Securing Air Travel: EasyJet Airline - Assignment Example

The world has changed a lot in the 21st century due to a variety of environmental factors and specific events that entire changed certain industries.An tragic event the perception of reality of mankind was the 9/11 terrorist attack on the Twin Towers. The fact that airplanes were utilized as bombs was very detrimental to the entire airline industry. People panic and the demand for airline travel diminished. Many airlines could ride the storm and went out of business soon afterwards. At times when there is economic chaos there are hidden opportunities for companies that can adapt to the new business environment. A company that was able to penetrate the European marketplace and increase its market share significantly is EasyJet Airline. This report analyses EasyJet by utilizing various analytic tools including a market overview, company profile, Pestel analysis, Porter’s five forces and stakeholder analysis. Market Overview The airline industry has undergone radical changes during the last seven years. The operation of airlines changed a lot and security became the number one priority for everyone in the industry as well as governmental organizations. The new environment raise operation cost for companies in the industry. Another big factor that affected the industry has been the rising prices of fuel. Gasoline costs is the single biggest cost driver apart from labor in the airline industry (Investopedia, 2008). In order to survive the bad economic state of the industry companies have utilized strategies such as downsizing its workforce and streamlining its operations. To battle against rising fuel cost the use of newer fleets with higher better fuel efficiency has been imperative to decrease costs. There have newer regulations imposed by governments in the United States and Europe that affected the industry by raising environmental standards. In Europe many airlines have benefited form the increase business activity between the members of the European Union. The rise of the Euro as one the dominants currency has helped the all European Businesses. The internal European travel demand has risen as consequence of greater interconnection among member states. The European nation has had various terrorist attacks on its land, thus the security standards for the European marketplace equal or better than in the United States. The EC has invested a lot in research to improve security measures for air transportation. There are over 1.4 billion euros allocated from 2007-2013 for airline security research (Europa, 2008). A trend that has changed the supply chain of players in the airline industry is the emergence of ecommerce as main driver of air travel ticket sales. Company profile EasyJet PLC was founded by Stelios Haji-lonanou in 1995. Its corporate headquarters are located at Hanger 89 near the Luton Airport. Since its inception the company’s strategy was to differentiate itself from typical airlines by running a streamlined operation that allows the firm to minimize cost in order to provide cheap fare prices. The company’s mission statement is to provide customers with safe, good value, point to point air services to be able to offer a consistent and reliable product and fares ap7 appealing to leisure and business markets on a range of European routes (Easyjet, 2008). In its short history the firm has been to achieve yearly economic growth. In 2007 the company generated 153.6 million pounds of net income on sales of 1626 million pounds (Annual Report, 2007). The company has been expanding its operations in order to increase its capacity. To achieve this goal EasyJet added many new European destinations to its product offering. Appendix A illustrates a graph of the yearly passenger totals of the company since its creation. In 2007 the company served 37.2 million passengers to 62 European destinations utilizing a logistics of 205 routes throughout Europe (Flightmapping, 2008). Pestel analysis A Pestel analysis is macro-environmental analysis of the external factors that affect a company and the industry in which operates. The six key areas covered in a Pestel analysis are political, economic, social, technological, environmental and legal (Kotler, 2002). The s airline industry has lots of governmental intervention in the form of regulations and policies. In the past the government has served the purpose of being a key allied that provided assistance to industry players. Governmental entities provided economic assistance to help this important industry in the aftermath of 9/11, when a lot of companies were struggling to survive. A lot of them were not able to survive this wave of economic distress. In the 1990’s deregulation in the European airline industry allowed low fare airlines to penetrate the marketplace and achieve great levels of growth. Companies have to worry about air regulation and ground regulation in the airports they utilize to run their operations. Environmental regulation is another key factor that governmental agencies impose on airlines. The European Union this month approved a new regulation to cap greenhouse gases emitted from airline flying. The measure is economically detrimental for airlines because it represents a yearly 3.5 billion euro cost for the industry (Kantel, 2008). The general state of the European economy is going through bad times. Europe followed the $700 billion bailout plan with its own 2.3 trillion euro proposal to open up the credit market place. The stock market is extremely volatile. The down Dow Jones industrial has lost over 40% value during the past year. Inflation in Europe has being going upwards throughout 2008. In March 2008 inflation was at 2.5%, but this figure increased to 3.3% in May and to 4.4 by July (The Economist, 2008). One good sign in the economy companies such as EasyJet is the new pricing trend in commodity market for crude oil. Petroleum prices have decreased being cut by 60% since the historic high of $147 three months ago caused by supply panic concerns (Afp, 2008). The lower fuel prices will allow EasyJet to lower their operation cost which will translate in better prices for the customers. Airlines such as EasyJet require a good interaction with its customer base to satisfy the needs of the group of people that generate revenues and cash flow