How did the deregulation of air transportation in Europe foster entrepreneurial behavior and innovation in the European airline industry over the last twenty years? : Case studies: SAS Airline & Ryanair

Abstract: The dynamics of business contexts influence the way firms act in their industry. These changes can have effects in several areas within a company. Entrepreneurship and Innovation are two areas that are affected when a change in firm’s environment occurs, like Schumpeter, Shane and Drucker point. Changes in the deregulatory framework are a specific type of change that can occur. According to Entrepreneurship theories, the removal of regulatory barriers creates opportunities to different reallocation of resources that can lead to changes in market equilibrium. This study addresses this relation between deregulation and entrepreneurship-innovation in the European airline industry. With the removal of regulatory barriers, companies like SAS and Ryanair, saw opportunities to do something new and at the same time had to adapt to these “doing something new” behavior of other companies. Entrepreneurship and innovation were the answer to theses changes and the weapon to fight answers to others with this change. Considering this, our statement problem is the following: How did the deregulation of air transportation in Europe foster entrepreneurial behavior and innovation in the European airline industry over the last twenty years? The case of SAS and Ryanair. Our goal is to describe the process of deregulation and how firms reacted to it and to give explanations behind the relation deregulation-entrepreneurship, identifying the direct and indirect influence of deregulation in the studied companies. Furthermore, based on this investigation, we will trace possible ways on how future deregulation in Europe can foster further entrepreneurial behavior and innovation. This thesis was conducted with a positivism scientific ideal and a deductive approach. We used a qualitative method to collect empirical data that could match with the theories we had chosen beforehand. We conducted three interviews with people inside the industry – from airlines (SAS Braathens and SAS) and from airports (LFV). The first two were used as main sources to SAS case study and the third to have a perspective of airline industry. Since we could not get any interview with Ryanair, Ryanair story book was used as main source for this case study. Our theoretical framework consists of four different broad areas that are interrelated to each other. These areas and the respective theories integrated in them are: institutions and regulation, changes in context and strategic position. Our study shows that EU deregulation altered the five competitive forces in European airline industry and in turn this fostered entrepreneurship and innovation, as a reaction of firms to adapt to the change in their context. The reaction of Ryanair and SAS through entrepreneurial and innovative behaviour was different due to the differences in their business model. We argue that the removal of barriers to new entrants and the increased rivalry between firms were the main forces that fostered entrepreneurship and innovation. We predict that if further EU deregulation comes (as it is the trend) this will generate more opportunities to entrepreneurship and innovation like it generated in the past.