Thursday, October 05, 2006

The Irish are at it again

Well, it appears as if Ryanair has no intentions of slowing down their business model or strategic innovation with their announcement of a takeover bid for Aer Lingus. This appears to have come as a surprise to even the most hardened industry observer. There are many speculations about the true intentions of this move: is it a true expansion strategy (strange, considering Ryanair's current orderbook and delivery schedule); are trans-Atlantic hops the next big thing (maybe they the East Coast at least; but Ryanair has been so successful by staying true to the current business model it is hard to believe that such a drastic change can be justified); maybe Ryanair is making a defensive posture (speculation concerning the bid on BA may have led Ryanair to believe that Aer Lingus may also be a target. The airline does have some coveted slots at LHR. Maybe Ryanair wanted their hands on those or to make sure that others could not benefit from them); if one looks to the US and the ever-overlapping of LCC networks maybe Ryanair is making a long-term strategic move when the inevitable end of cherry-picking routes comes to an end (airlines are not known for being long-term strategic planners, unless it concerns aircraft orders). Regardless of the intentions, many argue this goes against the grain with a low-cost carrier taking over a former full-service carrier. The current Aer Lingus is certainly not a full-service, network carrier such as British Airways or Lufthansa. The Irish airline in its current form is actually classified as a low-cost carrier in various articles and research papers; however, not to the same extent as Ryanair.

Ryanair announced that their intention would be to operate the two carriers as separate entities while making Aer Lingus more efficient. Ryanair certainly has the knowledge to operate an efficient and low-cost airline. Many have speculated what Ryanair could do with the long-haul arm of Aer Lingus; possibly creating a true low-cost, long-haul airline. This move certainly would allow Ryanair an opportunity to innovate both carrier's business models.

Ryanair's options:
The largest European low-cost carrier could certainly feed an enormous amount of traffic into Dublin for Aer Lingus' long-haul operations. This would possibly mean adapting the business model activities to include connections, affecting both operations and revenue management. Suddenly operating a connecting network rather than a point-to-point operation could have negative affects on the carrier. This proposition does assume that Aer Lingus will make more drastic changes to their business model to accommodate Ryanair's value proposition, target market, activities, and network.

Aer Lingus' options:
Aer Lingus has made some astounding headway in the recent years with regards to business model and strategic innovation. The carrier has creatively applied many aspects of the low-cost model to create a more profitable airline. If Ryanair does want to create complementing carriers then Aer Lingus needs to make some more changes to their model. Their value proposition and target market need to be adjusted to fit more harmoniously with Ryanair's. Ryanair has undoubtedly a partner network that the Irish flag carrier can benefit from, but that requires adjustments to current practices.

The merger of two airlines is certainly not a task for the faint-at-heart. To keep the two carriers as separate entities is probably the easiest and less turbulent transition possible. Ryanair does have experience with mergers from their acquisition of Buzz in 2003, however the mergee is usually not the happiest among the two.

In the meantime we will just have to wait and see what happens. As it stands now Aer Lingus has refused the bid. Undoubtedly, it is exciting to see Ryanair in action.

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