PEST and SWOT analysis for EasyJet Airlines
Since 1995, EasyJet Airline Company Limited is a great and successful example of a European airline. The chairman Stelios Haji-loannou (Greek) founded the company this year. It is based on the US carrier SouthWest, and is low cost, no-frills model.
Stelios hired an expensive brand consultancy and offered them £100,000 to come up with one. A month later, the consultants turned up at EasyLand with magazine clippings attached to pieces of cardboard. Unimpressed by their efforts, Stelios promptly fired them. In the end, he came up with the airline's name himself. The word 'easy' kept on coming into his head, so he decided to christen the airline EasyJet. For the company logo he went to a small local design consultancy, White Knight, which gave the airline its famous shade of orange, know as Pantone 021C, used by no other airline at the time or since. The design consultancy then created a simple set of graphics for the airline's first advertising campaign.
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The whole concept of EasyJet was novel, it was based on believe that demands for short-haul air transport is price elastic. That means, if prices for flights are being decreased, more people can be fly.
In 1995, EasyJet starts fights from Luton to Glasgow and Edinburgh with to leased Boeing 737-300 with a capacity of 148 seats at a price of only £29 for one way ticket. Glasgow and Edinburgh are the first routes. The logic was simple: southern Scotland was the biggest domestic market from London for which air was a sensible alternative to road or rail.
The airline opened a telephone reservations centre and took its first booking on 23 October 1995. The phone at the EasyJet telephone reservation centre started ringing and never stopped. They were in business.
Two years later, EasyJet launches its website, easyjet.com. Web bookings grew from zero to 26 per cent of business within a year. On the first day of trading during one promotion, 13,000 seats were sold, believed to be a record for the most commercial transactions carried out on the internet in 24 hour period.
By mid-1999, when its internet sales represented 58 per cent of the total, EasyJet because the first airline to make more sales on the internet than through normal telephone reservations. In March 2000, EasyJet reached two million sears, and it took only another three months to reach the three million mark. By 2001, online bookings regularly reached 80 per cent, the highest proportion of online sales for any airline in the world.
Lois (2005) mentioned that, according to the investment house, EasyJet was becoming a paperless company with a powerful electronic infrastructure. The results were lower administration costs, better management information and more responsive decision making.
Figure 1 Milestone of EasyJet
Chapter 3 Situation Analysis
In this chapter, I will present position and analysis the current position using both of used SWOT and PEST model.
EasyJet seems like very good situation and more expertise will predict have great opportunities for the low cost strategy. Resultingly the saturated market and lack of other choice in the British, competition is likely aggravated - ineluctability followed by acquisition and coalition, an early sign of which is EasyJet's purchase of British Airline subsidiary "GO". In UK airline market, gave very less growth opportunities, therefore focus will be on the other continental market. Next step forward in this direction is a new base going Dutch, Berlin, with flights from 11 European cities, and as well on Eastern Europe. Price strategy was also the focus point, its expansion their route network. At last, promotion also needs to convince people that it is safe to fly and constitute EasyJet as Euro largest low fare airline.
3.1 SWOT analysis
EasyJet was used the bright orange as Pantone 021C, used by no other airline at the time or since. It have a successful financially which they cut out all meals and snacks on travel tour, can reduced the cost of operation. Have more flexible organisation and being seen as an innovative. The airline opened a telephone reservation centre is a strong e-business on 1995. EasyJet is also was a part of the consortium and have awarded by UK' air traffic control system 'National Air Traffic Services (NATS)'.
The brand name 'EasyJet' has all the qualities required for long term memory storage and will not be easy to forget. The airline flies to main destination airports throughout Europe making it very attractive to business travellers. It gains efficiencies compared to traditional carries with rapid turnaround times, and progressive landing charge agreements with airports, maximizing asset utilization. Single model of aircraft reduced training, maintenance and supervisory costs. At last, EasyJet has been wisely investing in strong brand build measured like advertising and television shows ensured high brand recall.
Below have some weaknesses for EasyJet organisation. It continued sustenance of cost leadership can be difficult in a dynamic market. The two drivers of growth, the focus on price and the focus on convenience seem to be reached their natural limits and differentiation from there could become difficult. The airline does not own the 'EasyJet' brand, it's owned by Sir Stelios and as a result, does not have control on its performance of other products and services used the same name. It also loss of usage in future could adversely affect its own market performance. On the other hand, the business model can over time become blurred under competitive pressure and consolidation of the Low Cost Carries (LCC) industry. The airline must be continuously innovative to maintain its current advantage in e-tailing. Increased fleet capacity could be difficult to fill during lean periods and in the face of growing competition in a matured market.
