EasyJet-A ‘No Frills’ Airline | |Report | |Md. Nazmul Hasan | | Executive Summary: EasyJet is the leading in UK and fourth largest airline in Europe. The Report is intended to identify following key points; • The competitive strategy EasyJet used in order to achieve current competitive position • Critically evaluate the competitive strategy EasyJet Used and Based on finding this report recommend few points in order to sustain their position in the competitive market Main findings: EasyJet Perused a cost leadership strategy as Porter (1980, 1985) suggested. In this study, the report found following strategy that EasyJet used in order to achieve cost leadership; • EasyJet Developed E-business Model that help them to achieve cost leadership • In order to cutting cost down they offer Ticketless Travel main operate paperless office • Their Simple Product and Service Design help them achieve the strategy Easy Jet’s do not offer free food and customer have to pay for additional service • Rapid turnaround time of Easy Jet’s plane helped them reduce cost • Maximum Utilization of their assets e.
g. Aircraft, provide opportunity to minimize cost • Finally, Efficient Use of Airport helps them achieving overall cost leadership in the market. This report has concluded by drawing following recommendation; • EasyJet should focus on Cost Cutting, at the same time they should develop new products and service • They should Operate through Major Airports EasyJet should offer More Customer Benefits and • Part of their Extension EasyJet should extend operation outside Europe Introduction Today’s dynamic markets and technologies have called into question the sustainability of competitive advantage. (Porter,1996). Porter (1996) argues that operational effectiveness, although necessary to superior performance, is not sufficient, because its techniques are easy to imitate. In contrast, the essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match.
Quinn (1980) stated that “A strategy is the pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole. In this report, It has been Identified how EasyJet a no frill Airline company used competitive strategy in order to gain sustainable competitive advantage in European Market, particularly in UK. Company’s Background EasyJet is the largest in UK and fourth biggest European Airline carrier based on Luton, UK. EasyJet started their Business in 1995, however, a rapid growth give them this current position.
Now, EasyJet flies to 122 airports in 29 countries and 500 routes. The “no frills” airline currently has 193 planes and aims to increase this to 220 by the end of September 2013. More than 50% of its customers are from outside UK, which makes EasyJet truly a pan-European airline. EasyJet recently revealed a near-trebling in annual pre-tax profits, surging to ? 154 million in the year to September 30, 2010 – an increase of ? 99. 3 million an increase of 11. 5%. EasyJet voted ‘best low cost airline’ by readers of Business Traveller many times.
Objective: The objective of this study has set to; • Find out the competitive strategy EasyJet used to achieve current position • Critically evaluate the strategy EasyJet deployed and • Make few recommendations to EasyJet based on finding Competitive advantage and Generic Strategy Competitive advantage: Competitive advantage is the essence of competitive strategy encompassing those capabilities, resources, relationships and decisions, which permit an organisation to capitalise on opportunities in the marketplace and to avoid threats to its desired position. Lengnick-Hall & Lengnick-Hall, 1990). Porter (1980) stated that a firm must choose and implement a so called ‘generic strategy’ to achieve competitive advantage. By generic strategies approaches are meant to outperform competitors in the industry. According to Porter (1980; 1985), there are three generic strategies that a company can undertake to attain competitive advantage: cost leadership, differentiation, and focus. [pic] Source 🙁 Porter, 1980) 1. Cost leadership: cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost.
The essential point is that the firm with the lowest costs has a clear and possibly sustainable competitive advantage. 2. Differentiation: Differentiation occurs when the products of an organisation meet the needs of some customers in the market place better than others. When the organisation is able to differentiate its products, it is able to charge a price that is higher than the average price in the market place. 3. Focus: A focused approach requires the firm to concentrate on a narrow, exclusive competitive segment (market niche), hoping to achieve a local rather than industry wide competitive advantage.
Stuck in the middle: Porter (1980) argues that failure to make a choice between cost leadership and differentiation essentially implies that the company is stuck in the middle. . A firm in this position will compete at a disadvantage because the cost leader, differentiators, or focuser will be better positioned to compete in any segment . . . Such a firm will be much less profitable than rivals achieving one of the generic strategies. However, Lynch (2006: 492) argued with Porter saying that, there is now useful empirical evidence that some companies do pursue differentiation and low-cost strategies at the same time.
