EasyJet at a Glance
Sir Stelios Loannou established EasyJet in Luton UK in the year 1995.
It has over 600 routes with 22 bases and flies across 30 countries. It boasts a fleet of over 200 airbus aircraft with 8,000 employees that include over 2,000 pilots and 4,500-cabin crew. Reports show that the airline as of 2013 has flown over 60 million passengers across major airports in Europe which include: London Gatwick, London Luton, London Southend, Bristol, Edinburgh, Milan Malpensa, Naples, Venice, Nice, Basel and Geneva; London Stansted, Paris Orly, Paris Charles De Gaulle, Lisbon, Lyon, and Rome Fiumicino.
Mission Statement and Abell’s framework
The mission of the company states that the aim of the airline is to deliver market-leading returns to their shareholders by maintaining a prominent position at all the primary airports across Europe. The main focus of the airline is to make travel easy for all its customers by providing them with travel packages at a low cost and a friendly travel experience. Abell’s business strategy is about: (i) who are the customers (ii) what are the needs to be satisfied and (iii) how are the customer needs to be satisfied.
In the case of easyJet, the customers are everyone who wants to travel specifically to European short hall destinations; the needs of the customers are a hassle free and friendly travel
experience to various European destinations at a low cost. The airline uses 5 drivers to achieve these goals. These are:
- Capital Discipline: Maintaining a record of their capital by keeping balance sheets as these will not only help them to withstand any kinds of external shocks but also help in returning extra cash to shareholders
- Compelling Network: The have a large network of destinations across main airports in Europe and also a prominent presence in the top 100 european routes
- Culture, People and Platform: They have a passionate and friendly staff who aim to provide a good travel experience to travellers with focus on making all aspects of travel easy and simple for them
- Customer Demand, Conversion and Yield: They provide a simple platform for consumers to avail their low cost packages through access to their website and mobile application - Cost Advantage: They are able provide consumers with low fares through low overhead
expenses, efficient use of aircraft and top on time performance which gives them a cost advantage.
Therefore, it is evident by analysis through Abell’s framework that the company so far has managed to accomplish all the objectives stated in the mission with the help of these strategies.
Market structure Analysis
overall is pretty fragmented but in recent years it is working towards becoming more
consolidated with large airlines merging with each other such as two very big airlines like Air France and KLM merging in 2004. EasyJet as an airline is a price taker due to the large number of buyers, which is namely any person wanting to travel within Europe, and also because of the extremely competitive nature of the industry. An oligopoly is when a significant percentage of market share is owned by a few large sellers and looking at the graph it is clear that EasyJet is part of one. The reason the airline industry is so competitive is because all these airlines have the same basic service to offer which is the actual flight. However there are also many
differentiated services being provided such as memberships, transport services, etc. Since it is an oligopolistic industry, there is interdependence between competitors especially in issues such as pricing, avoiding high fuel costs, etc. Finally there are high entry barriers which restrict other hopeful LCCs from entering the market. These barriers include high capital requirements for eg. in 2013 the capital employed by EasyJet was 1,234 million pounds, access to scarce resources required (airport gates and slots at congested airports and loyalty schemes which retain customers. The exit barriers are still moderately high and include high redundancy costs (for eg. Airplanes have very specific functions, cannot really be used for anything else, tend to deteriorate when unused) and fear of losing slots and market shares to competitors (if they decide to pull out of an unprofitable market and remove that route from their listing then customers who did use that service will go to EasyJet’s competitors hence loss of customers). Porters five forces
The extent of competitive rivalry
I will discuss with Aarathi together the Porter’s five forces. Firstly, we take a look at the blue box at the top. The extent of competitive rivalry. We have there four points. The first point is the market position. EasyJet is the leading intra-United Kingdom and 5th major intra-European airline in terms of the number passenger’s transported which illustrates its strong competitive force, weighed against with their rivals.
The second point is the regulation changes. Through the Single European Sky regulation which was implemented, there is significant impact how the airline under study operates. This regulation and the expectation of heightened growth of European air transport have led to intensive competition in European market.
The third point is the competition between the low cost carriers and the traditional airlines. British Airways and other traditional carriers like KLM greatly challenge the low-cost EasyJet. For example, Lufthansa is one of the rivals, but on an inferior scale as they aim to operate on diverse market segments.
The fourth and last point is the competition between low cost carriers. Ryanair is the main competitor of EasyJet in the UK. Norwegian, Vueling, and Germanwings can become competitors in future expansion plans. Ryanair has prospered and shown a continuous yearly profit among others which we saw in the market share table.
