Ryan Air Final

IIM

ACS

RAIPUR

ASSIGNMENT

Dogfight over Europe: Ryanair Group Number : 3 Group Members Bir Bahadur Singh, 12PGP014 Rahul Khedkar, 12PGP022 Amit Singh Chauhan,12PGP060 Saif Uddin Shaik,12PGP092

Post World War I

Europe

Post World War II • Pooling arrangement Air France Alitalia •Pool Capacities •Divide their proceeds

• Domestic Fares were set by government

1950 and Beyond • Highly regulated air market was criticized. • Charter airlines grew rapidly • 1978 U.S deregulated domestic airlines. • By 1992 European airlines also gets deregulated.

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 External Consistency

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

Internal Consistency

• Full amenities at low price

Dynamic Consistency

• Unable to anticipate retaliation

NO SUSTAINABLE ADVANTAGE

Ryanair New Strategic framework External Consistency

• Advantage of Deregulation • Early Entry

Internal Consistency

• • • • • •

Dynamic Consistency

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

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

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

Ryanair Strategic framework • 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

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.

COMPARISON Ryanair

Operation

Marketing & Sales

Virgin

EasyJet

•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

•No Advertising •Yield Management

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

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

Services

•No Frills •In flight sales

Other

•Advertising in flight. •Charter flights and car rentals

•Minimum Frills

•Chartered Flights

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

•Extensive advertising and branding

Debonair •Lower fares with full comfort.

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

•No Frills

•Minimum Frills •Seat Assignment

•Decent Frills •In flight entertainment system

•Culture Committee elected by staff.

•High Quality Collaborators

•Frequent flyer program

THREATS  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

How serious is the challenge posed by GO?

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.

Reaction of competitors to Go’s entry • 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.

GO’s Service and performance 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.

IS GO A THREAT FOR RYANAIR ?

Yes

No

Go has got a strong parent BA with deep pockets

Offerings 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

Conclusion • 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.

What should Michael O’Leary do?

Ryan Air Strategies Try to expand its existing network by acquiring some local carriers Deregulation 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

Ryan Air Strategies 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. 1992

1993

1995

1996

1997

1998

1999

80%

79%

76%

73%

72%

72%

71%

 Special Pricing for the remaining seats can be done.  Offers such as “kids fly for free” can be introduced.