Case Study: easyJet & Ryanair - univie.ac.ata0025537/php/ABWLs.off/.../Case_Easyjet.pdf · Case...

28.11.06 EasyJet & Ryanair: flying high with low prices 1

Success throughlow prices

Advantages andRisks

Conditions forCharging low prices

easyCinema

Case Study:easyJet & Ryanair

Flying high with low prices

Caglar CintugluDeniz YararUli Breunig



Advantages andRisks


easyCinema

Introduction


Advantages andRisks


easyCinema

Source: Jobber, p410



Advantages andRisks


easyCinema

First Question

How do EasyJet and Ryanairachieve success using lowprice strategies?




Advantages andRisks


easyCinema

EasyJet & Ryanair

The orange-liveried airline is one of the pioneers of low-cost travel in the UK

Established in 1991Europe’s largest

budget airline



Advantages andRisks


easyCinema

Short History: 1978Deregulation of American Skies

Southwest Airlines first „no-frills, low-fare“ business model

– No free meals or coffee, onlypeanuts

– Secondary Airports:– Faster turnaround times– Cabin crew does the cleaning– No waiting for incoming flights



Advantages andRisks


easyCinema

Only one type of aircraft

• i.e. Boeing 737– Keep costs down by

– Reducing pilot training costs– Reducing maintenance

costs



Advantages andRisks


easyCinema

Internet booking

• Cut paperwork and administrative costs

Source: www.easyjet.com; www.ryanair.com

http://www.easyjet.com/

http://www.ryanair.com/



Advantages andRisks


easyCinema

Product Strategy

EasyJet & Ryanair havesuccessfully attackedBritish Airways with theirrapid penetration strategy

(Price: low, Promotion: high)



Advantages andRisks


easyCinema

Target segment

• Independent customers(no need for bundledservices) with high grade of self organized marketoverview/comparison

• Rather young and flexible (Generation @)



Advantages andRisks


easyCinema

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 forcomplaints)



Advantages andRisks


easyCinema

Second Question

What are the advantages and risks associated with low-pricestrategies?




Advantages andRisks


easyCinema

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



Advantages andRisks


easyCinema

Advantages of low-price/rapid penetration

• Goodwill among early adoptersegment

word of mouth• Cost control pressure

greater efficiency• Barrier to entry for new

competitors (Porter‘s 5 forces)



Advantages andRisks


easyCinema

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



Advantages andRisks


easyCinema

Risks of low-price/rapid penetration

• Low price conveys an image of low quality; Image!

• Competing suppliers also reduce prices, nullifying theadvantage

• Long term price expectations



Advantages andRisks


easyCinema

Third Question

To what extent do theconditions for charging lowprices discussed in thischapter hold for EasyJet and Ryanair?




Advantages andRisks


easyCinema

Conditions for charging lowprices

- Only feasible- Market

- Make- Make

effect/low costsor domination

Alternative

- Experience curve

- Barrier to entry- Predation

Presence

Money laterMoney elsewhere





Advantages andRisks


easyCinema

Only feasible AlternativeConditions for

Charging low prices

• Rather homogenicservice

• Cut down to core value(transportation)

• Low price as incentivefor consumers to switchfrom usual brandSource: Jobber, p385



Advantages andRisks


easyCinema

Market presence ordomination


• Aggressively pricing• Segment of price-

sensitive consumers(Price elasticity)

• Only way to overtakenational airlines on the low-cost laneSource: Jobber, p386



Advantages andRisks


easyCinema

Experience curve effect/lowcosts


• Cost decline of 20% ifproduction doubles

• Becoming the lowest-cost supplier




Advantages andRisks


easyCinema

Make money laterConditions for

Charging low prices

• Price-sensitive consumers in the low-cost segment

• No way for airlinesto makemoney later




Advantages andRisks


easyCinema

Make money elsewhereConditions for

Charging low prices

• Low-cost airlinesconcentrate on the corecompetence: Transportation

• Selling food on planes



Advantages andRisks


easyCinema

Barrier to entryConditions for

Charging low prices• Satisfied market in all

price segments• High costs of entry• High fixed costs• Only small margins• National airlines partially

subventioned by state



Advantages andRisks


easyCinema

PredationConditions for

Charging low prices• National airlines backed

up by subsidies• Alliances• Special contracts with

airports• BA & TWA accused

predatory pricing



Advantages andRisks


easyCinema

Fourth Question

How successful do you believeEasyCinema is likely to be?




Advantages andRisks


easyCinema

What is EasyCinema?

Source: www.easycinema.com

http://www.easycinema.com/



Advantages andRisks


easyCinema

EasyCinema

• Film bookings 2 weeks in advance

• Starting from 20pence (<30 cent)

• The earlier the cheaper(like with aircraft seats)



Advantages andRisks


easyCinema

Cutting EasyCinema costs and staff

• No popcorn etc.– „If ya want popcorn, go to a

popcorn vendor. For moviescome to easyCinema“

• Internet:–Print out membership card,

access via turnstile



Advantages andRisks


easyCinema

EasyCinema‘s success

• Direct changes of priceaccording to demand

• Cheap for cineasts, whoplan watching films in advance



Advantages andRisks


easyCinema

Thank you foryour attention!

Case Study: easyJet & Ryanair - univie.ac.ata0025537/php/ABWLs.off/.../Case_Easyjet.pdf · Case...

Documents

Transcript of Case Study: easyJet & Ryanair - univie.ac.ata0025537/php/ABWLs.off/.../Case_Easyjet.pdf · Case...