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Marketing strategies for the airline EasyJet

This report has been conducted in order to clarify the marketing strategies implemented by the airline easyJet in order to gain a competitive edge over its rivals in the market for low-cost aviation. We researched in depth the European budget airline industry and looked at the various strategies used by easyJet, along with its main rivals. The main findings from our study suggest that easyJet has been very successful in its approach to its marketing campaigns, as it has built and sustained a strong image over the course of its operations at the top of the airline industry. The company however, must continually seek out new strategies and ideas as the industry becomes increasingly more competitive.

Introduction

EasyJet was established in 1995 by Stelios Haji-loannou and operates as a no ‘frills’ low-cost airline, aiming to under-cut its rivals, such as, BMI Baby, Ryanair, and FlyBe. They all operate on a similar business model to that of the highly successful USA southwest airlines. The competitive advantage of budget airlines is maintained by achieving low operating costs, increasing revenue and using new economy technologies such as the Internet to sell their product.

The low-cost airline sector currently has an 8.65% share of the total airline market with easyJet attaining 3.76% (Belfast Telegraph, 2004). EasyJet achieved a profit of £62.2m in 2004 and announced major expansions into Central/Eastern Europe in an effort to apply their winning formula to a wider proportion of the airline industry (EasyJet, Company Overview 2005).

The project will consult easyJets marketing and competitive environment to ascertain the position they hold in the industry, thereby constructing an analysis of the various strategies easyJet implements to achieve a competitive edge over their rivals.

EasyJet’s Marketing and Competitive Environment

EasyJet’s marketing environment will involve a PEST analysis, highlighting major influences upon the low cost airline industry. The competitive environment analysis will signify as Sanderson and Luffman confirms, “current strategies of competitors, the potential of new competition to enter the market, the behaviour of suppliers and buyers, and the availability of substitute products” (2001, p.20). Introduced in the form of a SWOT analysis.

Marketing Environment

Political

In 1990 the European deregulation of commercial aviation coincided with the expansion of the low cost airline industry. The low cost carriers in the industry were able to take advantage of the relaxed laws and expand their operations.

Economic

Mercer Management Consulting (2002) reported that the low cost airline market conforms to the criteria of three components (Figure 1). Firstly, it provides a simple product consisting of no seat reservation, free seating, and adequate in flight service. They are a genuine no frills airline with a simple product offered to the market. Webster (2004) noted easyJets ability to maintain a high degree of customer focus through a new, user friendly website with an improved booking process.

Figure 1: Source “Impact of Low Cost Airline” Mercer Management Consultancy 2002

Secondly, it is apparent that the low cost airline market is characterised by: mergers and acquisitions; the expansion of existing low cost airlines and finally, market exits as a result of bankruptcy e.g. Debonair. Furthermore, the low cost carriers operate short haul, point to point traffic with short frequencies, pursue aggressive marketing campaigns and deal with secondary airports. EasyJet, however, has differentiated in this respect by dealing with major hub airports e.g. Gatwick. Finally, the industry operates a low cost ethos, which is maintained by lean sales, high productivity of resources, low maintenance costs and low wages.

The price of oil which is currently 50% more expensive than a year ago is a cause of concern for the low cost airline industry. Chief Executive of easyJet Ray Webster said: "The price of fuel remains high and volatile. In spite of this, operating margins for the period are expected to be broadly in line with last year." The problem of high oil prices may be a cause for concern for smaller carriers who are not able to maintain low cost bases.

Social

The low cost carriers position their product to leisure travellers and non business travellers (See Figure 2), however easyJet has differentiated by targeting the business and leisure segments. This behavioural segmentation creates a more dynamic edge in comparison to their competitors who solely focus on leisure travel. Thus, easyJet must ensure that its strategy is tailored to a wider market. Walton (2005) confirmed that easyJet was presented as a European low cost airline with a current reading of 26 million passengers in 14 key countries. It has 190 routes to 58 airports and 163 million people live within one hour of easyJet’s airports.

Figure 2: Source “Low Cost Airlines Gaining Momentum in Europe” Schneiderbauer, D. & Fainsilber, O. (2000)

Technological

Low cost carriers have the ability to maintain a high degree of customer focus through user-friendly websites with improved booking processes. These websites have the capability of charging bookings with greater ease and utilising an easy to use fare finder to obtain the cheapest fares. Selling tickets via the technological medium of websites and hence by having no travel agents, they avoid paying agency commissions.

