Company Profiles
EasyJet
The Luton based company is one of the newest additions to the airline industry, having conducted their first flight in 1995, but are by no means disadvantaged by their lack of experience. This is proved by their corporate figures, with a turnover of £ 263 million and pre-tax profits of £ 22 million they are by no means struggling to keep up. With a customer base that has consistently grown from the first flight to an impressive 5.6 million passengers in the 2000 financial year, the company has gone from strength to strength.
EasyJet claim to be the “the web's favourite airline” and have the statistics to back up this rather extravagant claim. With over 78% of seats sold over the internet in September 2000 they rank as one of the UK’s biggest internet retailers.
EasyJet’s ethos is embodied by their mission statement which clearly states their aim:
“To provide our customers with safe, good value, point-to-point air services.”
RyanAir
Ryanair is one of EasyJet’s closest competitors in the low-cost airline sector carrying almost 5 million passengers in 1999 with a profit of £ 45.3 million. The company is 10 years older than EasyJet and based in Ireland.
Ryanair’s ethos is very similar to that of EasyJets’ and they both provide extremely good value for money with fairs as low as single digits on certain routes (excluding airport tax).
British Airways
British Airways is a completely different company from the two already mentioned. The company has been in existence for over a century and has proved to be one of the most reliable and largest airlines in the world. The figures exist to prove this as well. Over 45 million passengers were carried on the BA Group flights and the BA produced pre-tax profits of over £ 225 million in 1999. BA operates over 356 aircraft conduction over 1000 flights a day over a total of 686,000 kilometres of flight routes.
BA’s mission statement differs from the low-cost airlines as they promise:
'To be the undisputed leader in world travel'
- we are passionately committed to excellence and to the highest levels of customer service
In order to achieve this their service includes such conveniences as in-flight movies, full catering and separate classes.
Analysis
All three companies cited in this report make extensive use of the Internet and the many benefits its use can provide. Their strategies are however very different. The low-cost airlines use the Internet as their prime medium for ticket sales, with EasyJet topping the list for Internet sales out of any retailing sector. While BA does use online sales to provide tickets to its customers and are aware of the benefits this could provide them, they still sell only a very small percentage online. This could easily be attributed to the minor differences in customer base. Most travellers flying BA are interested in the service and comfort aspect of the flight, which includes such services as being sold a ticket face-to-face. As opposed to this, EasyJet and Ryanair seem to focus more on consumers who are likely to want to get the buying process out of the way quickly and efficiently.
Neither EasyJet nor Ryanair require membership of any kind to book online however larger airlines like BA tend to rely on a membership with the site before any purchases can be made. This enables them to keep better records and statistics of passengers and traveling habits, but does slow the process down and deter some prospective customers. Ryanair launched their new website in February 2000 proclaiming that it was the “largest, most efficient and most user-friendly online air-travel reservations system in the world.” This all ties in with their Internet strategy of pulling customers in through ease of use so that it is almost too easy to book a flight. The principle behind this is that if a customer who was merely curious were to investigate the possibility of flying somewhere and then find out that the price to get there was extremely low, there is a relatively high chance that the customer will purchase a ticket. This chance is heightened by the use of a client/server side cookie system that allows for customers’ details to be stored and then reused for successive orders so that the buying process is made even simpler and the customer is more likely to return.
Advertising is easy to achieve through a well-developed Internet strategy and can provide a potential target base larger than any other form of advertising. EasyJet appear to be very conscious of this fact and make good use of their corporate colour (luminous orange) to make their website hard to miss. While BA’s website appears to be distinctly corporate and provide a front-end anyone searching for information on the company, EasyJet and Ryanair take the approach of advertising their services to the maximum potential. This can be seen by their constant display of cheap and extra-budget fares displayed prominently on the sites.
So far only a small number of the aspects of the value chain have been examined. Other aspects that can benefit from use of Internet resources are diverse. Due to the nature of the internet there would be minimal needs for the company to have multiple IT centres, instead there can be one prime centre with all other satellite centres connected to it. This introduces cost savings on IT infrastructure as well as improving manageability of the systems. The added value to the corporation is also impressive because careful and creative planning of the IT resources allows a company’s infrastructure to make full use of the plentiful resources afforded by the Internet such as e-mail and access to information and knowledge bases. In this respect the younger companies are at an advantage in comparison to older companies such as BA. The reasons for this are manifold but revolve around the fact that they will not have legacy systems that are either still used or provide huge losses in investment. Instead they can install and run modern systems to take full advantage of all the benefits currently available.
IT can be a curious resource because increased use of it does not necessarily increase competitive advantage. This is because advancements in IT are regarded more as a necessity than a luxury, so as soon as new developments become available, the majority of companies tend to adopt them immediately. This associated with the fact that it is very easy to copy and adapt competitors’ technological advancements mean that IT alone cannot provide a sustainable or sufficient competitive advancement. Instead other strategies have to be combined with IT to allow the company to inherit and retain their advantage. An example of this is EasyJet’s unique pricing system. This is tied in closely with their IT systems and Internet presence. Each flight is rated by its popularity and priced accordingly. As a certain percentage of the tickets are purchased for a certain flight, the remainder of the tickets increase in price. This allows EasyJet to fill their flights while making a lot of profit of busy flights but still selling tickets at very competitive rates. This entire system is automated and so requires no human intervention and is done in real time. This has a second benefit because it causes customers to buy on impulse when the price is low because the price can go up in a matter of minutes if the flight is busy. This also allows EasyJet to keep to their commitment of providing budget tickets, while sometimes prices can exceed those of their ‘high priced competitors’.
