easy jet fair

8/6/2019 Easy Jet Fair

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Introduction:

The Low Cost Carrier (LCC) model was started by Southwest Airlines (USA) 35years ago which further developed into Europe in 1990s.After the Liberalisation of EuropeanAirline Industry, Easyjet emerged to be one of the Europes no-frill low cost carriers. Easyjet(Airline Company) was founded by Sir Stelios Haji-Ioannou on 16

thof November, 1995.

With respect to the success of low cost carriers in USA by South west airlines, Easyjet madea progressive development focussing on low cost short haul routes rather than traditionallyspoken Hub networks. (Robert, 2008: p30)

This essay aims to analyse the present and future strategy of Easyjet using strategic

tool PESTEL. The analytical framework of PESTEL helps recognize the Key Drivers in the

Macro Environment affecting the organisations strategic position.

Industrial Overview:

Global Airline industry in recent years has been facing various challenges in the form

of rising fuel costs, high operating costs as well as unforeseen natural disasters like recentvolcanic ash cloud .The global fuel prices has been increasing consistently from 2007 (refer

Chart 1)and the economic recession in 2009 has further compounded the crisis situation

forcing price sensitive passengers to look out for plausible alternatives for traditional national

airliners.


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Low cost carrier (LCC)business model has an edge over the traditional airline model due to

their better yield management and asset utilisation techniques. The leading Market research

firm Keynote has projected that low cost carriers will capitalise on this tough economic

condition in their favour leading to increasing number of passengers preferring LCC to

traditional national carriers.

(Source :GaWC)

(Source:Airline Leader)


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Easyjet has a market share of 7.6% in European short haul capacity making it

Europes second largest short haul carrier. (Easyjet- Financial report march 2010, p.3)

(Source: http://www.anna.aero/2010/07/07/aegean-and-tarom-latest-european-carriers-to-join-

alliances/)

The table below illustrates the market size of the airline industry in UK.

(Source: Key Note)


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Easyjet:

EasyJet was founded by Sir Stelios Haji-Ioannou on 16 th November, 1995

headquartered in Luton, England .Easyjet has witnessed tremendous growth and its current

Market Capitalization stands at1,906.53m with a fleet strength of 196 Aircrafts (172 Air

bus and 8 Boeing plus 16 fights on order) , 6,666 employees (3,300 cabin crew and 1,800

pilots).It has a large network comprising of 509 routes between 29 different countries.The

company plans to expand in 36 new routes throughout Europe through fleet expansion

comprising of 208 Air crafts by the year 2012. (Source: Easyjet)

(Source: CAPA)

Easyjet Strategy:

The strategy of Easyjet is to achieve theirintentof Turning Europe into Orange through

sustained organic growth achieved by establishing as Pan European airline thereby retaining

its Market share as Europes No.1 Air transport network in a time frame of 2015.

The strategy and business model of Easyjet is primarily based on six main strengths that

help them to achieve the sustainable growth and competitiveness in the market.

y Assurance of safety and customer satisfactory services.y Simple tariff early booking for low price.y Effective branding.y Strong corporate culture.y Multiple base system services between major airports in European.y Low per unit cost.


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By introducing the online ticket booking service which helped the company to reduce the

cost of paper work, reduced employee expenditure due to online booking (91% of tickets

were booked online), which is easy, quick and convenient for the customers to book tickets.

The online booking helped Easyjet to create a direct channel with customers for selling ticket

rather than through agents, brokers, and agencies thus saving the commission expenditure for

the airlines.

The Airlines follows the system of first come first serve, where the price of the

tickets are considerably cheaper when booked in advance than booking prior to the travel.

(Source: Simon Smith)

Easyjet is one of the large European airline companiesto follow No-Frill systemwhich helps them in reducing their operating cost and operate as a low cost carrier business

model.

Given below are some of the strategies followed by the Airlines to reduce their operating

cost: (source: Simon Smith)

y High seating density and not having business class passengers help them to reducetheir per seat cost to 16% as compared to BMI.

y Maximum utilisation of the aircrafts: Easyjet aircrafts are in air regularly for 11 hoursa day (where BAs aircrafts fly lesser than 8 hours a day)

y Cost per seat per kilometre is 64% less in Easyjet as compared to BMI.y The cabin crew of the airline double up with the cleaners to help Easyjet achieve a

turn-around time of 30 minutes in the airports other than the traditional norm of 45-60

minutes.

y The airlines operate in smaller airports which helps them reduce their operating costand service their passengers at a lower price.


