Abstract The major issues in Ryanairs entry strategy are (a) penetrating the market, (b) increasing revenue,

and (c) decreasing cost. To augment its existing launch strategy, I recommend Ryanair to (a) continue and expand its aggressive marketing campaign in order to maintain and expand market awareness. To increase revenue, I recommend Ryanair to (a) expand to new and long-haul routes, (b) develop ancillary income streams, and (c) impose penalty fees. To exert tighter costs control, it could (b) establish a no-frills pay-what-you-use itemized service model, (b) hedge fuel contracts, and (c) standardise and simplify aircraft acquisition. Major Issues Air travel demand between Dublin and London has probably stabilized over the 10 years from the stagnant market share of 0.5 million passengers. Ryanair's entry strategy is focused on breaking this duopoly as well as to entice existing rail/ferry travellers with the introduction of a low-cost alternative. In the immediate term, the most critical issue for Ryanairs management at this point of their launch is to penetrate the conscience of its target market, i.e. fareconscious travellers, so as to grab and secure market share. To this end, it has adopted a multi-prong marketing entry strategy: 1. 2. 3. 4. 5. Demonstrate ability to successfully run an airline by operating the Waterford-Gatwick and Dublin-Luton services, to generate customer confidence in its punctuality, lost baggage, and safety record Adopt a simplified a single-class single-fare structure to facilitate price comparisons Aggressively price its fare 1 IP less than flag carriers lowest discount rates targets to lure fare-conscious travellers, including existing rail/ferry travellers Target rail/ ferry passengers with a nine times reduction in travel time for only twice the fare Offer meals and amenities comparable to flag carriers to match proclaimed high quality service

Other major issues Ryanair needs to address include (a) increasing revenue and (b) decreasing costs, both which directly impacts profits. To this end, its route and fleet management strategies entail: 1. Fly point-to-point directly to (a) minimize travelling time for customers and (b) avoid head-on competition with existing flag carriers hub-spoke routes. This will boost passenger traffic and revenue. It will also avoid costs associated with passenger and baggage transfers at connecting airports Choose lucrative route which has sufficient passenger volume to absorb their entry and provide reasonable return on capital investment Offer four daily flights to maximise flexibility and attract potential travellers Operate from secondary airports where traffic is lower to minimize aircraft turnaround time and maximize aircraft utilization, hence increasing revenue-generating flight time. Secondary airports also incur lower landing, ground handling charges Operate small-capacity turboprops to increase seat occupancy and reduce fuel costs (BAs bigger capacity planes for the London-Dublin route only managed 67% occupancy)

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Assessment of Strategy Most of the abovementioned strategies are in line with Ryanairs intent to differentiate itself from flag carriers and operate as a low-cost airline. For instance, most of its marketing strategies will be highly effective in gaining initial market share, while its route and fleet strategies gives it competitive advantages in revenue and cost over its rivals. Nonetheless, some mid-to-longer term concerns become apparent on deeper analysis: Sustainable Profitability Ryanair's strategy to launch with the cheapest single-fare single-class no-restriction ticket would certainly obtain market share quickly. However, sustainability requires Ryanair to keep its operating expenses low. Yet, Ryanair opted to offer full service (meals and amenities). This imposes significant strain on operating costs. Moreover, they intend to deploy a larger aircraft in the future. This will increase aircraft maintenance costs as they will have to train engineers and service two different types of aircrafts. Preliminary analysis would conclude that Ryanair is cutting its operating margin very tightly. From Exhibit 4, the average cost per passenger (155 IP) is higher than the ticket price proposed by Ryanair (98 IP). While it should enjoy some cost savings from depreciation, fuel, landing and handling charges (which account for 60.8% of total operating costs), whether it makes a profit or not crucially depends on whether savings exceed 36.8% compared to a flag carrier. Indeed, if Ryanair continues to provide full services, its cost structure may not be sufficiently lower to generate a profit.

