Dogfight over Europe: Ryanair (a)

4461 words 18 pages
For the exclusive use of J. SICINSKI
Harvard Business School 9-700-115
Rev. November 21, 2007
Dogfight over Europe: Ryanair (A)
In April, 1986, the upstart Irish airline Ryanair announced that it would soon commence service between Dublin and London. For nearly a year, the new airline had operated a 14-seat turboprop between Waterford, in the southeast of Ireland, and Gatwick Airport on the outskirts of London. The founders of Ryanair, brothers Cathal and Declan Ryan, felt that service on that first route had developed well. They knew, however, that the Dublin-London route would pose new challenges. For the first time, they would face Aer Lingus, British Airways, and other established competitors on a major route.
European Aviation
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By the mid-1980s, charter flights would transport 60% of all European passengers.5 Flag carriers responded to the independent charter airlines both by establishing new discounts within the IATA structure and by starting charter subsidiaries themselves.
The 1970s took airlines around the world into financial straits (Exhibit 1). The introduction of wide-bodied aircraft such as the Boeing 747 increased capacity on the North Atlantic route dramatically. The OPEC oil embargo raised the price of jet fuel, and the ensuing recession cut demand for air travel. These events hit Europe’s flag carriers, with their heavily unionized staffs and high fixed costs, especially hard. Exhibit 2 compares the staff productivity of European and U.S. airlines in 1978.
In 1978, the U.S. Congress approved the thorough deregulation of the domestic U.S. airline industry. Pricing, route scheduling, entry, and exit were freed up dramatically. Prices plunged rapidly as airlines competed vigorously for marginal customers. Twenty-two new, low-cost carriers entered the market between 1978 and 1980.6 Most of the new airlines soon failed, however. Established players such as American, United, and Delta used hub-and-spoke route structures and computerized reservation systems to spur a new wave of consolidation. Following consolidation, prices and profitability remained low and unstable. Strong U.S. airlines