What went wrong? Why did Ryanair move from a successful launch to near bankruptcy? It kept an unrestricted fare while still focusing on the best customer service and relationship. Although the low price was able to get Ryanair the customer base it needed, the increase in sales was not enough to make up for the cost of the amenities that Ryanair promised to its customers.
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Ryanair was launched with two important strategies in mind. They wanted to deliver first-rate customer service, with meals and amenities comparable to what Aer Lingus and British Airways provided.
They wanted to be positioned in the same comfort category as the mentioned airlines. They were planning on establishing a comparative advantage in terms of the price that it offered.
They charged a simple, single fare for a ticket with no restrictions. In announcing its Dublin-London service, Ryanair publicized a fare of The disadvantage of keeping such a low-fare lies in the cost management. Ryanair had to keep a tight control of its expenses. In line with Ryanairs cost-cutting policies the same set of employees would ticket the customers on a flight, board them onto the plane, and provide in-flight service. When aircraft were delayed at Dublin Airport, employees would rush from the head office to the gate to make sure that the passengers were taken care of.
Ryanair was trying to attract the ferry users. The traffic on the Irish Sea ferries fell substantially. Ryanairs passenger volume grew quickly but so did its losses. So much so that the company was staring at bankruptcy by The company evaluated several options to rejuvenate its bottom line and finally adopted a no-frills approach. The company cut its cost to the bone, and dropped its fares to levels unheard of in Europe.
Loss-making routes were dropped and planes redeployed on a handful of remaining routes. Efforts to preserve and generate cash became paramount. All in- flight amenities, such as free coffee and snacks, were eliminated.
Freed of coffee and snack service, flight attendants began to emphasize in-flight duty-free sales more prominently; over time, duty-free items became an important source of revenue and margin. Labor contracts were renegotiated so that pay reflected productivity. Flight attendants, for instance, began to be paid in part based the number of flights they flew and in part as a function of their duty-free sales.
Staff members at headquarters reported that they would bring pens from home because pens were in short supply at the office. The space behind seat-back trays was leased out to advertisers. The company no longer distributed meal vouchers to travelers whose flights were delayed by bad weather. Ryanair, almost exclusively, served secondary airports. Due to minimal air traffic, Ryanair did not have much trouble in obtaining landing slots and the flights were punctual. Emphasis on secondary airports enabled Ryanair to negotiate with airport authorities for low landing fees, low turnaround costs, and other incentives.
Ryanair avoided expensive air bridges and made passengers walk across the airport tarmac and board by climbing metal stairs. Ground operations such as checking in baggage with connecting flights were not permitted. Ryanair reduced the turnaround cleaning, servicing, refueling time of its flights to 25 minutes. How do you expect Aer Lingus and British Airways to respond?
Aer Lingus and British Airways were well established in the Dublin-London and several other routes operated by Ryanair. Ryanair was taking over Aer Lingus and British Airways market share.
Ryanairs single-low-fare pricing strategy was attracting passengers. Aer Lingus and British Airways were left with a very limited number of opportunities. Aer Lingus The primary option was to reduce the fares along the routes on which Ryanair operated. Abandon its airline sector and put more emphasis on other divisions of its business. British Airways, in order to prevent its brand dilution by reducing its fares and undertaking cost-reducing measures, could introduce subsidiary airlines.
Concentrate more on international trans-Atlantic routes and let Ryanair control the local market. Due to the sheer size of Aer Lingus and British Airways, cost cutting measures would require a fundamental switch from the policies which had worked well for their bottom-line prior to Ryanairs arrival. Leaving the market in its entirety was not an option that could be considered by the two airlines, as the European market was an ever-growing and profitable market.
They could alternatively focus on another segment of the same market and concentrate their marketing efforts on a less price sensitive segment.
Dogfight over Europe: Ryanair (A)
Dogfight over Europe: Ryanair (B)