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Recent expansion of the EU has resulted in open of new markets for the LCCs. Their low fares will increase movement of job seekers across boarders and also promote the tourism industry, lead to economic growth. Consolidation could help EasyJet to a certain degree offset the pressure on its costs and fares. Otherwise, vertical and horizontal expansion could be an important option for EasyJet for growth in mature markets and offset any future threat of increased in service provider costs. Withdrawal of traditional airlines from less traffic-intense routes could be an opportunity for expanded. EasyJet does not seem to have any flights to Scandinavian capitals like Stockholm and Helsiki where immigrant flow was on the rise.
The threats of EasyJet had some factors. Terrorism and catastrophic loss can result in lesser air travel and loss of infrastructural support, war threats and outbreak of epidemics or pandemics could increase apprehensions about air travel. Technology advancement in the conduct of business meetings like video conferencing can be detrimental to short distance flights and impending increased in environmental taxes could increase costs. In addition, limited or no slot availability could be hurdle in future expansion plans and due to its limited fuel hedging policy, EasyJet is more vulnerable to fuel price fluctuations increased by variability in its costs. Currency fluctuations is also the factor of threats, it will affect especially the US dollar denominated costs like aircraft purchase, aircraft financing costs, maintenance reserve payments, fuel purchase etc.. Excess capacity and cost cutting tactics by competitors can affect passenger traffic on popular routes. Imitation of some main no-frills features by traditional airlines on same routes can confuse and blur the distinctive image of any LCC. Additional, traditional players can partly switch over or start their own baby low cost airline. Last, dependence on third party service providers could cause problems when any of these contracts are not renewed or negotiation of suitable replacement does not take place or if higher rates are charged.
3.2 PEST analysis
The following factors are likely to have an influence on the EasyJet.
3.2.1 Political Factors
In 1990 the European deregulation of commercial aviation coincided with the expansion of the low cost airline industry. The LCC in the industry were able to take advantage of the relaxed laws and expand their operations. On the other hand, threat of war in the East Euro and EU east enlargement may provide access to viable the new markets were also the political factors of EasyJet.
3.2.2 Economical Factors
Mercer Management Consulting (2002) reported that the low cost airline market conforms to the criteria of three components. 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 EasyJet's ability to maintain a high degree of customer focus through a new, user friendly website with an improved booking process.
Figure 2: "Impact of Low Cost Airline" Mercer Management Consultancy 2002
Secondly, mergers and acquisitions is also the low cost airline market's characteristic; the expansion of existing low cost airlines and finally, market exits as a result of bankruptcy.
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.
3.3.3 Social Factors
The low cost carriers position their product to leisure travellers and non business travellers, 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.
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Figure 3 "Low Cost Airlines Gaining Momentum in Europe" Schneiderbauer, D. & Fainsilber, O. (2000)
3.2.4 Technological Factors
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.
Chapter 4 eMarketing Strategy
This chapter was analysis what eMarketing strategy has the EasyJet adopted or is planned to adopt and what is the value proposition and differential advantage of this strategy.
4.1 Marketplace channel structures
Channel structures describe the way a manufacturer or selling organization delivers products and services to its customer. The distribution channel will consist of one or more intermediaries such as wholesalers and retailers. The relationship between a company and its channel partners shown in below figure can be dramatically altered by the opportunities afforded by the internet. This occurs because the internet offers a means of bypassed some of the channel partners. This process is known as disintermediation or 'cutting out the middleman'.
Figure 4 EasyJet's marketplace channel structures
Figure 4 illustrated disintermediation in a graphical form for a simplified retails channel. Further intermediaries such as additional distributors may occur in a business-to-business market. Figure 4 (a) shows the former position where a company marketed and sold its products by 'pushing' them through a sales channel. Figure 4 (b) and (c) show two different types of disintermediation in which the wholesaler (b) or the wholesaler and retailer (c) are bypassed, allowed the producer to sell and promote direct to the consumer. In this case, EasyJet was used the type (c) method, it didn't used any wholesaler and retailer and opened a telephone reservation centre, created a web site for online booking. The benefits of disintermediation to the producer are clear, it is able to remove the sales and infrastructure cost of selling through the channel.
Benjamin and Weigand (1995) calculated that, using the sale of quality shirts as an example, it was possible to make cost saving of 28 per cent in the case of (b) and 62 per cent for case for (c). Some of these cost savings can be passed on to the customer in the form of cost reductions.
4.2 '6 Is' of eMarketing
In this section, I used the McDonald and Wilson (1999) as the '6 Is' of eMarketing to summarised the differences between the new media and traditional media. The '6 Is' are useful since they highlight factors that apply to practical aspects of internet marketing such as personalization, direct response and marketing search, but also strategic issues of industry restructuring and integrated channel communications. The '6 Is' are Interactivity, Intelligence, Individualization, Integration, Industry restructuring and Independence of location. But in this case, I only focus one of the factors - Integration, for used by this theory.
Figure 5 Channels requiring integration as part of integrated e-marketing strategy
The Internet provides further scope for integrated marketing communications. Below figure show how it is just one of many different media channels. When assessed the success of a web site, the role of the internet in communicating with customers and other partners can best be considered from two perspectives.
