Easyjet Marketing Essay

Easyjet Cost Strategy Essay

Stelios's avowed intention in entering into the budget airline industry was to take on any business that was potentially profitable. From the figures available, easyJet is successfully completing its founder's ambition with turnover increasing by 67% in 1997-1998, gross profit margin increasing from 15 -20% and with a 2.3M profit before taxation being achieved. Meeting these overall aims was made possible by a set of strategies and the achievement of a system that corresponded to key success factors in the budget sector of the airline industry.

Cost advantage strategies

Among easyJet's strategic choices in terms of reducing operating costs were the following:

· No on-board catering except for snacks at additional cost

· This allowed for fewer cabin crew

· No business class seats, thus maximising the aircraft's capacity

· Use of regional airports with lower airport charges.

· Thus quicker turnaround and maximum use of assets made allowing an above average n° flights per day

· Young employees thus lower wage costs.

· Outsourcing

· Direct marketing, use of the Internet, cutting out travel agents and thus saving on commission.

Taking the list point by point, does this strategy succeed in cutting costs and providing service in line with what customers want? To what extent does the cost cutting strategy fit with its environment?

· Absence of catering: short hauls, catering not necessary. It allows for faster turnaround. It is linked to shaping customers' expectations. Stelios's strategy is logical: he compares taking a plane to taking a bus. It is consistent that there should be no catering if the whole process is speeded up and if the event of taking a plane is more banal.

· Absence of business class: this gains seats and maximizes capacity, but the difficulty is to attract business customers by some other means. Many private business people who are frequent fliers on short hauls do not need the comfort of business class, but they require flexibility. 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.

· Absence of ticketing and use of regional airports: both of these strategies are successful in reducing turnaround, allowing more intensive use of aircraft.

· Outsourcing: this provides flexibility and reduces the investment in assets. However, by 1999 it becomes clear that certain key functions being performed by subcontractors are escaping the control of easyJet, leading to underperformance and having a detrimental impact in terms of customer service and marketing.

·...

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Table of Contents

1. INTRODUCTION

2. EASYJET AIRLINES COMPANY LIMITED

3. MISSION STATEMENT OF EASYJET

4. COMPETITIVE ANALYSIS
4.1 The threat of new entrants
4.2 The threat of substitute
4.3 The power of buyers
4.4 The power of suppliers

5. THE MARKETING MIX
5.1 Price
5.2 Product
5.3 Place/Distribution
5.4 Promotion

6. SWOT ANALYSIS
6.1 Internal Analysis
6.1.1 Strengths
6.1.2 Weaknesses
6.2 External Analysis
6.2.1 Opportunities
6.2.2 Threats

7. EASYJET’S ISSUE

8. EASYJET’S PLANS (PRESENT AND FUTURE)
8.1 Location
8.2 Marketing and Advertising Campaigns
8.3 ‘Airline’ TV documentary series
8.4 Website
8.5 Product Differentiation
8.6 EasyJet’s Plan for declining markets

9. REFERENCES

1. INTRODUCTION

The airline industry is one of the most competitive industries in the world. Within the business, there are many factors that influence the operations of the organization. All the airlines are diverse in nature, but all of them have one similarity which is the degree of competition that is faced in the market. In the modern industrial environment, the severe competition that is influenced by a variety of factors is inescapable. As example, one of the most dominant factors in airline industry is Information Technology. Firms must depart and arrive on time, safely without competition or delays (Barnett, 2003). It requires numerous and large amount of information being transferred various stations each minute. An organization which utilizes their capacity of information technology in an optimum way has a leading edge in competition over others. In case, the firm fails to take the advantage of innovation in the technology and effective strategy are left behind in loss or permanent shut down.

The airline industry in the past was widely regarded as a service industry with the market entry barriers high in terms of fleet investment to enable new competitors. However, the low-cost startup like EasyJet has clearly established the reliable services of the airline industry without any frills or fuss. EasyJet, as its name, suggests its customers travel experience of its customer’s as taking a bus. The low cost airline, such as EasyJet offers call center mediums and online sales to their customers for the purpose of facilitating low cost service. EasyJet airlines merge the savings made from bypassing the travel agents with various other measures, such as cheaper (landing taxes) and lesser known airports and offer cheap fares by offering savings to its customers.

