Sir, Joe Gill ( Letters, November 5) argues that unit costs are the key to understanding Ryanair’s competitive position. The three “strategic cornerstones” he identifies are necessary conditions for Ryanair to drive down unit costs. What are the implications for its competitors? The emerging capacity/demand gap that Lex (November 4) identified requires that either planned industry capacity growth will shrink or that demand growth will be stimulated above its GDP-implied rate. While the latter is possible at the individual airline level, the leverage of unit-cost-driven fare reductions at the industry level is small relative to that of GDP growth.
Thus, if Lex’s estimates of the capacity/demand gap are accurate, as is Mr Gill’s implied estimate of Ryanair’s relative unit cost reductions, competitors should be forced to reduce capacity growth. Of course, every airline could choose to forge ahead with their capacity growth plans. Unless demand growth is significantly underestimated, this would lead to competitive fare reductions and reduced industry profitability. However, how many investors will be betting against Ryanair’s relative performance given its record?
Seattle, WA, US
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