The EasyJet web site can be used as a direct response tool enabled customers to respond to offers and promotions publicized in other media. The web site can also have a direct response or call back facility built into it. The internet can be used to support the buying decision even if the purchase does not occur via the web site. Customer information delivered on the web site must be integrated with other databases of customer and order information such as those accessed via staff in the call centre to provide what Seybold (1999) calls a '360 degree view of the customer'.
The internet can be used to support customer service. In EasyJet, who received over half their orders electronically, encourage users to check a list of frequently asked questions compiled from previous customer enquiries before contacting customer support via phone.
4.3 Five forces model
Michael (1979) mentioned Five Forces Model is designed for analyzing the different external competitive forces that affect an organisation and how information can be used to counter them. These five forces included rivalry between existing competitors, threat of new entrants, threat of substitutes, the power of buyers and the power of suppliers. It is useful to apply five forces model to analyse the EasyJet in details.
Figure 6 Five forces model apply in EasyJet
Threat of substitutes:
The other transport modes such as high speed train on domestic routes is increased the market share, it had the time and cost advantaged of the low cost carriers.
On international routes distances are usually too great for high speed train to be alternative to air travel, for example from Paris to London, which can be reached by Euro Star.
Threat of new entrants
The threat of new entrants was very low, because high investment requirements negate threat to some extent. EasyJet was stat with a loan of £5 million, but required a £50million investment. Comparison with the rest of Europe and EasyJet, UK low cost carriers was quite mature. However, it difficult for new carriers to find suitable airports for take-off and landing slots.
Power of suppliers
Referenced by Michael (1985), the power of suppliers is strong. The cost of oil was directly influence the price of aviation fuel, as an individual organisation EasyJet doesn't have much power to alter this. Boeing and Airbus were monopoly the airplane manufacture industry, EasyJet was only deal with airbus, so it has high risk found the spare parts from one manufacturer.
Power of buyers
The power of buyers within the airline industry and specially the low cost carriers market is very strong, as consumer will often shop around and research the good price. Price discrepancies can be easily found and utilized by the consumer, means that the organisation must keep update the new prices.
Customers have the Civil Aviation Authority (CAA) on their side which provides:
1. protection against the consequence of travel organiser failure for people who buy package holidays, charter flights and discounted scheduled air tickets; and
2. licenses airlines and ensures compliance with requirements of European and UK legislation relating to financial resources, liability and insurance of airlines.
Rivalry among existing firms
By the Michael (1980) said, the rivalry between existing competitors of EasyJet is relatively large. Buzz, Ryan air, BMIbaby and MyTravelLite are major competitors of EasyJet in the British. Air Berlin, Germanwings, Hapag Lloyd Express and Virgin Express already are or might become competitors in the light of future expansion plans.
4.4 Marketing Mix
The marketing mix - the 4 Ps of Product, Price and Promotion originally proposed by McCarthy (1960) - is used as an essential part of implemented marketing strategy by many practitioners.
Baker et al. (2001) have mentioned that the price element of the marketing mix refers to an organization's pricing policies which are used to define pricing models and, of course, to set prices for products and service. In EasyJet case, low price is a key element of the brand. Used differential pricing, booking in advance makes a ticket less expensive and off-peak travelling. Additional, can get the discounts for tickets though online booking.
There are many alternatives for barying the prosuct when a EasyJat was developed its onoine strategy. The EasyJet website also has car hire, hotel booking services and links to other EasyGroup website. It also provided point to point services.
Allen and Fjermestand (2001) were discovered that that the internet has the greatest implications for place in the marketing mix since the internet has a global reach.
Internet booking system and open a telephone reservation system were the new channel structures for book the tickets.
Specification of the promotion was usually part of a communications strategy. EasyJet highlights it's a number one position among Europe's low cost carriers. Printed in bright orange telephone booking number and website link on the side of its aircraft.
4.5 Competitive Strategy
Michael (1980) has described three general types of strategies that are usually used by organisation. There are cost leadership, differentiation strategy and market segmentation strategy. But in EasyJet's case, only two basic of competitive advantage was used: cost leadership and differentiation.
4.5.1 Cost leadership
Michael's theory was also adopted a cost leadership strategy which is describe to consumers via the cheap fares offered online. However, Easyjet provided technology advantages in terms of cost reductions, its competitors have followed and created websites of their own, provided extremely competitive rates for EasyJet's customers. Consequently, another competitor needs to accommodate EasyJet's strategies for retain competitive advantage.
4.5.2 Differentiation strategy
EasyJet had made prominence attempts to make their product pop out from its low cost airline competitors.
McDaniel (2000) mentioned that a product differentiation feature acts as competitive advantage was no longer alive. Also, EasyJet was generally the trend-setter for differentiation its market.
Shiv and Alfred (2001) was discovered a matrix for classifies and identifies types of competitive positioning. EasyJet provided differentiation
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