MKT 479 Easy jet strategy analysis PDF

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Strategic Analysis of EasyJet Airline Company Celine Ross Colorado State University MKT 479: Marketing Strategy and ManagementExecutive Summary EasyJet Airline Company has been in existence for about two decades now. This airline unlike other airlines has been able to maintain a better competitive e...

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Strategic Analysis of EasyJet Airline Company Celine Ross Colorado State University MKT 479: Marketing Strategy and Management

Page 2 of 19 Executive Summary EasyJet Airline Company has been in existence for about two decades now. This airline unlike other airlines has been able to maintain a better competitive edge mainly due to its cost effective services. The company’s main success in the airline industry attributes to the reliance of a point-to-point business strategy. This strategy has enabled the company deliver passengers and luggage straight to the required destinations with minimal connection flights. More, so the company emphasis on time management and have in place stringent environmental policies that ensures that its operations offer utmost concern to environmental. For the past few years the low-cost airline market has been competitive and EasyJet ability to manage this market pressure has been very effective. Minimizing costs and maximizing profits has been EasyJet main goal. This goal has enabled the company scrap any service that incurs loses and introduce efficient and profitable carrier services which have contributed to the company’s continuity in dynamic business environment.

Page 3 of 19 Contents Page

Table of Contents 1.0 Introduction............................................................................................................3 2.0 External analysis of the airline industry..............................................................4 2.1 Porters Five Force framework..........................................................................4 1.

Competitive rivalry among existing firms......................................................4

2.

The threat of new market entrant..................................................................5

3.

The bargaining Power of Supplier and buyers.............................................6

4.

Low threat of substitute..................................................................................7

5.

The power of buyers is high...........................................................................8

3.0 Internal analysis of the firm..................................................................................8 3.1Generic strategies................................................................................................8 1.

Cost leadership................................................................................................9

2.

Benefit/differentiation leadership..................................................................9

3.2 Value chain........................................................................................................10 4.0 Ethical assessment of strategy in Easyjet...........................................................12 5.0 Evaluation of Strategy in Easyjet.......................................................................14 6.0 Conclusions and recommendations....................................................................15 Bibliography.................................................................................................................16

Page 4 of 19 1.0 Introduction The advancement of technology in the airline industry saw the creation of EasyJet in 1995 by Stelios Haji-loannou. The airline offers travel services to business and leisure passengers from different parts of the world. The first flight by the company was on October 18 1995 from Lurton to Glasgow where the company used hired Boeing from GB airways (Graham, 2004: pp. 5-10). Since the planes used by the organization were hired there was need to manage its costs and maximize on profits. The company had to hire low rent Lurton airport and further differentiate its products in order to compete effectively. Differentiation was arrived at when the management introduced the Easygroup that offered diverse services such as the Easycar, Easymoney, Easyinternet, and Cybercafés among other businesses. All these business introduced by the company were based on a low cost principle. The company strongly emphasizes on making air transport affordable as possible and some of its marketing strategies in late 90’s was to make flying affordable just like a pair of trouser was. In essence, according to EasyJet making flying cheaper was all about finding was of eliminating travel agents and having consumers linked directly with the service provider (Rae, 2001: pp.325-330). This principle has helped EasyJet expand and todays serves over 500 routes and around 150 airports in Europe, west Asia, and northern Africa. In 2015 alone the airline offered services to over 46 million passengers to become the main challenger of low cost airline market in Europe. The expansion and huge progress in the company has seen it employ over 6000 employees where 1800 are pilots and around 3300 of the employees are cabin crews (Holland, Jacobs, and Klein, 2016: pp.127-148). Additionally, EasyJet Company now is listed in the London stock exchange with easy group owning a minority stake. Consequently, EasyJet Company has remained a consumer choice company due to its ability to offer

Page 5 of 19 low fares. Cost minimization has become a priority in order to reach out to as many customers as possible (Rae, 2001: pp.325-336). Globalization has opened up the global borders whereby traveling has become a common phenomenon. Air travel is a looming business as people tend to traverse on the global market for different reasons. However, despite the rising number of travellers several airlines have emerged that in one way or another threat EasyJet existence. Since 2011 EasyJet has been recording an increase in its annual revenue. This has been a positive outcome to the company as it shows that its strategies are working. Nevertheless, the positive progress demands that the company watches out as competitors have resorted to “low cost” airline travels. The company has however become innovative and has managed competed sustainably. With different strategies. This paper analyses various strategies used by EasyJet to remain competitive in the airline industry. Porter’s five forces and porters value chain and generic strategies are some of the tools used to explore strategies employed by EasyJet in the competitive market. 2.0 External analysis of the airline industry 2.1 Porters Five Force framework The business where EasyJet Company operates is highly volatile and Porters five force model helps evaluate this type of environment. There are five factors that according to Porter as important is defining the state of EasyJet’s business environment. These five factors are as follows:

