MBA TC XIX MIM

Business Economics
Solution of:

Dogfight for Europe: Ryanair

Group Number: 1

Group Members:
1. Arias, Diego
2. Ipanaque, Marcos
3. Ribeiro, Vanessa
4. Snchez, Pamela

Professor: Jose Acha

Date of Submission: July 15, 2015

1. How costly would it be for Aer Lingus and British Airways to retaliate against
Ryanairs launch rather than accommodate it?
In the Table 1, it is assumed that Ryanair achieves 100% utilization rate. As a result,
the number of its passengers would be 64240 in a year. Therefore, its revenues with a
price of 166.50 pounds would be 10695,960.00 pounds.

Figure 1. Total Revenues of Airways and Aer Lingus in an accommodate scenario.

For the price war, it is assumed that the new price will be 95 pounds in order to gain
customers. As a result the company cease to perceive a total amount of 35750,000 pounds.

Figure 2. Revenues that they cease to perceive

2. Can the Ryan brothers make money at the I98 fare they propose?

There is not provided the Ryanairs cost

structure, but it will be assumed:
-

Raynair have the same cost structure than British Airways and Aer Lingus
Load of British Airways and Aer Lingus were 60-70%, it will be the mean (65%),

the load of Ryanair will be 100%.

Ryanair will have the same staff efficiency than US airlines (708.2 passengers per
staff), actually in British Airways staff was not as efficient (482.9 passengers per
staff) as in US. The staff of Ryanair is 68.19% more effective.

Revenues

British Airlines - Aer

Lingus

Ryanair

Ryanair

70%

70%

100%

166.5

98

98

Operating Expenses
Staff

35.7

35.7

15.82

8.6

8.6

5.59

31.8

31.8

20.67

Engineering and other aircraft cost

9.8

9.8

6.37

Selling

18

18

12.27

Aircraft operating leases

3.4

3.4

2.21

Landing fees and en route charges

11.7

11.7

7.61

Handling charges, catering & others

16.6

16.6

10.79

Accommodation, ground equipment & other

19.5

19.5

12.68

155.1

155.1

94.01

11.4

-57.1

3.99

6.85%

-58.27%

4.07%

Depreciation & amortization

Fuel & oil

Sub-total

Operating Profit
Margin

Ryanair can be profitable (I3.99 per passenger) with I98 fare. They transport
64,240 passengers in a year, Raynair would make an operating profit of I256.317.6

3.

What is your assessment of Ryanairs strategy?

Ryanair is a new entrant into the Airline industry. It has recently acquired the
permission to commence service between Dublin and London. Its main competitors are
British Airlines (BA) and Aer Lingus (AL), who have been in the business for a long time
and its strategies are aimed at offering customers incentives so as to steal them from their
competitors.
Firstly, Ryanair has decided to increase the bargaining power of the customers. The
company is charging 98 for a simple, single fare ticket without any restrictions. This price
is even lower than the BAs discounted air fare which is 99 but needs to be booked 1
month in advance. Thus, this decrease in the air fare provides Ryanair with a better edge
over its competitors
Secondly, Ryanair has decided to run 4 round trips per day with a 44-seat turboprop.
This strategy has dual benefits. First with the increase in frequency of trips, it provides the
customer with greater flexibility of choosing their time of travel. Secondly, with a low-seat
aircraft of only 44, it almost guarantees Ryanair a load of 90% as compared to only a load
of 67% load for BA.
Thirdly, Ryanair has decided to land at one of Londons secondary airports, Luton
rather than Heathrow. Since, Heathrow is the busiest airport in London; the landing charges
are quite high. Instead, by choosing to land at a secondary airport, Ryanair will reduce its
operating expenses.

Fourth, its employees would offer first-rate customer services. By offering meals and
amenities comparable to BA and AL, Ryanair has made sure that it is on level ground with
its competitors. Moreover, by offering first-rate services, it is trying to retain its first-time
customers.
Fifth, the low air fare of Ryanair has made it possible for it to get new customers:
travelers who use rail and ferry. With only 40 difference between the air ticket and the
ferry ticket (as compared to about greater than 100 pound difference in the case of BA and
AL), Ryanair has made customers think about which is more important, time or money.
With far more reasonable fares, the customers will have to make a trade-off between 40
excess fee and 8 hours of wasted time.
Thus, the launch strategy applied by Ryanair is highly competitive and will grab the
attention of its competitors. By distinguishing itself from the flag carriers in three of the
most important aspects for customers (price, frequency and service), Ryanair is bound to
attract customers
4. How do you expect Aer Lingus and British Airways to respond
Aer Lingus and British Airways had two different choices to react: maintaining their
current level of prices, or start a price war with Ryanair.
But both companies have a significant disadvantage, they have a cost structure very
difficult to cut (Staff , Accommodation, ground, Selling, Handling and catering represents
more than 45% of the costs per passenger, approx 90L and they need to add landing fees
and oil).

Also it was too difficult to start an strategy based in differentiation because Ryanair
was trying to offer a service of a similar quality to these companies (first-rate customer
service).