Ryanair: Dogfight Over Europe

09.12.2016 |

Episode #9 of the course Most influential business school case studies by Magoosh

 

The Ryanair case is actually three smaller cases, released one at a time, detailing the state of Ryanair, a low-cost European airline. The cases cover the years from 1986 to 1999 and detail the launch, near-ruin, and ultimate success of the firm.

The first case provides details about the launch of Ryanair, including a brief family history and details about the incumbent European airlines that Ryanair was challenging. Ryanair launched with a small (14-seat) plane flying the route from Waterford, Ireland to Gatwick, London. In 1986, the airline was planning to launch a Dublin to London route, in direct competition with the much larger (and, at that time, government-owned) British Airways and Aer Lingus.

This first case closes with a discussion of pricing. Ryanair targeted a much lower price than BA and Aer Lingus (which were charging £99 to £198). Ryanair advertised a £98 price. Their goal was to expand the travel market by drawing travelers who would normally take the nine-hour rail and ferry journey, which cost £55. By pricing the flight just below the lowest fares offered by BA and Aer Lingus, Ryanair was also taking on the bigger, most established players.

Part two of the case is set in 1991, when Ryanair is on the brink of collapse, the result of a multi-year price war with British Airways and Aer Lingus. As soon as Ryanair announced their price, the incumbents countered. Eventually, prices dropped to £70 roundtrip on the Dublin-London route. Ryanair had grown quickly at first, and in its first four years of existence, air travel between Ireland and England had more than doubled. But the stiff price competition meant that Ryanair was simply running out of money and couldn’t survive. In the intervening years, BA had gone private, raising capital on the London Stock Exchange. Aer Lingus remained government-owned. In both cases, the incumbents could draw on massive amounts of capital to continue to operate competing routes unprofitably. Ryanair had to change strategies or the airline would fold.

Part three is set in 1999, when Ryanair is one of the most profitable airlines in the world. Rather than continuing to try to match BA and Aer Lingus in terms of quality and competing on price, Ryanair decided to become a very low-cost airline. They removed all frills to keep costs and fares low. They stopped competing at most primary airports and instead decided to serve the secondary airports, which were much cheaper to operate from than the larger hubs. Ryanair also stopped free meal and drink service, flew only one type of plane, did away with assigned seats, and even required passengers to walk on the tarmac to planes instead of using expensive “jetways.” In addition, Ryanair opened up multiple new revenue streams (including in-air advertising and a commission-based meal and drink sales program). As a result, Ryanair was able to dramatically drop prices to levels that the incumbents simply wouldn’t match, often advertising a £20 rate on the Dublin-London route.

The third case also outlines the rise of many new competitors throughout the ‘90s, some of which were able to succeed while others flopped.

The three Ryanair cases are chiefly about business strategy, outlining how a new player can compete with large and powerful incumbents. The case shows how businesses entering an established market need to differentiate their product offering; competing solely on price will lead to ruin. When Ryanair simply tried to undercut the competition, the company nearly went under. But Ryanair was able to change the rules of the airline industry by targeting a different type of passenger and providing a different kind of service.

 

Recommended book

“Made to Stick: Why Some Ideas Survive and Others Die” by Chip Heath, Dan Heath

 

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