Easy Jet: Strategic Management Tools - Case Study Example

Strategic management Strategic management Introduction Easy Jet is a company that is based on the low-cost model of the United States carrier in southwest. They belief that demands for the short distance flights are often price elastic. Thus, if the prices for the flights are reduced, then more people will fly. However, traditionally, there is the belief that the airline traffic grows in the economy thus reducing prices decreases the revenues. Easy Jet has proven this wrong by increasing its customer base and recently taking away passengers from its major competitors. Strategic management tools i. Critical question analysis It is capable of formulating the strategy of the organization in analysis of questions. It is capable of answering four questions about the organization. One of them is the purpose or objectives of the organization. It is evident that the airline aims reducing the prices of their flights to attract more customer base in the market. As a result, it offers affordable means of transportation for their passengers. Though most of the other airlines belief that cutting down on costs is likely to reduce revenues, the Easy Jet has proven this wrong and it has been able to realize more profits. In fact, it has recently taken away passengers from the major airlines. The second question is where the organization is headed. The airline is continually amassing profits by adopting the low-cost model of the US economy. Thus, it headed towards a continuous amassing of profits by attracting more customer base. Their strategy involves reducing costs to ensure that more people fly out in the short flights. The third question is the kind of environment it exists. It is evident that there is a lot of competition in the UK airline. Thus, it exists in a competitive market thus the need to come up with a competitive strategic decision to deal with the competitiveness of the market. Though it currently seems to top by mainly reducing costs of the short flights, some of its main competitors including Ryan air might overtake it in the near future. Thus, it is important for them to come up with creative ideas to attract and maintain more customers. The fourth and the last question is what can be done to enable the organization achieve its objectives in future. As previously stated, the airline has taken away passengers from its major competitors. Thus, obviously, such competitors are not happy about it and they are trying their best to get back their passengers. Thus, the airline has to continue coming up with more creative strategies of keeping their passengers engaged all the time. If they just sit calm and be comfortable in their current success, they might not be in a position to achieve their objectives in future. The reason is that more organizations will come up with creative ideas and overtake them before they know it. ii. SWOT analysis The airline maximizes on its strengths and opportunities while at the same time reducing its weaknesses and potential threats (IATA 2010). The SWOT analysis is presented in a table below. Strengths Image, differentiation existing on price and their brand Strong e-business It is part of the consortium that is awarded to run the UK’s air traffic control system The airline is successful financially It is an innovative and flexible organization Opportunities Potential growth of the company in future in the coming years The current recession is favorable since people and businesses are more conscious on their costs The more full-service airlines may withdraw from the regional markets to focus on more profitable long routes and leaving the low-cost operators. The short-breaks market in the UK grows more rapidly than the whole UK market. Weaknesses The airline lacks a policy of retention of customers Has little scope out of Europe It lacks the flexibility of its services and the required business focus thus making the low cost model unappealing for most of the business passengers Their two drivers of growth that is the focus on price and convenience are nearly reaching their natural limits. Differentiation is difficult since their own success makes it quite difficult to train and recruit staff quickly. Threats Likelihood of competition intensifying due to the saturated markets and shortage of other options Increased level of competition is likely to make it difficult for the airline to demand for incentives from the communities. Companies cut more on business travel in the economic downtown and the various security measures results into the company introducing such substitutes as videoconferencing. From the analysis above, it is evident that the airline is currently topping the market share by price and convenience focuses of growth. Their strategy includes reducing prices as much as possible for the short flights to attract more customers. This is convenient for most businesses since it is capable of allowing them to travel at a considerable price (IATA 2009). However, the strategy seems to be reaching its potential limits. In addition, regarding that the airline has no policy of customer’s retention, they might get problems in future. Intense competition that is predicted to