Assessment of Ryanair’s launch strategy
One possible reason why Ryanair chose to enter the Dublin-London route is because the route was reputed to be quite lucrative for both Aer Lingus and BA. It is easy to see why this route is lucrative because the least expensive fare for both carriers were priced at I£208 but operating expenses per passenger was only I£155.1. Ryanair’s publicized fare of only I£98 will help it to attract more passengers than both carriers given that it cost only half the fare of both carriers and there is low switching costs for passengers to switch from both carriers to Ryanair.
However, this does not mean that Ryanair will be able to earn above-average returns because Ryanair only charges I£98 per passenger yet average operating cost per passenger is I£155.1 so the operating costs far exceeds her revenue. It is possible that Ryanair is able to price so low because she enjoys a much lower operating cost given her competitive advantage compared to her rivals. However, exhibit 4 shows that aircraft operating leases is only a mere I£3.4 per passenger so Ryanair’s competitive advantage of leasing aircraft at low cost does not give her a significant cost advantage over her rivals. For Ryanair to make above-average returns, she has to significantly reduce expenses for fuel and staff but oil prices is beyond her control as it is controlled by OPEC. While it is possible that Ryanair has a much lower staff expense compared to her rivals given that she only has one airplane servicing the new route, exhibit 3 shows that staff productivity for BA has been rising steadily over the last 5 years from 1983 to 1985. As such, staff expense for BA has been steadily decreasing so it is unlikely that Ryanair enjoys such a cost advantage over BA.
Summary of assessment
Ryanair’s launch strategy is not profitable given that her revenue will not be able to cover her operating costs. Moreover, her competitive advantage of leasing aircraft at low cost...
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