Market Structure - Ryanair Holding Plc a leading budget airline operates low fare, scheduled passenger airlines serving short haul, point-to-point routes primarily between Ireland, Britain and Europe.

• Direct intervention in the industry to control externalities e.g. aviation taxation.

 

Ryanair a ‘no frills’ low cost airline was able to introduce pricing strategies that work.  

2. London Stansted to Glasgow

Bookings were done on November 29th, 2003.  A ₤6.81 Tax needs to be added.  Child’s fare of ₤7.00 is applicable regardless of booking date.

1. Results

Table 1

Financial statements from2001 – 2003 were compared; the results showed that Ryanair enjoyed after tax profit growth of fifty-nine percent (59%).  This was possible through an aggressive pricing policy.  

Four factors can summarise pricing policy:

1. Costs
2. Competitors
3. Customers
4. Business Objectives

COSTS:

• Promotional Pricing:

In order to make a profit a business has to ensure its products are priced above their total average costs.  In the short term, Ryanair some times offers free travel sales (plus tax). This is acceptable once free travel produces a positive contribution to fixed costs.  Fixed costs are always present whether a plane flies or not, It makes sense to run flights with a few cheaper seats than not at all.  (See diagram 1)

        

                                

                        

                                                      Diagram 1

• Pricing by Method of Payment:

Price can be used as an incentive to encourage payment by a method favoured by the company.

Ryanair does eighty percent (80%) of ticket sales via the Internet, reducing the need for agents thus cutting prices for the customer.  This is encouraged as an additional cost is charged for bookings by phone.

Ryanair is known for rigid cost controls.  They have saved money by:

1. The use of secondary smaller airports.
2. No catering costs.
3. Buying mainly one type of aircraft and flying them more often and turning them around quicker than traditional scheduled carriers.

This maximises utilisation of each aircraft.

COMPETITORS:

• Competition Based Pricing:

Setting prices based on the prices that competitors charge for similar products. Prices set in isolation, away from what is happening in the rest of the industry will fail.  Ryanair looks at other airlines and other modes of transport to determine its pricing policies. (See Graph 2)

Journey from Stansted to Glasgow.  Fares were booked on November 29th, 2003.  Each journey a one-way ticket was bought for a single adult using similar times of travel.

Graph 2

Prices charged by Ryanair have been found to be on average thirty-seven percent (37%) cheaper than its nearest low cost rival, four times cheaper than the National Railway and three times cheaper than the Bus Company, National Express. The time taken for the journey was also fastest with Ryanair.

CUSTOMERS:

• Psychological Pricing:

For a customer, when the price of the product is commensurate with the value of the product, there is a greater desire to purchase the item.

Ryanair’s prices end with a ‘9’, e.g. £15.99.  The argument is that the price is perceived by the customer to be within the lower price band rather than the higher.

• Price Discrimination: Pricing by Time

Prices vary according to the time of travel.  Tickets bought for during the day were generally priced higher, than those bought for early morning or late at night. See Table 1

• Peak Load Pricing:

At peak times prices are higher.  During the Christmas and New Year holidays Ryanair’s prices increased by fifty-three (53%) and One Hundred and twenty Three (103%) percent respectively.

                                                        Diagram 2

• 3rd Degree Price Discrimination:

Different groups of consumers are charged different prices e.g., children’s fare is cheaper, but is not subject to promotional offers.

• Product Bundle Pricing:

They have also added value to the other services, such as car and hotels, which are offered as a bundle for a reduced cost.

BUSINESS OBJECTIVES:

Ryanair’s organisational goal is to maintain an enhanced market share.  

• Growth Maximisation:

Managers seek to maximise the growth in sales revenue.  An offensive market share strategy involves attaining increased market share, by lowering prices in the short term.  This will lead to increased sales, which in the long term can lead to lower costs and ultimately to increased volume/market share.

In 2002 due to seven percent (7%) reduction in average airfares, the following results were realised:

(Irish Gap) 

Ryanair’s targets are:

• To open at least one new base in Europe each year for the next three or four years.  
• To grow at a rate of thirty percent (30%) for the next two years to just under twenty million passengers.  

They strongly believe, to realise their target, low cost pricing of tickets needs to be maintained and enhanced.  

Ryanair has shown that effective market policies lead to success.

 

BIBLIOGRAPHY

Cole, G. A. 1996, Management Theory and Practice, DP Publications, London

Hornby, W., Gammie, B., Wall, S. 1997, Business Economics, Pearson Education Limited, England

Kotler, P., Armstrong, G. 2001, Principles of Marketing, Prentice Hall, New Jersey

Sloman, J. 2000, Economics, Pearson Education Ltd, England.

Wright, W. 1999, Marketing: Origins, Concepts, Environment, Business Press, London

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