Longitudinal Strategic Development Study Commerce Essay

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Easyjet Airline Company Limited, a British airline company based its headquarters at London Luton Airport. The airline was established on 18th October 1995 and started operations on 10th November 1995. It Was launched by Stelios Haji-Ioannou with two leased Boeing 737-200 aircraft wet leased from Great Britain airways and operating two routs: London Luton to Glasgow and Edinburgh. It carries more passengers than any other UK based airlines. A big number of countries are served by Easyjet. In total u have a choice of 31 to fly. In terms of destination, the most popular country is United Kingdom with 30% of the airport destinations. Easyjet flies on more of Europe's top 100 routes than any other airline. Right from the establishment year of 1995 Easyjet has seen rapid expansion having grown through a combination of acquisitions and base openings with high demand from consumers as for its low cost air travel. Easyjet main share holder is Haji-Ioannou whose family own 17%. It also holds a 49% stake in Easyjet Switzerland. Easyjet purchased a stake of 40% in the TEA Group which is now known as Easyjet Switzerland. The franchise services began on 1st April 1999. Easyjet won 49% stake in this company.

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Its early marketing strategy was to make the flying as affordable as a pair of jeans and urged travellers to cut out a travel agent. This caused much outrage among travel agents.

Over View of Easyjet Airlines:

The airline along with franchise airline Easyjet Switzerland operates over 180 aircrafts mostly air bus A319. It has 20 bases across Europe, the most important one being London Gatwick in 2009, Easy jet carried 45.2 million passengers and is the 2nd largest low cost carrier in Europe behind Ryanair.

Strategic Planning of Easyjet Airlines

Being one of the largest low fare airlines in Europe, had been able to survive and grow in this industry even after the company encountered some problems due to its cost structure. This was because Easyjet implemented different strategies to make the company survive in competition and gain competitive position in the industry. Easyjet borrows its business model from United State Carrier Soutwest Airlines, and adopted this model for the European market through further cost cutting measures such as not selling connecting flights or providing complimentary snacks on board. The key point of this business model is high aircraft utilization, charging for extras, turnaround times and keeping operating cost low. It flies mainly to primary airports in the cities that it serves. It also focuses on attracting business passengers by offering convenient services such as the option to transfer on to an earlier flight without charge. All these services attracted the consumer base around Europe and led the company to survive, and to be the one of the biggest airline service provider in Europe.

Objectives and Vision

To be the biggest and the most profitable low fare airlines in Europe.

Maximise the utilization of the substantial assets.

Ticket less Travelling (Online booking).

Commitment to safety and customer service

Simple fare structure - book early for low prices

Low unit cost;

Strong branding;

Multi base network - dense point-to-point services, mainly between major European airports;

Strong corporate culture

The goal of Easyjet is to meet the needs of travelling at the lowest price. The Critical Success Factors in an airline industry is generally attributed to: the strategic focus of having the lowest prices being reliable within the market place, comfort and service and frequency. To maintain the low prices Easyjet has eliminated extras such as in-flight meals, advanced seat assignment, free drinks and other services that we can see in other airlines. It still privatizes important features which include frequent departures, advance reservations, baggage handling and consistent on time services.

The following strategies are being followed by the Easyjet in its success.

Changes in strategy the company has made during the period under consideration:

Easyjet, one of Europe's most successful low cost short haul airlines, has a simple pricing structure for a given flight all prices are quoted one way, a single price prevails at any point and in general, prices are low early on and increase as the departure date approaches. We observe from these policies and from the empirical section of this paper that easy jet employs three distinct strategies.

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It does not offer last-minute deals

It offers a single class and lets price be the sole variable that controls demand

It varies the time at which tickets are first offered for sale.

The first two policies are in stark contrast to traditional airline pricing strategies many airlines offer last minute deals, either directly or via resellers. Second, the current prevailing practice is to control demand via seat allocation to various classes rather than by offering a single class and letting price be the soul variable that controls demand. The main objective of this research is to study the conditions under which offering a last minute deal is optimal under the single price policy. We also learn how the duration of ticket sales is effected by consumer characteristics. We find that, for an intermediate capacity level uncertainty with respect to the arrival of the business segment will cost the firm to offer last minute deals and thus partially price discriminate within the tourist segment. The same is true for uncertainty with respect to the actual behaviour of the firm: if consumers are uncertain whether the firm will offer last minute deals, then, in equilibrium, both in a one shot deal and in a repeated game, the firm will, with some probability, offer such deals. In addition, we found that for an intermediate capacity level, the larger the number of segments, the longer the duration of the period in which tickets are offered for sale.

