terrorism & Security – 9/11 Attack

No Brand Loyalty In the absence of any relationship management program it will be

difficult to retain customers. Poor On-time performance

High average arrival delay(Exhibit 5) Industry Criticism Criticized in Media as World’s least preferred air lines

THREATS

Increase in Airport charges Secondary airport are also started raising their charges

Environmental Pressures low-cost airlines are a rapidly growing source of greenhouse gas

emissions, as well as noise. Involvement in Price war

Dropped fare to 22 destinations to fight with Go

Currency movements–  High proportion of Ryanair’s costs are in US dollars, making it

vulnerable to a strengthening of the dollar. Substitute Transportation

No Switching Cost

THREATS

How serious is the challenge posed by GO?

• In November 1997, British Airways(BA) unveiled ‘Operation Blue Sky’, a plan to launch a low-cost, no-frills subsidiary.

• Go Started operations in May 1998, with eight 737-300s.

• BA tapped Barbara Cassani, a long time U.S. general manager for BA, to head the new venture.

• Go received UK£ 25 million in startup funding from BA.

• BA and Go claimed that Go was on its own and separate from its parent.

Go

• Haji-Ioannou, easyJet, claimed that they are copying us.

• They filed a case against Go, suit charged that BA supported Go indirectly by underwriting its airplanes leases and providing insurance, advertising and other services at a discount.

• easyJet claimed that Go will incur losses and BA intended Go to put other low-fare airlines out of business . Offered free tickets to people predicting Go’s losses.

• Richard Branson, Virgin Express said “BA has done lot of anticompetitive things over the years, I think they are determined to get rid of low-cost carriers and subsidize Go to make it happen”. They dropped fares below the Go’ introductory fares.

• Ryanair said “BA should stick to what it does best- charging high prices for an excellent service”. As Go launched, Ryanair dropped prices to 22 destinations.

Reaction of competitors to Go’s entry

Go’s service is different from other low cost airlines:• They gave seat assignments to passengers• Gave food franchise to a upscale caterer • Extensive advertising • Tried to combine low fares with style and quality

Performance: • Incurred losses of UK£20 million in 1st year • Load factor was low• Average arrival delay was low.• 2001 was the only profitable year after the launch in

1998.

GO’s Service and performance

IS GO A THREAT FOR RYANAIR ?

Yes NoGo has got a strong parent BA with

deep pocketsOfferings of Go is not sustainable in highly

competitive industry

Go's offering are "low fares with style and quality"

BA have experience of giving excellent service at high price and not of low cost

service

Competitors had to drop fares on launch of Go Since its launch Go is in losses

 High cost for Go in

advertising/promotions/branding

 Go competes with Ryanair at only one route

out of its 17 routes

• Go is not a threat for Ryanair as it has got more experience of running a low cost low fare airline.

• And also Go’s offerings are not sustainable and it will be in losses for a long time posing a threat for its existence.

Conclusion

What should Michael O’Leary do?

Ryan Air Strategies

Try to expand its existing network by acquiring some local carriersDeregulation saw emergence of many new players. Out of

the 131 new entrants only 57 survived.

Ryanair can acquire some of the defunct and small players to strengthen their local presence in small pockets of Europe.

Its presence in such small Hamlets of Europe might also give rise to increased air traffic in these regions

Focus more on online booking: Ryanair should encourage booking of tickets online they

may achieve so by providing special discounts.

This would help them to reduce staff and maintenance of physical reservation kiosks.

Moreover it would also reduce cost of information dissemination as they could do it through their websites.

Ryan Air Strategies

Novel Cost Cutting Measures:

They should come up with novel cost cutting measures and pass on the benefits to the consumer.

• Some of these novel cost cutting measures can be:– No Window Blinds– No Reclining Seats – Velcro Headsets

They can implement some of these techniques at a small level and if successful can scale them up

Ryan Air Strategies

Revenue Enhancement: They can come up with different techniques to generate

revenue onboard.

Paid Television, Internet or games for long distance flights.

Charging for use of mobile phone on board.

Preferential Exits: In case a passenger has to catch a connecting flight or in a hurry he can pay extra so that when the plane lands he is given priority over other passengers.

Ryan Air Strategies

Improving Capacity Utilization: Over the years capacity utilization for Ryanair has gone down as depicted in the chart.

Special Pricing for the remaining seats can be done.

Offers such as “kids fly for free” can be introduced.

1992 1993 1995 1996 1997 1998 1999

80% 79% 76% 73% 72% 72% 71%

Ryan Air Strategies