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Category: Business and Industry

Date Submitted: 11/27/2012 03:11 PM

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This article examines the market entry of Ryanair,

a startup airline based in Ireland and the Þrst new en-

trant airline in the EU likely to exceed the passenger

numbers carried by its national airline. The implications

for contestability policy are examined.

In 1985 Ryanair commenced service from Waterford in

the southeast of Ireland to Gatwick, using a 15 seat

Bandeirante. In May 1986, the company commenced

service between Dublin and Luton using HS 748 aircraft

and charging £94.99 return compared to £208 charged by

Aer Lingus and British Airways on the Dublin-Heathrow

route. Table 1 shows the passenger numbers carried by

Ryanair and Aer Lingus since 1985. In 1998, Ryanair will

carry an estimated 86% of the passengers carried by Aer

Lingus. Table 2 shows that this relative performance is

about Þve times as successful as the typical second airline

in Europe compared to its national carrier.

Ireland had one of the most stagnant markets in avi-

ation from Britain between 1978 and 1985. It was per-

ceived an unattractive market for new entrants. Many

foreign airlines did not take up their entitlements under

bilateral aviation agreements so that in 1979/80 Aer

Lingus accounted for 72% of passengers at Irish airports.

Irish air routes also showed a high rate of growth of fares.

The charter market between Ireland and Britain was

minimal. The emphasis in policy in Ireland was to protect

the national airline. Airline costs in Ireland were high

because of low productivity and high wage costs. The

deregulation of Irish aviation policies in 1986 occurred

because of hostile reaction to legislation to Þne, imprison

and remove travel agent licences from those discounting

airline tickets (Barrett, 1997). The evidence of the

cascade studies was that basic charter-type air services

could be provided for about a third of the European

scheduled fares. Many economists in Ireland believed

that competition would reduce fares and that in turn