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Ryanair: Defying Gravity Essay

Questions:

1. What is your assessment of Ryanair’s launch strategy?

1.Focused to develop core competence in low-cost short-haul airline. 2.Strategy was “lower than lowest current fares” on short high-demand high-growth routes. 3.Cut win-win deals with under-utilized 2nd tier airports.

4.Marketing objective: Acquisition-Stimulate demand with eye on stealing share from flag European carriers. 5.Target market was fare conscious customers who otherwise wouldn’t have travelled by air.

2. How do you expect Aer Lingus and British Airways to respond? There could be 4 ways to respond:

1.Start price war with Ryanair by immediately reducing AL and BA prices: unsustainable due to high overheads. 2.Gradual cost cutting (staff reduction, less customer service, less perks, lower quality travel, outsourcing of services, etc.) to bring pricing structure in line with Ryanair: without losing core competence, brand value and profit at bigger stage where they are now profitable. However subsidizing non-profitable short-haul business with profitable long-haul business is unsustainable in long run. 3.Most likely response: Stick to own core competence as a high quality long-haul global airline. Let Ryanair fly on short-haul European routes and make tie-up with Ryanair or similar low-cost airlines to fly to small destinations for multi-point travelers to save own costs. 4.Acquire Ryanair and operate it as independent division maintaining Ryanair’s old management.

3. Reasons behind Ryanair’s profitability?

Profitability:
1.Low Fixed Costs:
•Long-term deals with secondary airports asking low-fee that are closer to major airports.
•Purchase second-hand or low-cost planes.

2.Low overheads:

•Commonizing entire fleet to fuel efficient 737’s, reducing overheads and complexity in maintenance, training, servicing, quantity discount. •Outsourcing of support services, e.g catering, baggage handling, maintenance, call centers. •Variable pay to employees based on performance.

•Low admin and customer service costs with no-frill approach.
•Low cost but eye-catching advertising.
•Promote no checked-in bags, use gates w/o extendable jetways.
•Saving employee training, ID, uniform costs. No-refund to save paperwork costs. 3.Revenue:
•High plane utilization with low turn-around time.
•Aggressive expansion on major or high-demand European routes.
•Ancillary sales 15% of total revenue.

Sustainability:

1.2004 Income statement and balance sheet looks solid. 2.However, operating expenses, especially fuel, airport and route charges, have increased with higher rate than revenue, reducing profit margins. 3.To stay sustainable in long-run, Control costs: need to hedge for low fuel prices, make deals with airports and new route authorities for low fees, i.e. keep fixed costs and overhead costs as low as possible. Increase revenue: pass on part of fuel price hikes or any fixed cost hikes to customers.

4. What are the most serious threats to Ryanair?

1.Rising fuel costs. 2.Rising airport and route charges especially while expanding to new airports and routes. 3.BA short-haul division slowly aligning business model with low-cost airlines and still being successful or favorite carrier for fare conscious passengers.


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