Easyjet: A No Frills Airline

Aim of project

The aim of this report is to analyse and evaluate the competitive strategy that Easyjet have utilised in order to develop their current competitive position in the low price no frills airline market.

Objectives

• Definitions of competitive strategy
• Explain Porters generic strategy
• Analyse the competitive strategy of Easyjet
• Evaluate the competitive strategy of Easyjet
• Recommendation for the future of Easyjet

Methodology

Porters generic strategy

Investigate the strategy clock

Find out advantage and disadvantages by creating a SWOT analysis of Easy Jet

Theories on Easyjet competitive strategy

The Competition

Various Recommendation for Easyjet’s future

Where the information was found?

• University library
• Internet
• Journals
• Newspapers
• Books

Overview

From this report, Easyjet can be seen as one of the main airlines in its market, and although it has some tough competition Easyjet is becoming stronger. Its competitive strategies are ahead of the competition and are being very successful. This is proven through various theories such as Porters generic strategy, the strategy clock and a SWOT analysis of Easyjet’s competitive strategy.

Introduction

Background

Easyjet is one of the best known European low price no-frills airlines. Which begun in 1995 by Greek entrepreneur Stelios Haji-Ioannou. He intended to ‘make flying to Europe affordable for more and more people’. Easyjet now calls itself the webs favourite airline’. (Thompson, Strategic Management , 2001) The airline is based at Hangar 89, a bright orange building adjacent to the main taxiway at Luton Airport. In an industry where corporate HQs are generally considered to be the ultimate status symbol, it is the very embodiment of the Easyjet low-cost ethos.

Objectives

To identify and analyse the competitive strategy that Easyjet have utilised in order to develop their current position. To critically evaluate the competitive strategy that Easyjet have utilised in the development of their current completive position. Also make appropriate recommendations regarding Easyjet.

Competitive advantage

Competitive advantage is the means by which a company can outperform its competitors and more profits. (Lomax & Raman, 2006)

The ability to create more economic value than competitors (Barney, 2010)

Competitive advantage is more generally based on the stability and continuity in relationships between different parts of the organisation (Lynch, 2008)

Design is a form of competitive advantage… Good design allows things to operate more efficiently, smoothly, and comfortably for the user… Customers appreciate good design. While they can’t necessarily point out what specifically makes it good, they know it feels better. There’s a visceral connection. They are willing to pay for it, if you give them a great experience. (Hackett, 2009)

Porter’s Generic Strategies

This set of strategies consists of three: segmentation strategy, differentiation strategy and cost leadership

Cost leadership strategy pertains to mass production of standardized products to lower the cost. Manufacturing the product in high volumes or by bulk would lower the costs of the product because fixed costs are maximized.

Differentiation strategy means creating products that are being packaged as unique. Customers believe that the features of the products are incomparable and superior compared to others hence the reason for its uniqueness.

Segmentation strategy means products are focused on few, selected market or the specialized markets. The company creates the product to suit the tastes or demands of a specific market.

(Porter, 1998)

Main Findings

Analyse Easy Jet’s competitive strategy

Easy jet which is the UK’s leading low cost airline, currently operating in over 400 routes with over 175 aircraft in 27 countries is a no frill airline, the concept started in the beginning of the 1970’s in the USA and then this concept was followed by Airlines in Europe, and the rest of the world.

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Easy jet is known as No-frills airlines, where airlines that have offer low fares but eliminate all unnecessary services Easy Jet offers a no frills service at low fares. EasyJet’s generic strategy is a typical cost leadership strategy. The business philosophy of easyJet is that money can be made on any route where a carrier can fly three times a day to a low-cost airport, based on a minimum market size. The basis of commercial success for such strategy is maintaining a 30-40% cost advantage over established airlines.