Due to EasyJet’s image as a low budget airline without any frills, many customer’s judge that its services will not be as refined as of the conventional airline like British Airways. Therefore, EasyJet airlines exceed its customer’s expectation for its services preferring and targeting to set low expectations that are much easier to meet and exceed.

2. EASYJET AIRLINES COMPANY LIMITED

EasyJet was established in 1995 by Stelios Haji-loannou and targets to operate as operate as low-cost airline without frills aiming to stay ahead with its competitors like Ryanair, FlyBe and Ryanair. All of them function on similar business model to that of thriving USA southwest airlines. The competitive advantage of the budget airlines are sustained by increasing revenue, achieving low operating cost and by using new economic technologies such as internet to sell their product.

The concept of EasyJet is based on the concept that the demand for short-haul air transport is price elastic. Traditionally, the concept of the airline industry was based on the assumption that the airline traffic grows with the growth in the economy and the cost cutting of the prices would eventually decrease in the revenues. EasyJet has proven this theory incorrect with its strength by increasing the size of its market and taking away the passengers from other major airlines. Passengers carried increased by 8.8 % to 11.9 million, with 59% of passengers originating outside the UK. The load factor has increased by 0.9 percentage points to 86.7% (EasyJet’s Annual Report 2011). It covers almost 109 airports in its destinations, within and outside United Kingdom (www.wikipedia.com). It functions in domestic and international scheduled services between European, West Asian and North African airports. The parent company, EasyJet PLC is listed in the London Stock Exchange and was floated in November 2000.

EasyJet started its flight from Luton to Edinburgh and Glasgow in November 1995 with leased Boeing 737-300 for a price of £29 with a capacity of 148 seats. Seats were being sold over the telephone system reservation system only. In the year 1996, EasyJet goes international with its first services from Luton to Amsterdam. After one year, EasyJet launched its website, easyjet.com, which formed an integral part of the business from the year 1998, contributing to about 90% of the total EasyJet’s bookings today (www.easyjet.com). In the month of August 2002, EasyJet expanded its fleet by acquiring the British Airways low cost subsidiary. In October 2002, EasyJet signed a deal to buy 120 Airbus, which further facilitated the firm’s ongoing strategy for growth.

3. MISSION STATEMENT OF EASYJET

To provide our customers with good value, safe, point-to-point air services. To effect and to offer a reliable and consistent product and fares appealing to leisure and business markets on a range of European routes. To achieve this will develop our people and establish lasting relationship (www.easyjet.com).

The above mentioned mission statement by EasyJet reflects a lot about the firm and its operations. It shows the main objective i.e. delivering point to point air services to the customers. This represents that Easyjet is not just in food or people business, but in mass transportation business and thus, its model is based on mass transportation’s cost efficiency. The statement also shows the services offers by the firm. It focuses on the ‘European routes’ targeting the leisure and business travelers alike. It targets to offer good value and safe transportation.

4. COMPETITIVE ANALYSIS

While analyzing the airline industry in detail, it is very useful to apply the Porter’s five competitive forces -

4.1 The threat of new entrants

- To some extent, high capital requirements initiate threat. With a loan on £5 million Easyjet was launched with 2 leased aircraft, but also required an investment of £50 million raised by debt and equity in about 2 years and to buy 4 new planes.
- The UK low-cost market is quite mature as compared to the rest of Europe and EasyJet, as the biggest operator as a comfortable position.
- Loss leader is required to join the market with low cost.
- Lack of landing and take-off slots make it difficult for other new carriers to locate suitable airports.

4.2 The threat of substitute

- International routes distances are usually very long for trains or a car, which now is much easier and quicker, from London to Paris, which now can be reached by Eurostar.
- Minimal threats from other means of transport like cars and trains on domestic routes. The disadvantage in that case is time as well as cost, as the route from Luton/London to Glasgow in 6 hours costs around £80 but with EasyJet it costs £29 in one hour.

