Ryanair and the Dogfight over Europe

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Ryanair and the Dogfight over Europe With pent-up market demand for a low price option on the DUB-LHR route, and planned increased efficiencies compared to competitors, Ryanair stands not only to make money on their launch fare price of £98, but to also be more profitable than competitors by operating at a higher capacity and efficiency. In order to determine this, we quantified Ryanair’s cost structure, capacity, and efficiency and compared it to that of its competitors, in this case British Airways (BA). The following outlines our analysis in these specific areas in order to come to our conclusion. Cost Structure First, we must convert BA’s cost structure to represent operating margins for their Europe lanes. In Exhibit 4 of the case, we find BA’s costs over their entire network to be £155.10 per passenger, with a profit of £11.40 per ticket and a 6.8% operating margin. The case also states that BA earned a 4.4% operating margin on its European lanes. The attached Table 2 converts BA’s network costs to costs for European lanes, which we will assume is an accurate reflection of the DUB-LHR lane costs. At a 4.4% operating margin, BA’s profit per ticket is £7.33 for European lanes. Capacity Next, we assume that Ryanair plans to operate at a higher capacity than BA, which will have a direct impact on the spread of fixed costs per unit. In the case, airport authorities claimed a volume of 500,000 passengers per year, which has remained stagnant over the last decade. Additionally, 750,000 round-trip travelers used rail and sea ferries rather than aircraft (which takes 9 hours to travel versus 1 hour for air travel). Together, this makes approximately 1.25 million round trip travelers per year on the DUB-LHR route. Ryanair intends to enter the market with a 44 seat turboprop. With this plane, if they do 4 trips per day, 365 days per year, they can

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