Competitor Response In the immediate term, AL and BA may: (a) maintain current prices, or (b) start a price war with Ryanair. In the mid-tolonger term, both could (a) maintain status quo or (b) transform themselves to compete with Ryanair. Marginal cost would have to be higher than marginal benefits for BA or AL to retaliate. Both companies have a significant disadvantage, they have a cost structure difficult to cut as most are fixed costs. It is also difficult to base their strategy on differentiation as Ryanair claims to offer similar first-rate customer service. Nonetheless, AL and BA may react by: 1. 2. Establish new discounts within their fare structures Cut costs and improve efficiency of their long-haul services, possibly through outsourcing of secondary functions, reducing physical retail outlets, or mothballing aircrafts during extreme cyclical periods of low air travel demand to reduce surplus capacity Drop ancillary businesses in hotel and business management. That said, they could pursue alternative business models via partnerships rather than ownership of expensive capital assets. This will still allow them to generate income from bundled packages Establish their own short-haul low-cost subsidiaries to garner a foothold in the low-cost market Cut losses on short-haul routes and focus on high-margin long-haul, business class travellers

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Recommended Actions (a) Maintain and Expand Market Awareness Continue and expand its aggressive marketing campaign. Given its status as a new entrant, Ryanair has the luxury of behaving as a maverick upstart in its marketing efforts. For instance, it could also shake up the cosy industry by offering a lowest price money-back guarantee, and engage in publicity stunts and ads that directly compare or attack competitive airlines. In addition, it could offer ridiculously cheap (99 pence) albeit limited seats on regular flights, and organize lotteries to give away free seats for every 1 millionth customer. (b) Increase Revenue Expand to new and long-haul routes. Newer competitors would eventually appear. Yet new income streams and growth needs to be found. When demand has been fully met by capacity on Ryanairs existing routes, it should consider expanding into new and longer-haul routes, e.g. transAtlantic while still operating under the low-cost model. While this will stretch passengers tolerance for how long they can endure budget flights, the expanding global market for cheap air travel should offer sufficient demand. In line with this recommendation, Ryanair would need to lobby national governments to relax the degrees of freedom for onward flights Develop ancillary income streams. In adjunct to flight ticket sales, ancillary sales can become an important component of the low-cost model to generate additional high net margins. These could include corporate partnerships to benefit from car hire, hotel bookings, rail booking and travel insurance and credit card deals. Impose penalty fees. Ryanair could introduce a no-refund, no-show ticket policy that minimizes administrative costs. (c) Decrease Costs Establish no-frills pay-what-you-use itemized model. To lower costs and boost revenue, Ryanair could unbundle and retract services taken for granted but not necessarily needed by passengers. Under this no-frills model, it could retract full meal services, and outsource catering to third-party operators who will pay Ryanair a flat per-flight fee for the right to sell food and drinks to passengers. Free newspapers and magazines could be removed, given that flights are shorter. Ryanair could instead charge for on-board gaming facilities, as well as checked and/or cabin baggage. Hedge fuel contracts. Fuel accounts for a substantial part (19.1%) of costs (based on BAs example). Given the relatively recent 1973 and 19179 Middle East Oil Crises, Ryanair could hedge its fuel requirements and price contracts for longer periods of 12-18 months to avoid fluctuating fuel costs and the need to charge customers fuel surcharges, unlike the case for other carriers. Standardise and simplify aircraft acquisition. In the mid-to-long term, Ryanair should standardise its fleet to as few aircraft type as possible, generating savings on training costs, maintenance supplies and labor costs as only one type of parts and skills are needed. The aircraft themselves could be no-frills, e.g. they can be ordered without window blinds, reclining seats, headrests or seat pockets, reducing both acquisition costs and delivery times. In sum, Ryanairs tight cost control is the backbone of its low-price strategy. Nonetheless, despite a relentless focus on costs, the airline should be careful not to compromise safety and to maintain an accident-free record. Ultimately, by focussing on its target market and consistently addressing their most important needs vis-a-vis pricing, flexibility, and punctuality, it should be able to provide superior service and beat its competition where it matters.