4.3 The power of buyers

- The buyers in the low cost market for the airline industry are strong. Customers still look for a better place for cheap prices even though most sales are generated from the online booking. Price discrepancies can be easily found and explored by the consumer, so the operator must keep a regular check on the prices.
- Low switching cost requires the need for customer loyalty.
- Customers having the Civil Aviation Authority (CAA) provide them with licensed airlines and ensure compliance with the specific requirements of the UK and European legislation related to the liability, insurance and financial services or airlines. It also provides protection against the risk of failure for people who buy package holidays, charter flights and discounted scheduled air tickets.

4.4 The power of suppliers

- The more the EasyJet expands, in the current as well as new markets, it will possess more power over its suppliers.
- The price of the aviation fuel is directly related to the cost of oil and any firm such as EasyJet does not have any control or power over it.

5. THE MARKETING MIX

5.1 Price

- Low price is the key element of the brand and should try their each effort to keep the prices as low as possible.
- Discounts for the online ticket booking.
- The firm uses differential pricing. Also, booking in advance and off-peak travelling makes it cheaper.

5.2 Product

- Point-to-point and no-frills air services.

5.3 Place/Distribution

- Over 90% of the bookings through internet booking system.
- Telephone reservation system.

5.4 Promotion

- The firm promotes internal marketing, as the creative work is done in-house.
- For effective promotion, EasyJet highlights its strong position as Europe’s low-cost airline. It advertises statements such as “Size matters”, and slogans like “the web’s favourite airline”.
- Humorous and “No bullshit” campaigns with attention grabbing campaigns such as handing free tickets at inauguration flight of Go airlines and protest by Stelios protesting at Luton against the increase of airport fees.

6. SWOT ANALYSIS

6.1 Internal Analysis

6.1.1 Strengths

- Financially successful.
- EasyJet is known for innovation and flexibility in the organization.
- Holds a strong e-business.
- Image, differentiation on price and brand.
- EasyJet is also a part of consortium to run UK’s air traffic control system (NATS) which has been awarded as well.
- In the UK travel industry EasyJet has been recognized as a leading brand name.
- Being a market leader in a industry EasyJet is seen as a leading contributor to the global warming and green house effect. The firm embraces the responsibility towards the environment and keeps such factors on priority while developing future strategies.
- EasyJet offers an alert for online promotion which is sent to existing customers through e-mails and contact on the firm’s database.
- It offers efficient and fast service to the passengers with an average turnaround time of 30 minutes or below. It helps the firm in maintaining a hassle free and reliable service.

6.1.2 Weaknesses

- Has very little or no scope outside Europe.
- EasyJet does not have any retention policy.
- The main drivers for growth, the focus on convenience and price are eventually reaching its natural limits and further differentiation remains difficult.
- Lack of business focus, flexibility and lack of services makes the low-cost model unattractive for many business travelers.
- The firm does not offer free food service on flights for more than 2.5 hours.

6.2 External Analysis

6.2.1 Opportunities

- The current recession is supporting as businesses and people are very cost conscious.
- Reduced aircraft prices.
- Many full-service airlines may discontinue their operations in the regional market to concentrate on the long, more profitable routes, leaving the market with the low-cost operators.
- Huge potential future growth has been predicted by the experts of airline industry.
- Offering free refreshments to the flights with more than 2.5 hours of travel time. This would provide and extra perk the passengers creating a more enjoyable and comfortable travel experience.
- Updated version of the fly on wall documentaries would provide more publicity and coverage to the brand.

6.2.2 Threats

- Given the shortage of options and saturated market, competition is more likely to intensify (Binggeli, U et.al, 2002).
- There are difficulties to expand as the new routes are scarce from London.
- Other competitors flying the same routes face tough competition due to price forcing pressure on margin on time slots and popular flights.
- EasyJet’s business can face major impact due to external market forces, e.g. rising prices of oil can greatly impact on the running costs affecting the profit.
- Economic downturn can result in decrease in the corporate level and casual passengers as firms would try to cut down the number of business trips.
- Pressure from the employee relations and unions committee can bring a drastic difference in the ongoing operations by proving strike costly for the firm.

