Case Study easy Jet Ryanair Success through low

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Case Study: easy. Jet & Ryanair Success through low prices Advantages and Risks Flying

Case Study: easy. Jet & Ryanair Success through low prices Advantages and Risks Flying high with low prices Conditions for Charging low prices easy. Cinema 28. 11. 06 Caglar Cintuglu Deniz Yarar Uli Breunig Easy. Jet & Ryanair: flying high with low prices

Introduction Success through low prices Advantages and Risks Conditions for Charging low prices easy.

Introduction Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema Source: Jobber, p 410 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 2

First Question Success through low prices Advantages and Risks How do Easy. Jet and

First Question Success through low prices Advantages and Risks How do Easy. Jet and Ryanair achieve success using low price strategies? Conditions for Charging low prices easy. Cinema Source: Jobber, p 410 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 3

Easy. Jet & Ryanair Success through low prices Advantages and Risks Conditions for Charging

Easy. Jet & Ryanair Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 The orange-liveried airline is one of the pioneers of low-cost travel in the UK Established in 1991 Europe’s largest budget airline Easy. Jet & Ryanair: flying high with low prices 4

Short History: 1978 Deregulation of American Skies Success through low prices Advantages and Risks

Short History: 1978 Deregulation of American Skies Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 Southwest Airlines first „no-frills, low-fare“ business model – No free meals or coffee, only peanuts – Secondary Airports: – Faster turnaround times – Cabin crew does the cleaning – No waiting for incoming flights Easy. Jet & Ryanair: flying high with low prices 5

Only one type of aircraft Success through low prices Advantages and Risks Conditions for

Only one type of aircraft Success through low prices Advantages and Risks Conditions for Charging low prices • i. e. Boeing 737 – Keep costs down by – Reducing pilot training costs – Reducing maintenance costs easy. Cinema 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 6

Internet booking Success through low prices Advantages and Risks • Cut paperwork and administrative

Internet booking Success through low prices Advantages and Risks • Cut paperwork and administrative costs Conditions for Charging low prices easy. Cinema Source: www. easyjet. com; www. ryanair. com 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 7

Product Strategy Success through low prices Advantages and Risks Conditions for Charging low prices

Product Strategy Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 Easy. Jet & Ryanair have successfully attacked British Airways with their rapid penetration strategy (Price: low, Promotion: high) Easy. Jet & Ryanair: flying high with low prices 8

Target segment Success through low prices Advantages and Risks Conditions for Charging low prices

Target segment Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • Independent customers (no need for bundled services) with high grade of self organized market overview/comparison • Rather young and flexible (Generation @) Easy. Jet & Ryanair: flying high with low prices 9

Customer Characteristics Success through low prices Advantages and Risks Conditions for Charging low prices

Customer Characteristics Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • 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) Easy. Jet & Ryanair: flying high with low prices 10

Second Question Success through low prices Advantages and Risks What are the advantages and

Second Question Success through low prices Advantages and Risks What are the advantages and risks associated with low-price strategies? Conditions for Charging low prices easy. Cinema Source: Jobber, p 410 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 11

Advantages of low-price/rapid penetration Success through low prices Advantages and Risks Conditions for Charging

Advantages of low-price/rapid penetration Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema • 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 Easy. Jet & Ryanair: flying high with low prices 12

Advantages of low-price/rapid penetration Success through low prices Advantages and Risks Conditions for Charging

Advantages of low-price/rapid penetration Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • Goodwill among early adopter segment word of mouth • Cost control pressure greater efficiency • Barrier to entry for new competitors (Porter‘s 5 forces) Easy. Jet & Ryanair: flying high with low prices 13

Disadvantages for customers Success through low prices Advantages and Risks Conditions for Charging low

Disadvantages for customers Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • 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 Easy. Jet & Ryanair: flying high with low prices 14

Risks of low-price/rapid penetration Success through low prices Advantages and Risks Conditions for Charging

Risks of low-price/rapid penetration Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • Low price conveys an image of low quality; Image! • Competing suppliers also reduce prices, nullifying the advantage • Long term price expectations Easy. Jet & Ryanair: flying high with low prices 15

Third Question Success through low prices Advantages and Risks Conditions for Charging low prices

Third Question Success through low prices Advantages and Risks Conditions for Charging low prices To what extent do the conditions for charging low prices discussed in this chapter hold for Easy. Jet and Ryanair? easy. Cinema Source: Jobber, p 410 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 16

Conditions for charging low prices Success through low prices Advantages and Risks Conditions for

