Angelo Dalisay Ryan Lee Raymond Ye Yang Zheng Ryan Air Case Angelo Dalisay Ryan Lee Raymond Ye Yang Zheng

Background Information Ryan Air wishes to enter the Dublin-London airfare market They will do so by offering cheap flights on smaller 44-passenger planes Tickets will be worth $98 Aer Lingus and BA are already established in this market Their round trip tickets cost $208, but they also offered discounted tickets worth $99

Assessment of Ryan Air’s Strategy Ryan Air is taking advantage of the high prices that consumers were facing. Their low-cost tickets will take most of the market share away from Aer Lingus and BA. This is a smart strategy for a firm just starting to establish market share. Their customer base will be made up of people who aren’t willing to pay $200+ for a ticket and of people who would rather take an inexpensive plane ride than a long ferry ride.

Assessment of Ryan Air’s Strategy Exhibit 4 shows the average revenue and costs of Aer Lingus and BA for this round trip. The profit margin is only $10, and most of the costs are variable costs. Thus, Ryan Air’s strategy will at first result in Ryan Air either breaking even or in a loss. But since Ryan Air is backed by their wealthy father, we believe they can handle a loss for a short time while they gain market share. At the same time, Ryan Air can find ways to minimize their cost, or eventually raise their price.

Aer Lingus and British Airways Both airlines can expect their profits to decrease when their customers choose Ryan Air’s lower prices. One option is to engage in a price war with Ryan Air and to lower their prices to $98. But this will really strain their profit margin; in fact, they can expect losses if they engage in a price war.

Aer Lingus and British Airways Another option is to actually increase their prices. This is because not all the customers will switch to Ryan Air anyway. These customers might already feel comfortable dealing with a reputable, reliable, and established company. These customers will be willing to pay a premium to fly on Aer Lingus and British Airways. If this particular market is large enough, then raising prices might still make Aer Lingus and British Airways profitable.

Aer Lingus and British Airways At the same time, they can lower their discount prices even further. If they make their discount price for booking a month earlier less than $98, then they will capture the market of people who book their flights in advanced. Not only will they be paying less, but they will be flying with established companies too. A win-win situation

The Cost of Retaliation It will be costly for Aer Lingus and BA to retaliate because their operating margin is already small. If they engage in a price war, they will have to find a way to slash costs by almost half to maintain the same profit margin as before. But unlike the past, the government now supports deregulation Thus, the government is unlikely to give Aer Lingus and BA subsidies.

Profitable at 98? Ryan brothers could be profitable if they have enough customers. More customers will lower average costs per passenger, which will increase profits per passenger.

Profitable at 98? Anticipate more than half of Are lingus’ and BA’s customers switch over to Ryan Air. On a one hour flight, service is not as important as the savings each customer gets by switching to Ryan Air.

Profitable at 98? People who usually take ferries or trains from Dublin to London will now fly with Ryan Air. Costs of flying were four times as much as ferry or train. Now it only costs twice as much. 1 hour on the plane vs 9 hours on a train or ferry.