Case Study EasyJet

Technological developments in the field of e-commerce and aircraft manufacture are vital in allowing EasyJet to maintain an advantage over its competitors.  EasyJet now offers paperless operations as the management and administration of the company is undertaken entirely on IT systems which can be accessed through secure servers anywhere in the world enabling huge flexibility in the running of the airline. Also passengers instead of receiving tickets now get emails containing there travel details and booking reference online. This has greatly reduced the costs of issuing, distributing, processing and reconciling millions of tickets each year. (easyJet.com)

Economic Factors

There are likely to be increases in fuel costs, congestion and other environmental restrictions. The risk of terrorism is likely to have an impact on insurance costs i.e. they will go up and the system of security implemented i.e. much greater/more alert.

Globalisation should continue to boost traffic in the long-term and the introduction of the single currency in Europe is likely to bring more business to EasyJet as Europe becomes more integrated. Stelios Haji-Ioannou, the founder of low-cost airline easyJet, believes that the euro "has reduced the currency risks of running a business in Europe and that must lower costs and hence prices for consumers." ( www.time.com)

Political-legal Factors

The political environment concerns the role of the government and the extent to which it intervenes in an economy.

Political issues, such as the threat of ongoing war in the Middle East, and more recently issues in South America have driven up oil prices. They have also been going up due to the threat of a cold winter. As a result this reflects on the cost of aviation fuel.  Whilst these political factors have a direct impact on the economy, such as increasing fuel costs, increased congestion, environmental restrictions, higher security, and insurance, they are intrinsically linked with social-cultural effects i.e. impacting upon the attitudes towards air travel.

Due to terrorist attacks such as September 11th, airlines such as British airways have stopped flights to certain countries (particularly in the middle- east), in fear of another attack. This has had a ‘domino’ effect whereby it has caused a political stir, with Britain’s believing that they maybe the next victims of a terrorist attack. Airlines have lost a lot of money as they are no longer going to certain destinations. I believe the implication of certain security measures have also had an influential effect on customers.  As ordered by the Transportation Security Administration, new security screening went into effect due to the foiled British terror attacks. The primary restriction was the carrying-on of liquids or gels including beverages, shampoos, sun tan lotions, toothpaste and hair gel. Passengers were permitted to have baby formula and/or breast milk, prescription medicine with a name matching that of the traveller, and non-prescription medicines. Any beverages purchased past the security checkpoint must be consumed prior to boarding any aircraft. Philip Fanara, Jr., Ph.D. CFA, from the department of finance, insurance, and international business, expresses his view that airlines may lose some customers due to the new regulations being an inconvenience. (www.thehilltoponline.com)

EasyJet’s internal marketing environment

Competitive analysis  

EasyJet faces stiff competition from airlines such as Ryanair, BMIbaby, MyTravelLite and Buzz. Virgin Express, Hapag Lloyd Express, Germanwings and Air Berlin already are or might become competitors as a result of future expansion plans. Ryanair (EasyJet’s main competitor) is the only one of these companies so far to have succeeded and shown a continuous annual profit.  In September 2006 it made £235 million and in September 2007 the figure had risen to 291 million, a 24% increase.

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Suppliers

EasyJet currently has two suppliers, Boeing and Airbus.  An important part of easyJet's strategy is to operate a modern fleet and based on the current business model, requires easyJet to acquire a significant number of further aircraft whilst achieving a low total fleet operating cost. Between 2003 and 2007 there were 12 aircraft deliveries under the Boeing contract. However, 120 aircraft deliveries were made under the Airbus contract in this same period. ()

 Airbus was looked more favorably upon as it offered significantly better value than Boeing, ‘the Airbus Contract enables it to purchase Airbus A319 aircraft at a price approximately a third per seat below the price for the Boeing 737-700 aircraft delivered to it under the Boeing Contract in August 2002’. Other factors included fact that the Airbus had agreed to provide extensive support to the Company, especially with regard to training for easyJet's pilots, cabin crew and maintenance personnel. Also, Airbus has put arrangements in place in keeping with low cost operation i.e. Airbus A319 aircraft maintenance will not exceed the cost of maintenance for its Boeing 737-700 aircraft. (EasyJet.com)