Conditions for charging low prices Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema - Only feasible Alternative Market Presence or domination Experience curve effect/low costs Make Money later Make Money elsewhere Barrier to entry Predation Source: Jobber, p 385 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 17

Only feasible Alternative Conditions for Chargingthrough low prices Success low prices Advantages and Risks

Only feasible Alternative Conditions for Chargingthrough low prices Success low prices Advantages and Risks Conditions for Charging low prices easy. Cinema Source: Jobber, p 385 28. 11. 06 • Rather homogenic service • Cut down to core value (transportation) • Low price as incentive for consumers to switch from usual brand Easy. Jet & Ryanair: flying high with low prices 18

Market presence or domination Conditions for Chargingthrough low prices Success low prices Advantages and

Market presence or domination Conditions for Chargingthrough low prices Success low prices Advantages and Risks Conditions for Charging low prices easy. Cinema Source: Jobber, p 386 28. 11. 06 • Aggressively pricing • Segment of pricesensitive consumers (Price elasticity) • Only way to overtake national airlines on the low-cost lane Easy. Jet & Ryanair: flying high with low prices 19

Experience curve effect/low costs Conditions for Chargingthrough low prices Success low prices Advantages and

Experience curve effect/low costs Conditions for Chargingthrough low prices Success low prices Advantages and Risks Conditions for Charging low prices • Cost decline of 20% if production doubles • Becoming the lowestcost supplier easy. Cinema Source: Jobber, p 386 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 20

Make money later Conditions for Chargingthrough low prices Success low prices Advantages and Risks

Make money later Conditions for Chargingthrough low prices Success low prices Advantages and Risks Conditions for Charging low prices easy. Cinema • Price-sensitive consumers in the lowcost segment • No way for airlines to make money later Source: Jobber, p 410 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 21

Make money elsewhere Conditions for Chargingthrough low prices Success low prices Advantages and Risks

Make money elsewhere Conditions for Chargingthrough low prices Success low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • Low-cost airlines concentrate on the core competence: Transportation • Selling food on planes Easy. Jet & Ryanair: flying high with low prices 22

Barrier to entry Conditions for Chargingthrough low prices Success low prices Advantages and Risks

Barrier to entry Conditions for Chargingthrough low prices Success low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • Satisfied market in all price segments • High costs of entry • High fixed costs • Only small margins • National airlines partially subventioned by state Easy. Jet & Ryanair: flying high with low prices 23

Predation Conditions for Chargingthrough low prices Success low prices Advantages and Risks Conditions for

Predation Conditions for Chargingthrough low prices Success low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • National airlines backed up by subsidies • Alliances • Special contracts with airports • BA & TWA accused predatory pricing Easy. Jet & Ryanair: flying high with low prices 24

Fourth Question Success through low prices Advantages and Risks How successful do you believe

Fourth Question Success through low prices Advantages and Risks How successful do you believe Easy. Cinema is likely to be? Conditions for Charging low prices easy. Cinema Source: Jobber, p 410 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 25

What is Easy. Cinema? Success through low prices Advantages and Risks Conditions for Charging

What is Easy. Cinema? Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema Source: www. easycinema. com 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 26

Easy. Cinema Success through low prices Advantages and Risks Conditions for Charging low prices

Easy. Cinema Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • Film bookings 2 weeks in advance • Starting from 20 pence (<30 cent) • The earlier the cheaper (like with aircraft seats) Easy. Jet & Ryanair: flying high with low prices 27

Cutting Easy. Cinema costs and staff Success through low prices Advantages and Risks Conditions

Cutting Easy. Cinema costs and staff Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • No popcorn etc. – „If ya want popcorn, go to a popcorn vendor. For movies come to easy. Cinema“ • Internet: – Print out membership card, access via turnstile Easy. Jet & Ryanair: flying high with low prices 28

Easy. Cinema‘s success Success through low prices Advantages and Risks Conditions for Charging low

Easy. Cinema‘s success Success through low prices Advantages and Risks Conditions for Charging low prices easy. Cinema 28. 11. 06 • Direct changes of price according to demand • Cheap for cineasts, who plan watching films in advance Easy. Jet & Ryanair: flying high with low prices 29

Success through low prices Advantages and Risks Conditions for Charging low prices Thank you

Success through low prices Advantages and Risks Conditions for Charging low prices Thank you for your attention! easy. Cinema 28. 11. 06 Easy. Jet & Ryanair: flying high with low prices 30