EasyJet- THE WEB'S FAVORITE AIRLINE (Case Study Solution)

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EasyJet:

THE WEB'S FAVORITE AIRLINE

Company Background

•      Started by Stelios Haji-loannou in November 1995 .

•      Headquarters “easyLand” @ Luton airport, London.

•      Initial investment - £ 5 million.

•      Began operating easyJet with 2 leased aircraft.

•      Staff- Mostly teenagers.

•      Most airline operations were outsourced.

•      Followed the concept -"to offer low-cost airline service to the masses“.

 

 

Outsourcing

•      Done for lowering costs and increasing efficiency.

•      Apart from planes, pilots, cabin crew, marketing/sales people all other functions were subcontracted.

•      Helped in maintaining 20 minutes turnaround and remaining ticketless.

•      Workshops/simulations were held for subcontractors and were evaluated on quantitative and qualitative grounds.

Initial Days

•      Started services from Luton instead of Heathrow/Gatwick airports.

•      First flight was from London – Glasgow @ £29.

•      Advertising campaign – “Fly to Scotland for the price of a pair of jeans!”

•      Stelios was inspired by the business model of Southwest Airlines:

▫      Single aircraft model

▫      Point to point short haul travel

▫      No in-flight meals.

▫      Rapid Turnaround time

▫      High Aircraft utilization

 

 

 

Initial Days contd.

•      Added customization to the business model:

▫      Avoided travel agents

▫      Issued no tickets

▫      Encouraged direct sales over internet

▫      Used Brand “Boeing” having 149 seats.

▫      No frills travel

•      Suffered losses of £3.3 million in 1996/97.

•      Reported profit for the first time in 1998 amounting to £2.3 million.

 

 

Impact of Deregulation of EAI

•      Deregulation of EAI took place in 1992.

•      Meant any European carrier could fly to any destination and demand landing slots.

•      Increased competition from low cost carriers reduced aircraft fares.

•      However, no. of competitors spawned after this were less in comparison to US.

•      Low cost carriers had to compete with high speed rail service.

•      Of 80 carriers that started after deregulation, 60 got bankrupt by 1996.

 

Cost optimization techniques – To deliver low prices

•      Saved £14 per passenger by eliminating meal service.

•       Saved £10 per passenger by flying into London’s Luton airport.

•      Saved costs by not offering business class seats.

•      Encouraged internet sales by offering discounts.

•       Decreased flight turnaround time (Each plane was flown for 11.5 hrs per day)

 

 

Creating Brand Awareness

•      10% revenues spent on newspaper, magazines and radio adv.

•      Helped differentiate from competitors.

•      Improved sales and fostered growth.

•      Resulted in High Brand Recognition Rate of 88% in London and 82% Geneva.

•      Involved in Full Scale attacks on competitors.

 

Company strategy for providing competent services – Creating Value

•      Customer satisfaction was given significance.

•      Customer safety was not compromised even though it meant higher costs.

•      Experienced pilots were hired.

•      Punctuality was given utmost importance.

•      Stelios portrayed image of Man of the people by personal interaction with customers.

•      No reimbursement offered for missed flights.

•      Cost for changing flight - £1o + fare difference.

Company strategy for providing competent services contd..

•      No pre-assigned seating offered. Allotment was based on first come first serve basis.

•      Target customers were “People who pay for travel from their own pockets.”Which meant loss of 50% customers.

•      Used Yield Management:

▫      To maximize seat utilization.

▫      To draw customers in search of cheap fares.

 

Competition

•      Ryanair

▫      Established in 1985

▫      No Frills Carrier

▫      Used services of Travel Agents, issued tickets, participated in global distribution system

▫      Fleet of 20 Boeing servicing 26 destinations.

•      GO

▫      Established by BA in 1998

▫      No Frills Carrier

▫      Was founded when acquisition offer to easyJet turned down, to defend BA market share

▫      Copycat of easyJet and considered to be subsidized by BA

 

Competition contd.

•      Virgin Express

▫      Established in 1996

▫      Formed alliance with Sabena Airlines, flag carrier of Belgium.

▫      Provided short to medium haul jet service.

•      Buzz

▫      Established in 1999

▫      Started by KLM based at Stansted airport.

▫      Covered new destinations.

 

Challanges

•      Whether to take privately held company public?

▫      Management style of Stelios not suited for this

•      Maintaining quality of “easyJet” brand by Subcontractors

▫      Did not attend customers’ needs effectively.

•      Needed to become more corporate

▫      Lack of senior managers.

•      Relative youth and inexperience of some employees.

▫      High rates of absenteeism.

 

 

 

Analysis

•      Is budget airline segment attractive place to compete?

▫      Budget airlines charge less so profit margin is less

▫      Employees have to be paid as per industry std.

▫      But cheaper tariffs help steal greater no. of customers compensating low profit.

▫      However, as per the case 60 out of 80 low cost carriers got bankrupt.

▫      So , in order to leverage this segment companies have to operate effectively.

 

•      Should Stelios extend the easy brand?

▫      Brand Awareness of Easy was high ( 80%)

▫      Stelios was the Man of the people

▫      People could relate him to the brand

▫      Satisfaction of easy Jet customers was high (resulted in repeat bookings)

▫      USP’s included high punctuality, quality , safety, customer value and satisfaction

▫      So current image of Easy brand was positive and should be used to diversify business.