Ryanair Example

 Ryanair Case Study Essay

Nova Institution of Business and Economics

2012/2013

DOGFIGHT OVER EUROPE: RYANAIR

Example

This set of questions refers to Version (A):

1 . Which kind of consumers was Whizz air trying to entice when, it happened in 1999, Michael O'Leary took charge of the organization? Those with a decreased price elasticity of demand or those with a high price flexibility of demand? Explain.

Given that we are speaking about the same item, in an industry with many firms, where suppliers and buyers know most quoted rates and where the consumers may identify the product as homogeneous, it is good to say that individuals are talking about a scenario close to ideal competition, hence demand for the product is very elastic. So , Ryanair is trying to draw high price flexibility customers. Accordingly to the document: Ryanair promoted itself because " the low fares airline”; before available new routes, the company cared about low landing fees, low transformation costs to be able to demand low prices to consumers; it built agreements with secondary air-ports, where they did not pays off fees (in fact all those airports paid to Whizz air to use their very own locales); that tried that 70% of the available seating in the two lowest cost categories; that made fewer restrictions upon its tickets (important to get who had extra bags, or who wants to change the flights to be able to pay less); it notice competitors, so it would be able to apply a lower cost; its clients were a mixture of leisure travellers (70-75%) and business travelers, mostly by small and mid-sized businesses (25-30%). differences in airfares could convince some leisure time travelers to check out one destination rather than one more; it has chosen the cost management so it looks for to be the lowest cost producer in Europe by selling standardized, mass products and Ryanair's profit optimization was through lower prices in order to appeal to more customers contrarily to competitors exactly where they maximize their profits through discover opportunities to maximize fares without having to lose customers. And so accordingly towards the customers with a high PED (price elasticity demand) following a formula (Q/P) x (P/Q): a little bad variation in prices (decrease in fares), will originate a big great variation inside the amount offered.

2 . Why was cost cutting so necessary for the strategy chosen?

Firstly it is important to relate that in 1991, Ryanair was facing a personal bankruptcy. In response, ‘the company taken out all frills from its services, cut its costs towards the bone, and dropped its fares to levels unheard of in Europe'. It became top priority, to connect each of the efforts aid and create cash. Company's main concern was charge decrease fares to be able to attract substantial elasticity selling price demand buyers, with this new strategy, the company became cheap or low-fare airlines and maintain that within these types of measures the firm necessary to adapt their strategy to fresh restrictions, meaning, cost cutting. The banner airline encountered a really competitive market (in 1999), and keep competitive the company had to retain its strategy, and for that was required cost slicing. Cost reducing, if it is efficiently done, gives more earnings. Besides, making use of the model utilized in classes, " Bertrand – Asymmetric Model” where it says that if selected firm expenses ‘P1' for its product, and other firm expenses ‘P1-e' (because it is able to reduce its minor cost), and so the second company will get each of the demand. Well, Ryanair would not get each of the demand, nevertheless is visible in ‘Exhibit 4' that the company taken approximately 60% (353/575) and 56% (180/321) of the people on the route ‘Dublin-Manchester' and the route ‘Dublin-Glasgow' correspondingly.

3. Whizz air uses a performance-based pay system to compensate it is flight family and friends. Why?

A performance-based payment scheme combines the interests of both flight attendants and the company.. This is really because obviously, the flag air travel will gain more in case the attendants will work efficiently (making an effort to market the treats, drinks, or whatever...


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