7. EASYJET’S ISSUE

The face of aviation has gradually been evolving. There have been long-standing problems of network carries and over-capacity in various markets of the industry. For EasyJet, problem being faced is the declining markets due to its competitors, especially in Europe. This is likely to bring some pace in the process of airline consolidation and restructuring. Many experts believe that the multitude of carriers in Europe will eventually cut down to 3-4 major airlines, remaining airlines being restructured or absorbed to gain focus on regional traffic. This would result in an opportunity for ‘no-frills’ carriers in increasing their market share. Also, this would help in updating and restructuring of outdated and complex industry’s regulatory system.

During long-term, the trend growth may gradually slow down due to maturity in big air travel markets. Also, the falling yields, that have boosted the air-travel growth in past, cannot be relied upon. If the cost trends are less supporting e.g. due to environmental restriction, congestion, increased fuel cost, prospect of higher insurance cost or security to reflect the risks of terrorism, the scope of future growth trends will reduce as scope of lower yields would be less. An important issue would be the extent, to which the supporting cost trends can counterbalance the upward pressure on costs and prices, such as the impact on the cost synergies from industry consolidation and distribution costs. The full-service airlines which are loaded with vast networks and strong unionized workforces cannot easily hold on to the management strategies as compared to the management strategies of the no-frill airlines. Moreover, due to competition policy, the scope for defensive merger is limited.

The no-frills market is Europe is immature as compared to United States. However, as the UK market became saturated, carriers have focused their concentration in development at continental European hubs, due to which EasyJet has faced tough competition in the recent years.

8. EASYJET’S PLANS (PRESENT AND FUTURE)

Over the last financial year, EasyJet has shown substantial financial growth as compared to its competitors. There has been 5.8% increase in the number of passengers of EasyJet in comparison to 2008 figures. EasyJet was the second largest carrier by turnover with sales of £2.69 billion (14% increase in the previous year). Although they are operating at pre-tax loss but they have improved since previous year. Strong positive cash flow generation with cash and money market deposits increasing in the six months by £283 million to £1,358 million (excluding restricted cash of £101 million). Even after improvement in profits, EasyJet faces neck to neck competition and due to various factors face the risk of its declining markets for which it need to gear up more.

Initially, EasyJet needs to consider whether it should respond to the competitors or new entrants in the market by ceding niche segments or switching to compete aggressively on routes, services and price in order to force the entrant out of the market. To make any strategic decision, the firm needs to practice effective market research on how much capacity the competitors has in each route, what cost the competitors the competitors bear to serve and also the size of various combinations or services and prices. After this, the strategy for the competitor would be to anticipate according to the strategies prepared and implemented by EasyJet. After requiring such information, the residual uncertainty would be very limited, and a firm would be in a better position to build its confidence in its strategy (Courtney, Kirkland and Viguerie, 1999). EasyJet should target especially the leisure travelers as businesses usually demand regular flights to a wide variety of destination, and seek frequent flyer programs, quality services and are willing to pay a premium of these benefits. Appealing to a wide variety of customers, requires countering the overall trend of the service industries, within which, various approaches, customized to different customers generally come to dominate (Costa, P.R. et. Al, 2002). EasyJet needs to highly concentrate on its prices to keep the customers interest as well as to keep the profits coming in, and should consider laying stress on direct marketing, e.g. introducing customer retention scheme. For promotion, to differentiate further, EasyJet should introduce CRM (Cause Related Marketing) scheme, developing the firm’s reputation as a ‘caring airline’, providing its passengers a psychological comfort and well-being (Pringle, H. and M. Thompson, 2001). EasyJet needs to build up an accurate and realistic assessment for the market-niche to be served. To establish a growth plan commitment to cost control and quality service is crucial.

Through many strategies EasyJet has been able to gain strong competitive advantage in its market, and has to continue sustaining as well as building new and effective strategies to overcome the risk or loss of its declining markets. The consumer matrix (Bowman and Faulkner, 1997) shows the details of the perceptions which passengers or customers have in regard to the product or services to them and the prices charged. EasyJet has been proud of and offers its customers with value for money as the benefits received from the transactions relative to the price seem favorable in comparison to other competitors. In the airline industry, there have always been consumers who are price sensitive and demand ‘low-cost alternative’. Thus, EasyJet has followed the customer matrix price strategy for the purpose to maintain competitive advantage (sustaining benefits while reducing price).

