easyJet

Table of Contents

1.1 Definitions        

1.2 Abbreviations        

1.3 Founder        

1.4 History        

2. PAST STRATEGIES        

2.1 Technological        

2.2 Takeover        

2.3 September 11th and other events        

2.4 Option on the Deutche BA        

3. INDUSTRY ANALYSIS/CURRENT STRATEGIES        

3.1 Competitive Analysis        

3.1.1 Porter’s Five Forces        

3.1.2 Generic Strategies        

3.2 Market analysis        

3.2.1 The BCG growth-share matrix        

3.2.2 Product life cycle        

3.3 SWOT Analysis        

3.4 Financial Analysis        

4. LOOKING IN THE FUTURE        

4.1 PEST analysis        

4.2 Balance Scorecard        

7. BIBLIOGRAPHY        

Figures:

1. INTRODUCTION

1.1 Definitions

Low-cost airlines- Airlines that offer fares which are considerably lower than its full-cost competitors. They can offer lower fares by using aggressive marketing and keeping costs as low as possible by eliminating frills.

No-frills – Little or no in-flight meals with the use of smaller, cheaper and local area airports. They tend not to be any mixed class.

1.2 Abbreviations

1.3 Founder

easyJet, the Luton-based air carrier, modelled after Southwest Airlines was launched in November 1995. The founder of easyJet, Stelios Haji-Ioannou, the jet-setting son of a Greek shipping tycoon, was rated by the Sunday Times in 2003 (Sunday Times, 2003) as Britain’s 140th richest person. He is however so cheap, that when he launched easyJet, he decided not to offer free soft drinks or peanuts. He’s so cheap that when he launched his car rental business, called easyCar, he decided to charge when customers brought cars back dirty. He’s so cheap that when you go to see a film in one of his cinema, called easyCinema, you get a statement at the end of the film saying, “Please take your rubbish with you – your mum doesn’t work here.”

Stelios, the 35 year old entrepreneur is well known throughout Europe, as an energetic almost billionaire who has lit up the world with his neon-orange easy brand. This neon-orange easy brand is to represent value for the masses. Stelios has founded a range of easy Group of companies. A full list of the founded companies can be seen in appendix 1.

Stelios’s appreciation of business strategy powered by low costs allowed him to examine the benefits of a similar model to that of the Southwest Airline within Europe. Stelios felt he had found the “right-concept” for a European low cost airline (Sull D, 1999). He therefore launched easyJet into the European market. easyJet is based at easyLand, a bright orange building adjacent to the main taxiway at Luton Airport.

1.4 History

easyJet started with two leased aircraft which commenced their first two routes from Luton to Glasgow and Edinburgh using Boeing 737 (easyjet.com-information pack, 2003). easyJet’s mission statement is,

“To provide our customers with safe, good value, point to point air services. To effect and to offer a consistent and reliable product and fares appealing to leisure and business markets on a range of European routes. To achieve this we will develop our people and establish lasting relationships with our suppliers” (easyjet.com-index, 1997).

easyJet promotes itself by offering great value fares, 128 routes to 39 key business and leisure airports in Europe, one way fares, flexibility on all its fares, fast easy convenient booking facilities and hassles-free flying due to ticketless travel (Ghose & Reid, 2004).

easyJet owes its existence to the development of what is called the “open skies” in Europe, this is when any airline can fly into another countries without licences. (easyjet.com-information pack-development, 1997). Before 1987 the European airways were mainly regulated by the government. The national flag carriers were the dominant airlines. They required significant government subsidies due to high cost structures and operational inefficiencies. At this time new competition was non-existent. This was due to entry barriers created by the governments within the EU. As a result, the national flag-carriers rarely had the need to be concerned with competitive strategy. The deregulation of the airline industry was considered necessary by the European Commissioner to facilitate commercial reconstruction. A three-phase ten-year plan was introduced in 1987, which allowed new competitors to enter the market with a chance of success.

 

The 1992 Deregulation Act stated that any EU carrier was permitted to provide a passenger service without restriction on any domestic route within any EU member-state (Sull D, 1999). Due to this, approximately 80 new airlines entered the market (Sull D, 1999). In 1995, 56 airlines were launched of which 17 went bankrupt within the first year of their operation. Some of the successful launches include Ryanair and easyJet.

