Easyjet’s strategy has already shown to be easy to mimic, as BA’s GO has demonstrated.
Although the airline industry requires enormous start-up costs, it is relatively easy to obtain capital, as banks extend credit to airline carriers. Alongside this, any airline holding a valid Air Operations Certificate in the EU cannot be prevented from operating on any route within the EU.
- Easy to mimic These three factors therefore make it relatively
- Easy to obtain capital simple for new entrants to join the many competing
- Easy to fly any route in the no-frills service segment of the market.
SECTION 2.2 BARGAINING POWER OF BUYERS
Buyers looking for cheap flights have what economists would call perfect information available to them. The Internet allows flight prices to be compared and the cheapest to be purchased. Also price is extremely elastic, whereby if prices are reduced demand will increase. Buyer power is very high in this segment of the industry as Easyjet’s fare structure demonstrates. If the sales of seats on the plane are higher than usual then prices are increased, thus the price paid by the customer is very much dependant on the demand for their chosen flight.
SECTION 2.3 BARGAINING POWER OF SUPPLIERS
The bargaining power of suppliers is very high. Suppliers are concentrated within the industry with Airbus and Boeing dominating. Thus Easyjet and other low cost operators find it extremely difficult to play the suppliers against each other and thus it is hard to obtain lower prices.
Threat of forward integration from suppliers is low, as it is highly unlikely that one of these two suppliers would choose to operate flights across and within countries.
SECTION 2.4 INDUSTRY COMPETITORS
The airline industry is fiercely competitive, Stelios claims that ‘availability of slots is a problem.’ At the moment companies like British Airways dominate the primary airports e.g. Heathrow and so it is difficult for Easyjet to compete so directly here.
Easyjet’s main low cost carrier competitors are Ryanair, Virgin express, Go, Buzz and now British Midlands. However they are also competing with the standard frills offering airlines, such as British Airways and Lufthanza.
SECTION 2.5 AVAILABILITY OF SUBSTITUTES
OR
There are few good substitutes for transatlantic journeys, however as Easyjet operates solely within the EU, many substitutes are available.
Now that the channel tunnel has proved to be an efficient way of travelling by train to Europe, the train has become a close substitute for neighbouring and distant EU countries.
Coaches offer relatively competitive prices for travelling in and around Europe, in fact when Easyjet has a high demand for their seats and thus prices have been raised, it can be far cheaper to use the coach. The drawback is the relatively uncomfortable travelling times.
The rate of substitution is very much dependent on time, money, convenience and personal preference. As long as the customer is prepared to and quickly takes advantage of the period when Easyjet’s prices are low, then other substitutes will be of little threat. However if the customer is more concerned with service and price is of little consequence then one of BA’s flights would probably be a great threat.
SECTION 3 CUSTOMER ANALYSIS
- Customers motivations for choosing Easyjet.
SECTION 3.1 CUSTOMER MOTIVATONS
- Easyjet customers want to take advantage of the relatively cheap flights offered.
- Easyjets customers are not concerned with flights that concentrate on frills service namely
- Free food
- Entertainment e.g. TV, Video
- Ample leg room
- Business class
- As it only takes Easyjet planes a short time to turn around, they can fly more flights in a day. Their flights are therefore frequent and punctual.
- There is also a strong degree of flexibility with booking with Easyjet. At the cost of £10 a customer can change the date and time of their flight.
- As they select their outgoing and incoming flights individually, they can choose themselves when they wish to fly out and return, without stipulation that they must stay over a Saturday night.
- Customers can book quickly and efficiently online thus saving time and cost.
- Customers may regard travelling with Easyjet as safe, as they fly relatively young and newly designed planes.
- Easyjet is a well-known and reputable company and thus may be perceived to offer a good service.
- Easyjet offer 40 routes flying to 16 popular EU countries. Thus a great deal of choice is offered.
SECTION 3.2 SEGMENTATION
Stelios claims that Easyjet targets ‘people who pay for travel from their own pockets,’ listing ‘travellers visiting relatives, leisure travellers making brief trips, entrepreneurs and managers working for small firms’ as Easyjet’s main customers.
To provide more of a focus on the target segment of Easyjet, 3 categories can be used, based on demographic, socio-economic and geographical characteristics.
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Demographics Easyjet target all age groups. There has been a recent growth in the number of young people exploiting their low prices. However the main age group that travel with Easyjet is the 50-70 age segment.