Competitive Environment

Strengths

EasyJets core strengths according to Morgan Stanley relate to their ability to provide a simple fare structure with good value for money and maintain low unit costs. Furthermore, they have developed a strong brand through serving the Swiss and UK market and through strong corporate culture, whilst developing a broad multi base network.

Weaknesses

EasyJet’s weaknesses have become apparent in the fiscal year of 2003, whereby crew costs rose by 68% to £97 million which accounted for 13% of operating costs. Additionally, advertising costs also increased by 43% to £28 million, accounting for 3.7% of total costs and crucially, easyJet’s airport charges had surged to 103% to a staggering £149 million.

Opportunities

The BBC (2005) highlighted easyJet’s acknowledgement of the opportunities that can become apparent as a results of the fierce competition from Ryanair. The new demand from business customers has forced the need for the provision of certain facilities such as airport lounges for the frequent flyer; one way of looking at the practicalities of developing better services. Meeting the demands of lifestyle changes is crucial and with the ever growing new routes such as to Rome and Berlin, this will help retain some competitive edge.

Threats

Some of the main competitors are Ryanair, Bmibaby and FlyBe. Ryanair were initially founded in 1985 and then re-launched in 1990-91. Their aim was to offer fares 50% or lower than those offered by the big flag airlines, specifically as a 'low-fares, no-frills' operation. Mintel (2003) reported that Ryanair generated £190 million profit before tax. They had acquired other rivals such as KLM and Buzz, hence in the 2004 3rd quarter results they stood in first position for passenger growth, with the lowest fares and lowest costs in Europe. It was apparent that recently, they have continued to maintain their position at the top of the industry.

Ryanair have responded aggressively to easyJet’s home markets. They have lowered their prices in the newest markets such as Knock, Cork and Shannon. They are building up pressure in Liverpool and Luton with further rises in operating flights and with the development of new competitors such as Jet2 and Monarch, easyJet are facing potentially turbulent times.

EasyJet’s Marketing Strategies to Achieve Competitive Advantage

An analysis of easyJets marketing strategies, namely; product differentiation, mergers and acquisitions, location, the website, advertising and marketing campaigns and the “Airline” TV documentary will now be performed to depict how easyJet gains a competitive advantage in the low cost airline industry.

The consumer matrix (Bowman and Faulkner, 1997) details perceptions that customers have with regard to the product or service offered to them and the prices charged. Applying this to easyJet we can ‘guestimate’ the general perception generated by the market. EasyJet’s flights offer the consumer value for money as the benefits gained from the transaction relative to price appear favourable in comparison to their competitors.

Perceived price

Hi

Hi

Perceived use value

Lo

Lo

West

Heterogeneous views, with regard to the demands for the service, indicate that, ‘one service meets all demands’ may lead to mistakes in the competitive strategy. Within the airline segment there will be consumers who are price sensitive and thus demand the ‘low-cost’ alternative. Hence, easyJet are following the customer matrix price strategy in order to attain sustainable competitive advantage (maintaining benefit whilst reducing price):

Location

One of easyJet’s successful marketing strategies implemented is the location element of the destinations to which it runs flights. In order to gain a competitive advantage over its competitors, easyJet flies to all the main business and leisure airports in Europe so that customers do not then have to then transfer a long distance to their final destination.

Other firms in the industry such as Ryanair for example, although attempt to compete at a price level with easyJet, do not operate nearly as efficient a route map. Arguably such rivals can only offer the ‘low-cost’ advantage through flying to more remote destinations. EasyJet operate to the highest level of efficiency at the airports themselves with rapid turnaround times and can thus fully utilise their fleet system, whilst running extra flights for passengers. EasyJet has greatly expanded its ‘hub’ airports, to now having bases in all parts of the UK and more recently, integration into European airports.

Advertising and Marketing Campaigns

Through utilising to the full the marketing channels available, easyJet has been able to build and sustain a successful corporate image from the birth of the company 10 years ago. EasyJet advertisements can be seen everywhere, in cities all over Europe from giant billboards to public transport buses. The company has made sure that wherever there are potential customers for the airline, their presence is made known through advertising offers on flight costs, launch of new routes or merely to express why one should chose to fly with easyJet.

In a highly competitive market, easyJet’s marketing team has had to sustain a strong advertising strategy and look to implement new marketing ideas so that they are not losing out to other airlines. In more recent years, they have taken much greater advantage of online advertising and with the increasing personal use of the Internet, this has considerably enhanced easyJet’s consumer reach. “Although national media is an available marketing option, easyJet adopt a regionalised European approach to advertising” (Dixon, 2005). Much of easyJet’s marketing campaigns have concentrated on making an impact at a local level and has proven to be a more personalised strategy, which has enabled them to adopt their methods of marketing to the regional customers they are addressing.

