Ryan Air Writeup

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How costly would be for Aer Lingus and Brisith Airways to retaliate against Ryan Air’s launch rather than accommodate it? Currently, British Airways and Aer Lingus cannot compete in price at the range that Ryan Air is planning to operate. I believe that British Airways and Aer Lingus would be better off maintaining current prices and differentiating through the service that they offer, in the same way that they are.

The current cost breakdown offered by the case shows that if British airways and Aer Lingus were to reduce the prices to 98 they would be losing 57.1£ per passenger. Computed yearly, the industry would be losing 28,550,000£. How this figure is distributed between Aer Lingus and British Airways depends on the breakdown of sales of the 500,000 passengers that pick that route yearly. | Current price (155.1£)| Price war (98£)| RyanAir (98£)| Cost type?| Operating expenses| | | | |

Staff| 35.7| 35.7| 21.4| Fixed|
Depreciation & amortization| 8.6| 8.6| 0.0| Fixed|
Fuel & Oil| 31.8| 31.8| 31.8| Variable|
Engineering and other aircraft costs| 9.8| 9.8| 0.0| Variable| Selling| 18| 18| 1.8| Fixed|
Aircraft operating leases| 3.4| 3.4| 2.0| Fixed|
Landing fees and en route charges| 11.7| 11.7| 7.0| Fixed| Handling charges, catering & other| 16.6| 16.6| 16.6| Variable| Accommodation, ground equipment & other | 19.5| 19.5| 11.7| Fixed| Subtotal| 155.1| 155.1| 92.4| |

Operating profit (Loss)| 11.4| (57.1)| 5.6| |

Can the Ryan brothers make money at the fare that they propose? To make money at that fare I would expect that they have a distinctive cost advantage over the current operators, say British Airways and Aer Lingus. Being a small operator I would expect some efficiencies and reduced costs that the other two airlines cannot realize. I would expect Ryan Air to lease its plane as opposed to buying it (as they only have one route, no scale efficiencies from owning their...
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