for the firm. One of the advantages of EasyJet’s policy of utilizing one way flights is that it eliminates the unnecessary effort and uncomfortable experience of waiting around in an airport for hours to continue a flight journey. The airline industry works in alliance with governmental institutions to provide the important social purpose of protection public safety through rigid security protocols. For the last 4 years EasyJet has chosen a charity of the year to support as part of its philanthropic efforts. The company provides funds and access to staff and passengers to assist in raising funds as well as providing promotion to the charity through brand awareness (Easyjet, 2008). Technology is a factor that deeply affects the operations of participants in the airline industry. One of the biggest achievements that EasyJet has accomplished is being able to automate its sells distribution channel by using the internet as the primary tool for success. A 98% internet sales metric clearly shows that this firm has utilizing this technology as the primary tool to generate revenues. EasyJet is a pioneer in the industry since it was the first firm to offer online check-in to its passengers. This measure saves its clients time in the airport prior to their flight. The company believes that technology can be used to enhance its productivity and efficiency. The Airbus 319 is the prefer aircraft model of the company. There are owns 109 A319 which represent 78% of its total fleet. The other airplane model utilized by the company is the Boeing 737. The company has invested heavily in acquiring a new fleet of planes a fact that is can seen by its average airplane age of 2.3 years (Easyjet, 2008). Protecting the environment is a major concern for EasyJet which has been integrated in its corporate strategy. The decision to invest in new equipment has helped the company reduced its emission levels dispersed into the air. The company’s goal is to reduce CO2 emissions by 50% by the year 2015. The company is able to achieve high passenger density in each flight with an average 85% flight capacity which reduces the necessity for more planes in the airways. Another strategic emphasis the company utilizes to help the environment is reducing noise pollution in the communities nearby airports. An environmental friendly program in place at EasyJet is its emission offsetting scheme. The company balances the effect of the carbon emitted from the company’s flight by supporting UN certified reduction projects (CER) such as the Perbali Hydroelectric Project. EasyJet is bound by legal contracts with the ground airports that affect its operations since its supply flight offering is dependant upon the ability to negotiate deals with them. There a lot of regulations that favors the airports over the airlines in the European marketplace. The agreement to purchase GB airways is a legal contract that will expand the capacity of the company to service new customers in the European marketplace. Porter’s Five Forces Porter’s five forces model is a competitive position model that provides a simple perspective for assessing and analyzing the competitive strengths and position of a business organization (Chapman, 2008). The model was developed in 1979 by Michael Porter. The strategic tool emphasis analyzing the microenvironment in which the company operates. Porter’ five force framework is composed of the following five forces: rivalry, threats of new entrants, bargaining power of buyers, bargaining power of suppliers, and threat of substitute products. The airline industry operates in an oligopoly market structure. An oligopoly is a an industry with a limited numbers of participants (Varian, 2003). The biggest company in the European Airline Industry is British Airways. This firm does not represent a direct competitor for EasyJet Airlines because EasyJet targets the low end market which is price is the determining factor. Rynair and Ibera are two competitors, Rynair being their biggest competitor. One primary difference between EasyJet and Rynair is that EasyJet’s logistics do not utilize the traditional hubbing systems of interconnected flights. All of EasyJet’s routes are direct destination flights. This strategy lowers cost by reducing air travel time. Price wars are a common occurrence for low fares companies in the airline industry. The air transportation industry has major barriers of entry that limit access to new entrants into the industry. One barrier of entry is capital. In order to enter into this business an investor needs billions of dollars to establish the infrastructure which includes an expensive fleet of airplanes and large workforce. A second barrier is governmental regulations and long waiting times for approval of permits. There are a lot of agencies that regulate the industry due to international safety protocols. An air transportation business requires sophisticated logistics, networking and advanced technology. The airplanes require constant expensive maintenance costs. The purchasing behavior of the users of airlines during the 21st century is clear evidence that the buyers have the ability to drastically change the demand for these services. After 9/11 customers choose to lower their air travel consumption. The lower demand drove a lot of companies out of business. The industry completely changed its operating strategies to serve the needs of the customer to be able to operate profitably. The buyers have demanded that airlines reduce their pollution levels to protect our environment. EasyJet has one of the premier corporate responsibility programs. The green practices of the company comply with the customer expectations. In industry where the number of buyers is limited, the buyers gain a lot of purchasing power. In the airline industry there are millions of customers, thus the customer power is not overwhelming. In the air travel industry suppliers such as EasyJet are able to reach their customer base by utilizing advanced information technology that enables the company to directly sell their product with the assistance of the internet. 