Environmental and Competitive Analysis of Easyjet Essay

This report has been written in order to provide an environmental and competitive analysis of the low-cost airline industry sector from the position of Easyjet. It will give a brief history into Easyjet and the low-cost airline industry. It will analyse the internal strengths and weaknesses as well as the external threats and opportunities. Competitors will be analysed through the use of porters 5 forces model. Recommendations will be made for EasyJet’s marketing strategies for the next three years. Corporate History Easyjet was founded in 1995 by Stelios Haji-Ioannou who based the firm around the low-cost, no-frills model of the US flight operator ‘Southwest’. The concept of Easyjet is based on the fact that short flights within Europe are price elastic, meaning the lower the prices the more people will travel within Europe. The deregulation of the European airline industry in 1992 authorised any European airline to operate, fly and land anywhere within Europe. This allowed airlines to expand routes and operate within Europe with much higher precision. Easyjet was initially started from its ‘hanger’ headquarters at Luton airport with two Boeing 737-300’s offering flights from London Luton to Glasgow and Edinburgh at a price of  £29 each way. To date easyJet has now expanded into offering 125 routes from 39 major European airports using their fleet of 122 aeroplanes. EasyJet has also expanded into having large basis at not only Luton airport but also Liverpool, Geneva, and AmsterdamBack in 1999 easyJet gained free mass exposure to an audience of around 9 million viewers through ITV’s ‘fly on the wall’ documentary series ‘Airline’. The launch of easyjet.com in 1997 has become an integral part of the business model and has seen a huge change in the culture of booking travel tickets. Currently easyJet.com provides around 90% of bookings today and in 2001 hit ten million sales making it the second busiest travel website in the UK. Ryanair and easyJet are in fierce competition with each other as they are the two largest low-cost airlines operating within the UK. Since easyJet’s takeover of the low-cost airline â€Å"Go† in 2002 it has become Europe’s largest airline in this sector but still faces fierce competition. EasyJet Mission StatementA mission statement should be the ultimate goal of a firm and should filter down into every department of an organisation. 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 we will develop our people and establish lasting relationships with our suppliers. (http://easyjet.com/EN/About/index.html)EasyJet’s environmental code based on three pointsTo be environmentally efficient in the airTo be environmentally efficient on the groundTo lead in shaping a greener future for aviation, for example:- carbon offsetting- shaping future aircraft design- for example, the ecoJeteasyJet high efficiency = lower emissions = low faresSWOT AnalysisA SWOT analysis analyses the internal Strengths and Weaknesses of easyJet along with the external Threats and Opportunities. Strengths†¢Well known, respected and memorable brand name†¢Strong and well known leadership figure in Stelios: â€Å"No Bullshit† approach†¢Motivated workforce independently trained at the easyJet academy†¢Very effective advertising strategies developed to reinforce the easyJet brand along with mass exposure through ITV’s ‘Airport’†¢Good knowledge of the market and effective responses to competitors attempting to steal potential customers†¢Fly to a large number of main holiday destinations†¢Lower carbon emissions due to using newer fleet of aircraft†¢Cost reduction with the removal of travel agents†¢High passenger volume†¢Low operating costs†¢Diversification into other markets, car rental, internet cafes and hotels†¢Flat managerial hierarchy, thus reducing costs†¢Innovator with regards to online booking and ticket-less travelWeaknesses†¢Fly only within Europe and no current intentions to expand outside of the continent†¢Rely on computer bookings to such extent that business would be unable to operate with computer failure or virus attack. †¢No customer retention/relationship policy. †¢No points scheme to reward frequent flyers†¢Access to European airports allowed by the deregulation of the industry, which may vary in the future†¢Outsources many of its services to third parties which may be damaging to its reputation†¢Success of Easyjet makes it difficult and expensive to train staff quickly enough. Opportunities†¢Lower costs further†¢Increase fares†¢Introduction of more countries into the European Union has increased potential customers and flight destinations†¢Expand into new routes, outside of Europe, and long haul†¢Decrease turn around times†¢Improve aircraft utilisation†¢Vertical integration to eliminate outsourced functions of easyJet’s procedure†¢Gain first mover advantage with regards to using alternative ‘greener’ fuel cells†¢Introduction of points scheme to reward and retain frequent flyersThreats†¢Rising fuel prices †¢Introduction of a carbon emission tax or other environmental regulations†¢New emerging competition†¢Competitors undercutting prices or offering similar prices for a more efficient/better service†¢Aircraft maintenance problems†¢Terrorism reducing air travel numbers†¢Emerging alternative modes of transport†¢Reputation lost in event of well publicised incident†¢DelaysPEST AnalysisA PEST analysis analyses the Political, Economic, Socio-Cultural and Technological factor influencing the low-cost airline industry. Political Factors†¢Threat of terrorism upon airlines†¢Governments applying taxes upon carbon emissions†¢Introduction of more countries into the European unionEconomic Factors†¢Increasing fuel costs and other environmental restrictions†¢European Union regulations†¢Prospect of higher security and insurance