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Socio-Economics As one may gather Easyjet really targets those people who are either unable to pay or are not willing to pay extortionate prices demanded by other airlines i.e. those who are price sensitive. Easyjet ignored the large market of business travellers assuming that as their company was paying they would take the more luxurious flights. However businesses have now found that they can send two employees on budget airlines for the price of one flying on a standard flight, thus more businesses are now flying with Easyjet. Easyjet also targets those people who have access to the Internet, whilst this would once be limited to those who earn large salaries nearly everyone in Europe can now get online.
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Geographic location Easyjet targets those people who wish to travel 40 different routes between 16 European countries (see Appendix)
In reality Easyjet targets those people who are willing to travel to and from the less commercial airports, and in fairness those who are not snobbish enough to reject the flights as inferior due to their low price.
SECTION 4 THE NATURE AND EXTENT OF COMPETITION IN THE
MARKET
Since the deregulation of European airlines in 1992, competition has become intense.
The low cost carriers compete by price, non-price competition is not really an option, as frills are left out of their service. The low-cost airlines, especially Easyjet have allocated large sums of money for promotional offers and deals, e.g. fly to allocated places for £1. This kind of offer has raised public awareness of the companies involved and has prompted similar competitive moves from the other low-cost operators. Easyjet has recently teamed up with The Telegraph newspaper offering extremely cheap deals in return for the collection of coupons. This type of ploy has been extremely successful in earning Easyjet a sizeable portion of market share.
According to The Observer newspaper, ‘budget airlines have captured almost one-fifth of the UK air travel market - 23 million passengers a year - generating ticket sales of £1 billion. If they go on growing at the current rate, they will overtake the established airlines in the short-haul market by 2020, leaving the big names to fight it out for high-spending Business and First-Class passengers on long-haul routes.’ This shows how well the budget airlines have done. As more air companies recognise the significance of being a budget airline, the number of competitors in the low-cost market will rise.
SECTION 4.1 HOW COMPETITIVE ADVANTAGE IS SOUGHT
Diagram 3 below shows the possible areas in which competitive advantage can be sought. Easyjet certainly operates within the overall cost leadership box, by obtaining a cost structure that is below that of many of their competitors within the industry.
DIAGRAM 3
BROAD
COMPETITIVE SCOPE
NARROW
The 4 P’s can be used to show where Easyjet have sought to gain a competitive advantage.
PRODUCT
- Low cost.
- Flights from secondary (less populated airports).
- Punctual flights.
- Ability to cancel and change flight times.
- Good safety records
- New aeroplanes that are clean and reliable.
PROMOTION
- Guerrilla tactics for promotional attacks on the airline industry and public relation stunts.
- Allocate 10% of sales revenue used for promotion.
- Use the sides of their planes as advertising banners.
PRICE
- Very affordable prices (fly to Glasgow for the price of a pair of jeans)
PLACE
- Focus on Internet and telephone sales.
- Do not use travel agents.
However the main area, which deserves more attention is Easyjet’s ability to fly at such a low cost. The ability to sell online decreases distribution costs. In August 2001 89% of Easyjet’s tickets were sold online. Their ability to sell online and via the telephone makes travel agents redundant in their strategy, thus cutting out the middlemen. Easyjet operates via a ticketless office, thus information can be cheaply stored on computer and administration costs can be reduced further. Related to this, no tickets are sent out, they are simply collected from the Easyjet desk at the airport. This again saves on time and costs. As Easyjet fly’s from secondary airports, they pay less in terms of airport fees and as these airports are far less congested, planes can be turned around quicker thus maximising revenue per plane.
According to www.justpeople.com, Easyjet can benefit greatly from their direct selling, as it will allow them to build a close relationship with their customers, thus generating a sustainable long-term competitive advantage.
SECTION 5 SWOT ANALYSIS OF EASYJET
In order to measure how well Easyjet is currently doing and could be doing in the near future, SWOT analysis can be used.
SECTION 5.1 INTERNAL ENVIRONMENT
Many of Easyjet’s strengths have already been listed in SECTION 4.2, however alongside these there are: -
STRENGTHS
- Charismatic leadership by Stelios.
- Diversification into other markets namely car rental and Internet cafes.
- Motivated workforce.
- Original and very effective promotion strategies.
- Well known and respected brand name.
- Very good knowledge of the market and spontaneous effective responses to other companies attempts to target their customers.
-
Customer numbers, revenues and profits have all been steadily increasing from 1999 to 2001 and look set to continue for the present future (see Appendix). According to , the share of total air travel to and from the UK accounted for by budget airlines is expected to increase to 9.1% by 2003.
- Excellent customer service e.g. offering refunds for flights delayed 4 hours or more.
WEAKNESSES
- Flying solely within Europe.
- Reliance so much on computer for booking and for the storing of information could be risky due to failures and viruses.
