Case Ryair - Dogfight over Europe

Case Summary

Dogfight over Europe: Ryan Air

1. Assessment of Ryan Air’s (RA) Launch Strategy

To be successful a company needs to add more value than its competitors and then earn a higher rate of profit than its rivals. RA wants to create this competitive advantage in three ways: Its employees would focus on delivering first-rate customer service, it would offer scheduled airlines, and it would offer single-fare tickets without restrictions for I£98.

RA chooses a price-penetration strategy to quickly gain market share. Since the airline market is known for high price-elasticity, RA will probably succeed in doing so. However, in order to be profitable they will have to keep their costs low. As we can see in Exhibit 4 of the case, margins for British Airways (BA) are already low, and it seems unlikely RA can reduce its costs enough to become profitable, especially because they announced they would focus on first-rate customer service. One way to deal with a lower margin per passenger would be to increase the capacity utilization rate, which for BA and Aer Lingus (AL) is currently at 60-70%. Moreover, with prices at this level, a certain percentage of customers that normally would choose for train or ferry will now choose air-travel and thus the market will grow.

To conclude, we think that this strategy will work out in the sense that RA will establish its name and will quickly gain market share. However, RA will not be able to be profitable at first and therefore, this strategy will not be sustainable at first.

2. Our Analysis of AL and BA’s Response

Aer Lingus

Goals

AL is involved in many ancillary businesses next to their air transportation. However, the last is still important, since AL invests in a new fleet to provide air transport service that is safe, efficient, reliable, and profitable.

Why retaliate?

At first, AL has excess capacity on the Dublin-London line, so an increased customer base to protect operating profit can offset a...