1. Competitive rivalry among existing firms

In the airline industry the competition is fierce just like in any other type of business. Several airline companies exist such as the Ryanair airline, the BMI Baby and MyTravel Lite all with the aim of meeting consumer satisfaction. Additionally, there

Page 6 of 19 are other lines such as the Air berlin, British airways, Lufthansa and the air Lingus. All these airlines compete for the same market and each has to come up with ways of gaining a competitive advantage. What however differentiates this airline is that each operate in different segment. For example, the British airways and Air Lingus are competitors but each targets a different market segment. In the British market East jet and Ryanair are major competitors simply because they compete for the same market segment. One thing that makes either of these companies unique is that Rayner airways has access to airports outside the city while EasyJet has access to secondary airports within the main cities. They however target the leisure and business customers and therefore have to come up with competitive means of influencing customers to choose their air transportation services. To strive in the competitive industry different airlines have introduced the low cost flight services. Customers are now choosing services that are effective in terms of cost and speed. Airlines that do not offer direct travels to respective destinations are finding it hard to cope in the market. This is because customers now prefer services that are timely, efficient and less costly (Brandenburger, 2002: pp.58-60. 2. The threat of new market entrant

The airline industry unlike most other businesses is a capital intensive business venture. For a startup huge capital is required to purchase expensive airline equipment’s and facilities. Stiloes Haji-loannou while developing EasyJet airline used over $500 million to purchase aircrafts alone. In essence, setting up an airline company demand huge amount of money that often can be hard to find and unless a company has a good credit history it can find it hard to seek funds from external sources or even lease aircrafts for startup. Startup capital is therefore one of the

Page 7 of 19 greatest barrier to this business and only financially able companies beat this barrier (Zott and Amit, 2010: pp.216-226). On the other hand, the low fare rates offered by already existing airline companies such as EasyJet and Ryanair makes it hard for new companies to pick up in the industry. This rate is so low and often scare up start up since with this rate organization might take so long to break even. Companies venture into business with the sole aim of making profit but this has never been an immediate consideration for startup companies in airline industry. The startup capital being too huge means that a company needs to take longer before it earns its returns (Grundy, 2006: pp.213-229). In addition, the airline industry has several regulations and expectations that scares startups. The legal, airport taxes and financial demands are so high that it keeps startups away. With this extreme demands it makes it riskier for companies that want to venture in the low cost airline market. The low cost air market is only appropriate for companies that are already in the industry because they have the knowledge and equipment’s necessary (Siaw and Yu, 2004: p.514). 3. The bargaining Power of Supplier and buyers In the airline industry there are three major suppliers that play a critical role: the aircraft suppliers, petrol suppliers and airport parking service providers. Each of these three suppliers have an influence in the industry. There are only two airplane makers and suppliers in the world: airbus and Boeing. Since there are only two suppliers the bargaining power for various airlines companies is low. The companies being few find it harder to alter their prices as they are hardly in a position of power and superiority. However, the bargaining power for various airlines can be higher if they make bigger at the same time and at the same airline supplier. This is because with bigger orders the supplier lowers their prices (Ormanidhi, and Stringa, 2008: pp.55-64).

Page 8 of 19 The other supplier in the airline industry is the oil product supplier. Airlines cannot fly without fuel and therefore places the oil suppliers at the point of superiority. Petroleum companies can influence prices based on the available demand and supply chains. Oil companies and supplier’s decisions in one way or another impacts the operation of airlines. For example, high fuel prices influence travel cost and often when oil prices are high airlines respond by increasing their prices to cover for high fuel cost (Dowlatshahi, 1999: p.27).

The final supplier in this case is the airport service providers. Planes cannot whatsoever operate without airport service providers. Both airlines and airport service providers are in a mutual relationship and none can exist without the other. Through the airport taxes are collected and other levies such as airport parking charged from airlines. Airlines pay to park and collect passengers from airports and often low cost companies prefer secondary airports due to their low parking rates.

4. Low threat of substitute Airline services even though expensive cannot be easily substituted. There are options such as road transport and rail transport but these options are time consuming and expensive in the long run. More so, these types of travel services are limited to particular areas unlike airlines which have access to any part of the world. However, airlines are facing threat of substitution for short journey services. This is because rails and road transport are cheap and easily accessible when traveling for shorter distances. However, except for locations, motor vehicles and trains have few advantages as compared to air transport. Airlines have readjusted their fare rates and has made it more convenient for passengers to use air transport over road or rail transport. This means that, airlines face little threat of substitution from customers, in