‘Airline’ TV documentary series

A marketing strategy implemented by easyJet which has contributed to their success, was the ‘fly on the wall’ documentary series “Airline” broadcasted in January 1999. It was aired across the nation on prime time TV channels and was nominated for programme of the year in 2001 (BBC, 2005).

Although the programme depicted easyJet in a bad light in certain instances, for example, refusal to allow passenger’s to board the planes, it acted as positive publicity for easyJet. EasyJet promoted themselves as a cheap and reliable airline, in a market where there were previously few competitors going for the low cost image. This clearly shows that according to Miles and Snow’s theory (1978), easyJet were acting as a ‘prospector’, as they were the first movers in the market place to try and unlock the ‘low cost airline’ niche market.

Website

EasyJet’s website acts as a main distribution channel for e-ticketing with all flight information also accessible to customers online, thus reducing material costs. EasyJet’s website can be viewed in 15 languages in attempt to make their flights accessible to a wider audience. Sophisticated yield management systems have been implemented in order to maximise seat revenue which is seen as the largest area of competitive advantage (Jobber, 2004). The use of new economy technologies has improved flows of information, allowing easyJet to update prices immediately, thus maximising flight profitability.

Porter’s theory in relation to easyJet clarifies that they are adopting a cost leadership strategy which is portrayed to customers via the cheap fares offered online. However, although technology provides advantages in terms of cost reductions for easyJet, its competitors have followed suit and have established websites of their own, offering consumers extremely competitive rates in comparison to easyJet. Consequently, easyJet needs to constantly adapt it strategies in order to retain a competitive advantage.

Product Differentiation

Porter’s theory details “two basic types of competitive advantage: lower cost and differentiation” (O’Shaughnessy, 1996). EasyJet achieves a competitive advantage by following the “cost-leadership” approach, transferring this low-cost advantage to the consumer in the form of low price.

EasyJet have made notable attempts to make their product stand out from its low-cost airline competitors. McDaniel (2000) argues that a product’s differentiating feature acts as a competitive advantage and there will be no long-term survival unless it has one. Also, it is evident that easyJet is generally the “trend setter” for differentiation in its market.

CNN reports that EasyJet has recently relaxed hand luggage restrictions which are 40% bigger than the current allowance (EasyJet, 2004). EasyJet’s no weight restriction for cabin baggage and flexible ticket scheme which can create earlier flight standby’s highlights their ability to pursue consistent innovation for their customers. This may be an attractive prospect for business passengers and differs from other low-cost airlines, which maintain limits.

Furthermore, they have implemented a 100% self check in with plans for self-handling to minimise disruption. EasyJet has also deviated from the typical pricing methods used by other airlines by implementing “inclusive pricing” instead of prices that exclude booking charges and taxes. This decision came after the Air Transport Users Council had “highlighted consumers' dislike of airlines trying to con them with low fares that do not exist, by offering a low fare up front, only to add a host of spurious taxes and charges later on in the booking process” (Internet Travel News, 2005).

Mergers and Acquisitions

Acquisition of Swiss Charter Operation TEA Basel AG

In March 1998, easyJet bought 40% of a Swiss charter operation, TEA Basel AG, based in Basel for a consideration of three million Swiss francs. The airline was later renamed 'easyJet Switzerland' and moved to Geneva. This acquisition has given easyJet access to the Swiss market which is vital in terms of securing sales during the key winter skiing season.

EasyJet ‘Go’ Merger

On Thursday 1 August 2002, easyJet and Go completed a merger deal worth £374 million. This represented a form of horizontal integration and indicated easyJet’s desire to increase its market share. By December 2002 easyJet had reached two further important milestones in its merger with Go by announcing a single Air Operator Certificate (AOC), and the launch of a unified sales channel. The integration costs incurred amounted to £7.9 million, approximately £3 million less than forecasted (EasyJet Financial report 2002/2003). According to Stelios, the deal "contributed significantly to our objective to become Europe's leading low-cost airline, by strengthening our position in important target markets"(Financial Times, 2004). The Go acquisition was a major step away from easyJet's own strategy of growing organically. By operating almost as a monopolist in the low fare airline market, the merger gave easyJet the option to raise prices and restrict supply in order to create supernormal profits. Additionally, the merging firms were able to exploit economies of scale to reduce cost. The purchase of Go has given easyJet a major presence at Stanstead, home of both Ryanair and KLM's buzz. Prior to the acquisition, their networks barely competed and they had rarely even flown out of the same airport. The following data was compiled a year after the deal completion which illustrates the success of the merger between EasyJet and Go:

