Ryanair V Aer Arann Case Study

Ryanair V Aer Arann Case Study

Aer Arann challenge

• Rretaining market share in the home market of Ryanair. They are experiencing increased competition on the Dublin to Cork route from Ryanair as they have launched an intense price war and on the PSO route Dublin to Kerry which they recently lost to Ryanair.
• Prior to Ryanair entering the Dublin-cork route, AA held a monopoly with over 25% of their annual passengers using the route. Now, passenger numbers have dropped to 150,000 as R entered.
• AA lost a further 10% of passengers on Dublin-kerry route when they lost the PSO for it to R.
• Missed opportunity: AA offered routes to the UK to end Aer Lingus monopoly but decided not to pursue and to focus on island services instead and Ryanair swooped in then. AA gambled on island hopping strategy and lost.
• Awarded the Dublin to Donegal PSO.
• In 2008 they operated 600 flights per week and 44 routes in Ireland, UK and Europe.
• AA’s business model seen a shift from pure passenger to a wet lease business.

Ryanair

• The company’s aggressive route network expansion has allowed them to enjoy significant economies of scale and learning.
• Ryanair created a new low cost business model for European airlines.

Aer Arann Strategic Options

1. Stand and fight Ryanair for the home market share and compete on a cost basis.
2. Cut and run: enter markets with low barriers to entry and exit.
3. Build new strongholds: AA has built its business model around an aircraft that needs relatively short runways in comparison to R, who need a relatively long runway. Could AA build a stronghold around regional markets with short runways?

AA cannot exercise the same economies of scale as Ryanair nor do they have the same bargaining power that Ryanair uses to get competitive terms from airports.

Aer Arann’s Competitive Strategy:

• Service Approach: service matters to customers and claim that you get a different with AA in comparison to low cost airlines
• PSO routes: obtaining PSO routes are at the heart of their comp strategy.
• Fuel efficiency: AA has the most fuel efficient fleet with it accounting for only 15-18% of costs. In comparison to Ryanair’s high fuel costs. Another advantage of Aa’s fleet is that it requires low cruising altitude and shorter runways. AA has looked to target routes that larger aircrafts cannot land – forming a barrier to entry.

Ryanair’s Competitive Strategy:

• “low cost always wins”
• Stimulate demand from fare conscious consumers who may have used different forms of transport or who may not have travelled at all.
• Have the best customer service performance in its peer group in terms of punctuality, fewer lost bags and fewer cancellations
• Frequent point to point flights short haul.
• There is a focus on secondary airports that can provide fast turnaround times as well as lower airport costs.
• Low operating costs – only one type of aircraft.
• Ancillary services

Competitive Pricing

• Yield management is a form of price discrimination designed to manipulate consumer demand through pricing strategies on perishable services.
• This has played a major role in attracting consumers to flights and routes that otherwise would not have reached there breakeven load factor.