The American Airline Industry

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The American Airline Industry
Airline deregulation Act of 1978
deregulation of market
two-tier industry structure
low-fare airlines
big established airlines
weak financial position
strong financial position
fare wars
many airlines failed
In 10 years Ticket prices fell by 33 Passengers
doubled
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The European Airline Industry

• In the early 1980s highly regulated (routes and
  fares)
• From 1987 to 1997 EU liberalized the industry,
  reduced government intervention
• In 1980 the four largest European airlines
  carried 54 million passengers
• In 2000 the same airlines carried 147 million
  passengers
• the industry exhibited steady growth
• In the early 2000s many of the largest
  European airlines reported poor performance
• other national carriers went bankrupt

WHY?
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The European Airline Industry
Rivarly among existing firms (1)

• Growth annual average 5 between 1995 and 2004.
  Negative growth after 11/09/01
• Concentration fragmented industry
  liberalizazion of the market State subsidies
• Differentation and switching cost virtually
  identical flights
• Structural excess capacity problem the annual
  passengere load factor was 72 (1995-2004).

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The European Airline Industry
Threat of new entrants (2)
Threat of substitute products (3)

• 1993 Change in system used to allocate time
  slots among the airlines
• Use of smaller airports in order to enter the
  market
• Easy access to capital. Second-hand aircraft
• After 1997 no legal barriers. Possibility to
  freely operate on any route within the EU
• Substitute products High-speed rail network.

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The European Airline Industry

• 90 of aircraft came from anly two commercial
  aircraft manufacturers (Airbus, Boeing)
• Fluctuations in fuel market price
• Significant power of airline employees (threat
  of stike)
• Web booking systems made market prices
  transparent

Bargaining power of buyers (4)
Bargaining power of suppliers (5)
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American and European Airline Industry
FAILED AIRLINE
Italy Volare, Agent AirAir, Freedom, Free
Airways, Windjet U.S. Peoples Express, Frontier
Airlines, Texas Air, New York Air Ireland Fresh
Aer, JetMagic, JetGreen, Skynet Poland Air
Polonia, DreamAir, GetJet, Silesian Air, White
Eagle France Aeris, Air Littoral, Ailib Express,
Fly Eco Great Britain Duo, Now Germany
Berlinjet, Low Fare Jet, V-Bird Finland Flying
Finn Bosnia Air Bosnia Spain Air
Catalunya Norway Goodjet
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Ryanairs History

• 1985 founded by Ryan Family. Staff of 25.
  Passengers 5,000
• 1986 Ryanair starts the first fare war in
  Europe. Passengers 82,000
• 1987-1990 rapid growth in aircraft, routes, and
  intensive price competition. Passengers 745,000
• 1990 Ryanair accumulates 20 milion in losses
  and goes through a substantial restructuring
• 1991 The Gulf War breaks out. Traffic and
  employment numbers fall but profit of 293,000
• 1995 Ryanair overtakes British Airways to
  become the largest passenger airline on the
  Dublin-London route.
• 1997 On 29th May successful flotation on the
  Dublin and NASDAQ (New York) Stock Exchanges. The
  shares are more than 20 times over subscribed and
  the share price surges from a flotation price of
  11 to close at 25½ on their first day of
  trading.
• 1998 Issue new shares to raise over 110milion
  to pay for 45 new aircraft. Passengers 4,629,000.

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Ryanairs History

• 2000 Ryanair launches Europe's largest booking
  website. Within three months the site is taking
  over 50,000 bookings a week. Passengers
  7,002,000.
• 2002 Ryanair becomes No.1 in Europe of customer
  service beating all other European airlines for
  punctuality, fewer cancellations and least lost
  bags. Passengers 13,419,000.
• 2003 Over 2milion passengers in one month
  (July) for the first time.
• 2004 Ryanair is named the most popular airline
  on the web for 2003 by Google. Ryanair.com now
  accounts for over 98 of all Ryanair bookings.
  Passengers 24,635,000.
• 2005 Ryanair has the youngest fleet in the
  world with an average aircraft age of just two
  years.
• 2007 120 Boeing 737-800 (189 capacity).
  Passengers 52,000,000

How did Ryanair achieve such performance?
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Ryanairs History
Passengers
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RyanairCompetitive strategy analysis
Flights on time
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RyanairCompetitive strategy analysis
Bags missing per 1,000 passengers
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RyanairCompetitive strategy analysis
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RyanairCompetitive strategy analysis
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RyanairCompetitive strategy analysis
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RyanairCompetitive strategy analysis
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RyanairCompetitive strategy analysis
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RyanairCompetitive strategy analysis
CEO Michael OLeary
Breaking with old rules
For example
young students
publicity stunts
Stansted Airport The Rip-Off
Arrivederci Alitalia
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RyanairCompetitive strategy analysis
FLY POINT-TO-POINT Route mini-business unit. No
connecting flights No lost baggage
CUT-PRICE DEALS Publicity Non-refundable tickets
FLY TO SECONDARY AIRPORT No large hubs Lower
congestion
Low-cost competitive strategy
QUICK TURN-AROUND Land and take off again in 25
minutes Maximize the flights per day
NO OVER-NIGHTING OF STAFF Crew can return to
their home Expensive hotel bills and per diems
are avoid
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RyanairCompetitive strategy analysis
ONE CLASS Non-business class Non-requirement for
food
ONE AIRCRAFT TYPE Only Boeing 737 More fuel
efficient, higher passenger capacity Low
maintenance training costs
Low-cost competitive strategy
INTERNET BOOKINGS 97 tickets via internet No
travel agent commission Control over scheduling
and capacity
PERSONNEL COSTS AND INCENTIVES Pilots for
training Financial incentives for smooth landings
and for sales in flight