1- What’s your assessment of Ryanair’s launch strategy? Nowadays, the strategy of the airlines companies it’s easier to understand than before. What we want to say is that, at the beginning, the governments supported the Airlines; ant hey had the monopole of the flies. So they can fix the price but they could also fix the service that they were going to present to the customers. As we see in the text, the airlines companies were like monopoles, they could devise the world by different companies, and every state had his own company.
We could think that Ryan air, battled this , in fact they used the liberalism of the other airlines companies to put themselves in the Market. The fact was that in this time, only the big companies that used to be the only ones had the permission to operate in the important airports. That’s a bad point for Ryan air, because it’s important to captivate the customer where he is. And they are in the big airports , it’s a habit for them to go to the important airports and no to the secondary’s one. The Ryan brothers started with a small aircraft, so they had only the Possibility to operate in small trips.
They choose Waterford to Gatwick which is( for London )a secondary airport. We think that It was just the moment were anything could go down. They had the necessaries customers to be as big to have the permission to operate between Dublin and Luton (again it’s around London). The point is there, because they had a lot of customers they were having the permissions easily. They were practicing the “low cost” trips. The fact is that Ryan air took advantage of the deregulation of the airlines companies market. They choose the right time to enter the market. The only problem that was standing was the competition , because there were already large ompanies which were really known. Ryan air was at the begging very Disadvantaged because of the lake of resources (comparing to the competitors). IT Was very risked to start just with a 44-seat turboprop, which was doing four round Trips per day between Dublin and London. What made the difference? Ryan airlines was smaller than the competitor’s That means that the enterprise is more flexible , with prices per example. So they wanted to win a part of the market , and we think that they did the right thing to do by proposing low prices to the customers , because the two most important competitors can’t afford to reduce prices like they do.
But they could also start a “Price – War” ; This is the higher risk that we saw , because if there’s a Price – War , the competitors would take out Ryanair from the market. Ryan Brothers were seeing that the small size of the two competitors was an advantage for them. Besides another major problem it’s that, Ryannair is able to offer to their costumers low prices, since they have to deal with minor costs, and this is an advantage but, if they reach to attract more competitors they would have to buy some more airplanes. If thy became bigger they are going to have the same problems that the competitor’s already had.
How do you expect Aer Lingus and British Airways to respond? The presence of a new competitor in the market represents a danger for the competitor’s. It’s a penetration of the market price below the market’s price, it’s t the force of Ryan air. So Aer lingus and British Airways had two ways to react to this , they can maintain their current prices , or as we said before , start a price war. But there’s a problem for both companies , they have serious disadvantage , : The cost of structure. And it’s really hard to cut them (stuff , accommodations , catering and the price of the planes). We think that they are not able to respond to
Ryanair’s launch. 3. How costly would it be for Aer Lingus and British Airways to retaliate against First you must calculate the results of British airways and Air lingus (together) before Ryan air enter in the Market: 500 000 *11,4=5,7 million So we’re starting calculating how much competitor’s are going to lose: (We are doing it assuming that Ryan air planes are always full of customers) What is already on market| =500. 000| The “part”of Ryan Air| 4(flies)*44(pgrs)*365(year)| =64. 240| Part of the market of AB and Aer after RyanAir entrance in market| 500. 000-64240| =435. 760| The profit of AER and AB would be:| 435. 760*11,4| =4. 67. 664| 5. 700. 000-4. 967. 664 =732. 336 That would be the Ryan Air’s Part in the market So if they decide to retaliate , we should assume some things , like continuing the experience putting BA and AER like if they were one enterprise , and if they propose a low prince to the market they will fly with full capacity Assumption: BA and Aer Lingus also flying with full capacity due to the low price. Plane is full (747)| =400| Cost per psgrs (65% capacity) | | =155| Number of psrgs (65% capacity)| 400 * 0,65| =260| It will have a cost of| 260 (psgrs) * 155 (price)| =40. 300| With full capacity the cost by passenger could change| 40. 00 / 400| =100,75| If theres a retaliate| 500. 000*2 (price ryan – AB)| -1. 000. 000| So if the two bigs want to be competitive with the Ryan air-1. 000. 000-4. 967. 664=-5. 967. 664| If British Airways and Aer Lingus want to Retaliate they would loose a lot of money , as we calculated before , it would be like around 6 millions. We think that it’s too much money just to try to kick out a new (small)competitor from the market . If Ryan Air go this way they will be an important competitor for the monopole (AER & AB). For the two big, its more interesting to accommodate to this new divided market
Than to try to retaliate , because they will experience a high loss and probably Loose a more important part of the market. . 4. Can the Ryan brothers make money at the 98 fare they propose? With this competitive Ryan air’s Price , we can imagine that they will do better , and lower. The cost per passenger is lower than the one from AB and AER and thats the important diference in the costs. And the fact that the Boing 747 is only 60-70% full. All the difference becames from the Fixed costs. You must remember that The costs are lower for ryan air because they are not international , they only operate one route!
