Cost and British Airways
278765231140
IE University
Entrepreneurship and Innovation
Andrea Castillo C
Julia LeuchtgensAdriana Lima
Case Study: Ryanair
1) What's your assessment of Ryanair's launch strategy?
In 1986, the Ryan siblings are getting ready to start competing against British Airways and Aer Lingus on the Dublin-London route. This route was one of the most traveled air routes inEurope, which meant that Ryanair was taking a big risk by deciding to enter this market. At the moment the airline passenger market was a complex one, since the governments would highly control it. Additionally, the airline industry has high fixed costs, which was something that Ryanair needed to take into account if the company wanted to face its already experienced competitors. However the Ryan brothers knew that it was important to fly this route, and so they decided to follow an aggressive strategy: sell cheaper Dublin-London tickets (PRICE). The problem with this strategy was that they did not highly differentiate from their competitors, and as a result a “price war” took place. By 1989 prices were as low as 70 pounds, and even though Ryanair started flying other routes, by 1991 it seemed that bankruptcy was around the corner for the airline.
The main problem that led Ryanair to this poor performance was that the company’s strategy focused on competing on operating efficiency, without altering its cost structure against experienced and somehow protected companies by some of their stakeholders.The strategy followed by the airline could hardly enhance the “competitive advantage” Ryanair had (operational efficiency), because at that moment the airline did not have a good amount of customers; andadditionally it did not realize that its competitors could easily reduce their price to the marginal cost, which they were already able to cover. The strategy was not sustainable by any means.
Another problem that arise thanks to the poor strategy chosen by the company, was that it did not gave the
IE University
Entrepreneurship and Innovation
Andrea Castillo C
Julia LeuchtgensAdriana Lima
Case Study: Ryanair
1) What's your assessment of Ryanair's launch strategy?
In 1986, the Ryan siblings are getting ready to start competing against British Airways and Aer Lingus on the Dublin-London route. This route was one of the most traveled air routes inEurope, which meant that Ryanair was taking a big risk by deciding to enter this market. At the moment the airline passenger market was a complex one, since the governments would highly control it. Additionally, the airline industry has high fixed costs, which was something that Ryanair needed to take into account if the company wanted to face its already experienced competitors. However the Ryan brothers knew that it was important to fly this route, and so they decided to follow an aggressive strategy: sell cheaper Dublin-London tickets (PRICE). The problem with this strategy was that they did not highly differentiate from their competitors, and as a result a “price war” took place. By 1989 prices were as low as 70 pounds, and even though Ryanair started flying other routes, by 1991 it seemed that bankruptcy was around the corner for the airline.
The main problem that led Ryanair to this poor performance was that the company’s strategy focused on competing on operating efficiency, without altering its cost structure against experienced and somehow protected companies by some of their stakeholders.The strategy followed by the airline could hardly enhance the “competitive advantage” Ryanair had (operational efficiency), because at that moment the airline did not have a good amount of customers; andadditionally it did not realize that its competitors could easily reduce their price to the marginal cost, which they were already able to cover. The strategy was not sustainable by any means.
Another problem that arise thanks to the poor strategy chosen by the company, was that it did not gave the