Easyjets low prices strategy can be defined as “A low price strategy seeks to achieve a lower price than competitors whilst trying to maintain a similar perceived product or service benefits to those offered by competitors” (Johnson, 2005) They believe to achieve competitive advantage through this strategy, the company need two basic choices, one is to find a segment where main competitors are not interested in. The other one is find this segment attracts price sensible consumers. (Johnson, 2005)

They utilize this by doing the following;

Easyjet is a Ticket less airline which mean All you need to fly is your passport (or suitable photographic ID on domestic flights) and there confirmation number, based on their time of check in at the airport, this determines the order in which they board the aircraft (Easyjet.com).

Efficient use of airport. Easyjet flies to main destination airports throughout Europe, but gains efficiencies through rapid turnaround times, and progressive landing charges agreements with the airports

By reducing turnarounds to 30 minutes and below, Easyjet can achieve extra rotations on the high frequency routes, by maximizing utilization rates of its aircraft.

There’s no such thing as a free lunch Easyjet does not offer free food from company, passengers are given the choice as to whether they wish to buy themselves drinks or snacks from the in flight. (McCosker, 2003)

The absence of business class means gaining seats and maximizes capacity. Though EasyJet does not provide the same kind of flexibility as business class in traditional airlines, it is possible to change flights for a premium of £10, plus the difference in price. Punctuality is a priority

Direct marketing and Internet sales – Stelios recognized the potential for sales on the Internet before it had become widely available. At first a call center allowed customers to book over the phone, a more familiar communication channel available to all. By offering discounts for Internet bookings, Stelios shaped his customer’s purchasing habit with the result that 80% of reservations were made on the Internet in 1998. It reduces distribution charges from travel agent commissions and computer reservation system costs.

Easyjets strategy was modelled on Southwest air, but Stelios claimed he had been inspired by Richard Branson and Virgin Atlantic. His approach to customers and people mirrors that of Branson. He flies on his own planes some three or four times a week and week talk to the passengers. He is regularly present at Luton (his headquarters) and willing to revolve passenger problems. (Thompson, Strategic Management fourth editon, 2001)

Easyjet favours an informal company culture with a very flat management structure, which eliminates unnecessary and wasteful layers of management. All office-based employees are encouraged to dress casually. Ties are banned – except for pilots! Remote working and ‘hot-desking’ have been characteristics of easyJet since the beginning.

One of the strategies which easyJet is persuading is a cost leadership. In persuading cost advantage, the goal of the firm is to become the cost leader in its industry or industry segment (Grant, 2002)

The Easyjet product is, in reality, a package of service, many subcontracted in. Easy jet provides the planes and their crews, and markets and the sells the flights. As a company, it is focused. Check-in and information services, snacks (for passengers to by before they board the aeroplane), baggage handling and fleet maintenance are all bought in from specialists. (Thompson, Strategic Management , 2001)

Competition for customers in this sector of the market is intense, Virgin express and Fly Thomas cook are just a couple from many have low-price , no frills subsidiaries, neither of which is reputed to be profitable. The largest of the rivals is Ryanair, over 25 years old and based in Dublin, carrying over 75 million passengers a year.

When Stelios established the position of the Easyjet as one of leading low cost airline in Europe by “adopting an efficiency driven operational model, creating brand awareness and maintaining a high levels of customer satisfaction” (where we are now) he took a step further in his perused of the strategy “to offer low cost airline to masses’ (where we want to be) which is based on key strengths (how we going get there) (Easyjet: The Web`s Favourite Airline, 2002)

Another of the strategies persuaded by founder of Easyjet can be seen, as “strategy is perspective, that is, vision and direction.” (Mintzberg, 1994)