SECTION 5.2 EXTERNAL ENVIRONMENT
In order to avoid repetition, this report will use PEST analysis (as opposed to the opportunities and threats section of SWOT analysis) to examine Easyjets external environment.
SECTION 5.3 PEST ANALYSIS
POLITICAL
- A tightening of the EU stance on cross subsidy by parent company could punish BA parent of no-frills airline GO. It could also prevent other national carriers from diversifying into the no-frills market. This would provide less intense and unfair competition for Easyjet.
- Reduction in the protection of slots, particularly those at the primary airports could enable Easyjet to take routes served by other airlines.
- Stricter EU regulations concerning noise pollution and aircrew registration could affect all airlines.
- Government policies that look to protect national flag carriers namely British Airways in order to preserve sovereignty.
- The introduction of the Euro could result in a decline in the number of leisure time travellers wishing to travel to the United Kingdom.
- Increases in fuel price will drive up costs of flying a plane.
ECONOMIC
- The world is meant to be entering a recession.
- Increases in airport taxes could push up the cost and thus price of no-frills flights, whilst national carriers may be able to absorb the costs without having to change their prices at all.
- There could be a strong tendency for people to substitute more expensive flights for no frills flights and spend more abroad on entertainment and accommodation instead.
- Demand for short visits abroad and to visit friends in another country may increase as more people learn about no-frills cheap flights.
- An increase in interest rates will influence people to save their money instead of spending, thus demand for flights and holidays would fall.
- Mergers and acquisitions by national carriers and low cost carriers could have dramatic implications on Easyjet’s market share and customer numbers.
SOCIAL
- More terrorist attacks using planes, similar to the events experienced in September 2001. Would certainly reduce peoples desire to fly abroad.
- Increases in airline crashes could result in people being unwilling to casually travel by plane and may increase substitution rates.
- At the moment it is very popular to travel abroad, however social tastes and attitudes can quickly change.
-
At the moment there is the concern of deep vein thrombosis (DVT) when flying. According to , ‘DVT may develop during a long flight and has been dubbed ‘economy class syndrome’ because the cheaper seats in a plane have less leg room, encouraging minimal movement.’ This has obvious social implications on choosing whether to fly Easyjet.
- As more flights are now leaving from the secondary airports used by Easyjet and others, more revenue should be available to improve the facilities offered in these airports. These improved facilities could help to decrease customers negative perceptions of flying from these sites.
- Easyjet’s flights are no smoking.
TECHNOLOGICAL
- Easyjet’s customers have nearly been weaned off using the telephone to book their tickets this may be a huge advantage for Easyjet, because according to Computer Weekly, the Internet will be the most dominant technology for booking travel within the next 3 years.
- Technology is advancing so rapidly in today’s society, that the future may make travelling by plane obsolete.
SECTION 6 CONCLUSION
This report has shown how well Easyjet has done and is doing. However they should be aware that they do not become over confident they must keep note of what their competitors are doing, and should always have enough capital available to them to implement radical changes.
Listed below are some ways in which Easyjet could improve their performance and profitability.
- Could create a database of customer profiles to enhance the customer-supplier relationship.
- Easyjet could look to increase the number of routes and countries that they fly to.
- Easyjet could build alliances with transatlantic operators, therefore providing connections with their flights.
- Collaboration of other Easy businesses e.g. Easyfinance can offer 0% interest loans for flights, Easyrentacar could offer deals on transport to and parking at airports.
- According to Computer Weekly magazine ‘Easyjet’s web site is robust and scalable enough to meet the ambitious target of selling all its tickets online.’ Therefore Easyjet could abolish their call centres and thus cut more costs.
- As the number of low cost carriers is growing it could be beneficial for Easyjet to adopt some kind of loyalty scheme.
- Conduct focus groups to determine how Easyjet can improve their no-frills service further.
Listed below are 3 sizeable problems that Easyjet may come across.
- Over diversification (as Virgin seem to have done)
- Easyjet are looking to increase their fleet numbers which would result in more flights, it is therefore possible that they will be unable to provide the same punctual efficient service, also expansion of a company is accompanied by a rise in their cost base.
- Easyjet’s choice to float their company on the stock exchange may result in a change in organisational goals, and also riskier strategies may be now rejected.
SECTION 7 APPENDIX
Financial Information Passenger Numbers
SECTION 8 BIBLIOGRAPHY
- The Marketing Casebook S. Dibb & L. Simpkin (2001)
- Principles and practice of marketing D Jobber (1998)
- Contemporary Strategy Analysis R. M. Grant (1997)
- Exploring techniques of analysis and V. Ambrosini, G. Johnson
evaluation in strategic management & K. Scholes
www.observer.co.uk
www.britishairways.com
