Company: Industry: Competitors: Ryanair (RA) Aviation British Airways (BA); Aer Lingus (AL) Step 1: AL/BA’s payoff in retaliation case (assumptions) 1. AL and BA reduce their ticket price to I₤98. When AL and BA matches RA’s price of I₤98, AL and BA protect their market share and hence will not lose any existing customers. Due to of the decreased ticket price, AL and BA can utilize 100% of their seats. 2. Expenses: a. Variable (marginal) costs: Landing fees & en route charges’ b. Fixed marginal costs (50:50): (1) Selling and (2) Handling charges, catering & other.
In 1986, the upstart British airline, Ryanair, announced that it would soon commence service between Dublin (Ireland) and London (UK). For the first time, they would face AL, BA and other established competitors on a major route.
1. What is your assessment of Ryanair’s launch strategy? RA intends to run 4 round trips per day with 44-seat turboprop, and offer meals and amenities comparable to what AL and BA provided. RA would distinguish itself from the flag carriers in two ways: (1) Employees would focus intently on delivering first-rate customer service, and (2) the company would charge a simple, Step 2: AL/BA’s payoff in accommodation (assumptions) single fare for a ticket with no restrictions. In announcing its Dublin-London 1. Aer Lingus and British Airways will maintain their service, RA publicized a fare of I₤98. current price of I₤166.5, while RA charges I₤98. 2. There are two cases how RA can obtain 100% capacity: RA’s strategy to launch airline with single fare no restriction ticket at prices less a. Stealing away market share from AL and BA. than its competitors would most likely make the firm capable of taking market b. Attracting new demand from those who used to use share. The success of this strategy will however require RA to mange its expenses trains and ferries. and keep costs low. These expenses would include depreciation, fuel, engineering, aircraft leases, landing fees,...