Dogfight over Europe Ryanair (C) Case Solution

1. How did Ryan Air go from the verge of bankruptcy to become a profitable enterprise?

In 1991, Ryan Air was on the verge of Bankruptcy. It owed money to the airport in Dublin; however, even then, the cash flow was not substantial enough for it to become a profitable enterprise. The company had recovered the debts. The money inflow had been made from the personal cash infusion from the owner’s family. The business, however, was not able to generate enough cash flow to make it profitable. In this situation, the chief executive deputy position was not being accepted by anyone due to the conditions the business was in. However, the finance director was promoted to the position and his implementation of a cost-cutting strategy enabled the business to reduce prices for its customers. These cost cuts did not only decrease the expenses that the business had but allowed it to reduce prices.

The cost cuts were not only made for the expenses but were also made possible by renegotiating labor contracts. The employees were shifted from a salary basis to that calculated on the basis of the number of flights. It increased giving space to advertisers on the back trays that increased its source of profits. It also included a duty-free shopping service in-flight which was the source of revenues. It was also being promoted by giving an additional bonus to the flight attendants based on the products that they sold in-flight. This increased the flight attendants’ interest in selling the duty-free products to the customers and also increased the revenue earned from this increased sale. It also reconsidered the routes that it operated on and eliminated the routes that were not profitable because of low customers and fixed expenses. It cut costs on expenses such as office supplies, and free coffee and snacks offered to the passengers.

All this reduction in prices led to the price reduction on airfare and enabled Ryan Air to maintain its position as a low-fare airline. It also increased the customers and thus, the increase in sales led to an increase in the profitability of the business.

2. What are the biggest threats facing the company?

The company has marketed itself as a low-fare airline. In this case, the company is a low-cost differentiator. However, in 1993, the airline industry was fully deregulated. The only conditions to start an airline business were majority European ownership, the ability to make the airline safe according to the standards, and financial backing to support the operations. As a result, several low-cost airlines, as well as differently differentiated airlines, were launched increasing the competition in the industry.

The competitive rivalry in the industry increased because of the emergence of new competitors most of which offer low-priced airfares. This increase in customer choices increases the bargaining power that they have. This was a threat to Ryan Air’s operations since the company was differentiated on the basis of low airfares. Other companies offering similar low rates meant that they gain the share of the market that Ryan Air previously had. Ryan Air had turned into profit-making airlines due to a reduction in its costs and the increase in sales with a decrease in airfares.