- demand for low cost carriers that would fly the same route as flag-carrier flights (BA/Aer Lingus for this matter)
1b. Is this a promising market, and why?
- definitely promising due to the high barriers to entry (government regulation for large scale carriers and not small scale carriers), large demand for travel (750,000 round-trip travelers opted to use rail/sea rather than air flight at that point), different business propositions as compared to players in the market (first rate customer service and single fare ticket without restrictions)
Threat of new entry (medium)
Regulation was the most significant obstacle for new entry until the airline industry was completely deregulated in 1993. Existing players through wide networks had low costs through economies of scale. Other deterrent to entry was access to scare resources. After deregulation, economies of scale and access to scarce resources (landing at airports) were some of the major deterrents of entry. However the ability to outsource some of the operations reduced the benefit of economies of scale increasing threat of new entry.
Changes in social behaviors and the internationalization of society have now created new types of leisure travelers. The modern leisure traveler takes on many of the functions earlier provided by the airlines, such as booking of hotel and recreation at the destination, made possible by the adoption of the Internet of both consumers and service providers.
These changes makes leisure travelers less dependent on travel agencies, something that also make the airlines less dependent on the agencies for selling their tickets. There is a trend of de-bundling the leisure travel products.
2. Who are Ryan Air's competitors and how will they affect Ryan Air's launch and growth?
- Nationalized carriers that receive full backing and subsidization by governments
The incumbents focused on business travel for much of their revenue generation, and since business travelers required speed (high performance), other options such as trains and buses were weak substitutes. This was especially true for travel from the UK to continental Europe.(Eurotunnel wasn’t built until eh late 1990s). However they were a viable alternative to price sensitive consumers.
3. What is the airline environment like up to 1986 and what are the changes occurring?
- 1960s it was basically a regulated monopoly between countries: A carrier couldn't not fly between routes A-to-B if it was from country C
- 1980s saw the deregulation of the US market which put pressure on Europe to deregulate its airline market and allow smaller players (like Ryan Air) to compete
- In a nutshell: Fixed price and heavy regulation of routes/pricing/scheduling of entry and exit were freed up after 1986.
4. What role does the government and trade associations play in affecting Ryan Air's decisions to start and grow?
- Their business heavily depends on what the government/trade associations will do with regards to regulation of the industry, and the amount of barriers to entry that the airline industry would have in the future (post 1986)
By exploiting the ’white spots’ between the two models described above, the low cost airlines provide a scheduled point-to-point service at routes with enough travellers to sustain a scheduled flight. They provide the benefits of frequency, more flexibility than the charter airlines but no connectivity. The service level is lower than the major airlines and some of the charter airlines. They run no loyalty programmes. The low cost allows them to focus on price, and hance to expand the market.
Due to the different natures of the service provided and the different customers targeted there is very low level of competition between the major airlines and charter airlines. The low cost carriers compete for business traveler that travel…