Data (EasyJet, 2002)

Profit before tax up 78% t £71.6m (2001:£40.1m)

Revenues up 55% to £552m(2001:£357m)

Passenger numbers up 60% to 11.4m(2001:7.1m)

Cost per Available Seat Kilometre down 1.3% to 4.46pence(2001:4.52pence)

Average net fare down 4% to £46(2001:£48)

Profit before tax, goodwill and exceptionals up 86% to £81.8m (2001:44.1m)

Airbus 319 Contract

On October 14th 2002, easyJet plc announced that it had selected Airbus as the preferred supplier for 120 A319 aircraft, with options with price protection on a further 120 A319s. EasyJet exploited the weak aviation market post September 11th to secure a deal lower than the £4bn listed price of the planes.

easyJet estimates substantial savings, compared to buying additional B737-700s.

easyJet estimates the A319 would achieve an approximate 10% improvement per aircraft over the existing Boeing 737 operating cost base (measured per available seat kilometre)

Airbus to provide extensive support so that the introduction of the A319 to be no more expensive than the B737-700 in the first two years

Airbus backed maintenance program means cost not higher than Boeing

Airbus assistance reduces residual value risk on remaining 10 owned B737-300s.

(Morgan Stanley Equity Research,2004)

Airbuses willingness to support the costs of introducing the new aircraft type to the fleet far outweighed the costs of the complexity of running a dual fleet. The A319 provides a number of advantages for easyJet. It offers passengers more comfort, safety, travel quality, higher reliability and the opportunity for lower fares with its unbeatable operating economics. Additionally, the sizing of the A320 family allows easyJet to graduate up to the 180 seat A320 and even 220 seat A321, if they choose to do so in the future.

Mathur and Kanyon (2001) proposed a matrix (see below) that identifies and classifies types of competitive positioning which creates differentiation. EasyJet, in terms of support differentiation, provide a differentiated service by offering many prime routes to major airports such as recent expansions at Gatwick airport (and other European airports) which shifts the focus to high yield traffic while abandoning economic and operative advantages of secondary aiports. In terms of merchandise differentiaton, easyJet provide variables such as self check in kiosks, ease of use for the websites and booking of tickets, unrestricted baggages restraints; such features of differentiation helps the consumers to make repeat purchasers with easyJet. Furthermore, easyJet use high quality Airbus A319’s which provides customers with a range of benefits as listed above.

Mathur and Keynon’s Differentiation Matrix:

Merchandise

D

System

Product

U

Service

Commodity

D

U

Support

Key D = Differentiated, U = Undifferentiated

Conclusion

The purpose of this report has been to assess how EasyJet has utilised successful marketing strategies through the various channels available, in order to establish and maintain a dominating position in the low-cost airline industry. “One of the great business success stories of the past five years has been the launch of the easyJet airline company” (Dixon, 2000). To facilitate our analysis of this objective, we not only researched EasyJet and its marketing campaigns adopted over the years, but also identified the main strategies used by the other leading competitors.

EasyJet has constantly tried to identify itself to its consumer base as the best form of budget travel in Europe. The company recognised the demand for this form of travel and its marketing strategies have been primarily geared around providing more efficient, low-cost flights, whilst maintaining as a high a quality of service as possible. Through their clear, effective website, they have strived to make it increasingly easy for customers to deal with the company, whilst strategically positioning their advertising to be directed at the market served. Policies for expansion have been the driving force behind easyJet’s significant growth and have enabled them to eliminate key rivals from the industry.

However, with the emergence of new, strong competitors in the industry and the increasing demand for low-cost travel, it is evident from the report that easyJet must remain innovative in its marketing and allocate sufficient resources to securing a long-term position as the market leader.

Recommendations

The low-cost airline industry is reaching maturity. Miles and Snow’s theory of the “Four Business Strategies” would suggest easyJet should move towards being an “Analyzer” from a “Prospector”. This therefore takes into account that easyJet needs to concentrate on maintaining its established market leadership.

With regards to enhancing their market power both long and short-term, easyJet should look to move into newer mediums for advertising, primarily using television broadcasting.

EasyJet need to further consider developing the levels of efficiency and motivation within their wide employee base and by fomenting such other dimensions of this business, will help maintain another key element which still, other rivals fail to recognise.

Word Count: 3,195

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