Dog Fight Over Europe: Ryanair Case Analysis

Group No: 16
Roll No Name
2020IPM125 Shivam
2023PGP554 Sanju S Nair
2023FPM007 Mahesh Vishnoi
2023PGP317 Shailesh Verma
2023PGP333 Shraddha Singh

1. Decision problem in the case (8 lines max)

Ans: Cathar and Declan Ryan are faced with following dilemmas, working on which would
help the Ryanair to establish themselves in the Dublin-London Route, and remain
competitive.
a. How to commence their service in Dublin-London Route, where they will face the
competition from Aer Lingus, British Airways, and other major competitors.
b. How to convince and capture the three-quarters of a million passengers that travel via
rail and sea ferry?
c. Using its minimum pricing(which is 200 euros less from the least expensive price of
Aer Lingus and British Airways), how to go for customer acquisition from Aer
Lingus, British Airways and other major airlines?
d. To understand whether their pricing strategy is feasible or not, and if yes, then how to
operate their services profitability using its competitive fare pricing strategy?
e. To operate their services efficiently and profitably, should they increase passengers
per staff member or number of passengers per aircraft?
f. How to get permission to fly larger aircrafts in the route?
g. How will Aer Lingus, and British Airways respond to the low pricing strategies of
Ryanair?

2. Arguments in favor of Ryan Air’s low-cost pricing strategy (6 lines max)

Ans: Arguments in favor of Ryanair to go with a low-cost pricing strategy are as follows:
a. Ryanair will be able to capture the price-sensitive customers.
b. They are operating small flights, and thus their operating cost may not be as high as
large aircrafts, and thus can be sustained using this pricing strategy.
c. Using its simple single fare pricing strategy, they will distinguish themselves from
their competitors using dynamic pricing strategies.
d. This will help them in expanding their market share, by attracting customers, both
from their airline competitors, such as Aer Lingus and British Airways, and from rail
and sea ferry.
e. Since the major airlines already have a strong presence in the London-Dublin route,
using a low pricing strategy may disrupt the market, and help Ryanair in challenging
their competitors’ market dominance

3. Arguments against low-cost pricing strategy of Ryan Air (6 lines max)

Ans: Arguments against Ryanair low-cost pricing strategy are as follows:
 a. They are initiating the price war against larger airlines, despite being small private
players. If British Airlines or Aer Lingus lower their prices, then, it will be difficult
for Ryanair to survive in the market.
b. There is not much profitability to be gained from this strategy. Moreover, with a low
revenue and high cost, their promise of delivering first-rate customer service is
infeasible.
c. Moreover, due to low profitability, they will have a huge budget constraint, where
they cannot invest the money back in the business to improve their services or to
innovate.
d. Their distinguishing point, which they mentioned is being customer centric, which
they will not be able to achieve/sustain yet because of lack of capital.

4. What is the uniqueness of Ryan air’s offering? Is it really unique (6 lines max)
Ans: The uniqueness of Ryan Air is as follows:
1)Ryanair kept low-cost single fare tickets with no restrictions for prices as low as €98.
Through this strategy they wanted to capture price sensitive customers. The airline intended
to minimise operational costs allowing them to keep lower fares as compared to British
Airways and Aer Lingus.
2) Ryanair also offered flights in the secondary airports like the services between Waterford
and Southeast of Ireland and Gatwick Airport.
However, Ryan Air provided poor services and were focused on delivering first-rate
customer services that were comparable to Aer Lingus and British Airways services.

5. How do want to define first class service of Ryan Air as they didn’t define it (6 lines
max)
Ans: Ryanair did not have a system of first-class seats. They offered low cost and no
restrictions single fare tickets €98. Their main aim was to capture price sensitive customers
and help them reach from one point to another by saving time.
They offered promises of first-rate customer services and offer meals and amenities
comparable to other legacy Airways.
The airline also offered the option to purchase additional services and amenities like as
priority boarding, reserved seating and inflight meals, not exclusive to any particular first-
class.

6. Is there a demand for Ryan Air’s services that it will succeed (10 lines max)
Ans: Yes, there is a demand for Ryanair in the market. Aer Lingus and British Airways
provide €208 round trip and a €99 ticket with one-month advanced booking. Ryan air figured
out that only 60 to 70% of these flights were full and carried half million passengers per year.
Three-quarter millions of people travelled through trains and ferries as they were more price
friendly. Ryanair can manage to capture passengers which are budget conscious from both of
these areas and create a customer base for themselves. Ryan Air provides single fare tickets
with no restrictions at a price of €98 and round trips from the secondary airports in Europe.
They also offer meals and amenities like priority-boarding reserved seating and inflight meals
which are comparable to that of Aer Lingus and British Airways. Their main focus was low-
cost tickets and then delivering first rate customer services. Through this strategy Ryanair
should be able to create demand for themselves in this market.
7. Will the ferry customers shift to Ryan Air, if yes, steps to be taken to stop retaliation
from Ferry owners (12 lines max)
Ans: The price paid by ferry customers for the round trip was very low compared to Ryan air
which was offering a fare at € 98 on its London Dublin service, Which was almost double the
price of Sea ferry.
Chances of ferry passengers are low while it takes 9 hour for the journey completion and only
1 hour via air route so considering time as an advantage and if offered relatively comparable
prices with the ferries section of customers can shift to Ryan air.
As seen with the case of Air lingus considering the case of tourist rank customers ,Ryan Air
can give promotional fare to the Ferry customers, can connect its route to more tourist
destinations also like expanding the business in related service segments can help them to
lower the Fare prices and they will get three-quarter of round trip travellers

