The European airline industry is one of the most heavily regulated and protected sectors. In most parts across Europe, carriers were state-owned and therefore enjoyed a legal monopoly over domestic traffic. Governments controlled the entry of foreign companies by means of restrictive bilateral Air Service Agreements (ASA). The implementation of the ASA allowed the carriers that were registered in each signatory to operate commercial services. However, in general, the countries were allowed to use only its state-owned flag carrier.
In 1980, the European Community adopted new strategies in order to liberalize the intra-European air service. This deregulation aimed to substantially reduce the EU member states' ability to restrict the entry of foreign companies. Since April 1997, the European airline companies have been allowed to provide passenger services on domestic routes within the EU member states. In other words, a particular airline company is allowed to travel to other destinations across the EU member states even if the airline company has not been registered in the destination country (e.g. Nice-Reims served by Easyjet).
In the beginning, the restoration of the deregulation of airlines favored the flag carriers which monopolized the market. But later, it allowed other companies to enter and compete against the state-owned flag carriers. Such is the case of Ryanair, the Ireland-based company and the most successful Low Cost Company (LCC). In 2005, the company transported 35 million passengers. Moreover, the company has the best operating margin around 25% (see table 2).
Growing at an annual rate of 20%, this LCC already controls around 7% shares of the of the EU market in terms of passengers' number. However, as we can see in table 1, its market penetration still differs significantly among EU member-states compared to Ireland and the UK.
[...] Ryanair has the possibility to establish new air link with these nations. The company still has the opportunity to increase its market shares in Western Europe; in fact, the LCC market shares could be more than double. Benefits from less exposure to geopolitical risks: European countries are politically stable, which allows Ryanair to operate without any governmental restrictions. The actual economic slowdown helps Ryanair to attract customers from traditional carriers, seeking lower fares. Thanks to the construction of new terminals, Ryanair will be able to penetrate the German market and compete against GermanWings and Air Berlin, in order to raise its market shares and conquer new customers on a relative big market. [...]
[...] The increasing threat of substitutes As we mentioned earlier, there is not much loyalty from customers, LCCs' customers switch between Ryanair and Easyjet or other companies offering reduced prices. Other means of transport such as Eurostar, TGV, Ferries, are lowering their fares in order to attract customers. A competitive market The LCC market is a highly competitive one; many companies are offering low cost services on an increased number of routes. Most cost competitive advantages are copied; in fact Ryanair and EasyJet are offering pretty much the same services (location of cars, reservation of hotel, etc.). [...]
[...] It can be said that Ryanair has well and truly established itself as the leading low cost airline in Europe. From now on, its aim for the future must be consolidating its actual position. Ryanair's strategy appears to be sustainable for the most reasons mentioned above, but we can also say that it is perfect, as we will see in the following paragraphs. What changes would you recommend to Ryanair's approach? We have demonstrated that Ryanair's strategy and approach of the European market is undoubtedly successful. [...]
[...] As we mentioned earlier, Ryanair is positioned as the leader in the European low-budget airline market. This creates a competitor group consisting of other European no-frills airlines, like Easyjet, its main competitor, and low-budget sub brands of traditional airlines, but it excludes the full-service airlines that are not competing in the same market niche. Thus, in order to define if Ryanair's strategy is sustainable, we have to define how the company describes itself. Ryanair has based its strategy as the lowest cost scheduled airline, it means basing the airline's financial strategy on the average number of seats sold per flight instead of on the revenue made per sold seat (Lawton, 1999). [...]
[...] This category also includes the Low Cost Companies, such as Ryanair and its direct competitor Easyjet, the two basic models in this market segment which use an opposite strategy. Ryanair decided to serve secondary airports at low frequency (only 1 flight per day or 2 days in certain airports, such as St Etienne), and it focuses on new niche markets, with no direct competition (see map of destination below). We could say that Ryanair's model is more focused on costs rather than on markets. [...]
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