Page 9 of 19 fact, many consumers are finding it easy to use air transport for both short and long distances (Karagiannopoulos, Georgopoulos, and Nikolopoulos, 2005: pp.66-76). 5. The power of buyers is high Due to the growing completion the bargaining power of consumers is also growing. There are several airline companies offering same services but at different rates some at low cost and others at higher costs. With this differentiations consumers have been given many choices to make while considering air transport. Customers are however fond of choosing the airline that are cheap and ones that offer direct travels to respective destinations (Kim and Stimpert, 2004: pp.569-589). 3.0 Internal analysis of the firm 3.1Generic strategies In the current dynamic business environment, a business with only survive if it offers greater value to its consumers or offer a comparable value at a lower cost (Murray, 1988: pp.390-396). Porter come up with three generic strategies with which an organization can use to sustain the five competitive forces that make up the porters five force model in order to create a competitive advantage. An organization derives its strategies based on what it seeks to achieve in both short and long run periods (Kogut, 1985: pp.15-28). Some companies will choose to be the lowest cost players, serve a specific market niche, or offer differentiated products in order to gain a competitive advantage. Three of porter’s generic strategies that apply in EasyJet airline company Ltd are:

1. Cost leadership EasyJet company being one of the low cost flights has achieved immeasurable success from the above average price cost margins. The company offers its services at a

Page 10 of 19 standard and has placed huge emphasis on gaining on absolute advantage from all possible sources (Gillen, 2004: pp. 41-50). EasyJet has achieved a cost leadership target by employing absolute differentiation as compared to its competitors. Easy jet offers identical air packages but at lower cost as compared to its competitors. More so, the company offers different combinations of products which in the process attracts more customers. EasyJet has been able to offer customers air travel services at a lower cost even though others will treat it as a luxurious experience only meant for a particular social class. Other factors that drive cost in EasyJet are process efficiency in its service lines, agency coordination, appropriate firm size, and effective organizational operations. All these have ensured that EasyJet maintains its competitive advantage in the highly competitive airline industry (Murray, 1988: pp.390-400). 2. Benefit/differentiation leadership With differentiation leadership organizations find it easier to gain a competitive edge over competitors. Firms that create benefit offer services to its segment not necessarily at lower prices but prices at which consumers will not view its services as overpriced due to consumer’s ability to classify the product better than of competitor. When customers see the difference and are content they are more willing to pay more to get the service or product. When consumers are willing to pay more for a product competitor will find it hard to match the product attributes (Porter, 2001: pp.50-66). For EasyJet differentiation has been one of its greatest tool in capturing the airline market. The company has constantly been innovative in order to make its products different but of better utility as compared to that of competitors. The company readjusting its travel rates over and over again has been part of the differentiation process. It employs the “low cost, no frills” principle to increase customer value. With

Page 11 of 19 innovation, the company introduced the e-ticket services which has made life for both customers and employees easy. This product differentiation strategy has enabled consumers have access to news, check booking, and make informed decisions by comparing fare rates all at affordable costs. Operational excellence is also a differentiation strategy employed by EasyJet. On-time performance and convenient care to clients is what EasyJet emphasis on strongly. The company understands that customer satisfaction is key towards success (Murray, 1988: pp.390-400). 3. Focus According to Porter focus is a strategy that enables an organization concentrate on specific market. When a business selects a specific segment it becomes easy to narrow down the competitive scope and serve a particular segment appropriately. When a company selects the focus strategy there is need to employ both the cost and differentiation strategies as well. In the airline market customer demands are different as there are customers with unusual needs. EasyJet does not fully utilize this approach in its undertakings as it seeks to offer cost-effective and timely travel services to all clients. The company does not have special treatment but rather treats all its clients equally and with the most satisfying means (Murray, 1988: pp.390-400).

3.2 Value chain Generic strategies are all but strategies that enables a firm position itself in the market appropriately. Value chain emphasises on decomposing an organization into several strategically important activity and understanding the impact of each activity towards value and cost. Porter divides value chain into support and primary activities. In EasyJet the primary activities are inbound logistics which involves storing and distribution, outbound logistics which involve getting products to end users, sales and marketing and general company services such as repairs and maintenance. On the

Page 12 of 19 other hand, support services include human resource management, technology management, procurement, and management system. The value chain is an important aspect in as far as competitive advantage is concerned (Stabell and Fjeldstad, 1998: pp.413-415) Value chain helps an organizations understand all its primary and support activities and further understand what to readjust for better value. EasyJet has utilized the principle of value chain to depict where a company can sustain its competitive advantage. Analysing all its primary and support activities has ensured that the company introduces policies that promote utmost service delivery to clients. For example, the company emphasises on the fact that cost advantage is achieved if a company perform all its value activities at a lower cost as compared to its competitors. In many instances, EasyJet has been in a position to recreate a benefit advantage by customizing its products and being entirely innovative. With its low cost travel services, the airline has gained more from economies of scale and timely travel schedule to clients. These activities have ensured that the company regains cost advantage as it offers services at a cumulative low cost as compared to its rivals. Gaining a cost advantage is simply having control of all cost drivers within the organization. This has been the case with EasyJet because the company has been able to manage its human resource, management, machinery, technology, sales and marketing among others in a sustainable proces...