8. What sort of competitor response can be expected for Ryan Air’s offering (10 lines
max)
Ans: In regards to Ryan air offering they can face huge competition from the big players. As
both of the companies were now making profit one by cost cutting and other by expanding its
business model.
With regards to to providing lower fare might not serve the purpose of Ryan air in the long
run as the competitor can also do the required they also provided discount fares at 99
euro.ferries and rail having large pool of consumers they are already running at low price in
market they can focus on minimizing the time further if cost of Ryan air and ferries come to
comparable prices

9.Why do you think will competitors retaliate or accommodate Ryan Air (12 lines max)
Ans: Ryan Air competitors will most likely retaliate as its fare was equivalent to others
discounted fare when the competitors tickets when booked a month prior, so it would eat their
market share. Also such a low price will lead to a price war across the industry driving down
the price of all competitors' prices.
As Ryan Air uses small planes of 44 seat turboprop so most likely they will be able to
manage their expense but the competitors use normal or big planes which are typically only
60-70% full. So for them selling price tickets at the cost of GBP98 would be a challenge.
Ryan Air will be able to capture the price-sensitive customer, also it will help expand their
market share by attracting customers from competitions. Its price is also fairly comparable to
sea ferry and rail considering the time it takes traveling via them so that segment will also be
attracted to them. Simply by using a single fare pricing strategy, they will distinguish
themselves from their competitors.
The other companies are most likely to blame Ryan Air for unfair competition and will
retaliate against them.

10.Can Ryan Air make money at GBP98 price? Show with calculations (12 lines Max
along with calculations)

Ans: Considering that the airline uses single fare for a ticket for a ticket with no restrictions
and smaller turboprop plane it is possible to reduce operating cost of flight to GBP 70 per
passenger.
 Assumption Calculation
Average cost per passenger GBP70
Average load factor 90%
Average ticket price GBP98
Revenue per flight GBP98 * 0.9 = GBP88.2
Cost per flight GBP70
Operating profit per flight GBP88.2 - GBP70 = GBP18.2
Operating profit margin GBP18.2 / GBP88.2 = 20.5%

The above calculations show that when operating cost is GBP 70 per passenger and price of
ticket is GBP98 the revenue comes out to be 88.2 assuming all 44 seat tickets are sold which
gives us operating profit of GBP 18.2 and an operating profit margin of 20.5%.

As Ryan Air is providing tickets at a much cheaper price compared to its competitors it's safe
to assume that all 44 tickets will be sold as normal planes fly with typically 60-70% tickets
sold.

11. Calculate the extent of reduction in operating profits for Air Lingus and British
Airways after accommodating RyanAir (12 lines max with calculations)

Ans: Let’s assume the following -

 Ryanair's market share is 20%.

 Air Lingus's operating profits are GBP 17.1 million.
 British Airways' operating profits are GBP 15 million.

Calculations

 Reduction in Air Lingus's operating profits: GBP 17.1 million * 20% = GBP 3.42
million.
 Reduction in British Airways' operating profits: GBP 15 million* 20% = GBP 3
million.
 Total reduction in operating profits for Air Lingus and British Airways: GBP 3.42
million + GBP 3 million = GBP 6.42 million

Therefore, the extent of reduction in operating profits for Air Lingus and British Airways
after accommodating RyanAir is GBP 6.42 million

12. What are the effects of price reduction for the target customers of Aer Lingus and
British Airways (8 lines max)
Ans: Effect of price reduction for the target customers of British Airways-
1. The then chairman, John King prepared BA for privatization. Measures taken by him
made BA profitable, thus BA was able to make more investments in the operating
part.
2. In the UK and New York, BA provided its own passengers and ground services
3. BA enabled computerized reservation systems through which 49,000 independent
travel agents could book tickets. This accounted for 83% of the company’s scheduled
passenger revenue
4. They also offered a spectrum of ticket prices with varying restrictions and the full
range of classes of service from first class to economy. They improved in-flight
amenities for for business class passengers
Effect of price reduction for the target customers of Aer Lingus-
1. The target customers for Aer Lingus were mostly tourists. Tourist passengers actively
sought promotional fares and thus, this created a seasonal demand. Also, they stayed
largely at home during the recession of the mid-1970s
2. They modified their statement to provide an air transport service that was “safe,
efficient, reliable and profitable.”
3. Aer Lingus diversified its portfolio by offering maintenance service and engineer
training to other airlines. They also offered computer consulting and data processing
services through successful introduction of computer reservation system