Economies of Scale for Ryanair

Economies of scale:

The definition of economies of scale are 'factors that cause the average cost of producing something to fall as volume of its output increases' . This is evident with the bulk buying of Boeing 737's - the year the paper was written he bought 100 and the previous year 150. (Analysts estimate Boeing offered Ryanair more than 40% off the list price). More aircraft mean more customers (if a successful business model), thus volume increase.

In conjunction with the purchase of so many similar aircraft, there will be economies of scale with regards to the purchasing of parts for these aircraft, with advertising material e.g. the same size posters for over-head lockers etc, even down to the cost of uniforms.

In the Ryanair fleet there are currently 275 Boeing 737-800's with a capacity of 189.

Here is an example of economies of scale with the supply and maintenance ogf tyres for RyanAirs fleet:

http://www.prnewswire.com/news-releases/goodyear-aviation-wins-5-year-contract-to-supply-ryanair-54015342.html

"The Ryanair contract, which carries an option for an additional five years, includes the delivery of new tires and the repair and overhaul of aviation tires for the airline's fleet of 66 Boeing 737-800 jet aircraft.

Ryanair also has firm aircraft orders for 96 new planes and up to 123 options to be delivered up to 2009. "This agreement is consistent with what other major Boeing 737-700/800 operators already know about the value that Goodyear delivers, landing after landing," said Donald Roulett, Goodyear global marketing manager for aviation tires."

There are also external economies of scale identified in the report.

* Low demand and large supply may bring down the cost of supplies - After 9/11.

* Where many similar companies are operating in the same area, this may mean that there are many, pre-trained people who can be recruited - Dublin Hub Aer Lingus

* Industry infrastructure may already be in place to support growth - Purchasing of Eastern European Airports

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