Media

The media have provided a link between the airline EasyJet and the public. Press releases portraying special deals and new routes available I’m sure have proved beneficial to EasyJet in terms of attracting new customers. For example, deals of the week are advertised which are ‘ideal for those on a budget who need some inspiration when looking for a holiday destination or for those looking for a last minute getaway at an affordable price’() and also routes, ‘easyJet to launch flights to Jersey!’EasyJet, Europe's leading low-fares airline, today announced it will launch two new routes to Jersey from Liverpool and London Luton next spring, with daily flights commencing on 31 March and 21 April respectively.’ ()                                       Press is generally good for EasyJet.

Environmentalists

With the number of flights leaving the UK set to double or triple by 2030, environmentalists have put airlines at the centre of the debate on global warming, a development that could lead to restrictions being imposed on the industry. The Conservatives have unveiled their `Greener Skies' proposals. Among the suggestions are the introduction of VAT on fuel for domestic flights and higher tax rates for frequent flyers. (www.keynote.co.uk)

Customers

Travel is now a priority for today’s consumers, however the youth market needs addressing. The outlook for consumer expenditure looks extremely healthy, which will continue to sustain leisure spending. With holidays and additional short breaks now the UK’s top two expenditure priorities (23% and 22% respectively), this multiple trip culture has become so ingrained that it will require a major downturn to change this. In Mintel’s Holiday Lifestyles - Responsible Tourism – UK, Leisure Horizons - January 2007, some 22% of respondents stated that even the disappearance of low fares would fail to change their habits. The 25-44-year-olds are currently the core low-cost market and despite the budget connotations, the no-frills market is actually driven by the wealthier socio-economic groups splashing out on multiple trips.(http://academic.mintel.com)

Swot Analysis for EasyJet

Internal Analysis

Strengths

EasyJet has a strong brand image with its trade mark ‘orange colour’ and has successfully differentiated itself. Firstly what makes EasyJet’s brand so compelling, allowing it to report rising profits of 82% in the last 12 months? The homepage of EasyJet is instantly recognizable with its ‘brash’ orange colours and it offers four different languages: English, French, Dutch or Spanish. Its ‘no-frills’ policy is clearly defined, with special offers being provided everywhere you look. A fundamental factor is the way in which you can browse prices for flights without having to “register” (an inconvenience on other airline websites).  

(www.brandchannel.com)

EasyJet has a very strong e-business and it has successfully innovated and differentiated itself and become more flexible in a way that allows profits to keep on rising. Under the Easy brand Stelios Haji-Iannou has furthermore established an internet car rental service (easyRentacar), a chain of Internet cafes (easyEverything), a financial services site (easyMoney), a portal site for bargains on the net (easyValue) and a free e-mail service (easy.com). In all his ventures he is using “yield management to extract the ideal margin from each customer” (McAllister, J.F.O. (2001)) and keep costs down. Yield management “can help to better use price in the marketing mix to best reach the most customers”. (Lacayo, R. (2001))

 

EasyJet are delighted to be part of the consortium that has been awarded the contract to run NATS (the UK’s air traffic control system). This as Ray Webster, the EasyJet chief executive states, will provide the ‘The development of a safe, reliable and efficient air traffic system with capacity growth is absolutely essential to the future growth of easyJet’. (www.easyjet.com)

Weaknesses

EasyJet has no customer retention policy and only operates in Europe. This means it cannot reach its full market and having no translantic routes prevents EasyJet competing with any of the major UK airlines such as British Airways and Virgin.

As explained in the external marketing environment section, negative events, such as terrorist actions, continue to cause major problems for the airline market, deterring potential customers and therefore reducing profits.

EasyJet’s own success i.e. enabling it to grow at a substantial rate each year may have negative effects on the airline. For example, it may make it more difficult to recruit and train staff quickly as resources are strained. This may cause problems in industrial relations, as any breakdown in service can affect passengers regionally and result in sizeable financial costs to the airline.

