Competitor Response Calculations

How costly would it be for Aer Lingus and British Airways to retaliate against Ryanairs launch rather than accommodate it?

• HINTS: Essentially, you are being asked to assess how British Airways and Aer Lingus will respond. You should begin by considering what types of responses are available to them. For example, they might accommodate Ryanairs entry by not changing their prices and allow them to fill their seats. Alternatively, they might respond aggressively by cutting price in an effort to run Ryanair out of the sky. The action they choose depends on the loss they expect to experience due to Ryanairs entry and the cost of retaliating.

• BA/AL can respond in one of two ways:

  • Accommodation: In its most optimistic plan, Ryanairs hopes to serve about 64,240 passengers annually (4 x 44 x 365 = 64,240). How many would come from the other airlines? How many from the ferries (new business)? (This gives you a range of the potential loss the airlines may experience.) This is the cost of the accommodation strategy (no retaliation).

  • Retaliation: Retaliation means reducing the price on all 500,000 passengers they serve between Dublin and London (the route that Ryanair has entered) below Ryanair's costs in an effort to drive Ryanair out.