Dogfight over Europe: RyanairROKAS DIEDONIS

IEVA NAUJOKAITĖ

KAROLIS VAIŠNYS

EDVINAS VYŠNIAUSKAS

Introduction

Analysis of Ryanair company in 1986, new Dublin-London route

Competitors analysis

Ryanair‘s profitability of the new route

How Aer Lingus should respond?

How British Airways should respond?

Which competitor should Ryanair be more afraid of?

Our assessment of Ryanair‘s strategy

What‘s going on?

In 1986 Ryanair announced, that they will start flying between London and Dublin. The company were already operating since 1985, and were flying between Waterford (Ireland) and Gatwick (London, UK), with their 14 seats plane. Since the first route developed well, Ryan brothers decided to increase the list of routes with a new London-Dublin route.

British Airways

145 destinations in 68 countries

Fleet of 163 aircraft

Own passenger and ground services

171 retail shops

49,000 independent travel agents

Full range of classes of service

Aer Lingus

Partnership with BA until development of trans-Atlantic routes

Losses in the 1970s prompted to diversification

Maintenance service, engineer training, computer consulting, hotel business

Ryanair

1985, Ryan brothers

Dublin-London (secondary airports)

4 round trips per day with a 44-seat

Single fare for a ticket with no restrictions

Revenues of Ryanair

Ryanair managers assume, that plane will be always full

44 seats in the jet

4 trips a day

365 days in a year

98 Irish pounds per ticket

Number of passengers in a year = 365*4*44 = 64240

Revenue = 64240 * 98 = 6 295 520 Irish pounds per year

Costs of Ryanair

The case do not provide possible costs of Ryanair. However, there is given average revenues and average costs of competitor (British Airways) for the same Dublin-London route

British Airways average price of ticket: 166,5 Irish pound

Profit of 11,4 Irish pound

British Airways costs (prices in Irish pounds):  

Staff 35,7

Depreciation and amortization 8,6

Fuel and oil 31,8

Engineering and other aircraft costs 9,8

Selling 18,0

Aircraft operating leases 3,4

Landing fees and en route charges 11,7

Handling charges, catering and other 16,6

Accomodation, ground equipment and other 19,5

TOTAL 155,1

Costs of Ryanair

Load of competitors were only 60-70%, load of Ryanair will be 100%.

Competitors in Europe staff was not as efficient as in US (in average, 708,2 passengers per staff member in US, 341,2 passengers per staff member in Europe).

Staff efficiency of British Airways – 482,9 passengers per staff member (31,8% difference from US)

Costs where staff is included (variable costs) will be lowered by 31,8%.

Fixed costs will be spreaded for more passengers (multiplied by 65%)

Ryanair costs (prices in Irish pounds):  

Staff (reduced by 31,8%, multiplied by 65%) 15,8

Depreciation and amortization (multiplied by 65%) 5,6

Fuel and oil (multiplied by 65%) 20,6

Engineering and other aircraft costs (multiplied by

65%)

6,3

Selling (reduced by 31,8%) 12,3

Aircraft operating leases (multiplied by 65%) 2,2

Landing fees and en route charges (reduced by

31,8%)

8,0

Handling charges, catering and other (reduced by

31,8%)

11,3

Accomodation, ground equipment and other

(multiplied by 65%)

12,7

TOTAL 94,8

Profit of Ryanair

Total revenue per ticket = 98 Irish pounds

Total costs per ticket = 94,8 Irish pounds

Profit per ticket = 3,2 Irish pound

Yearly profit = 3,2 *64240 (number of passengers) = 205 568 Irish pounds

Aer Lingus scenarios

Lowering prices

Aer Lingus sustains short term losses

155-98=57 Irish pounds lost per person

64240*57 = 3.6 million Irish pounds lost

If Ryanair retreats, old prices may prevail again

Leaving the market

Losses in trans-Atlantic flights

Low operating profit: 0.5 million Irish pounds

High operating profit in other activities

Maintenance services - 12.7 million profit

Non-airline services – 17.1 million profit

British Airways scenarios

Expanding in other routes

The best time to expand in other routes and countries

Try to continue reach as many customers as it can

Leave Ryanair in “local” market

Push Ryanair out from the market

Lowering prices

Try to push out Ryanair from the market

Attract as many customers as it can

Which competitor Ryanair should afraid more?

British Airways

Government support

Not afraid of losses

May compete with Ryanair for flight prices

Findings

The new route was profitable (profit of 3,2 Irish pound per ticket)

Very low price (significantly lower than competitors)

With such low price, Ryanair have an ability to attract travelers by ferries (price difference is 48 Irish pounds, time difference is 8 hours)

However, Ryanair had nothing more to offer, besides lower price.

Three possible strategies of Aer Lingus Most likely, they will let Ryanair come to the market, and will focus on

other kinds of businessess, in which they do perform

Two possible strategies of British Airways They will compete with Ryanair, because they can loose profit, while

they‘re government funded company

Thank you for your attention!