The problem with allowing LCC's such as RyanAir to enter the market is that they are able to exploit their extremely low cost structure. That, coupled with economies of scale, will enable them to offer rock bottom fares for as long as possible until they chase out all competitors, such as EL AL and any European legacy directly in competition on any route they fly from the EU to Israel, out of the route at which point they will jack up fares.
Its called competition, and its generally good for consumers, even if they prefer a better product. I'm surprised given your desire to see LY's cost structure right-sized. Operations like RyanAir are good for Israelis (and tourists) because they'll provide a lower cost option for travelers. I don't agree with LY's protectionist stance here....