Nova workboard

a blog from young economists at Nova SBE

Consequences of Ryanair Entering the Lisbon Market

The purpose of this blog post is to investigate the economic effects of Ryanair entering the aviation market in Lisbon. We will first give a short industry analysis and explore the consequences for different customer segments. The final paragraph tries to highlight some of the more negative effects, before we give a brief conclusion.

After negotiations with ANA Aeroportos, which is under the supervision and regulation agency, it was announced that Ryanair will open a new flights to Lisbon Airport. This will increase competition. Which will bring benefits, not only to the tourism sector in Portugal, but also creating new opportunities for Portuguese consumers.

The Portuguese consumers will have an expanded supply of flights to European cities. An additional low-cost airline which is competing on prices will put downward price pressure on high end suppliers such TAP. This will create increased opportunities for consumers who would like to travel abroad. The price of flights will probably be lower in most cases and the budget constraint would expand. This would be important to the Portuguese consumer who likes to travel. Vacations abroad can now be part of an achievable bundle of goods that can be chosen, given their budget constraint. The consumers also have the opportunity of buying more flight tickets. This means that they can get a higher utility level at the same income level, which is on average lower than most of the Europeans citizens’.

Portuguese emigrants will be made better off too. For instance, those who live in London would have a wider choice of flights to Lisbon and less problems of booking it during their holidays in the Summer time and with the lower prices than can order more flights all over the year.

However, these advantages for the consumer will also depend on their preferences. We can assume flying tickets as normal goods, which means given the decrease in prices the consumer will travel more often using this kind of transport. But given that Ryanair is a low-cost airline, and flying is not a homogeneous product, some passengers may feel unsatisfied with the product delivered. This may be because it’s not comfortable enough or that there are too many limitations concerning the weight of luggage. This means that for certain customers Ryanair’s entrance will create no tangible benefit, unless it lowers the general price level.

Ryanair is also famous for its union crushing policies, and rough working conditions. Ryanair’s low cost base creates a competitive advantage. This, as discussed earlier, results in low prices, and can put pressure on the entire industry to follow suit. Therefore, this can decrease the general living quality for people employed in the industry. On the other hand, it increases demand for air flights, resulting in  higher employment.

To sum up, Ryanair’s entrance will probably give higher utility for consumers, but it may decrease the maximum utility achievable for people employed in the industry.

 

Beatriz Luís

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Author: studentnovasbe

Master student in Nova Sbe

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