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.
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