They use their low costs to provide greater differentiation and then reinvest the profits to lower their costs even further. In relation to EasyJet, I would also argue with Porter that, EasyJet has adopted cost leadership and differentiation strategy together and achieved a competitive advantages, their brand is a great differentiator now in Europe and according to (Aaker, 2003) successful brand can be a differentiator. Moreover, several commentators now reject this aspect of the analysis. They point to several empirical examples of successful firms that have adopted more than one generic strategy. Kay, 1993; Stopford and Baden-Fuller, 1992 and Miller, 1992) Main Finding of EasyJet Competitive Strategy Strategy: Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectation (Johnson et al, 2008: 3) The European airline market can be broadly divided into two main market segments– business customers and leisure/ domestic customers. Roughly 80 per cent of all customers fall into the latter category. Lynch, 2006:61). At the beginning, 15 years ago when EasyJet started their Journey focused to the domestic customers who are go to holiday and adopted ground breaking ‘No frill’ or ‘cost leadership strategy’. Johnson et al (2008) stated that Cost reduction strategy should be implemented in a way that competitor find it hard to imitate, this is requires a mindset where innovation in cost reduction is regarded as essential to survival. Here below is the main finding of Easy Jet’s cost leadership strategy discussed; Develop E-business Model: Understanding and adopting business models are critical endeavours that enable the business to develop competitive advantage and add value to products and services ( Jackson et al, 2003). EasyJet choose E-Business Model for their Business, that’s means most of their activities like selling tickets is done by internet. EasyJet was one of the first airlines to embrace the opportunity of the Internet when it sold its first seat online in April 1998. EasyJet has reengineered the traditional sales and distribution systems and eliminate intermediaries, such as travel agents.
Nearly all tickets are being sold through online, making EasyJet one of Europe’s biggest Internet retailers. ? Ticketless Travel- paperless office: Because of Internet the company operates a paperless office policy and non-ticket flights. Simply by ringing the company’s telephone number or using the company’s internet site customers can book a seat immediately by credit card. Although a confirmation of the booking will be sent if requested, customers only have to produce identification at the airport and quote the booking reference number to be given a boarding pass for their flight.
That’s one of the strategies EasyJet Used to reduce cost. ? Simple Product and Service Design: To EasyJet travel is only travel like a train or Bus Journey. Product is very simple, customer pay only for point to point journey. Connecting flights are not part of easy Jet’s product offering. The airline only carries passengers to and from single destinations. Customer can check in baggage and luggage in online and reach airport only 15minuates before plane departure. ? No free food and Paid service: EasyJet like other Low cost Airline do not offer food, food is not including the product they offer.
Customers have to pay extra money to get any drink. They don’t provide free newspaper or magazine. Customers are allowed baggage with them on board but for extra weight luggage they have to pay extra like ? 15 for 3kg. ? Rapid turnaround Time: EasyJet product do not include ‘sit reservation’, first come first boarding basis customer can choose their own sit. This strategy effectively consumes less time of plane in airport and that reduce turnarounds time and airport rental cost. As a result within 30 minute or less EasyJet plane can be ready to next journey. Maximize Utilization of Assets: Low cost Airline fly their aircraft as much as possible by minimizing unproductive time. They achieve this by avoiding congestion that keeps aircraft on the ground. (Neufville, 2006). EasyJet usually fly 800 flights a day and during festival they had manage to operate 1000 flights each day. EasyJet plan has more seats on the plane than other traditional airplane and because they offer less expensive facilities, they use the space more intensely. ? Efficient Use of Airport: Low cost carriers prefer to avoid congested airports because this strategy lets them achieve extraordinarily high aircraft productivity. ibid). EasyJet mainly use secondary Airport in metropolitan area rather mega city Airport. In London they operates from Luton, Liverpool, Stanstead etc. Those are far from Mega city like London and Manchester. Porter (1980) defines cost leadership as the low cost producer in its industry who must find and exploit all source of cost advantage. Easy Jet’s low fare airline image is supported by integrating all the value creating elements. It’s clearly shows that EasyJet adopted Exploitation of the value chain strategy to support and reinforce its low-fare image and create a coherent market position.