expand even more in future is also a problem for their strategy. This mean that they have to be on their toes all the time considering that the markets are likely to expand in future. iii. PEST analysis PEST analysis looks t the external factors that affect the airline. They include the political factors, economic factors, social factors, technological factors, and legal factors. The political and legal factors include threat of war in the Middle East. This is likely to affect their customer base that is travelling to that area. Considering that security always comes first for individual passengers, they might decide to undertake videoconferencing, which can negatively affect the organization despite their focus on price and convenience (Eurostat 2011). Economic factors include the likelihood of fuel costs increasing, congestion, and other restrictions of the environment. There is the prospect of higher securities and costs of insurance to reflect the terrorism risk. Moreover, since recession is predicted to last for some time, most of the business travelers will cut down on their travel expenses. However, not all is lost since globalization should continue boosting traffic in the long-term and the introduction of the single currency in Europe is likely to increase the business for the airline. Socio-cultural factors include problems in winning over French and the Germans public due to the reluctance of using credit cards over the phone or internet. Moreover, most individuals value cheap flights. It is therefore important for the airline to ensure that they do not increase the price based on the particular days of the week or based on the number of passengers travelling with them. Technological factors include the company having to keep track of their technological advancements to gain a competitive advantage (Johnson, Scholes &Whittington 2008). From the PEST analysis, it is evident that the airline has to consider the political, economic, socio and technological factors in addition to its main strategy of cost and convenience. The reason is that most passengers will consider such factors to consider what prices are considerable and affordable for them. The airline might reduce its prices significantly but the passengers might still view them as high due to the ongoing political or socio situation in their countries. iv. Porter’s five forces Threats of new entrants Despite their strategy of focus on price and convenience, the airline can still face the challenges of new entrants into the market. The airline market is already saturated as it is and there are very few available options (Dimson 2003). Thus, if new entrant happens to enter the market, the situation will worsen. Its low- cost share is convenient for the organization but new entrants could come up with better strategies for their passengers. This could lead to the airline loosing most of its passengers to the new airlines. The power of suppliers The price of the aviation fuel is often directly related to the cost of oil and easy jet has no control over this. Moreover, the airplane manufacturer is concentrated in the industry and it is upon the airline to realize best deal with such manufacturers (Easy jet 2005). This will affect the strategy that they apply in the market of price and convenience focuses. The airline should ensure that it does not create dependence with one supplier of either oil or spare parts as this could be risky for their business. Power of buyers Buyer’s power in the industry more so in the low-cost market is strong (Schuler & Jackson 2007). The reason is that customers are more attracted to quality services at the lowest possible costs. It is important for the organization to keep a close check on prices since the consumers easily finds and exploits the discrepancies of prices. The loyalty of customers due to low switching costs is important. Rivalry among existing firms There is a stiff competition in the airline market for such competitors as Ryan air, and buzz. Such competitors might come up with better strategies than Easy jet since their main aim is to maintain a competitive advantage (Done 2011). Thus, the airline has to ensure that it comes up with more successful strategies to improve its competitive advantage in the long run. Despite the fact that it is attracting more customers now, its competitors might overtake it in the future. This is in consideration that it focuses on price, convenience is reaching their natural limits, and they may prove to be less effective in future. Thus, it is evident that the main strategy that is adopted by the airline is the focus on price and focus on convenience. Most passengers are attracted to low prices considering that the services that they get are of high quality. This strategy is suitable since it is able to offer most passengers with affordable prices to travel (Business 2008). Considering the level of recession that is currently visible, most businesses are trying to cut on costs as much as possible. Some are considering instigating such alternatives as videoconferencing. The few of them who are choosing to travel are looking for low-cost airlines that are capable of saving on their costs. That is why the airline has taken away