Less operating cost:

The company used just one kind of plane thereby reducing the cost of staff training maintenance services and facility of obtaining space, facility in scheduling aircraft and crew assignment. After their purchase of aircraft Boeing 737 it has been able to gain capacity and also reduces the average of fleet. Hence they could save a lot of maintenance cost and avoiding the fit of European union equipment on old feet.

Managing Marketing Cost:

Easyjet reduces its marketing cost by advertises mainly on its website easyjet.com. It is also advertise in national and regional Irish and UK newspaper, on radio and on television

Point-to-point Service:

Easyjet has only point-to-point service and hence it does not have to go through the trouble of connecting passengers. It also focuses on on-time departure to maximise aircraft utilization.

Managing Staff Cost and Productivity:

The company pays its staff on modest salary but has setup a performance related pay structure. Hence the employees are urged to maximize the number of sectors flown every day. In this way easyjet both controls productivity and keeps staff cost down.

Current Strategic Situation:

As part of the annual strategy process, the Board has agreed that the fleet plan set out below will enable easyJet to deliver prudent growth and take advantage of the substantial opportunities to take market share in European short-haul aviation whilst maximising margins and delivering positive cash generation beyond the Boeing replacement programme. It is anticipated that easyJet's average annual growth rate over the medium term measured in seats flown will be around 7.5% per annum. One of easyJet's strengths is the flexibility of its fleet planning arrangements and the Board will continue to regularly review fleet planning decisions in the light of economic conditions, the market opportunities available and the financial strength of the business.

Appendix A: Easyjet share price performance compared to 2000 and 2010

Source: Data Stream

As you can see from the above chart attached as appendix, Since IPO the easyjet share price has increased by 345%, a superior performance to its European airline peers. The performance this year has been better than expected or anticipated by the board of easyjet a year ago. At that point the estimated profit before tax for the financial year ended 30th September 2010 was expected to be 160£ million. However in our interim results statement on 11-may-2010 we stated that full year free tax profit would have been in the range of 175£ Million to 200£ Million at current exchange rates and fuel price, prior to the recent volcanic ash related disruption. This disruption has caused additional cost and lost contribution estimated at between £50 million pounds and £75million. Therefore, the company has revised its profit expectations for the year to a range of £100 million to £150million at current exchange rates and fuel price.

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The board of easyjet is fully aware of Sir Stelios' wish for a cash return from his investment in easyjet, and is commented at the company Annual General Meeting held on 18 February 2010, the Board keeps the issue of returns to shareholders under review. Given the strong underlying performance of the company this year, it is believed that the board could well be in a position to consider the matter of some sort of return within a reasonable time frame.

Size of Fleet:

Easyjet's airbus aircraft orders where the subject of class one circulars in 2002 and 2006. The arrangements described in those circulars included a recommendation from the entire board and receive share holder approval. In 2005 and 2007 the aboard approved the conversion of purchase rights granted under the airbus contract to the status of firm orders. On 30th of Dec 2002 the board approved to purchase 240 Airbus Aircrafts with 99.4% of vote cast in favour. At the request of Sir Stelios', in spring 2009 the board took extensive legal advice which allowed it to evaluate the possibility of renegotiating or arrangements with Airbus. Subsequently the board was able to gain some additional flexibility in fleet planning arrangements.

Easyjet stated medium term growth rate of 7.5% in seats flown for annum was approved by the board in June 2009. The board minutes from that meeting shows unanimous agreement. This agreed plan was subsequently communicated to the market on 29th July 2009 as part of a normal interim management statement.

The board of Easyjet is committed to ensuring the company achieves an appropriate financial return on its capital and therefore as set a target of 15% return on equity which is continued to believe is achievable. Naturally, the board reduce capital expenditure plans and fleet planning decisions on a regular basis in the light of economic conditions, the market opportunities available and the financial strength of business as u would expect no future orders will be placed with Airbus until Caroline McCall and Chris Kennedy join the company on 1st July 2010 as chief executive and finance director respectively, and have had a chance to review the plans alongside the rest of the board and executive management. This point was noted in the minutes of the 5th May 2010 board meeting, which occurred before Sir Stelios' resigned.

Functional Capabilities:

Organizational capability refers to a firm's ability to achieve particular tasks and activities. Analysis of capabilities begins with classifying the activities of the firm. There are number of approaches which can be used to identify can classify company's capability.

