Case Study: easyjet & Ryanair Flying high with Caglar Cintuglu Deniz Yarar Uli Breunig 28.11.06 EasyJet & Ryanair: flying high with 1
Introduction Source: Jobber, p410 28.11.06 EasyJet & Ryanair: flying high with 2
First Question How do EasyJet and Ryanair achieve success using low price strategies? Source: Jobber, p410 28.11.06 EasyJet & Ryanair: flying high with 3
EasyJet & Ryanair The orange-liveried airline is one of the pioneers of low-cost travel in the UK Established in 1991 Europe s largest budget airline 28.11.06 EasyJet & Ryanair: flying high with 4
Short History: 1978 Deregulation of American Skies Southwest Airlines first no-frills, low-fare business model No free meals or coffee, only peanuts SecondaryAirports: Faster turnaround times Cabin crew does the cleaning No waiting for incoming flights 28.11.06 EasyJet & Ryanair: flying high with 5
Only one type of aircraft i.e. Boeing 737 Keep costs down by Reducing pilot training costs Reducing maintenance costs 28.11.06 EasyJet & Ryanair: flying high with 6
Internet booking Cut paperwork and administrative costs Source: www.easyjet.com; www.ryanair.com 28.11.06 EasyJet & Ryanair: flying high with 7
Product Strategy EasyJet & Ryanair have successfully attacked British Airways with their rapid penetration strategy (Price: low, Promotion: high) 28.11.06 EasyJet & Ryanair: flying high with 8
Target segment Independent customers (no need for bundled services) with high grade of self organized market overview/comparison Rather young and flexible (Generation @) 28.11.06 EasyJet & Ryanair: flying high with 9
Customer Characteristics Independent, self organised Desire of object: pure, cheap transportation service Familiar with new media and interactive devices (internet) Flexible Easily maintained (low expectations, shrunk space for complaints) 28.11.06 EasyJet & Ryanair: flying high with 10
Second Question What are the advantages and risks associated with low-price strategies? Source: Jobber, p410 28.11.06 EasyJet & Ryanair: flying high with 11
Advantages of low-price/rapid penetration Fast diffusion and adoption leading to High market penetration rates quickly Competition by surprise, no time to react Source: www.answers.com 28.11.06 EasyJet & Ryanair: flying high with 12
Advantages of low-price/rapid penetration Goodwill among early adopter segment word of mouth Cost control pressure greater efficiency Barrier to entry for new competitors (Porter s 5 forces) 28.11.06 EasyJet & Ryanair: flying high with 13
Disadvantages for customers Fast turnaround times: No waiting for connecting flights No entry for customers checking in too late Paying compensation: Compensation for cancelled flights is only the ticket price 28.11.06 EasyJet & Ryanair: flying high with 14
of low-price/rapid penetration Low price conveys an image of low quality; Image! Competingsuppliersalso reduce prices, nullifying the advantage Long term price expectations 28.11.06 EasyJet & Ryanair: flying high with 15
Third Question To what extent do the conditions for charging low prices discussed in this chapter hold for EasyJet and Ryanair? Source: Jobber, p410 28.11.06 EasyJet & Ryanair: flying high with 16
charging low prices -Onlyfeasible - Market Presence or domination -Experiencecurveeffect/low costs -Make -Make - Barrier to entry - Predation Money later Alternative Money elsewhere Source: Jobber, p385 28.11.06 EasyJet & Ryanair: flying high with 17
Only feasible Alternative Charging Successlow through prices Source: Jobber, p385 Rather homogenic service Cut down to core value (transportation) Low price as incentive for consumers to switch from usual brand 28.11.06 EasyJet & Ryanair: flying high with 18
Market presence or domination Charging Successlow through prices Source: Jobber, p386 Aggressivelypricing Segment of pricesensitive consumers (Price elasticity) Only way to overtake national airlines on the low-cost lane 28.11.06 EasyJet & Ryanair: flying high with 19
Experience curve effect/low costs Charging Successlow through prices Cost decline of 20% if production doubles Becomingthelowestcost supplier Source: Jobber, p386 28.11.06 EasyJet & Ryanair: flying high with 20
Make money later Charging Successlow through prices Price-sensitive consumers in the lowcost segment No way for airlines to make money later Source: Jobber, p410 28.11.06 EasyJet & Ryanair: flying high with 21
Make money elsewhere Charging Successlow through prices Low-cost airlines concentrate on the core competence: Transportation Selling food on planes 28.11.06 EasyJet & Ryanair: flying high with 22
Barrier to entry Charging Successlow through prices Satisfied market in all price segments High costsof entry High fixedcosts Only small margins National airlines partially subventioned by state 28.11.06 EasyJet & Ryanair: flying high with 23
Predation Charging Successlow through prices National airlines backed up by subsidies Alliances Special contracts with airports BA & TWA accused predatory pricing 28.11.06 EasyJet & Ryanair: flying high with 24
Fourth Question How successful do you believe EasyCinema is likely to be? Source: Jobber, p410 28.11.06 EasyJet & Ryanair: flying high with 25
What is EasyCinema? Source: www.easycinema.com 28.11.06 EasyJet & Ryanair: flying high with 26
EasyCinema Film bookings 2 weeks in advance Starting from 20pence (<30 cent) The earlier the cheaper (like with aircraft seats) 28.11.06 EasyJet & Ryanair: flying high with 27
Cutting EasyCinema costs and staff No popcorn etc. If ya want popcorn, go to a popcorn vendor. For movies come to Internet: Print out membership card, access via turnstile 28.11.06 EasyJet & Ryanair: flying high with 28
EasyCinema s success Direct changes of price according to demand Cheap for cineasts, who plan watching films in advance 28.11.06 EasyJet & Ryanair: flying high with 29
Thank you for your attention! 28.11.06 EasyJet & Ryanair: flying high with 30