Dogfight over Europe: Ryanair

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22 November 2015

Dogfight over Europe: Ryanair

Introduction

        In April, 1986, Ryanair was a small Irish Airline that was operating in with a 40 seated turboprop between Waterford and Gatwick airports. In the same year, the Ryan brothers planned to start a new airline service between Dublin and London. Two brothers named Cathal Ryan and Declan Ryan were the founders of the Ryanair. However, the decision of starting a service on the route of Dublin to London was not easy because already there were established major airlines present on this route. The competition was fierce and the route had two huge rivals Aer Lingus and British Airways. Both the rivals were quite famous in the past and it was really difficult to compete with them ("Welcome to Ryanair!").

        Before World War I, the airlines were operated by the governments to provide international services. The flags were present on the tails of the aircrafts to show the association of the country. The airline services that were offered domestically were costly in order to fund the international services. During the time of WWI the intra-country service was rare and expensive. Conversely, after World War II the airline services were commercialized and the dominance was shifted from the European government to the Americans. The American dominance in the airline industry became a threat to the other airlines as it holds the biggest share in the market. Therefore, in order to deal with strong American threats the European government started multilateral and bilateral  agreements and restrict the services through pooling contract.

        Later, the decline of the European government and the beginning of Trans-Atlantic aircrafts lowered the efficiency of the European international services. The higher rates made the customer of European airlines dissatisfied and the case was deteriorated after the start of a Boeing 747. With the pace of time, new airline services entered the market offering a lower cost and the government initiated privatization of the airlines by introducing British Airways in the stock market. After the privatization, British Airways became the largest airline service worldwide. As far as Aer Lingus is concerned, it belongs to Ireland. It was a flag carrier in the country, but initially, the country faced many losses and later found out that by catering the service between Ireland and British they can earn huge profits. However, British Airways and Aer Lingus signed an agreement that was favorable for both the companies and it was a give and take agreement. Afterwards, Aer Lingus faced lower demands in tourism that made the company to seek new opportunities to become successful so it started its own Trans-Atlantic aircrafts and other airline services that made the British government to reduce the amount of shares in AL ("Welcome to Ryanair!").

        Furthermore, the establishment of Ryanair was a threat for both the British Airlines and Aer Lingus because of its low fares. Tony Ryan was the father of the founders of Ryanair. He was the leasing manager at Aer Lingus and served the company for many years. With the help of his sons, Tony co-founded Guinness Peat Aviation Aircraft Leasing company which turned out to be the largest airplane leasing company around the globe. After the leasing company, Tony invested in the project of his sons to launch a new airline company known as Ryanair. Though, the company used a small 14 seat turboprop to provide the flights between Waterford and Gatwick, but the efficient services of the airline provided the license to offer its services between Dublin and Luton. Ryanair gained an advantage of offering low fares to the travelers by offering less than half price of the fares offered by British Airways and Aer Lingus and much better amenities and meals during the flights. Due to this effort of Ryanair, British Airway and Aer Lingus faced a tough competition.

Problem Statement

        Ryanair is competing with two business giants, British Airways and Aer Lingus. Both the companies are full-fledge established and have diversification in a variety of services. Moreover, the government is also funding both the companies. For Ryanair, competing with the two big companies might be at risk by only lowering the cost of airline fare.  Therefore, competing with just competitive pricing strategy is not enough for Ryanair. In fact, it has to diversify itself to actually fight against both the rival firms. Due to the low cost of air ticket, the number of passengers increased along with the losses for the airline company.

Pertinent Facts & Assumptions

        After the launch of Ryanair, the Aer Lingus and Brtisih Airways did not retaliate due to their established business in the industry. They were well aware of the fact that Ryanair is a small scale airline, which will not impact their big business and if it harms their business they will find out other ways to earn profits because of diversification in many other services. In the case of the airlines it is evident that the competitors can react ruthlessly against Ryanair, but there sales are in a big number which can bear the losses through the profits of other businesses. Before entering the market, Ryanair should have conducted a competitor analysis to assess the competitiveness of both the companies. This analysis might have helped Ryanair to act efficiently if both the companies retaliate against the launch strategy of Retaliate.

        Similarly, Ryanair must idealize the assumptions of British Airways that the main business of BA is from the Europeans countries, so Ryanair must have planned a strategy to capture the European market at a lower price to defeat BA. BA is the world’s favorite flight due to its business class buyers. In order to beat the competition, Ryanair must have designed strategies to acquire the business class customers in order to prefer their airline rather than British Airways. The British Airways have worked harder in creating differentiation in the market because of its extraordinary services. British Airway is famous because of its reliable and safe services to its customers. Therefore, Ryanair must also have invented innovation in their flights rather than just cost reduction to become competent in the market. In contrast, Aer Lingus is a company which is fairly managing its operations in the market without any strategy. The government is funding the company as it is providing the airline for the public. Aer Lingus is working in coordination with the British Airways as both the companies are working on a pooling agreement that has made them the major airlines in the industry. For that reason, Ryanair has to think twice before competing with these companies as they will not face a tough competition with the strategy of low fares.