costs due to the increased risk of terrorism. †¢Continuing growth of air travel through continuing globalisation†¢Introduction of the Euro single currency is likely to integrate Europe even moreSocio-Cultural Factors†¢Travel and holidays are becoming more and more typical for a large percent of the UK  population†¢Continuing growth of multi-national enterprises has caused business travel to become more common†¢Gaining customers from France and Germany may cause problems as these nations are still very reluctant in using credit cards over the phone and on the internetTechnological Factors†¢Advancements in e-commerce resulting in increased online competition†¢Improvements in engine technology will allow easyJet’s planes to run more efficiently and reduce emissions†¢Increases in fuel technology offering easyJet alternative fuel sources Porter’s 5 forces model Porter’s 5 forces model looks at: the threat of substitutes, the threat of new entrants, the power of suppliers, the power of buyers and the rivalry among existing firms to analyse the competitiveness within a certain industry. The threat of substitutes†¢Fairly low threat from other modes of transport as the cost and time advantage clearly separates the low cost airlines from the luxury and comfort offered from substitutes such as high speed train services. For example London to Glasgow takes 6 hours on a train and costs around  £80 whereas Easyjet offers the service in 1 hour only costing  £29. †¢Regarding travel into mainland Europe the distance is far too great for train, car and ferry travel to be a realistic worthwhile substitute. For example if a customer was to drive to the south of France for a short weekend break the travel would take too long for it to be realistic and practical trip . The threat of new entrants†¢Limited capacity at suitable airports means any new airline would find it hard to find suitable take off and landing slots. †¢Huge start up capital required for the purchase of aircraft†¢New entrants would be working as a ‘loss leader’ for a number of years due to the large initial expenses†¢The low cost airline industry within the UK is fairly mature but as easyJet were one of the initial firms into this industry they hold a strong position. However within the rest of Europe there are many holiday operators who are attempting to enter the low cost airline industry themselves. The power of suppliers †¢The price of fuel is directly related to the cost of oil which is ever increasing. Easyjet rely on being able to obtain fuel but have no control over the price. †¢Aircraft manufactures are extremely concentrated within the industry with Boeing and Airbus the two main manufactures. The dependence of spare parts from a certain manufactures could pose a risk. †¢The more Easyjet expands the more power it will hold over its suppliers through gaining ‘economies of scale’. The power of buyers†¢Buyer power within the airline industry, especially the low cost sector is especially strong as customers often shop around and try to find the best price. This factor has been extended through the introduction of many online flight search engines such as travelsupermarket.com and lastminute.com. †¢The Civil aviation authority (CAA) provides protection against(1) the consequences of travel organisers failure for people who buy package holidays, charter flights and discounted scheduled air tickets and(2) licences airlines and ensures compliance with requirements of European and UK legislation relating to financial resources, liability and insurance of airlines. †¢Customers experience no negative feature of switching supplier so are happy to do so. Rivalry among existing firms†¢Ryan Air, BMI baby, MyTravelite, Jet2 and Buzz are all competitors with the UK low cost airline industry but Ryan Air is the only one of these to have succeeded and shown a continuously yearly profit. †¢British Airways and other traditional flight operators flying from the UK are competitors but on a much lower scare as they are targeting different market segments†¢There are over one hundred European based low cost airlines,  many of them are very small but still act as competition for easyJet. Different Types of competitorsSimilar specific – same product, technology and target marketSimilar general – Same product area but serving different segmentsDifferent specific – Same need satisfied by very different meansDifferent general – Competing for discretionary spend(Brassington, pg 866)In relation to Easyjet the similar specific competitors are the other ‘no-frills’ low cost airlines, operating within Europe. The largest firm that fits this specification is Ryan Air thus they are easyJet’s prime competitor. Other ‘no-frills’ low cost airlines operating within the UK include Jet2, bmibaby and Flybe. The similar general competitors are other airlines that operate within Europe but which are targeting a different type of clientele. Within the UK the largest operators are British Airways and Virgin but both of these operators tend to concentrate on the more upper class expensive business flights. They are also not in direct competition with Easyjet as they offer flights all over the world and are not restricted to just within Europe. The different specific competitors are firms which offer travel into Europe by means other than air travel. This would be the channel tunnel operator Euro tunnel and the English channel ferry operators such as P&O, Brittany or Stena Line. These are not in direct competition as the main differentiation is that on both the channel tunnel and the ferry crossing people can take their cars onboard. It is also a much longer process so unless visiting the west coast of France weekend breaks would seem rather pointless as the duration of the ferry would be too long. Different general competitors could be firms offering holidays