Pestel Forces:

In order to evaluate a company's external environment it is always crucial to identify those factors that may influence other important variables which are likely to impact on the companies supply chain and demand as well as their cost.

External environment which is not controlled is much vital as they oppose much bigger challenges. The economic circumstances have a deep impact on organization how booming and gainful an organization is, because they have an effect on capital availability, cost and demand. External environment includes political, economic, social and technological environment.

Political:

The political factors have a huge impact on easyjet. It is a crucial for the company to tackle the political factor extensively.

Taxation

Consumer Protection

Economic:

There are several factors which determine the requirement of the different products and services which depends' up on the economic growth inflation and interest rates.

Social:

Social factors involve all the interests of the cultural society. It holds the diversify aspects like population, changing values of culture, size of family, consumer behaviour etc;

Technological:

Technology is considered to be the most important factor as it provides the competitive edge to the company's operation.

Environmental Resources:

Easyjet has an environmental code, based on three promises:

To be environmentally efficient in the air

To be environmentally efficient on the ground

To lean in shaping a greener future for aviation, for example: Carbon offsetting and shaping future aircraft design ex: the EcoJet

Efficient Use of Aircraft in the Air:

Easyjet configured the seating of the planes to welcome more passengers per aircraft, where as the others in the industry use 27% more fuel than easyjet on the same plane type and same route. Easyjet has invested 7£ Billion in the latest technology to make sure that we operate one of the cleanest, youngest and fuel efficient fleets in the industry - the average age of our aircraft is 2.3yrs. This minimizes our environmental impact - and passengers enjoy a modern new plane. Easyjet avoids many hubs like Heathrow and Frankfurt and makes sure to get quick turnarounds, with minimum tax-ing and holding patterns which uses less fuel and releases less carbon.

On the Ground:

Getting the planes empties, cleaned, refulled and boarded with passengers and luggage as soon as possible, which takes less airport services than other airlines, uses less energy on the ground. This also means the planes can be more efficient, and requires fewer gates and uses less airport infrastructure than compared to full-service carriers. These kind of efficient works require less ground equipment. That's the reason easyjet avoids:

Using air bridges whenever possible

Using motorised steps

Cabin crew cleans the interior of the aircraft this reduces the cost of having another crew like as cleaning crew.

Thus Easyjet doesn't need expensive energy intensive facilities. Not only using less airport utilities, easyjet follows efficient office and onboard procedure to avoid maximum waste

Near paperless systems

Recycling of paper and office material

No ticket or travel documents printed

No free food, no unnecessary waste

De-icing with non-hazardous and bio-degradable products

Using all the methods above successfully Easyjet is a head compared to the other companies in the industry, and given the rival airlines a competitive environment by using the five forces analysis.

Legal:

These are related to the legal environment in which firm operates. In recent years Uk ahve taken many significant changes that had effected the firm behaviour. Easyjet has taken measures about the environment and controlled the Co2 to the max extent. Easyjet buys credits from UN-certified schemes like Perlabi, there's no middle man in our not-for-profit scheme Even balances the effect of the carbon emitted from their flight by supporting UN certified projects Perlabi and Hydroelectric in Ecuador.

Porter's Five force Analysis:

The porter's five force analysis helps the managers to know how competitive and lucrative the company is. This provides the overall performance and position of the industry. Helps the industry to provide the frame work of those factors with which they are influenced most.

Rivalry in the Industry:

There is enormous competition in the airlines industry, as the industry has many substitute airlines. The airline industry is extremely intense in terms of competition, because, rival airline will be providing different facilities and features or may be much cheaper.

Threat of New Entrance:

A new entry in airlines industry is always treat to the existing companies, though small companies doesn't survive for a period of time, they effect on the expected returns. For example: All most all the low cost airline are failed in US except Southwest, in Europe Buzz was sold to Rynair for a nominal sum which is 15 Million pounds.

Bargaining Power of Buyers:

There is immense competition in the airline industry which makes the companies to face very daunting tasks.

The 2 main suppliers of planes across the world were Boeing and Airbus.

High Switching costs from one suppliers to the other

Price if aviation fuel is directly related to the cost of oil.

Airports have little bargaining power as they are heavily dependants on one Airline.