98% of ticket sales were achieved from internet sales. By bypassing the travel agency EasyJet achieves lower administrative and selling costs. The ability to control its distribution network allows this firm the advantage of controlling the quality of its customer service function. EasyJet PLC utilizes a strategy in which local European travel is their only travel offering. If time constraint is not considered, there are several ground transportation options that are substitute products for intra-European travel. Buses and trains can be utilized by European to reach destinations between cities. A bus ticket is cheap, but may take several days in between destination points. There are high speed trains that lower overall travel time at good price value. The convenience and speed of air travel make this product the prefer option for travelers. In the near future the are new products that will allow everyday people to use their personal vehicles for air travel. Moller Corporation invented the Skycar. The passenger vehicle that utilizes vertical takeoff and landing (VTOL) technology travel at speeds of up to 375 mpg at 20 mpg through the air (Moller, 2008). The company expects to have there the Skycar approved for flight in the marketplace around 2012. Stakeholder analysis A stakeholder analysis discusses the importance of the different stakeholders that influence EasyJet. The customers are the most important stakeholder group for the company. The mission of the firm focuses on satisfied the needs of this customer group. The company serves millions of customer every year making the customer by far the largest stakeholder group. Another important stakeholder group is regulators. Regulators in the airline industry have the power the changed the operating procedures of an enterprise in this business. The can even shutdown an airline if they to comply with its mandates. They are powerful stakeholder group that requires the attention of the executive team at EasyJet. The key suppliers for an airline are the airports, airplane manufacturers and maintenance related activities. The airports are the locations where customers meet to board the flights and represent the final destination of the company’s customers. It is important to establish good public relation with the personnel of airport, since their activities and services are aligned with the airlines goals. The manufactures of airplanes represent the vendor that can change the performance of a company by offering new airplane design to reduce fuel consumption, increase performance, efficiency and capacity. Another important stakeholder group for EasyJet is the lenders. The lenders are the stakeholder group that provides access to capital. In this industry access to capital is indispensable since the machines utilized in flight operation cost billions of dollars a piece. Investors are another stakeholder group that can offer EasyJet access to capital through the emission of common stocks, preferred stocks and corporate bonds. Recommendations and conclusion The airline industry is a powerful marketplace that achieves billions of dollars in sales every year. The global air travel marketplace is estimated by to be 3.2 trillion dollars in 2008. The market is enormous and EasyJet has only been able to capitalize in the European marketplace. This concentrated growth strategy has been effective for the company, but other business expansion opportunities could increase shareholder value. The purpose of the company is to be able to provide low fares. The firm could expand its business outside of Europe by entering into a strategic alliance with companies that serve other marketplaces such as Asia or Australia. A way to minimize risks is selecting routes outside of Europe with high business activity to capitalize on the business class segment. A purchase of a small airline outside the European market can provide the learning experience the company needs to be able to expand its EasyJet operations outside of Europe. A conservative goal is to diversify 20% of its income stream outside the European marketplace within then years. The company has been effective with its green strategies. A continued emphasis in this strategy can help the company in several ways. The green strategy should be us in a massive marketing campaign to promote the creation of higher quality standards for the entire industry. A new channel to keep an eye on is the mobile service industry. The proliferation of smart phones will open up a new consumer marketplace of electronic sales through wireless mobile transmissions. The ability to connect with the customer at all times means that mobile cellular marketing campaigns can provide reliable instant campaign that allow real time connection with the customers. EasyJet is a company with a bright future that has been able to utilize a low cost strategy to increase its market share. The current economic outlook in Europe of an upcoming recession is an opportunity for EasyJet to increase its market share. During bad times companies look for the lowest prices. Additional reduction in prices can create customer loyalty which will increase customer retention. The long term success of the company depends on its ability to adapt to new market trends in order to provide the product the customer desires. References Afp.com (2008), Oil prices plummet to $61, despite OPEC output cut. Available from [Accessed 24 October 2008]. Annual Report: Easy Jet. (2007). Available from [Accessed 22 October 2008] Associated Press (2008). US, bankers rework bailout plans; stocks surge. The Herald Tribune. Available from [Accessed 24 October 2008]. Chapman, A. (2008). Porter’s Five Forces Model. Available from [Accessed 22 October 2008]. EasyJet.com (2008). About Us. Available from [Accessed 22 October 2008]. Europa.eu (2008). Securing Air Travel. Available from [Accessed 23 October 2008]. Flightmapping.com (2008). News: More Easyjet flights from Basle. Available from [Accessed 23 October 2008]. Kantel, J. (2008). Europe Forcing Airlines to Buy Emission Permits. The NY Times. Available from [Accessed 24 October 2008]. Kotler, P. (2002). Marketing Management (111th ed.). New Jersey: Prentice Hall. Moller.com (2008). The Skycar. Available from [Accessed 24 October 2008]. Plunkett Research. (2008). Airline, Hotel and Travel Industry. [Accessed 23 October 2008]. The Economist. (2008).Back to the badlands. [Accessed 23 October 2008]. Varian, H. (2003). Intermediate Microeconomics: A Modern Approach: W.W. Norton Company: New York. Appendix A: EasyJet Passenger growth (Easyjet, 2008) Read More