INDIAN INSTITUTE OF MANAGEMENT INDORE

MARKETING MANAGEMENT 1
GMPE, Batch 4

Prof. Jayasimha K R

Assignment Submission: Case Analysis

RYANAIR

By: Vishal Bharani, GMPE, Batch 4

17/06/2018
 Dogfight Over Europe: Ryanair (A)| Case Analysis

Introduction:
Ryanair was founded by two brothers Cathal and Declan Ryan in the year 1985. It was funded
by their father Tony Ryan, who worked for Aer Lingus and later owned 10% stake in Guinness
Peak Aviation as a co-founder, which gave him sufficient wealth to invest in Ryanair.

Ryanair started their first scheduled service with 14-seat turboprop between Waterford
(Ireland) and Gatwick (London, U.K.) airport, which is one of London’s secondary airport. The
successful operation of this initial service proved company’s ability to operate scheduled airline.
Later, in the year 1986, Ryanair gained license to operate between Dublin and Luton, which is
another London’s secondary airport.

Competition wise, the Waterford-Gatwick route didn’t pose any challenges. But on the other
hand, British Airways (BA) and Aer Lingus are already operating on Dublin-Luton route. These
two airlines can give serious competition to Ryanair’s new service on Dublin-Luton route.

British Airways and Aer Lingus are already established airlines on this route and have occupancy
of 60-70%. Nearly half a million passengers fly the route every year and this number had been
stagnant for ten years.

Situation of each airline:

 British Airways:-

British Airways operates one of world’s largest airline network. It serves 145 destinations in 68
countries and carries the most number of international passengers. BA has a fleet of 163
aircrafts and sells tickets in 171 retail shops worldwide. In addition BA supports computerized
reservations and has 49000 independent agents with ability to book tickets. BA has full range of
classes of service having varying restrictions and ticket prices. BA is known for its in-flight
amenities.
  Aer Lingus:-

Aer Lingus was supported by Government in its initial days after its inception in 1936 and was in
loss for many years until in 1950 did it earn profit for 2 consecutive years. Facing problems on
North Atlantic corridor in 1970 and the subsequent losses, prompted for its diversification. It is
actively working in maintenance service, engineer training, computer consulting and hotel
business along with air transportation. A minute part of its revenue comes from air
transportation.

 Ryanair:-

Ryanair is planning on to operate between Dublin and Luton, which is their second route. They
intend to run four round trips per day with a 44-seat turboprop and want to focus on delivering
first-rate customer service along with single fare for a ticket with no restrictions at 98 Irish
Pounds.

Case Analysis:
As explained above, Ryanair wants to operate on new Dublin-Luton route on which British
Airways and Aer Lingus already operates. Ryanair intends to capture customer base through
competitive pricing and first-rate customer service. There are various factors involved which
dictate the future course action of all the three airlines. They are as follows:-

 Revenues of Ryanair:

The managers working for Ryanair believes that they will be having 100% in-flight occupancy for
their new route. Below is the revenue calculation

 There are 44 seats in the turboprop which Ryanair is going to operate on new route.
 They will make 4 round trips per day. Thus, 8 one way trips.
 365 days a year.
 The tickets are fixed at 98 Irish Pounds.

Thus number of passengers travelling with Ryanair on their new route comes out to be 128480
(365*44*4*2) and the total revenue generated will be 12,591,040 Irish Pounds (128480*98).
  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. The
average ticket price for BA was 166.5 Irish Pounds and earned a profit of 11.4 Irish Pounds.

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

 Competitors in Europe staff were not as efficient as in US (in average 708.2 passengers
per staff member in US and 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 spread for more passengers (multiplied by 65%)

Costs (prices in Irish Pounds) BA Ryanair

Staff (Reduced by 31.8% and multiplied by 65% for Ryanair) 35.7 15.8
Depreciation & Ammortization (multiplied by 65% for Ryanair) 8.6 5.6
Fuel & Oil (multiplied by 65% for Ryanair) 31.8 20.6
Engineering & other aircraft costs (multiplied by 65% for Ryanair) 9.8 6.3
Selling (reduced by 31.8% for Ryanair) 18.0 12.23
Aircraft operating leases (multiplied by 65% for Ryanair) 3.4 2.2
Landing Fees and en route charges (reduced by 31.8% for Ryanair) 11.7 8.0
Handling Charges, Catering & Other (reduced by 31.8% for Ryanair) 16.6 11.3
Accomodation, Ground equipment & other (multiplied by 65% for 19.5 12.7
Ryanair)
TOTAL 155.1 94.8

Thus, we can see that the total cost per ticket for Ryanair comes out to be 94.8 Irish Pounds.