Bargaining Power of Customers:

Customers are price sensitive

Customers are currently aware of the supply of cost of service

Threat of Substitutes:

No Brand loyalty of the customer

No close customer relationship

Other means of transport eg: Railways, roadways.. etc

Ansoff matrix :

Ansoff matrix explains the product and market alternatives to company. It is a tool that Helps business to decide there product and market growth strategy which can help the company in future . It helps the organisation to set its objectives and formulate its strategies for future which also provides foundation and direction to companies.

Strategic Planning Ansoff's Matrix - Product-Market Growth Matrix - Expansion Strategy

Source : Tutor 2u.net

Strategies included in ansoff matrix are explained below:

Market penetration :

Market penetration is the name given to the growth strategy, opted when the company penetrates the market with its exciting products.

Increase usage by existing customers .

Providing the superior quality to customers .

Secure dominance of growth markets.

Drawing the attention of non users of product.

Market development:

Market development is the name given to growth strategy where the business seeks to sell its existing products in to new markets. Most of the time this strategy explores the new market segment or more and geographical areas, new product users .

Product development:

Product development is the name given to the growth strategy where a business aims to introduce new products in to existing market. It is developed in order to attain more market share. Explore the new techniques.

Diversification strategy:

Diversification is the name given to a growth strategy where business markets new products in new markets. It also depends upon the related or unrelated strategy. this is an inherently more risky strategy.

Strategic Direction for the Future:

The business strategy theory plays a vital role to help the aviation researches and practitioners which makes sense to the current competitive pressure on which the airlines of the world seems to be in now. As one of the key fields of administrative sciences, strategy can be envisioned as a hierarchy reflecting the organization structure of multi divisional corporations in which corporate strategy states the general direction - in terms of scope and choice of business sectors - that the firm will follow, while business strategy is a formulation of all the business unit intense compete in its given business sector.

Even after the worst recession in 70 years and also the worst snow and volcanic ash disruption in 30 years and an unprecedented five day closer of European airspace easyjet will be able to deliver substantial profit growth in 2010. It is expected to grow the passenger numbers by around 10% and increase both yield and load factor. This could be a remarkable performance base on strong European-wide consumer demand on a low cost network it has offered and the primary routes which offers the lowest prices to the most convenient Airports. The purchase of Go Fly is expected to result in greater frequencies of flights on existing routes and infilling between existing destinations. This is what Easyjet calls "Joining the Dots" which means no new city destinations are expected to be added to their network. This will increase in giving more service to the customers, as it is known that Easyjet is targeting the business class customers more than the economy class, this so called "Joining the Dots" will help them get more and more business class customers, as the easyjet will be having the services to the destinations more often than the other airlines.

Easyjet being one of the top low cost airlines in Europe, has the ability to grow to the first place compared to other airlines. This is because of its large market and services offered to many and main destinations and major airports, which is very convenient to the customers. Though low cost travel in Europe is less wide spread than in US, Easyjet managed to raise its share to 345%. The trouble is that the low-cost aviation in Europe faces serious challenges. Europe has around 58 low-cost carries in 2005, although the total changes from week to week as new ones are launched and others are bankrupted. Low interest rates using 2nd hand airplanes, of the shelf software and the example of the successful market leaders have lured in to the market. As Easyjet has entered in to the hotel and holiday-inns on 14th-Dec-2004 incorporation with hotelopia as a co-brand Easyjet Hotels, it can provide a nice travel packages to its customers.

Recommendations:

EasyJet is having large customer base from the business class across Europe, but the rival company Rynair is capturing the economy class which makes it to be one of the biggest in passengers travelled. To overcome this and gain more passengers, Easyjet has a change now to gain more passengers as it has purchased Go fly and clearly stated its strategy that the planes will not be having any new destinations than it is running right now. This will lead to more services to the destinations it is running its services now; this will be comfortable and reliable for the business class to travel in times. At the same time it can capture more economy class passengers, but to gain more customer base, it can give some offers to economy class- like reducing the fares to a reasonable percentage. Whereas the business class remains the same, this will not affect the business class customer base as they are comfortable with the price they are charged now. Being the best served airlines for business class and low fares for the economy class easyjet and gain more customer base for its economy class. This will help reduce the expenditure on the new services as it is not based only on the business class. As Easyjet lifted its weight limitation on hand bag luggage, the economy class will be more interested in going with easyjet than with any other low-cost airlines which serves to normal hubs. As we can see the difference between the Easyjet and other lowcost airlines is very close, and Easyjet can overcome this difference by providing more services to the destination than it has now with its new Go Fly airplanes. The world is recovering from the recession slowly and this will be the perfect time to gain more customer base.