Critical Evaluation of EasyJet Competitive strategy It has been found that EasyJet adopted ‘cost leadership’ strategy. Now it is time to have a critical look on the competitive advantage they achieve thought the Strategy Utilization. In following section the discussion is focused on the advantages and disadvantages of ‘cost leadership’ strategy in relation to EasyJet. Advantages: ? Achieve Economies of scale: Perusing a cost leadership strategy allows a firm to get overall economies of scale. Economies of scale are the extra cost savings that occur when higher volume production allows unit costs to be reduced. Lynch, 2006:514). EasyJet has made a clear decision to drive for scale which is the key to its aggressive pricing policy. The corporate report of EasyJet shows, in year ending 2010 the Passenger numbers went up to 48. 8 million. So to say, EasyJet got overall economies of scale in term of selling ticket. ? Reduced Bargaining Power of supplier: As high volume production generated by low price will lead to hold large accounts with the supplier (Lomax and Raman, 2008). Supplier of EasyJet has little bargain power over them. ? Reduced Bargaining Power of Customer: According to Lynch (2006:61) low rice itself is not a sustainable competitive advantage among budget airlines unless they can offer lower costs than competitors. EasyJet offer lowest price with few extra service than competitive Ryan air. As a result, customers have a very little room to bargain with EasyJet because they are the lowest selling Airline in the market. ? Competitive advantage through Competitive Rivalry: Competitive advantage is achieves by providing customers with what they want, or need, better or more effectively that competitors (Johnson et al, 2008: 224).
EasyJet got competitive advantages over its rival airline Ryan Air by featuring better service offered to customer. For example, unlike Ryan air, EasyJet took a deliberate policy of flying to some main airports, even if the landing fees are higher. The aim was to attract business travellers. (Lynch, 2006:62). ? Reduced Competition: In order to sustained competitive advantage firm requires the driving down of cost because competitors will be trying to reduce their cost to underprice their rivals while offering similar value. Johnson et al, 2008:99), EasyJet got this advantage from beginning, at some point EasyJet bought out some competitor like ‘Go’ a company set up by British airways and ‘GB Airways’ from the Bland Group. From the above discussion, It can be conclude that EasyJet got competitive advantages by effectively deploying Generic Cost Cutting strategy that lead them cost leader in the Industry. However, there are some drawbacks too in perusing cost leadership strategy, those are discussed below; Disadvantages Open door for even lower cost producer: This is one of the most disadvantages of perusing cost leadership, that even lower cost producer can enter into the market. (Lomax and Raman, 2008). Hendry (1990) argued that if the option is to seek low-cost leadership, then how can more than one company be the low-cost leader? Before EasyJet appeared Rain Air was the market leader, so there is still possibility for some other airline come into the market or existing Airline pursue cost cutting strategy and offer lower price than EasyJet. Positioning in Risk: Hendry (1990) stated that in a cost leadership environment competitors also have the option to reduce their costs; in the long term it is difficult for a company like EasyJet to maintain its competitive advantage without risk. He also argued that, permanent price reductions by the cost leader like EasyJet may have a damaging impact on the market positioning of its product or service that will limit its usefulness. ? Reduction on Flexibility: This is another problem of cost leadership strategy mention by Lomax and Raman (2008).
They argue that low cost mean an investment in production capabilities and hence the company is likely to become fixed in one method of servicing the market. Conclusion EasyJet the largest Airline in UK has achieved sustainable competitive advantages by pursuing Porter’s generic cost leadership strategy. To do so, they took several measures like develop E-Business model, run a paper free office and sell a ticket less service. Their operation expertise and ability to maximum utilisation of their assets help them achieve cost leadership strategy.
By pursuing this strategy EasyJet go some advantages like, they achieve Economies of scale in the market, they are successful to reduced bargaining power of customer, supplier, and reduced competition and also EasyJet achieved Competitive advantage through Competitive Rivalry with competitors. However, there are few disadvantages of using cost cutting strategy for long time that EasyJet have to deal with caution, such as it Opens door for even lower cost producer that might risking EasyJet Positioning for log run and also cost leadership strategy reduce flexibility by sticking EasyJet into one particular market segment.
