Marketing (BSMK2102) – Case Study 3 "European Rivals in the Sky" After deregulation of the European airlines industry in 1987, the industry changed substantially with the entrance and exit of low-cost carriers such as the successful Ryanair and EasyJet and the less successful Buzz (which was set up by KLM but subsequently bought by Ryanair) and Debonair (which went bust almost immediately). Since the early success of Ryanair and EasyJet, a whole host of companies have set up including GermanWings in Germany and WhizzAir from Hungary. Existing competitors within the market, such as Air France, Lufthansa, and British Airways, lost market share in the short-haul airline market as the low-cost carriers quite literally flew away with their business. Low-cost airlines possess the competitive advantage of operating at significantly lower costs than their larger national counterparts, and since they entered the market have maintained their low-cost advantage, partly by operating lower wage costs, using flexible employment contracts, and far quicker airport turnaround times. Landing charge costs have been cut by flying to and from provincial, regional airports, e.g. EasyJet used Torp outside Oslo in Norway, Stansted near Cambridge in the UK, and Çiampino outside Rome in Italy. The low-cost airlines reduced channel marketing spend by cutting their reliance on travel agents, using the internet to generate customer traffic instead. Business models also changed as the low-cost carriers emphasized very high load factors, no-frills services (including extra charges for baggage, meals, and other services), and in some cases the use of second-hand aircraft. National carriers have fought back by lowering their own cost structures and renouncing flight slots at airports on less profitable routes, e.g. as British Airways did in its Size and Shape Review in 2002, although it only returned to profitability in 2006 after eight years of SUccessive losses on its short-haul operations. Questions: 1. What was the original barrier to entry for competitors to the EU short-haul airline market? 2. How did low-cost carriers alter the relationships between buyers and suppliers to airline companies operating in the short-haul airline market? 3. How strong is the threat of entry from new low-cost operators within the short-haul airline marketplace? Explain.