Easyjet

Introduction and History

A successful example of a European no frills airline is easyJet. Stelios Haji-Ioannou (Greek) founded the company in 1995. It is based on the low-cost, no-frills model of the US carrier Southwest. The concept of easyJet is based on the belief that demands for short-haul air transport is price elastic. That means, if prices for flights are being reduced, more people will fly. Traditionally airline concepts are based on the assumption that airline traffic grows in line with the economy and that cutting prices will only lead to a decrease in revenues. With the introduction of the �no-nonsense’ concept to the European market, after its deregulation in 1992, easyJet has proven this theory wrong and goes from strength to strength by actually increasing the size of the market and more recently by taking away passengers from the majors (see www.easyjet.com for passenger figures, financial data and employee statistics). Today, it offers 125 routes from 39 European Airports (see www.easyjet.com for route launch dates), with Luton, Liverpool, Geneva, Amsterdam as base airports and is operating 72 aircrafts (November 2003).

November 1995: easyJet starts flights from Luton to Glasgow and Edinburgh with to leased Boeing 737-300 with a capacity of 148 seats at a price of Ð'Ј29 one way. Seats are being sold over telephone reservation system only. In 1996 easyJet takes delivery of its first wholly owned aircraft and goes international with first services to Amsterdam from Luton. One year later easyJet launches its website, easyjet.com which will from 1998 onwards form an integral part of the business concept (and which provides for some 90% of the bookings today ). In August 2002 easyJet expands its fleet and routes by acquiring British Airways’ low-cost subsidiary Go. In October 2002 the airline signs a deal to purchase 120 Airbus, which will facilitate the airline’s ongoing growth strategy. Up until now, one of the cornerstones of the easyJet’s low-cost model has been to operate a single aircraft type fleet вЂ" which so far has been the Boeing 737 series вЂ" because uniformity means efficiencies in training, maintenance and operating costs. However, easyJet’s new deal with Airbus is being viewed by the company as ”stunning” as the additional costs, which incur through the new type of aircraft are “far outweighed by the financial benefits of this deal”.

easyJet argues that both Boeing and Airbus aircraft have broadly similar characteristics but that a wider aisle on A319 will make it quicker to embark and disembark, that it has an extra seat on board (150 vs. 149) and that overall the A319 will lower costs by about

10% compared to the current mix of aircraft, which will contribute to lower ticket fares.

(See appendix 1 for Stelios Haji-Iannou’s other easyGroup enterprises).

2. The Mission Statement of easyJet

To provide our customers with safe, good value, point-to-point air services. To effect and to offer a consistent and reliable 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 (see www.easyjet.com)

The basis of an organisation’s mission statement should answer the question “What business is the company in?” easyJet is doing this by stating that it provides вЂ?point-to-point air services’ to its customers. That clearly underlines that easyJet is not in the people or food business, neither in the service business as such, but in the mass-transportation business, and as such its model is based on cost efficiency of the mass-transportation business. Moreover, it reflects several decisions about what kind of air service easyJet wants to provide. Evidently, its focus is on вЂ?European routes’, targeting business and leisure travellers alike. Furthermore, it aims to offer вЂ?safe, good value’ transportation. easyJet’s mission statement also gives information on the вЂ?How to get there?’ by putting emphasis on its вЂ?people’ and вЂ?suppliers’. What is missing from the statement is the importance of the customer’s point of view, which could be expressed by saying, for instance, вЂ?we want to be recognised as….’. Also, as the mission statement is the bedrock for the marketing plan it should be more quantifiable, as to how much market share easyJet aims to gain in the future, for example.

3. Competitive Analysis

In order to analyse the airline industry in detail, it is useful to apply Porters five competitive forces.

The threat of substitutes

• Minimal threat from other modes of transport like train and car on domestic routes. Usually the time and cost advantage of the low-cost carriers far outweigh the increased comfort and flexibility of trains or cars (e.g. on the route Luton/London to Glasgow a train takes around 6 hours and costs around Ð'Ј80 while a easyJet plane takes just one hour and costs around Ð'Ј29).

• On international routes distances are usually too great for car or train to be an alternative to air travel, expect maybe from London to Paris, which can be reached by Euro Star.

The threat of new entrants

• High capital requirements negate threat to some extent. easyJet was started with a loan of Ð'Ј5 million, with 2 leased aircraft, but required a Ð'Ј50million investment raised by debt and equity in year two to speed expansion and buy 4 new planes.

• The UK low-cost market is quite mature in comparison to the rest of Europe and easyJet, as the biggest operator has quite a comfortable position. However, expansion into new European markets might prove more difficult as established; cash strong holiday firms like TUI are setting up their own low-cost operations (see information about Hapag Lloyd Express, www.hlx.com)

• Lack of take-off and landing slots makes it difficult for new carriers to find suitable airports.

• Loss leader is required in order to join the low cost market.

The power of suppliers

• The

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