Five Forces model, Ryanair

Topics: Airline, Low-cost carrier, Southwest Airlines Pages: 4 (924 words) Published: March 25, 2014
Porter’s 5 Forces

Low Threat of Entry

Ryanair benefiting from large economies of scale and have massively reduced long run average costs.

They have struck deals with Boeing and Airbus for reduced prices (1/3rd of listed price) on 737 aircraft in bulk buying therefore new entrants to the market will not get these reduced prices as they do not hold a similar relationship and they will not be able to order in bulk.

Ryanair have struck deals with many local airports over flight paths and air-time, Ryanair therefore aren’t charged with air traffic time, but in return, promise these local airports a set amount of passengers to enter that airport each year, which leads to passengers spending money in these airports. These deals have seen Ryanair further reduce costs, as well as restrict suitable air traffic slot availability to the airport as there are limited routes. Ryanair operates in 180 airports over 29 countries, flying 1,611 routes with over 1,500daily departures whilst easily outstripping competitors and increasing barriers to entry.

Increasing global fuel costs will not hit Ryanair’s profits as their costs elsewhere are the lowest in the flying industry. As a result of these low costs, Ryanair have been able to charge the lowest average fair of any low carrier airline in the UK, further increasing barriers to entry as new firms will not set those prices seen below.

Despite Ryanair recording 18% profits on capital return, in a very profitable industry, threat of entry is still low due to exploited economies of scale and very low long run average costs that Ryanair have reduced over time.

Low threat of substitute products or services

Main substitutes are Trains/Buses/ Ferries

Eurostar ticket ranges from £50-£180 single ticket therefore more expensive and takes longer.

Companies such as Eurolines have cheaper rates than Ryanair, but not as comfortable and more time consuming to get to destination.

Ferries again tend to be a...
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