(www.keynote.co.uk)

Opportunities

EasyJet seems to be in a good position with experts predicting excellent growth opportunities for the low-cost sector. It has been estimated that existing low-cost airlines will expand their European market share from 5% to 25% by 2010. ( www.internettravelnews.com)

The Government forecasts that demand for air travel in the UK could reach 465 million terminal passengers by 2030. This is nearly double the number of terminal passengers in 2006. (www.keynote.co.uk)

The short-breaks market, an important market for EasyJet grows more rapidly than the UK travel market as a whole. (www.the-list.co.uk)

EasyJet is investing heavily at reduced prices in new aircraft through the Airbus and Boeing contracts and this should increase their passenger capacity considerably. Also EasyJet is carrying out a very aggressive growth and expansionist policy, allowing them to develop their route networks into countries and regions (e.g. Bournemouth to Krakow) where the low-cost travel sector is currently underdeveloped. (www.keynote.co.uk)

Threats

Competition is likely to lead to greater difficulties in demanding incentives from communities, like the very low fees EasyJet received at Luton. (Feldmann, J.M. (2002))

Companies cut on business travel in times of economic downturn and because of new time-consuming security measures; travel substitutes like videoconferencing are introduced.

(Costa, P.R. et.al (2002))

From 2011, airlines will have to take part in the EU emissions trading scheme. This requires participants to pay a fine if they pollute above their carbon allocations. (www.keynote.co.uk )

Strategic Recommendations for EasyJet

With the threat of new competition, for example, holiday firms like TUI who are setting up their own low-cost operations, EasyJet has to decide whether it should respond to new entrants by yielding its niche market or by competing more aggressively. They can do this through the means of the service they provide, price and the routes they go to, in order to prevent the new entrant from establishing itself in the market. Perhaps winning over the French and German publics is a good starting point. In order to make the correct strategic decisions, EasyJet will need to analyse the performance of its rivals over categories similar to there’s i.e. how much capacity can the competitor take when going to different routes. By obtaining these information ‘residual uncertainty would be limited, and the incumbent airline would be able to build a confident business case around its strategy.’ (Courtney, Kirkland and Viguerie (1999))

Targeting leisure travellers will be fundamental to EasyJet’s future success as business travellers often travel frequently to numerous destinations and they seek quality and are willing to pay premium prices. This maybe something that EasyJet at this point cannot offer. Ideas should carry on being focused to short-haul flights as the long-haul market is very different e.g. customer needs and it already contains large established firms such as Virgin and British Airways. EasyJet’s primary concern is keeping its prices low (therefore operating costs low) and competitive as that is a major factor that attracts its large customer base.  Differentiating its brand further may be a suitable strategy as currently EasyJet does not have a customer retention policy, something that is missing from its mission statement i.e. no focus on the customer’s point of view. For example, EasyJet may want to develop a reputation as a more caring airline e.g. cutting fuel emissions (more environmentally friendly)and collecting money off passengers for charity. This is likely to gain them greater respect in the airline industry and particularly amongst the public, who are likely to be more satisfied that they are doing something significant or right when flying with EasyJet. On balance EasyJet needs to be more committed to the quality of service it offers whilst trying to control its costs.

Reference List

Courtney, Kirkland and Viguerie (1999) ‘Strategy under Uncertainty’, in Harvard Business Review on Managing Uncertainty, Boston MA: Harvard Business School Publishing: p8, 19p.

Costa, P.R. et.al (2002) “Rethinking the aviation industry”, in The McKinsey Quarterly, Mid-summer 2002, p89, 12p

Feldmann, J.M. (2002) “No mor hiding places”, Air Transport World, Vol. 39 Issue 8, p27, 2p

Hattee J. (2000) “Cheap feats”, Management Accounting, July 2000, Vol. 78 Issue 7, p26

Lacayo, R. (2001) “ Search for a perfect pitch”, Time, 23 July 2001, Vol 158 Issue 3 p44, 7p

McAllister, J.F.O. (2001) “The boss as brand icon”, Time, 23 July 2001, Vol. 158 Issue 3, p50, 2p

List of all websites used - accessed on 2nd December 2007

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