8.1 Location

One of the main strategies that EasyJet has implemented for successful marketing is the location element of its flight destinations. It gains its competitive advantage over other by flying to all the main leisure and business airports in Europe so that customers do not have to transfer a long distance to their final destination.

Other firms or competitors like Ryanair attempt to compete with EasyJet at a price level, but does not operate on an efficient route map. Such rivals can only offer the ‘low-cost’ advantage by flying to more remote destinations, but still Ryanair has still managed to be EasyJet’s biggest rival from last few years.

EasyJet operates at the highest level of its efficiency at the airports with rapid turnaround time and therefore, fully utilizes the system by also running extra flights for passengers. The firm has utilized and expanded its ‘hub’ airports, currently having basis in all parts of United Kingdom and integrated into many European airports.

8.2 Marketing and Advertising Campaigns

After utilizing all the marketing channels available, EasyJet has managed to build and maintain a successful corporate image from the birth of the firm. The advertisements of EasyJet can be seen all over the European cities from public transport buses to the giant billboards. EasyJet makes sure that its presence is made well known, to the potential customers of the airline. It does that by advertising latest offers on flight costs, launch of new routes and through expressing why passengers should choose to fly with EasyJet.

In the recent years, EasyJet has managed to take a great advantage on through online advertising and by increasing personal use of internet, which helped in reaching to all the consumers. According to Dixon (2005), having national media as an available market option, EasyJet has adopted a regional marketing approach in Europe. The marketing campaigns of EasyJet have been concentrated of making an impact on the local level and have proven to be more personalized strategy, which helped them to develop their methods of marketing to regional customers they address.

8.3 ‘Airline’ TV documentary series

EasyJet implemented a marketing strategy which greatly contributed to their success was ‘fly on the wall’ documentary series ‘Airline’ broadcasted in January 1999. It was aired on the prime TV channels and was nominated for programme of the year, in 2001 (BBC, 2005).

The firm managed to promote itself as a reliable and cheap airline in the market, where there were few competitors targeting for the low-cost image. As per Miles and Snow’s theory (1978), EasyJet has been acting as a ‘prospector’, as they were the first mover in the market place to try and unlock the ‘low cost airline’ niche market.

8.4 Website

The website of EasyJet proves as the main distribution channel for e-ticketing with all the required flight information which is easily accessible to the customers online, eventually reducing the material costs. The website for EasyJet can be viewed in 18 different languages, in order to make flights accessible to a wider audience (www.easyjet.com). Implementation of a sophisticated yield management system has helped in maximizing seat revenue that has been the greatest competitive advantage (Jobber, 2004). The firm has flows of information, immediate updating of prices through the use of new economy technologies, resulting in maximizing profits.

The porter’s theory in relation to the EasyJet clarifies that the firm has adopted a cost leadership strategy which reaches the customer through customer fares offered online. Accordingly, EasyJet needs to constantly adapt its strategies with the purpose to retain the competitive advantage.

8.5 Product Differentiation

According to Porter’s theory there are two types of competitive advantage – differentiation and lower cost (O’Shaughnessy, 1996). Following the “cost-leadership”, EasyJet achieved a competitive advantage, transferring low-cost advantage to the consumer in the form of low price.

EasyJet has made various noticeable attempts to make their product unique from its low-cost competitors. According to McDaniel (2000), the feature of product differentiation acts as a competitive advantage and there would be no long-term survival unless it has one. EasyJet is known as the ‘trendsetter’ for differentiation within the market.

The no weight restriction by EasyJet for cabin baggage and flexible ticket scheme can create earlier flight standby’s highlights their ability to pursue constant innovation for its customers. It is an attractive prospect for the business passengers and stands out from the other low-cost airlines that maintain the limits.

Also, in order to minimize disruption, EasyJet has implemented 100% self check in for self-handling. The firm also deviated from the usual pricing methods used by other airlines by ‘inclusive pricing’ instead of prices that exclude taxes and booking charges.

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