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Ryanair and Economies of Scale

Graham Watson

10th May 2023

Might the Ryanair deal to buy up to 300 Boeing 737 Max-10s generate economies of scale? It is certainly a good applied example of monopsony power and internal growth of a business as the aviation industry seeks to expand following the pandemic. The FT reports that the deal is worth up to $40 billion and is expected to create upwards of 10,000 jobs.

Michael O'Leary is quoted as saying “These new, fuel-efficient, greener technology aircraft offer 21% more seats, burn 20% less fuel...we expect these new, larger, more efficient, greener aircraft to drive further unit cost savings". If falling unit costs aren't proof of economies of scale, then I don't know what is.

Ryanair has grown rapidly to become one of Europe's largest passenger airlines. In this short study video we look at some of the factors that help explain the rapid expansion of revenues and (until recently) operating profits. Operating profits at Ryanair have taken off again after a turbulent time during and immediately after covid-19 restrictions. Ryanair reported a profit after tax of €211m for the three months to the end of 2022, against a loss of €96m a year previously. It is a return to profitability for one of the most successful low-cost airlines in the world.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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