There are two distinct strategies within the aviation industry. These are “low cost, no frills” and “value added”. There is no official definition for low cost/no-frills airlines. They focus on core activities and run regular services at the lowest possible cost. Thus offering lower fares which undercut those offered by larger competitors. They tend to focus on short haul routes and reduce costs by operating a unified fleet of aircraft for example Boeing 737, which effectively reduces maintenance costs (Farran P A, 2000). Both Ryanair and easyJet adopted this strategy. On the other hand, there are those who adopt the “value added” strategy which attempts to provide a full quality service, providing additional services/frills for those consumers who are willing to pay extra i.e. national flag-carriers such as Air France, British Airways.

2. PAST STRATEGIES

2.1 Technological

In order to offer low-fares, a low-cost/no-frills airline such as easyJet is required to keep costs to the minimum wherever possible. The Internet provides easyJet with the most cost-effective distribution channel and plays the most important role in the company’s business plan. A key part of easyJet’s strategy therefore, is to encourage its passengers to book online. It does so by offering a £5 discount for each leg of the journey when booked online. The closer a booking is made to the departure date, the more expensive the fare tends to be. As bookings of more than two weeks before the flight departure date are only available online, those who book over the Internet have first choice (easyJet website-information pack-internet, 2002).

When booking online, passengers have a range of flights to choose from which are offered at the best available fare on each flight.  The passengers have the flexibility to choose the flights that best suit their needs and budget since fares are quoted one way (O'Neil K, 2001).

Web User reviewed the easyJet.com website and gave it a 4/5 rating.  It commented that “easyJet’s site is beautifully quick and very easy to use, and the flights are of course astoundingly cheap. All your booking details are confirmed by email, and in our experience the email turns up very quickly indeed. Which always helps” (User W).

A five-step approach is taken when booking a ticket online and passengers are able to exit the process at any stage.  Essential passenger information is remembered, thus eliminating the hassle of re-entering basic details when the passenger is viewing different dates and times.  Registered users benefit from speedier booking as their details will be remembered from each booking session (O’Neil K, 2001).

easyJet has enjoyed dramatic growth in its online sales since it first started selling seats over the Internet in April 1998. This has been partially due to the number of households going online and the growth of easyJet, through the acquisition of GO.  Appendix 2 shows the growth of the Internet since 1998. The number of households online has increased five fold to about 48 million.

 

At present, easyJet sells approximately 92% of its seats online every week. This percentage is higher than any other airline which supports its position as the "web's favourite airline" (Mintel Report, 2003).

The dramatic growth in easyJet’s web sales has led to confidence in its Web Strategy and it is taking steps to become the first ‘Web-only’ airline. This would eliminate telesales completely and has already been achieved by easyRentacar. easyJet changed its advertising on its airlines from its telephone number to its website address. This has illustrates their strategy to become a ‘Web-only’ airline. This Web-only approach is made possible due to the development of consumer attitudes and integration of Internet and mobile telecommunications technology in everyday life over the last decade (O’Neil K, 2001).

        

2.2 Takeover

Low-cost airlines’ strategy and focus is on achieving the best price on any deal, whether it is aircraft financing, airport landing charges, or advertising (Conno A, 2002).

In August 2000 easyJet tried to buy GO from British Airways. However, easyJet was turned down by the BA Board as the offer was in untraded shares in easyJet. As a result easyJet decided to float on the London Stock Exchange in November 2000. The airline was valued at £800m (Management Today, 2003).

Following a management buyout from BA, 3i (a venture capitalist firm) became the majority shareholder in GO. In March 2002, easyJet started takeover talks with 3i, “which was keen to sell off GO for a quick profit” (Management Today, 2003).

Previously, European low-cost airlines grew organically, rather than by acquisition. Organic growth was achieved by starting with a few flights within the UK, and then moving to continental Europe. Finally it involved opening up new routes within European destinations.

easyJet paid £325m in cash and £75m in easyJet shares (Cassani B, 2003). “The deal was at a lower price than expected.” (Clark, A 2002). easyJet funded the deal through a four-for- eleven rights issue at 265p a share to raise £276m (Clark A, 2002).

The takeover allowed easyJet to leapfrog Ryanair to become the biggest no-frills airlines in Europe, with more than 2800 people and 63 planes (Cassani B, 2003). It also meant the elimination of Go from the competition.

