In April 1986, the Ryan brothers announce that their fledging Irish airline Ryanair will soon commence service between Dublin and London. For the first time, Ryanair will face formidable competitors such as Aer Lingus and British Airways on a major route. Students are asked to assess Ryanair's entry and anticipate the response of incumbent carriers.
1. Can the Ryan brothers make money at the I₤98 fare they propose? Please prepare a breakeven analysis to prove your point.
NOTE: Landing fees are fees that airports charge to airlines as part of the airport’s revenue base. A specified landing fee such as X dollars or X Irish pounds is charged to the airline for every passenger that lands or takes off on a given flight.
2. How do you expect Aer Lingus and British Airways to respond to the Ryanair entry into the Dublin/London market? Why? If you were Aer Lingus, what would you do in response to Ryanair’s proposed new route? Would you retaliate by lowering fares? To what level?
3. How costly would it be for Aer Lingus and British Airways to retaliate against Ryanair's launch rather than allow it? You need to have a cost to the combination of British Airways and Aer Lingus in Irish pounds of accommodating the Ryanair entry (not cutting their fares) and a cost of retaliating against that entry with some sort of price change.
4. What is your overall assessment of Ryanair's launch strategy? Is it going to work?