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(Source: Simon Smith)

External Environmental Analysis of the Organisation:

Mary coulter proposed the idea that an Organisation is an Open System that

constantly interacts with the external environment and suggested that the analysis of Macro

Environment is extremely important in a highly volatile industry like the airline business.

(Mary Coulter, 2002: p.76) For example the oil rate fluctuations, the recent ash cloud

problem illustrates us the importance of the study of macro environment of the airline

industry.

PESTEL Analysis:

There are many external factors in the macro-environment of the organisation that

affects the decision of the managers of the organisations; (Gillespie) PESTEL helps to

provide a comprehensive list of influences on the possible success or failure of the strategies.

(Gerry Johnson, etc. 2011) PESTEL helps analyse the Macro environment in the best suited

manner. The word PESTEL stands for

P Political

E Economic

S Social

T Technology

E Environment

L Legal


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Political Factors:

These refer to the government policies, regulations and other political factors that may

affect the performance of the Airline industry. Below are some of the political factors:

y Europe Political Climate.y Migration restrictions.y Traffic and Trade restrictions.y Flights deregulation.y New regulations and agreements of European Union.y Security issues.y Support from the government for national carriers.y War threats in the Middle East.y Safety of the passengers.y Control of price.y Open sky agreement between EU and US.y Threats due to terrorism.( Gerry, 2011;Binggeli, 2002)

Economic Factors:

y Threat of fuel prices.y Increase in the Airport traffic and service charges.y National inflation and growth rates.y Tax rates.y Cost of fleet expansion.y Interest and foreign currency exchange rates.y Environmental constraints.y Over reliance on single aircraft model.y Due to the recession the business travellers closely monitor their travel expenses.y Due to the introduction of single currency in EU, there will be an increase of business

for Easyjet as Europe integrates.(Gerry, 2011)

Social factor:

y Management of Human Resources.y Regular change in Trends and Life-style of people.y Business travellers.y Airline taxes.y Corporate social responsibility.


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y Rise in Elderly and Leisure Travellers.

Technology:

y Security-check standards in the airports.y Threat to the airline industry due to High Speed Trains.y Threat to the industry due to Teleconferencing.y Increase in IT Frauds.y Improved information facility and quick booking.y Noise diminution.y Self-check-in service.y Fuel-efficient flights.y Effective usage of Internet.y Aircraft production with new technologies.(Gerry, 2011)

Environmental Factors:

y Corporate Social Responsibility (CSR) Policy.y Lands required for new airports.y Engine emission control.y Noise mitigation.y Go green.y Controlling fuel consumption.y European Union Emission Trading Scheme.(European Commission; Gerry, 2011)

Legal Factors:

Every country in the European Union has different legalities some stricter and some

relaxed. The company will have to follow and satisfy the regulations of all the countries it

operates. Below are some of the legal factors:

y Merger restrictions.y Disputes regarding Brand license.y Allegations due to deceptive advertisement.y Consumer protection legislation.y Environmental legislation.y Negotiating illegal deals with the airports.y There are increasingly strict rules regarding the materials used in the manufacture of

the aircrafts to protect it from fire at the time of disasters. (The Times 100; Gerry,

2011 )


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Threats:

Given below are some of the common threats that exist or may be faced by the airlineindustry.

Some of theimportant key driving factors of the PESTEL analysis that can affect the

potential of Easyjet are illustrated below:


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Political Issues:

The disruptive political environment in Spain and Portugal can significantly reduce

the Leisure and Business class passengers. The company has a major share of 14% with 13

operating routes through Lisbon. The drop in the passengers can be compensated by

increasing its market shares in countries like Germany and France where Easyjet already

plans to increase its market share by 42% in Germany and 24% in France. (CAPA)

(Source: CAPA)

Economic Issues - Fuel price and Currency Fluctuations:

The airline industries 25% of the cost accounts in the fuel expenses (IATA

press release, 2010). The Airline industry often responds to the variations in the global fuel

prices by adding extra charges to its regular fair. The chart below represents the fuel

fluctuation between August 2007 and July 2010.

