Ryannair Case

1-Analysizing the External environment During the 70s-80s shows that the European aviation was more specifically marked by a change in the political and economic environments. In fact, the political environment changed from regulation and support of the carriers by the governments to deregulation ,but the European countries remained dominated by state-owned carriers .

The economic environment was influenced by oil price , and recession that occurred cutting the demand for air travel .

Concerning the Industry environment , airline industry seems unattractive as shown when doing a Porter 5 force : The bargaining power of the suppliers is high because the switching costs are high , and the price of aviation is directly related to oil price . The bargaining power of consumers is getting higher during the 80s because they're more and more price sensitive so there is no loyalty toward one airline , plus they are informed on the price applied by the competitors and their switching costs are low so the switching trend of the consumer is high as he is willing to chase the lower price. the threat of new entrants and substitute products are medium because airline industry requires a high capital investment and fixed costs but at the same time deregulation decreased the entry barriers , and there are other ways of transport such as ferries and eurolines . Finally , the Rivalry among the existing firms is high since the deregulation which lead to heavy pressure on prices and margins , and high competition among the quality and service offered . As shown by the Exhibit1, the profitability of major European airlines was mostly negative since1970 .

Even though the airline industry seems unattractive, Ryan Brothers launched Ryanair in 1985 and entered the Dublin-London route in 1986 : 4 round trip/day with 44 seats and a service comparable to AE and BA ( meals and amenities) focusing on the customer service , with a cost of I 98 compared to I208 round trip offered by AE and BA .

The explanation of getting in this industry is that Ryanair had competitive advantages such as innovative deals to "lease excess capacity to others airlines" , and the knowledge of the industry as the brothers grew up in the airline industry .

So Ryanair launch strategy is a focused cost leadership strategy as it offers the lower price on the market for a Dublin-London route .

Thanks to this strategy , Ryanair had the advantage of the first move as a cost leader on the Dublin-London route .

But the problem with Ryanair launch strategy is that it entered a market with limited cost advantage in high fixed cost and low marginal cost industry . so even though Ryanair may have a cost advantage there is no extra value for the customer as the service advantage they suggest " delivering first rate customer service"