The case of Dogfight Over Europe: Ryanair describes the journey of two brothers and their emerging airline business. For almost a year their small airline had just one prop plane that held 14 passengers and operated within the small, secondary airports between Ireland and London. They experienced some initial success, but wanted to expand and grow the business more. The airline industry in Europe and more particularly Ireland and London was ripe for a new emerging business. There were many opportunities to take advantage of and many threats to be aware of as well as strengths and weaknesses of their own business to exploit and avoid.
As the case states, the environment in which they launched their business was first shaped by Europe’s national governments. The individual governments controlled the prices of the fares and the domestic fares were intentionally kept high to subsidize international service. As time went on, free competition was eventually permitted, thus creating a great opportunity in the industry. Fare prices plummeted as the airlines competed for customers and market share. This is a perfect environment to enter the industry if you are able to compete with the bigger businesses.
Since the Ryan brothers had money from their father, they were able to offer a low price from the beginning and didn’t have to worry as much about covering their costs. This allowed them to be competitive. They planned to offer the same full service flights at a fraction of the cost of the other airlines and without the money from their father they might not be able to cover all their operating expenses. They also noticed that some of the fares from the other airlines were so high that many people were opting to use other means of transportation.
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If the brothers could attract these customers with their low prices they could make a great deal of money very quickly as well. There are many problems that can arise when starting a new business, especially in an industry such as this one. It primarily was made up of a few major carriers, all of which had been in business for many years. These established carriers had full control of the market and thus would make it difficult for another business to enter. They had been operating on the most lucrative route for years, between London and Dublin, and knew the customers and the market well.
The Ryan brothers would have to get permission to fly a larger aircraft on the route and that could potentially cause another problem. They expected to be able to get permission but there was no guarantee. They also would need to buy more planes which would cost them a large amount of money. These planes would eventually get old and would be outdated. Aer Lingus had to spend tens of millions of pounds to replace the aging jets in its fleet. If Ryanair didn’t get the initial success that the brothers were hoping for, the cost of the airplanes themselves and the depreciation alone could bankrupt the business.
One other potential problem is that the market was already pretty saturated and that might make it hard for yet another company to come in and fly the same route. In deciding on a business-level strategy, the managers decide how to use the company’s resources and competencies to gain a competitive advantage. In this case, the Ryan brothers went for a cost-leadership strategy. They were going to try to gain a competitive advantage by offering all the same services as the other airlines for much cheaper. Since the market was already heavily saturated, they would need something to set them apart.
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offering lower prices than everyone else is a good way to do this. I think this was a good idea. There’s not much about the service they would offer that would be different from the other airlines, so offering lower prices was really the only thing they could do. Since they had money from their father they could focus on this and not have to worry about operating costs. If they could not sustain their lower prices they would have to beware of price cutting from the other airlines. The other airlines are most established and thus could more adequately handle such low prices.