Evaluate Easyjet competitive strategy

Competitive advantage grows out of value a firm is able to create for its buyers the exceeds the firm’s cost of creating it (porter,1985)A company relative position within an no frill Airline industry is given by its competitive advantage which is cost leadership and differentiation, from other frills airline companies and with its choice of competitive scope. Introducing new technologies new or shifting buyer needs the emergence of a new industry segment and availability changes in government regulations are competitive advantages. Where Differentiation is the firm’s product, associated services, and other activities affect its buyer’s activities. All the activities in the value chain contribute to buyer value, and the cumulative costs in the chain will determine the difference between the buyer value and producer cost. (Porter, 1985) Easy jet gains competitive advantage by performing strategically important activities more cheaply or better than its competitors. (Easyjet.com) Competitive advantage can come not just from great products or services, but from anywhere along the value chain. To understand how a firm fits into the overall value system includes the value chains of its suppliers, channels, and buyers. Generic strategies are useful because they characterize strategic positions at the simplest and broadest level. Porter maintains that company achieving competitive advantage requires and makes a choice about the type and scope of its competitive advantage.(Porter, 1985)

Concerning competitive advantage, Easyjet concentrates on costs therefore achieves overall cost leadership. It inhabits a low cost Niche position.

“The low cost airlines developed sufficient lead times and competitive advantage to limit any new entrants to niche positions – and we still do not believe that the full service airlines have the culture to successfully develop sustainable in house low fares subsidiaries” (Binggeli, 2002)

However, there are problems associated with the idea of sustainable cost leadership as this entails that Easyjet has the lowest cost compared with competitors over time. This is unlikely to be achieved simply by cutting back costs however their competitors i.e. Ryanair will do this too.

The search of a cost-leadership strategy will require Easyjet to have a strong focus on cost management, scale economies, and have experience curve cost advantages through the maintainer of volumes. In reality, it can be questioned whether cost leadership is a separate strategy. (Sharp 1991) [1] stated, ‘having a cost advantage is merely a facilitator to differentiate, usually on price’, adding that low-cost form seeks to remove bases for differentiation, so as to offer a generic service to the entire market, therefore reducing differences between segments.

Another type of strategy persuaded by Stelios Haji Ioannou is express by sentence (Casell, 2002)

It could be argued that cost leadership can be a precarious strategy, which may speed up the move towards a commodity market in which; ultimately, no one benefits (Partridge, 1994)

Strategy Clock

The ‘Strategy Clock’ is based upon the work of Cliff Bowman. It’s another Suitable way to analyze a company’s competitive position in comparison to the offerings of competitors. As with Porter’s Generic Strategies, Bowman considers competitive advantage in relation to cost advantage or differentiation advantage. Easyjet are situated highly in strategic option 1 (low price, low added value)

The eight core strategic options are:

1. Low price/low added value – Likely to be segment specific.

2. Low price – Risk of price war and low margins/need to be a ‘cost leader’.

3. Hybrid – Low cost base and reinvestment in low price and differentiation.

4. Differentiation – (A) Without a price premium: perceived added value by user, yielding market share benefits.

(B) With a price premium: Perceived added value sufficient to bear price premium.

5. Focused differentiation – Perceived added value to a ‘particular segment’ warranting a premium price.

6. Increased price/standard – Higher margins if competitors do not value follow/risk of losing market share.

7. Increased price/low values – only feasible in a monopoly situation.

8. Low value/standard price – Loss of market share.

The strategy clock diagram

http://htmlimg3.scribdassets.com/9l9911lw1u1cczk/images/2-2c81643482/000.jpg (Scribd.com)

Easyjet SWOT analysis

Strength:

Easyjet has a strong brand name in the low cost airline industry; the company also owns the general popularity among customers, business or leisure, for its low fares and high efficiency

Most seats are sold through Internet. Ticketless airline makes Easyjet different from rivals.

Flattened structure and casual culture give efficiency in management and operation. Easyjet is frequently able to benefit from the latest technology and working practices.

Efficient use of airports and aircraft is another critical strength of Easyjet. The sound network helps the company to cut costs.

Paperless operation has simplified and given the huge flexibility in the management working practices.

Easyjet standardise on a single aircraft type and purchase new aircraft in bulk, thereby minimizing maintenance costs.

