Game theoryGame theoryCore assumptionsCore assumptions

- I’m in the arena for my own benefitI’m in the arena for my own benefit- Interdependant relationship with other Interdependant relationship with other

competitorscompetitors- Aware that we are dependant upon each Aware that we are dependant upon each

otherother

AA

heavy marketingheavy marketing low marketinglow marketing

heavyheavy 5, 55, 5 12,212,2

BB

LowLow 2,122,12 9, 99, 9

The Rise of SkyEuropeThe Rise of SkyEurope(what is more rational than a pricefighter in a low cost (what is more rational than a pricefighter in a low cost

country)country)

The first price fighter airline in The first price fighter airline in Central EuropeCentral Europe

6 september 2001 6 september 2001

Slovakia has their Slovakia has their own air carrierown air carrier

6 September 2001 – SkyEurope Airlines was registered6 September 2001 – SkyEurope Airlines was registered11 September 2001 – World Trade Centre in New York 11 September 2001 – World Trade Centre in New York became a heap of rubblebecame a heap of rubbleThe biggest crisis in the airline industry followedThe biggest crisis in the airline industry followedHow would you feel standing in the shoes of C. Mandl How would you feel standing in the shoes of C. Mandl and A. Skowronek?and A. Skowronek?

Good idea to stopGood idea to stop

Save yourself going bankruptSave yourself going bankrupt

Save your nameSave your name

Try again in 5 years timeTry again in 5 years time

The 11 Sept. attacks were a blessing in The 11 Sept. attacks were a blessing in disguisedisguise

Aeroplanes became cheaper to buyAeroplanes became cheaper to buy

Pilots were cheaperPilots were cheaper

Slots were available at the main European Slots were available at the main European airportsairports

ABN Amro wanted to finance SkyEuropeABN Amro wanted to finance SkyEurope

SkyEurope takes offSkyEurope takes off

13 February 200213 February 2002

What was happening in theWhat was happening in the

“air transport” industry “air transport” industry

Aeroplanes became cheaperAeroplanes became cheaper

(supplier power)(supplier power)

Pilots became cheaperPilots became cheaper

Slots were available at international airports Slots were available at international airports like Schiphol and Orly (competitive rivalry)like Schiphol and Orly (competitive rivalry)

Demand diminished due to fear of flying Demand diminished due to fear of flying (buyer power)(buyer power)

Rail, ship and road transport grew Rail, ship and road transport grew (substitutes)(substitutes)

Threat of Entry (barriers)Threat of Entry (barriers)

Economies of Scale – decline in unit cost of airtransport Economies of Scale – decline in unit cost of airtransport as the absolute volume per period increasesas the absolute volume per period increasesProduct differentiation – being the first, brand Product differentiation – being the first, brand identification, customer loyaltyidentification, customer loyaltyCapital Requirements Capital Requirements Switching costs – one time costs facing the buyer of Switching costs – one time costs facing the buyer of switching from one supplier’s product to another’s switching from one supplier’s product to another’s Access to distribution channelsAccess to distribution channelsCost disadvantage independant of scale – locations, Cost disadvantage independant of scale – locations, govt. Subsidies, experience curvegovt. Subsidies, experience curveGovernment policy Government policy

Why start in Slovakia?Why start in Slovakia?

after the split of Tsjecho-Slovakia in 1993, there after the split of Tsjecho-Slovakia in 1993, there was no national airlinewas no national airlinethis meant no competition in the market (easy this meant no competition in the market (easy startup)startup)there were no connections with main European there were no connections with main European hubs like Amsterdam, London and Parishubs like Amsterdam, London and Parisno connection between Bratislava and Kosice no connection between Bratislava and Kosice (2nd city) while there was a demand(2nd city) while there was a demandBratislava is 50 km. From Vienna (big flow of Bratislava is 50 km. From Vienna (big flow of customers from Austria)customers from Austria)