passengers from other major airlines in the industry. Most of these major airlines are still harboring the traditional view that cutting on costs is likely to reduce the revenue that is realized by such airline companies. However, Easy Jet has rubbished this claim and they have been able to succeed in their venture by attracting more passengers through this low-cost economic model. The strategy relates to growth, innovation, and international expansion in various ways. One of them is that the high number of passengers that the airline attracts ensures that it amasses more profits. With such profits, the airline is capable of growing significantly in the market and expanding to continue providing services to more customers globally. They are able to come up with better and innovative services and tariffs in line with the preferences of their customers. Moreover, since the airline is predicting a more significant growth in the future, then it ensures that it comes up with better services and innovations for their customers in future. One of the main reasons is technological advancement (Boeing 2011). With changing technological advancement, then the needs and preference of the passengers are changing each day. Another strategic decision that the airline should undertake is that they should increase their distribution level. The airline has grown drastically making it difficult for them to recruit and retain more staff. This is challenging for them, as it is likely to reduce the workforce in the airline. Moreover, the organization finds it difficult to differentiation where they come up with services, which are different from other similar ones. As a result, they become monotonous in the services that they provide and their strategy applied is reaching its natural limits (Bloomberg 2011). Once it does, the company will lose its customer base negatively impacting on their profitability. Conclusion Easy Jet applies the mechanism of low-cost economic model. The reason is that they believe the lower the cost, the higher the number of passengers travelling with them. That is why they have applied the strategy of price control to attract more customers. As a result, they have taken away passengers from other major competitors. Various strategic tools have been applied showing that the airline applies the price and convenience strategy. However, considering the saturated market, it is important for the airline to consider more creative strategies for it to maintain a competitive advantage. One of them include increasing their level of differentiation to provide their customers with better services and break way from the current level of monotony that is observed (Porter 1985). With so doing, even with the focus of price and the focus of convenience reaching its natural limits, the airline will be better suited in comparison with their competitors. Bibliography Bloomberg 2011. News: Bloomberg. [Online] [Accessed on 17 November 2014] Available at: http://www.bloomberg.com/news/2011-02-18/buffett-says-pricing-power-more- important-than-good-management.html Boeing 2011. Commercial 737l airplanes, winglets. [Online] [Accessed on 15 November 2014] Available at: http://www.boeing.com/commercial/737family/winglets/wing2.html Business Week. 2008. Global Economic Crisis and its Impacts on the Airline Industry. [Online] [Accessed on 16 November 2014] Available at: http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId= 24963869 Done, K. 2011. Financial Times: Oil prices destroying airline profitability. (Online) (Accessed on 16 November 2014) Available at: http://www.ft.com/cms/s/0/acace9ba-0e6e-11b0990000779fd2ac.html#axzz1J8js06RW Easy jet Annual Report, 2005. Easy Jet Official Website, [online] [Accessed on 23 November 2014] Available at: http://easyjet.gs2-web03.investis.com/en/about-easyjet/our-journey/Overview.aspx Easy jet official website. [Online] [Accessed on 5 November 2014] Available at: www.easyjet.com/common/img Easy jet official website. [Online] [Accessed on 30 November 2014] Available at: http://corporate.airfrance.com/en/alliances/competition/low-cost-carriers Elroy Dimson, P. M. 2003. Global evidence on the equity risk premium. London: LBS Institute of Finance and Accounting. Eurostat. 2011. Real GDP growth rate. [Online] [Accessed on 19 November 2014] Available at: http://epp.eurostat.ec.europa.eu/tgm/table.do;jsessionid=9ea7974b30dc63e76b63f1254 074a3e8d738ab191762.e34SbxiOchiKc40LbNmLahiKb3yLe0?tab=table&plugin=1&lan guage=en&pcode=tsieb0220 IATA 2009. Striking Oil - Understanding Oil Price Volatility. [Online] [Accessed on 20 November 2014] Available at: http://www.iata.org/pressroom/airlines-international/october-2009/Pages/2009-10- 07.aspx?NRMODE=Unpublished IATA. 2010. Press Releases: IATA. [Online] [Accessed on 19 November 2014] Available at: http://www.iata.org/pressroom/pr/Pages/2010-12-30-01.aspx IATA. 2011. Financial Forecast. Montreal: IATA. Johnson.G, Scholes.K, Whittington.R 2008. “Exploring Corporate Strategy” Performance, New York: The Free Press. Porter, M.E. 1985. Competitive Advantage: Creating and Sustaining Superior. Randall S. Schuler, Susan E. Jackson 2007. “Strategic Human Resource Management” 2nd edition, Blackwell publishing ltd Read More