(Chart 1, source: Silvano, 2010)

Portugal Market ShareEasy jet:14%

Ryanair:7%

Lufthansa:4%

Iberia: 3%

other: 35%

Tap air Portugal:

37%


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Due to the on-going Global currency conflict and the fluctuations in

currency, there exist serious fuel hedging implications in the airline industry. Hedging by

Easyjet remains at 70% (Annual report, Easyjet 2010). The hedging by Easyjet is based on

US dollars; therefore any depreciation in the dollars will adversely affect the profit margin of

the company.

(Source from: Flight Global)

The Economic Airports Regulation shows an indicated steep rise in the

Airport charges. The rise in the APD (Airport Passenger Duty) has significantly reduced the

profit of the Easyjet. The increase in the duty has caused the Easyjet to cancel 18 of its

flights. Better fleet management technique can help the company mitigate from its current

effect of increase in duties.(Source: Mail Online)

Air Passenger Duty (APD):

The UK aviation ministry recently raised the APD by 55% for the flights flying in and

out of United Kingdom (BBC News).This rise in the APD has caused the airlines to increase

their fare to compensate with their increase in operating cost leaving the low cost carrier

airlines like Easyjet and Ryan Air affect the most.


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Due to the rise of the tax the main rival Ryan air announced that it will switch its

capacity out of UK and Ireland (BBC News) toward Spain and Italy creating a huge vacuum

in UK and Ireland amongst the LCC which can be used by Easyjet to increase its market

share.

Social factors The Olympics and Common Wealth Games:

With the Olympics scheduled to be in London for the year 2012 and the Common

Wealth Games scheduled in Glasgow for the year 2014there is a huge open market that is

available for Easyjet. With the main rival of Easyjet in LCC the Ryan Air moving out of UK

and Ireland (BBC News) there is a clear opportunity for Easyjet to boost its presence in

Europe.

With less competition in LCC and concentrating towards the Business class andLeisure Passengers, the upcoming Olympics and Common Wealth Games will give the

airlines a great boost. With the increase in preference of passengers towards LCC Easyjet can

fill in the present vacuum left by the Ryan Air and boost itself with the forthcoming games.

Brand Image and Ownership:

The main brand name under which the company operates is Easyjet. After taking overthe GB Airlines by Easyjet, the airlines was operated as a franchise of BA until March 29

2008 after which these routes are operated in the name of Easyjet.

The companys impressive growth within five years triggered a new evolution in the

European low cost carrier business model. Recent dispute regarding the brand license

stimulated some doubts in the shareholders mind-set which had an adverse effect in the share


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prices. A persistent Brand development programme along with pay-out of dividends to the

shareholders is essential for the Easy jets forthcoming performance.

Technology - Security threats:

The security of airlines, airports and safety of the passengers is considered to be one

of the issues concerned by the airline industry with the increase in the terrorist attacks. There

are regulatory frame-works formed by Aviation Ministry of different countries, the

International Civil Aviation Organisation (ICAO) and Civil Aviation Authority (CAA) that

helps the airports and the airlines to monitor their security levels regularly.

Failure of A380:

Despite that Easyjet does not operate the A380 Airbus; the recent deficiency of the

airbuss Rolls Royce Engine has bothered the development of the industry that may capsizethe potential strength of the Low cost carriers.

With the plans of attracting the business class and leisure passengers Easyjet has decided to

buy A320s Airbus worth of $1.1 billion neglecting the failure of A380 Airbus. This will help

the airlines attain its growth in the forthcoming years. (Source: Traveller, 2011)

IT Risk:

Easyjet faces a high IT security risk as 91% of the tickets are booked online through

credit cards. A small security breach in the system can strongly impact on the business of the

company bringing down its reputation. Regular monitoring of unauthorised users must bemonitored to ensure the safety of the company. Easyjet at present monitors all its IT security

with the help of its Revenue Protection Team. (Source: Easyjet)

Airport security and Technology:

The recent terrorist threats with a printer bomb that was found by the Dubai police in

a cargo (BBC-Middle East) has raised concern over the security measures and the technology

used to implement them in the airports. The Airport Council International (ACI) Europe has


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developed several security strategies for the European Airports within a time frame of

2015.The ACI Europe decided to install new capable technology for efficiently detecting the

liquid explosives and periodically change the security and scanning machineries in the

airports to provide a healthier and dependable security.(source: Airport Business)

Environmental Concerns:

Easyjet have consistently improved in controlling their Carbon emission levels from

the past ten years, on the other hand monitoring the noise pollution levels regularly. From

116.2g/km in 2000 its carbon emission has reduced to 84.4 kg in 2010 with a predicted

reduction of 3.35% for the forthcoming year.(source: Easyjet)