The bargaining power of suppliers
Now, we have to discuss the bargaining power of suppliers which is moderate. We have four points. The Aircraft supplier is the first one. There are two major aircraft suppliers which are boing and airbus. One opposing factor for the supplier power is the slow nature of aircraft sales, because the high value order placed by the industry can take several years to be delivered. Then, there is the oil supplier. Fuel is a commodity and its prices are decided by market forces and existing geopolitical factors. High cost of fuel accounts for high amount of the total cost and increasing cost is a threat to EasyJet.
Also, Labour unions are suppliers who have significant power. Labour such as pilots, cabin crew, ground personnel, gate agents etc. have a bargaining power which is due to the labor
agreements at the time of industry regulation that left EasyJet with little flexibility. The shareholders can influence the cost of travel due to their decisions. For instance, in
November 2013, shareholders complained over its brand perceptions and customer care led to it issuing a profit warning. The changes included: cutting the charge on baggage, 2% fall in fare prices and incorporating allocation seating.
Threat of substitute – Low Rail services
High speed trains in Europe, which provide high-speed rail linkages between major European cities, as well as the channel tunnel linking UK with France
Threat of Entrants - Low
Airline industry is capital-intensive; it requires enormous amounts of capital funds to purchase a range of expensive facilities and equipment, while at the same time maintain them
Start up or setup, an airline company needs to have sufficient credit rating to lease some planes or enough capital to buy them.
The opening and starting cost of entry is very expensive.
Potential entrants also require working capital to absorb many months or years of losses and the high cost of the launch campaign
The current low-fare operators’ posses’ vital first-mover advantages like access to market knowledge, operational experience, capital, experience of expansion in new markets.
Additionally, other financial factors including a well-built balance sheet and a strong internal cash flow to fund the future are prohibitive for new entrance into this market. Other factors, like a strong brand name and recognition advantage companies like
EasyJet in the market. Bargaining power of buyers – High
Widely geographic area-customer distribution
EasyJet has deployed ‘RightNow Service’ across all seven of its European websites to help in managing the associated growth in customer communication.
From data analysis, 1.5 million customers visit www.easyJet.com every week, by using ‘RightNow’ service. This has realized success with over 90% of customers assisting themselves through information without agent intervention.
Price awareness
There is a high degree of information flow due to use of internet and airline prices can easily be compared
Consumers are given more than one option, and as travel represents a crucial portion of the holiday budget, even a slight differentiation in prices may lead to consumers
changing easily from one airline to another, which is an advantage for low cost airlines Ansoff Matrix
The growth of any organization can be measured through 2 specific elements, which are: markets and products. The Ansoff Matrix, as shown on the slide, is a grid that combines 4 types of growth strategies.
Market Penetration: Is using existing products to penetrate further into existing markets. Product Development: Is introducing new products into existing markets.
Market Development: Is using existing products to enter into new markets. Diversification: Is introducing a new product to a new market.
EasyJet has been known to use 3 out of 4 strategies in this grid, and has not diversified as of March 2014.
Market Penetration
- Over the years EasyJet has continuously been increasing capacity and load on their airlines, which allows more passengers to fly with them, and in 2013 – statistics showed that 56% of their passengers were from outside the United Kingdom, while they
- EasyJet has been able to offer better service as well as discounts and promotions on airline tickets to their customers since they have learnt to keep a tight control on their costs. Besides offering value to customers, this also resulted in EasyJet surpassing their biggest competitor, Ryanair, in terms of profits.
Product Development
- In 2013, EasyJet put a strong focus on improving customer satisfaction, and their annual report suggested that they aimed at giving their customers an easy, friendly and affordable service.
- It has been evident over the years that EasyJet has been implementing PD, as in 2004 they teamed up with Hotelopia, to offer customers affordable accommodation at all of EasyJet’s destinations. This service was named EasyJetHotels.
- Similarly, in 2008 EasyJet introduced a membership card called EasyJetPlus, which allows passengers unlimited ‘speedy boarding’ without making any prior
reservations. Market Development
- When certain routes in Spain started to become unprofitable to EasyJet, they were cut off, and 64 new routes across Europe were introduced – which increased their seat capacity by 3%. The services offered were the same, but new, more profitable markets were being explored.
Conclusion
I will now conclude the presentation. The presentation showed us that EasyJet is still behind the leader Ryanair but EasyJet is focusing on cost management and differentiation strategies to catch up with their competitors. EasyJet is surviving in a competitive industry and provides their customers with good quality service and offers the best in terms of value for money. They have a competitive edge due to flexible ticketing and through their access to primary routes.
