Dogfight over Europe: Ryanair (A)

In April, 1986, the upstart Irish airline Ryanair announced that it would soon commence service between Dublin
and London, open to facing newer challenges from Aer Lingus, British Airways and other established competitors
on the major route.
Europe Aviation
In the start, Europe aviation was heavily controlled by the respective governments, not allowing any private
competitors to enter into the aviation business.
British Aviation and British Airways
British were among the first to allow other carriers apart from British Airways to fly domestic flights. John King and
Colin Marshall made British Airways profitable by cutting the operating costs, satisfying full fare business
customers, surrendering loss making routes to other airlines and shutting down maintenance stations and training
colleges. By 1986, BA operated one of the most extensive airline route networks, serving 145 destinations in 68
countries.
Iris Aviation and Aer Lingus
Introduced by Irish Government, Aer Lingus initially started to be profitable working along with an agreement with
British Government. But once the agreement fell through, losses started accumulating and it found new sources of
revenues such as offering maintenance and engineer training to other airlines, computer consulting and data
processing services, and ancillary businesses.
Ryanair
Ryanair was started by Cathal and Declan Ryan, sons of Tony Ryan, Aer Lengus aircraft leasing manager. Initially,
they started with 14-seat turboprop aircraft to run between Waterford and Gatwick airport. Later, they decided to
expand and got a license for Dublin London service and started a price war by offering ticket prices as low as I98.
Their initial performance was promising with 100% load factor, making their first annual profit in the third year.
But a wave of expansion and the price wars with Aer Lingus led them to run the airline at losses, even with rising
passenger volumes.
They finally went into a cash crunch situation and had to decide between the following options 1. Shut down the airline
2. Serve as a feeder airline for US Carriers making landfall in Shannon
3. Cut frills and fairs dramatically
4. Add a high fare business class service
Recommendation - Among the available options, Ryanair should not look into 3 and 4, as they already are running
in losses and competition can do the same. They can look into option 2 and serve as a feeder airline. They have a
strong network from Shannon to Ireland and an exclusive deal with american airlines will allow them to charge
higher ticket prices, making some profits.