 Profit of Ryanair:

The total profit for Ryanair for this route will be as follows:-

 Total revenue per ticket is 98 Irish Pounds.

 Total costs per ticket is 94.8 Irish Pounds.
 So profit per ticket comes out to be 3.2 Irish Pounds.
 Thus, yearly profit would be 411136 Irish Pounds (3.2*128480(No of passengers)).
 Aer Lingus Scenarios:

There are 2 paths which Aer Lingus may follow:-

1) Lowering Prices-
 Aer Lingus sustains a short term losses of 57 Irish Pounds (155-98) per
person.
 Losses per year would be around 3,661,680 Irish Pounds(57*64240(dividing
the passengers in two equal parts)).
 But if Ryanair retreats, old prices may prevail again.

2) Leaving the market-

 Aer Lingus has low operating profit 0.5 million Irish Pounds. Thus, leaving
market will not affect them much.
 They have high operating profits in other activities which totals to 29.8
million Irish Pounds.(Maintenance Services- 12.7 million Irish Pounds & Non-
airline services- 17.1 million Irish Pounds)

 British Airways Scenarios:

1) Expanding in other routes-
 BA is at a very good stage and they are making record profits. Thus, it can be a
good time to expand in other routes and countries.
 They can try and expand their customer base too since they offer full range of
classes of service.
 They can leave Ryanair to operate in their local market (Dublin-London).

2) Push Ryanair out of market-

 Since BA is making huge profits, they can lower their prices to match that of
Ryanair and thus drive Ryanair out of market.
 They can attract more customers by lowering prices and offering the same in-
flight services which they have been offering. Same strategy can be used to
retain existing customers.
We can perform SWOT analysis and Porter’s 5 Forces analysis on the given
scenario:-

 SWOT Analysis:-
Strengths:

1) Low fare.
2) Low operating costs.
3) Experience in flying from London’s secondary airport.

Weakness:

1) Less customer service.

2) No experience on this new route.

Opportunities:

1) Market expansion.
2) Can become cheap alternative to relatively expensive airlines.

Threats:

1) British Airways might become threat if they lower their ticket prices to match
that of Ryanair’s.
2) Substitute transportation.
3) Oil prices.

 Porter’s 5 Forces analysis:-

1) The threat of entry: The low fares airlines industry is hard to enter. The entrants
need high capital requirements in order to generate high economies of scale to
compete with Ryanair. This means threat of new entrants is pretty low.
2) The threat of substitutes: As pointed out earlier, three quarters of all passengers
travel through substitute transport methods (Ferries etc). But it takes much longer
to reach destination through them i.e 9 hours vs 1 hrs through flight and the price
difference is low at 48 Irish Pounds. Thus, threat of substitution is also low.
3) The bargaining power of buyers: In the current scenario, the buyers may buy flight
tickets at the same cost as Ryanair is selling if they book their tickets a month well in
advance. To counter Ryanair’s move, its competitors might also lower their ticket
 prices. But this does not seem so feasible. So it can be concluded that the bargaining
power of buyers is moderate.
4) The bargaining power of suppliers: The case does not provide any information
about suppliers. But since Ryanair has experience with only turboprop and thus have
staff trained for them only, it can be concluded that the bargaining power of
suppliers is high.
5) The extent of Rivalry between competitors: Aer Lingus cannot do much to counter
Ryanair’s operation on the new route while British Airways can impact Ryanair’s plan
to operate on new route by slashing their prices to compete with Ryanair’s. Thus,
the extent of rivalry is moderate.

Conclusion:-
The findings after carefully evaluating the case are as follows:-

1) The new route (Dublin-London) on which Ryanair is going to operate is going to be

profitable for them (profit of 3.2 Irish Pounds per ticket)
2) The price which Ryanair is offering is significantly lower than its competitors.
3) With such low prices, Ryanair will get the ability to attract more passengers who are
travelling by ferries. The price difference is 48 Irish Pounds and time difference is 8
hours. Thus, using this competitive pricing they might be able to expand customer base
which was stagnant for 10 years.
4) However, Ryanair has nothing more to offer which the competitors are not offering,
besides lower price.
5) British Airways can pose serious threat to Ryanair’s new route plan.
6) Possible strategy of Aer Lingus: Most likely, they will let Ryanair come to the market,
and will focus on other kind of businesses in which they are already performing well.
7) Possible strategy of British Airways: They can compete with Ryanair since they can
afford loosing profits. They can be aided by Government funding and their brand name
and proven services can also work in their favor in competing with Ryanair.