mkt - group 7 - ryanair - case analysis

8/4/2019 MKT - Group 7 - Ryanair - Case Analysis

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INDIAN INSTITUTE OF MANAGEMENT, UDAIPUR

Dogfight Over Europe: Ryanair (A)Case Analysis

GROUP 7

P.Swetha (111030)

Anupam Bara (111008)

Vaibhav Baweja (111056)

Jasdeep Singh (111018)

Pritesh (111037)


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Overview

Cathal Ryan and Declan Ryan have started Ryanair since 1985. For nearly a year, Ryanair had

operated a 14-seat turboprop between Waterford and Gatwick Airport on the outskirts of

London. The airline targeted low-fare segment market. It initiated service from Londons

secondary airports. In terms of competition, Waterford and Gatwick didnt pose any

challenges.

In 1986, Ryanair gained a license to operate between Dublin and Luton, another secondary

airport of London. In that year, they announced the commencement of service from Dublin

and London. On this route, British airways (BA) and Aer Lingus were already operating. This

route is considered to be the lucrative and competitive route in Europe. Ryanair claimed to

give first-rate customer service at I 98. The price posed by Ryanair was cheaper as compare

to price posed by BA and Aer Lingus.

Ryanair was founded by Cathal and Declan Ryan with the help of their father, Tony Ryan,

who invested I 1 million. Ryanair primarily targets fare conscious and business travellers

who might otherwise not travelled at all or use other methods of transport such as ferries or

trains.

Case Analysis

Using triangulation technique, we shall be analysing the case on viewpoints of

Ryanair Market strategy against existing air carriers British Airways Defending market share

Aer Lingus Market Challenger strategy

Ryanair Market strategy against existing air carriers:

To capture the market share from the market leader British Airways and Market Challenger

Aer Lingus, it is important for Ryanair to identify its competitors strengths and weaknesses.

Customer

Awareness

Product

Quality

Product

Availability

Technical

Assistance

Selling

Staff Price

British Airways E G E E E P

Aer Lingus F F P G G F

*E = Excellent G = Good F = Fair P = Poor

British Airways is the market leader, and the only front for it to attack British Airways is at

the price point. Ryanair publicized a fare of I98 for a ticket with no restrictions. Aer Lingus

and BAs least expensive, unrestricted round-trip fares on the route were priced at I208.

Discount fares as low as I99 were available, though they had to be booked one month in

advance.


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Nevertheless, Ryanair needs to evaluate its operating expenses and check whether such a

drastic drop in market prices can be sustained by it.

British Airways Defending market share

British Airways, being the market leader in the given market scenario can take the followingsteps to protect its market share

1. Reduce prices to compete with RyanairAs can be understood from the analysis given below, if British Airways can cut its

staffing by 25%* and increase its utilization to 90% from 60%, it shall be able to

reduce the prices significantly to I104, still I6 more than Ryanair. As British

Airways is a renowned market leader, people would be inclined to travel by British

Airways by paying the I6 extra than by a relatively unknown carrier Ryanair. Also,

such a reduction in tariff on all of BAs routes might not be necessary. It can verywell position separate flights/routes for this rate so as to offset any reduction in

utilization through profits in other routes.

British Airways BA Optimized

BA with 90%

capacity utilization

and reduced

staffing Ryanair

I

Percent of

Revenue I I I

Total Revenue 3,06,36,00,000 2,87,78,93,400 2,87,04,00,000

Customers 1,84,00,000 1,84,00,000 2,76,00,000

Revenue per

Customer 166.5 156.4 104 98

Operating

Expenses

Staff 35.7 21% 26.775 22.30 21.2

Depreciation 8.6 5% 8.6 5.37 5.1

Fuel 31.8 19% 31.8 19.86 18.9

Engineering 9.8 6% 9.8 6.12 5.8

Selling 18 11% 18 11.24 10.7

Aircraft Operating 3.4 2% 3.4 2.12 2.0

Landing Fees and

En Route Charges 11.7 7% 11.7 7.31 7.0

Handling charges,

Catering 16.6 10% 16.6 10.37 9.9

Accommodation,

Ground Equipment 19.5 12% 19.5 12.18 11.6

Total Operating

Expenses 155.1 93% 146.2 96.9 92.2

Gross Profit 11.4 10.2 7.1 6.8


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Profit Percentage 7% 7% 7% 7%*The cut in staffing is assumed to be plausible as per Exhibit 2 of the case sheet, US Airlines operate at half the staff per aircraft compared

to European Airlines.

2. Position itself as a luxury business carrierBA can effectively position itself as a luxury business carrier with improved

customer services to attract a limited number of customers who give better profits.

3. Contraction defenceFrom the above analysis, it can be inferred that BA only marginally loses by giving

up a small amount of its market share to Ryanair. Therefore, a contraction defense

strategy might be a better bet for British Airways. This however, does leave the

market open for the new entrant Ryanair and leaves potential chances for Ryanair

to become a direct competitor to British Airways in other routes also.

Conclusion

The entry in airline industry is easy but the exit is difficult due to high amount of investment involved

in this industry. Therefore, Ryanair should weigh its expenses before announcing such cheap ticket

prices. British Airways is a market leader having wide reach in the industry and Ryanair shall hardly

affect its market. Therefore, BA should assess its operating expenses before starting a price war

with Ryanair. It is better for British Airways to excel in its customer service. It can also cut its

operating costs by reducing number of staff and increasing effective utilization by giving attractive

packages to bulk consumers or by having tie ups with corporates.

mkt - group 7 - ryanair - case analysis

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