ther entering after making a huge investment in scale facilities or accepting a decidedly inferior market position. In the airlines, scale economies are virtually nonexistent. Cost reduction is best achieved either through density economics associated with high capacity in the airline's markets or by reducing the price paid for the elements of production. Because these methods do not create substantial barriers, a cost leader must look for supplemental strategic approaches, completely shift strategic emphasis, or face the prospect of going out of business. (Sorenson)
External Attacks on RyanairÆs Low-Cost Strategy
The growing strength of the EU government is a direct threat to RyanairÆs cost advantages. New and proposed regulations concerning plane noise and emissions will require the company to upgrade its planes in ways which will not directly benefit the consumer. Courts are requiring that we build the cost of servicing special needs customers into our prices. A customerÆs right to choose an airline which will not put them up for the night in the unlikely case that they are stranded is to be eliminated. The beneficial airport contracts are being challenged. The government of the EU has taken upon itself the task of defining what airline service should be.
Worst of all, RyanairÆs right to cut fairs below the variable operating costs of its competitors is threatened by EU anti-trust initiatives. The case brought against American Airlines in the United States, in which the airline was charged with predatory pricing for using its cost advantage at a hub to underbid its competitors, has spurred an international debate as to whether the common definition of predatory pricing is sufficient. "The very advantages that give a firm monopoly power can allow it to drive out rivals without pricing below cost. " (Edlin) Lawmakers are contemplating new ôabove-costö predatory pricing definitions which could be disastrous to...