The merger of Go accelerates the company growth

Weakness:

Easyjet is limited at the present time to regional operations, which does not allow it to develop a more balanced portfolio of services.

Although EasyJet’s benefits from the deal with airbus in many ways, it also causes a problem – the company will operate on a mixed Boeing/Airbus fleet. Staff training and coordination in future are crucial to the move

For the elder people or the people who do not use the internet, it is not convenience to book on line. They really should have more ways to book

There is no business class in airplane of EasyJet, which makes it lose some business travellers

Opportunities:

From a political perspective, the deepening and widening of EU provides new opportunities industry wide. New routes can be introduced to those countries that will join EU in near future. Furthermore, Airlines are now able to operate a base out of any European Country, which gives many more opportunities for expansion.

Comparing to US market, the European market is still an immature market, which provides opportunities to all players.

General slump forces most companies and individual keep in a tight budget, therefore low cost airlines now have more chance to fight their expensive rivals.

Threats:

The low-cost carriers are facing rising costs, particularly in the areas of fuel, airport charges and salaries.

Unpredictable incidents (e.g. Iraqi war, SARS) give uncertainties in fuel supply, customers’ sentiment, etc.

Competition from rivals is another threat, including new businesses copying ‘low price and no frills’ strategy

Recommendations

This report has shown that Easyjet has done very well since it begun in 1995, it is dong almost everything correctly using their competitive strategies to become successful and stay ahead of their rivals. Although the huge profitable company that it has become, it’s important that they do not become over confident, and be aware of what their competitors are doing, they should always have enough capital to them to make radical changes if needed to. There are a number of ways in which Easyjet could improve to take the organisation forward and make the company more profitable and improving performance.

Firstly Easyjet could cooperate with other easy business, such as Easycar which could do deals on transport and parking at airports, Easyfinance could offer a special rate for loans used on flights. Easyhotel could give discounts on hotels around the airports. This could not only help easyjet and making it better for customers but also increase other easy businesses.

It could be very beneficial for Easyjet to build alliances with transatlantic operations. This would build a better relationship with the transatlantic operations meaning it could create more routs. Easyjet have over 400 routes which means they have many more routes which they could add. This would mean gaining more customers that couldn’t reach destinations before in which other airlines visited.

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As fast as the internet has grown over the last few years, not everybody has it or know how to use, more often its elder people, whom could add a bigger market if Easyjet could find out a way to reach them and make a better way of buying flights for them. Although Easyjet do have a phone number to book flights it has been stated “Telephone bookings are more expensive and are not encouraged” (Lowfareflights) which is very off putting. Possibly free phone calls or some sort of broacher sent through the post could let the people without internet find out about Easyjet and be able to purchase with no hassle.

As the number of low cost carriers is growing another possibility could be created some sort of loyalty scheme such as loyalty card or member card. The customer would then collect points whenever they travel with Jeasyjet, which would add up and when they have enough points, they could receive some sort of reward such as a discount on flights, free flights etc. This would benefit Eeasyjet as well as the customers because the customer would want to travel with Easyjet instead of another company because they know they can save points and be rewarded with Easyjet. Major companies in the UK such as Tesco using clubcard who introduced it in 1994 to gain customers loyalty, it proved to be very successful, making customers from other stores switch to Tesco as they knew they would b rewarded with this scheme. David Sainsbury, then chairman of J Sainsbury plc, rejected the idea of introducing a similar scheme. However, the effect that Clubcard had on Sainsbury’s sales led to the reversal of that decision, with the launch of the Sainsbury’s Reward Card in June 1996. (Randall, 1996-06-23) This will therefore stop customers switching to Easyjets rivals.

From this report, Easyjet can be seen as one of the main airlines in its market, and although it has some tough competition Easyjet is becoming stronger. Its competitive strategies are ahead of the competition and are being very successful. No company is perfect and always need improvements therefore Easyjet could become ever more successful and dominate the market despite of the stiff competition.

Reference List