With the rapid development of Internet based business solutions, whether to be a market leader or an alert follower can be an important strategic decision to make. The benefits of new and unique IT investments have a very short lifetime but can be used to extreme advantage during the short period when the benefits provide a considerable competitive advantage. There are disadvantages to leading the market in IT development though, if the market demand has been incorrectly perceived the high investment in new solutions could be useless. As a market follower there are the advantages that you can allow other companies to take the risks and pounce on any successful attempts to limit the relative advantage provided to the competitor.
To illustrate the diversity and use of benefits available from utilisation of the Internet, and IT as a whole, Porter’s ‘5 Forces’ analysis can be applied. While the traditional barriers to entry, such as extremely high initial costs, still apply, recent developments have made it slightly easier. The EU ruling on the ‘Open Skies’ agreement allowed competitors to serve flight paths that were traditionally considered the property of certain airlines. The barrier of initial infrastructure costs has been reduced by the advent of Internet technologies allowing more companies to enter the market with competitive offers. EasyJet adopted an interesting strategy to overcome the entry barriers to the airline market. For the first five years of their existence, passenger-handling, baggage-handling and various other operations were contracted out so that they could focus on cutting costs. As soon as the company was of a sufficient size and profitability, they assumed control of all aspects of business and product operations. This allowed the company to avoid the barriers of expensive infrastructures. Using the same technologies, and thus saving increased investment costs, suppliers and customers can be provided for. Customers can be lured in by effective websites and can then buy online, providing an easy way of enticing customers to purchase a certain company’s flights. Suppliers can be easily communicated and dealt with by the combined use of the Internet and EDI solutions. Substitute products are not one the airline industry’s prime concerns. As has already been discussed the Internet cannot provide too much competitive advantage but rather is a competitive necessity, causing existing rivals to be virtually unaffected by the use of such technologies if they can match them.
To see how each of the companies has tackled use of Internet resources to benefit themselves and their customers, a model adapted from Porter & Miller can be used. The model allows the relevant companies to be plotted according to their competitive use of IT resources. Both the low cost airlines are relatively young companies and both make full use of their available IT resources. EasyJet relies almost entirely on telephone and Internet systems for sales as well as using the same resources to provide a communications infrastructure for the company. As such they can be squarely placed toward the top right of the graph, exploiting the advantages of the Internet to their fullest. Ryanair is very similar but may feature further left than EasyJet due to their slightly older systems. BA is working their way toward exploiting the possibilities but as of yet relies too much on traditional systems and so can be placed in the ‘Added Value’ box on the graph.
Conclusion
The use of Internet technologies has enabled companies such as Ryanair and EasyJet to substantially increase sales and growth rates to such a degree that they are now serious competitors to the older, larger airlines. This is illustrated in the current losses that BA is suffering which they clearly attribute to the low-cost market which they hoped to dispose of by launching their own low-cost airline, GO, which struggled badly and was put up for sale. BA attempted to ‘bully’ Ryanair by suing them for illegal advertising – claiming that BA was 5 times more expensive when in reality it was 3 times more expensive! BA lost the lawsuit as the High Court ruled they were in fact expensive. EasyJet has faced similar problems from Swissair as they forced EasyJet to move their Swiss base from Zurich to Geneva and refused to allow them to fly to Spain. In reply EasyJet founded EasyTours, a charter company which uses EasyJet to fly to Spain where you are provided accommodation in a tent for no extra charge.
These companies could not have achieved the positions they currently possess without extensive use of Internet technologies and this demonstrates clearly how important and useful they can be. It has now become very rare to find an airline that does not have direct online sales as most companies have realised the competitive necessity that the Internet provides. Internet technologies can be extremely powerful tools if used in a competitive fashion to streamline communications and improve sales and marketing for a company.
Bibliography
Applegate et al (1999), Corporate Information Systems Management, Irwin McGraw-Hill
British Airways: (Corporate Information, Press packs & Annual Reports)
CNN: (News articles)
EasyJet: (Corporate Information, Press packs & Annual Reports)
EU Business: (News articles)
Ecommerce Times: (News articles)
Galliers et al (1999): Strategic Information Management, Butterworth-Heinemann
Ryanair.com: (Corporate Information, Press packs & Annual Reports)
Word Count: 2725
Appendix I
Porter’s ‘5 Forces’ applied to the use of Internet technologies within the airline industry (Porter, M., 1980)
Appendix II
Assessing the potential of Business to Customer (B2C) Electronic Commerce Opportunities. Adapted from Porter & Miller (1985).
Model and references reproduced in Appendix I
Model and references reproduced in Appendix II
Article provided by ryanair.com (http://www.ryanair.com)