Limitations of PESTEL analysis:

y The external factors of the macro environment that is considered in the PESTEL aredynamic in nature; they have a quick pace change. Drastic changes could occur in an

unpredicted and tricky manner within a short period of less than a day. For example

an environmental change that is considered to be unimportant may have an adverse

effect on the organisation within a short period. (within 24 hrs)

y PESTEL analysis is inadequate for the purpose of planning strategy as it considersonly the externals factors disregarding the internal factors of the organisation and the

competitive market; it is best preferred to use tools like SWAT analysis with PESTEL

to determine the strategy of the organisation.

y Collection of huge amount of right data relating to the PESTEL analysis isproblematic because most of the datas are to be gathered from the external agencies.

Due to these factors the PESTEL analysis becomes time consuming and costlier.y As the PESTEL analysis is based on the present macro environment, keeping track of

present information and updating the analysis is important and becomes problematic.

y PESTEL analysis is mainly based on predictions rather than actual facts of the past,present and future environment and market. Analysis based on wrong assumptions

may lead the organisation into a disaster, hence cross-verifying the information before

making the information is important.


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Future Strategy:

Easyjet having established itself as a Topmost Low cost carrier is striving to carve a

niche market in the highly competitive LCC market by focussing increasingly on Business &

Leisure passengers. Easyjet aims to achieve this by

Eliminating the aggressive competition between its existing LCC rival RYAN AIR:

Even though both the airlines execute the NO FRILLS low cost model, Easyjet has

eliminated the hyper competition between Ryan air by focussing on frequency of aircrafts in

major primary airports whereas Ryan air focus on network expansion concentrating on

secondary airports .

The additional Airport charges Easyjet incurs due to using primary airports results in

a nominal rise in the ticket costs when compared with Ryan air ticket costs. Easyjet aims to

offset this rise in ticket charge by concentrating increasingly on business & Leisure

passengers.

Business Class and Leisure Passengers in short routes:

Due to the cheap and frequent flights operated between primary airports in short haul

routes;Easyjet has an assured computational benefit towards higher cost airlines like British

Airways in short routes. Due to the maximum utilization of the aircrafts, the least turn-around

time and direct ticket sales to the customer Easyjet is able to serve customers to the best at

considerable rates when compared to airlines like British Airways, which has suffered due to

the labour strike and conflict between cabin crew changes.


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In recent years, traditional carriers have given up their fight in the short haul routes

unable to compete against the LCC business model. This has created a strategic gap in these

routes, which Easyjet aims to capitalize by focussing on the strategic customers business &

Leisure passengers.Due to the muscling-up of the low cost carriers some of the leading

airlines like British Airways have decided to sacrifice their short haul routes and concentrate

on their international routes. (The Telegraph, Nov 2010).

As the main rival in LCC Ryan Air operates mainly in secondary airports and

concentrates on low cost, Easyjet can fill in the market vacuum that is presently created by

attracting more of higher class passengers in the short routes.

Easyjet has been developing a wide range of ancillary services by reinvesting in

services like Easy-cab service, Easy-cruise service, Easy hotels and resorts, Easy insurance.

Such value added services help Easyjet to offer a winning customer proposition to business &

Leisure passengers.

Such clear differentiation strategy not only will help Easyjet to expand its Market share by

attracting Business & Leisure passengers, but also helps it to offset the comparative high

Ticket charges as Business & Leisure passengers are ready to pay a nominal increase in ticket

charges due to added convenience of using primary airports.


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Conclusion:

According to the above information Easyjets main rival in LCC Ryan Air is

considered to be as a low price carriers, whereas Easyjet is moving itself from low price

carriers towards hybrid carriers which will help the airlines to attract more of business class

and leisure passengers. Easyjet plans to pursue both as Low cost carrier and as a hybrid

carrier.

Due to national airlines like British Airways moving towards long haul routes rather

than short haul routes due to competition and due to swift of the main rival Ryan Air in LCC

from UK & Ireland to Spain & Italy due to increase in APD there is a huge vacuum for

Easyjet.

In conclusion it is best preferred to follow the planned and predicted future strategy of

Easyjet by attracting the Business class and Leisure passengers and by developing a chain of

value added servicesthat will enable Easyjet to attain its growth target of 15% from 11% by

existing as LCC as well as Hybrid carriers attracting the Business class and Leisure

Passengers.

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