In order to overcome those challenge and to maintain a sustainable competitive position, this report has drawn few recommendation those are discussed later. Recommendation From the above findings and discussion, this report recommends followings; ? Keep focus on Cost Cutting and new product development: Although there are some drawbacks in cost cutting strategy, I would say EasyJet should continue this strategy and always to focus how to reduce cost. Because in an economic downturn and competitive environment, Customers are looks for comparatively low price, save money but at the same time do not want to miss holiday.
To save from risking position for long term, EasyJet should develop new product focusing new segments of customer and offer possible best service than competitors. ? Operate through Major Airport: EasyJet should extend Operation into more Major Airport those are attractive to the Business customer. If EasyJet adopt this strategy that might be the top Airline in Europe within next 5 to 1o years. ? Should offer More Customer Benefits: As of Low cost strategy, customer service cannot be compromise because they are the heart of EasyJet Success.
Company should offer more benefit to customer like loyalty discount, special offer on festival, special discount if any customer refer others, group travel benefits, family package for less etc. EasyJet should be more flexible in term of ticketing, should give more flexibility to change ticket, withdraw or if customer wants refund. ? Extension operation outside Europe: As it well clear, the Airline Market is becoming more competitive in Europe, before market becomes saturated, EasyJet should expand their operation outside Europe.
They should be more presence on other Middle Eastern country like Dubai and other UAE countries. Reference: • Aaker, David, ‘The Power of the Branded Differentiator’, MIT Sloan Management Review, October 15,2003, available at http://sloanreview. mit. edu/the-magazine/articles/2003/fall/45116/the-power-of-the-branded-differentiator/ • Jackson, P. , Harris, L. and. Eckersley, P. , (2003), E-Business Fundamentals, Routledge, New York. • Hendry, J (1990) ‘The problem with Porter’s generic strategies’, European Management Journal, Dec, pp443–50. • Johnson, G. , Scholes, K.
And Whittington, R, Exploring Corporate Strategy,8th Edition, Pearson Education Ltd, 2008 • Kay, J (1993) Foundations of Corporate Success, Oxford University Press, Oxford, Ch1 • Lengnick-Hall, C. A. and Lengnick-Hall, M. L. (1990), Interactive Human Resource Management and Strategic Planning, in McGuire, D. & Cross, C. (2003): “Examining the Matching Process – Human Resource Management and Competitive Strategies: A Study of the Irish Retail Sector”, Presented at the 7th Conference on International Human Resource Management, University of Limerick, June 4-6 2003 Lomax, Wendy and Raman, Adam, Analysis and Evaluation, Butterworth-Heinemann Elsevier, 2008 • Lynch, Richard L. , (2006), Corporate strategy, 4th ed. Pearson Education Limited, England • Millar, D. (1992) “The Generic Strategy Trap”, Journal of Business Strategy vol 13, no 1, Jan-Feb, 1992 • Neufville, R. , 2006, “Accommodating Low Cost Airlines at Main Airports”, Massachusetts Institute of Technology Available at http://ardent. mit. edu/airports/ASP_papers/ALLC%20international%20airport%20review%20draft. pdf (Accessed date: 16-01-11) • Ibid • Porter, Michael E. 1980), Competitive Strategy, the Free Press • Porter, M. E. 1985. ‘Competitive Advantage’, New York: The Free Press. • Porter, Michael E. (1996), What is strategy? , Harvard Business Review, Nov/Dec 1996, vol. 74 no 6, pp61-78 • Quinn, James B. Strategies for Change: Logical Incrementalism. Homewood, IL: Richard D. Irwin, 1980, p. 7. 20. • Stopford, J and Baden-Fuller, C (1992) Rejuvenating the Mature Business, Routledge, London. • http://www. easyjet. com/asp/en/book/index. asp? lang=EN$WT. srch=1 • http://corporate. easyjet. com/about-easyjet/our-journey/Overview. aspx
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