and trips within the UK where no air travel is needed at all. Different general competitors could also be firms supplying other luxury items that may be bought instead of a holiday, such as a new car. Competitor analysisAs the range of competition throughout these groups (above), is at varying intensities the similar specific and similar general groups will be broken down into four segments for ease of analysis. Competition will be analysed through a competitor analysis. Who are our competitors?Segment 1Ryanair: Easyjet’s direct competitorsSegment 2Other UK based low-cost airlines: Jet2, flybe, bmibaby,Segment 3Standard UK based airlines: British Airways, Virgin Atlantic, KLM and BMISegment 4European based low-cost airlines: There are over 100 European low cost airlines such as: Condor, g’wings, SkyEurope and Blu Express. AssumptionsIt is inevitable that the continuous growth in the low cost airline industry will begin to slow down as the industry is becomes saturated. It is believed that the current mass of operators will be whittled down to a handful of major airlines. A large number of the smaller low cost airlines that will unavoidably struggle to compete will be involved in take-overs allowing the bigger players in the industry to continue to grow. What are our competitor’s strengths and weaknesses?RyanAir Strengths†¢Well known and respected brand name†¢Low costs due to low airport charges†¢High internet booking ratio†¢High aircraft utilisation†¢Use single type of aircraft†¢Fast turn around times†¢High seat densityRyanAir Weaknesses†¢Recent reports of poor customer service†¢Negative press†¢Airports are often long distance from travellers end destinationUK based low cost airline Strengths†¢All have their own website for bookings and ticket-less travel†¢Some have strong financial backing†¢Fast turnaround time†¢Low operating costsUK based low cost airline Weaknesses†¢Relatively small in comparison to easyJet and RyanAir†¢Large advertising costs†¢Small network of routes†¢Competing in competitive industry resulting in many mergers and take-overs†¢Restricted to the use of certain airportsStandard UK based airlines Strengths†¢Res pected and well known brand names †¢Worldwide service†¢Strong financial backing†¢Respected standard of serviceStandard UK based airlines Weaknesses†¢Low aircraft utilisation (compared to easyJet)†¢High costs†¢High pricesEuropean low-cost airline Strengths†¢Use of  single currency (Euro) can reduce costs†¢Closer to emerging markets (Eastern Europe)†¢Low costs†¢Well know brand names, in their respected home countriesEuropean low-cost airline Weaknesses†¢Relatively small compared to easyJet and RyanAir†¢Virtually unknown in the UK†¢Competing in fierce industry†¢Restricted use of certain airportsWhat are our competitor’s objectives?RyanAir – â€Å"RyanAir’s objective is to firmly establish itself as Europe’s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fares service. RyanAir aims to offer low fares that generate increased passenger traffic while maintaining a continuous focus on cost-containment and operating efficiencies.† (Ryanair.com)UK based low cost airlines – Initially the UK based low cost airlines objectives are to survive in the industry by increasing their market share. The inevitable saturation of the market will cause many of the smaller low cost airlines to be merged or taken over by the larger players. In order to avoid this smaller low cost airlines need to differentiate themselves from the crowd or gain a unique selling point through lower costs, excellent customer services or exploiting new routes. Standard UK based airlines – Aim to continue their dominance of flights in and out of the UK by emphasising the quality of the service they provide. They also plan to reduce prices in order to shorten the gap between themselves and the low cost airlines. European bases low cost airlines – European low cost airlines need to survive in the market by increasing their market share. This could be established by increasing their network routes or branching into un-targeted countries within Europe. It is also plausible that mergers will occur within this sector to reduce the risk of failure. RecommendationsEasyJet can not avoid the increasing oil and petrol prices which is bound to effect the industry sooner rather than later. It may be recommended that easyJet start looking into using alternative renewable fuel sources. If easyJet can get hold of the technology to run their fleet of planes on a ‘greener’ fuel they may gain first mover advantage and capture large amounts of the competitions customers. Over the next three years it would be recommended that easyJet focus on ‘joining the dots’ of their European network rather than attempting long haul flights as this would be difficult and would carry a large initial risk. If easyJet could ‘join the dots’ in their European network it would fight off the competition from the emerging low cost airlines attempting to grow within the industry. Conclusion In conclusion easyJet have built a strong brand which has positioned them in an excellent spot within the low cost sector of the airline industry. With this sector of the industry predicted to grow, competition is likely to intensify even more but as easyJet has already built a strong brand and customer base it is unlikely they will be forced out of the market. EasyJet need to continue its advertising strategies, reinforcing its image and brand name to continue as one of the industries leading airlines. As the UK market is saturated and offers small or no growth opportunity, it would be logical for easyJet to focus on the expansion of their route networks within Eastern Europe. EasyJet should accomplish this through providing the routes themselves or merging with a competitor that already does. 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