Buying GO meant easyJet doubled in size, this took place with the addition of Stansted (The Economist, 2002). The takeover enabled easyJet to expand its network without taking the risk of investing in a new infrastructure. With the exception of domestic routes, there were only a few destinations that the two airlines shared. Benefits to route development meant less need to enter new cities/markets, which is a very expensive process. Thus, it allowed easyJet to “de-risk the company’s second round of growth” (Clark A, 2002).

As a result of the easyJet GO merger, the airline decided to cut costs by closing GO’s call centre and thus making 114 staff redundant. By reducing the telephone booking service, easyJet aimed at directing more sales through the web, where flights would be only available through the phone for departures within seven days (Travel Weekly, 2003). easyJet’s strategy included phasing out the GO brand and its website. Therefore, selling all routes from easyJet’s website and having a single telephone number (Branwel J, 2002).

The GO integration has been successful. Overall, the integration costs were £7.9m, less than the originally anticipated £14m (easyjet plc, 2003). There is now a single easyJet brand and a single operations team in place. Savings came from merging booking systems, maintenance and operating licences. However, the real economies of scale have been in marketing, as low-cost carriers devote much higher proportion of their cost base to advertising than major carriers. Furthermore, as a result of the acquisition easyJet now has much greater purchasing power. An example for this is the Airbus deal which is outlined later. (Airline Business, 2002).

2.3 September 11th and other events

The attacks on the World Trade Centre in New York and the Pentagon in Washington on September 11th 2001 had immediate repercussions throughout the world. Theses attacks were conducted using commercial aircrafts, which resulted in immediate impacts on both the global airlines and tourist trade. Travellers were becoming worried to fly.

Within a short period of time, many airlines had suffered financial problems and as a result were forced to revisit their strategies and business models. The UK’s national flag carrier, British Airways, had to announce massive job cuts (www.palgrave.com/studyskills/masterseries/cartwright/case.htm) following restructuring whereas Swissair was close to filing for bankruptcy. They had to ground all their flights on October 2nd 2001 but the Swiss government gave them a £188m lifeline (http://www.sasig.org/pdfs/bullet2001/pdf.prn.pdf).  

The terrorist’s attacks had impacted the airline industry as it changed consumers views on travelling. Many consumers decided to stop travelling, whereas others chose to travel to Europe rather than across the Atlantic. This change in consumer views increased the market share of the low-cost airlines. Many consumers, both public and business, had decided to travel with the no frills/low-cost airlines in order to reduce costs and risks. Many companies had put restrictions on business travel due to economic decline. easyJet’s booking fell by 26% the day after the terrorist attacks but by October the load factor was above 80%. The load factor is a measurement of business and efficiency for airlines. It is the percentage of seats that are occupied per flight. easyJet reported an increase in 82% in pre-tax profits for the period up to the end of September (). Ryanair also saw increases in pre-tax profits and they said, “We will fly our way out of the crisis” (http://www.sasig.org/pdfs/bullet2001/pdf.prn.pdf).

Even though there were many problems facing the low-cost industry during this time they benefited more than the national carriers. easyJet stated in their annual report in 2001 that their strategy which was based on 6 key strength, remained unaltered by the attacks in the USA on 11th September 2001 (). The six strengths include: a simple fare structure, low unit costs, strong branding, commitment to customer branding, multi-based network and strong corporate culture. (Lawton, 2001: 117).

Since September 11th the fear of terrorist attacks reoccurring has been on the public mind. The Iraq war has left more fear over the airline industry, but the biggest impact was the underground bombing in Madrid. The threat of terrorism was expected to be aimed at the US but this bombing in Europe left consumers worried about travelling to this region or possibly any other city.

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2.4 Option on the Deutche BA

The terms under which easyJet plc would acquire an option to purchase British Airways' German subsidiary, Deutsche BA (DBA) were agreed with British Airways on 8th May 2002 and the option agreement was signed in August 2002. This was after easyJet had been given the approval to acquire DBA by the German competition watchdog.  Under the key terms of the option agreement easyJet had the right to exercise the option to acquire DBA at any time up to 30 April 2003. The airline was permitted to extend this date till the 3 August 2003. ...

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