How costly would it be for Aer Lingus and British Airways to retaliate against Ryanair’s launch rather than accommodate it?
How do you expect Aer Lingus and British Airways to respond? Why?
Since the entry of a new competitor offering a comparable service with an entry price below the market’s price, Aer Lingus and British Airways have two different options: maintaining their current prices or lower their prices to match that offered by Ryanair (Bowman & Faulkner 132). Both the companies have a significant disadvantage because their cost structures are very difficult to cut. According to the case study, accommodation, staff, selling, handling, and catering costs accounts for 45 percent of the total cost per passenger. Maintaining prices requires that they differentiate their products, but the strategy may prove too difficult because Ryanair is introducing a similar quality to these companies. The two companies have no option but to consider lowering their price and greater frequency of flights. Failure to do so would mean that Ryanair will be running full flights at their expense and they would probably run at less than 60-70 percent of full capacity, which would further erode the profit margins of these two companies.
The only way out for the airlines was to persuade the more than 750, 000 passengers who currently use ferry and rail to use aircraft. This would enable them to increase the size of the market and similar margins from the increased volumes. Aer Lingus and British Airways should consider increasing the frequency of their flights in order to serve more customers. Increased frequency could also lead to efficiency to the passengers, which would enable the two firms to retain their market share.
Any recommendation to Ryanair
A lower price provides the best strategy to gain market share, but it can compromise the profitability of the company. Ryanair should consider expanding into haul markets, especially the transatlantic routes, which accounts for more than 60 percent of world’s air travel. By moving into this new market with its low pricing strategy coupled with introduction of additional service options, the firm can boost its existing business by introducing complementary goods and services via its website. This will also help the firm further reduce its cost base per unit customer.
Works Cited:
Bowman, Cliff and Faulkner David. Competitive and Corporate Strategy. New York City, U.S.: Irwin Professional Publishing, 1996. Print.
