EasyJet Plc's Success Secret - Essay Example

? LITERATURE REVIEW Table of Contents Table of Contents 2 Introduction 3 Company Overview 3 Business 3 Company History 4 Company Management Structure and Corporate Governance 5 Business Strategies 6 Financial Performance Review 7 Conclusion 8 References 10 Introduction EasyJet plc is a well known low cost airline company operating in Europe. This study entails about a comprehensive analysis about the company. The existing literature has been reviewed and critically analysed to present a report concerning various aspects of the business operations followed by EasyJet. First of all a brief overview about the company has been provided. The next part, talks about the business structure and the major products and services offered by the company. The company history has been also reviewed highlighting the major achievements of the company over the past years of its business operations. The existing management structure and the corporate governance mechanisms followed by the organisation have also been studied. The business strategies followed by the company and its financial performance in the recent years have also been reviewed in this report. Company Overview EasyJet plc is a UK based organisation which operates its business in the airlines industry. The company is headquartered at Luton, UK and was founded in the year 1995. The airlines operations of the company includes 600 routes and offers its services to around 130 airports located in 30 countries all around the world (easyJet plc, 2012). Apart from carrying passengers the company is also engaged in the business of leasing and trading aircrafts. It has been estimated that the total fleet of aircrafts of the company included around 200 aircrafts as on 24 August 2012. The shares of EasyJet are publicly traded in the London Stock Exchange (LSE) with the ticker symbol “EZJ” (Yahoo Finance, 2012). Business Description Airlines services are offered by EasyJet plc within Europe. The company runs its business along with its subsidiaries at point-to-point routes on short-haul basis. The company is found to operate across 130 airports spread over 130 countries and has more than 580 routes at present. The company operated fleet mainly consists of Airbus aircraft and some Boeing aircrafts as well. The engines of the aircrafts flown by EasyJet plc are supplied by (International Aero Engines) IAE and CFM international. The maintenance of engines and the aircrafts are mostly undertaken by Virgin, SRT, GE, Aeroton, MTU, Lufthansa Technik, and BF Goodrich. Aircrafts are also obtained on lease by EasyJet provided by various organisations like BOC Aviation, AWAS, GECAS, Royal Bank of Scotland, Nomura Babcock & Brown, Santander, and Sumisho. Purchase of aircrafts by EasyJet plc is mainly financed by the financial institutions like Bank of Tokyo-Mitsubishi, Alliance & Leicester, BNP Paribas, HSH Nordbank, Caylon, KfW, PK AirFinance, Natixis, Sumitomo Mitsui Banking Corporation, Royal Bank of Scotland, and WestLB. The major insurers of the company include La Reunion, Global, Canada Life, AIG, QBE, Houston Casualty, and Chubb. EasyJet Switzerland and EasyJet Airline Company Ltd. are the two subsidiary companies of EasyJet plc who are engaged in airlines operations. The aircraft leasing and trading activities are carried on by the other subsidiaries of the company like EasyJet Sterling Ltd., EasyJet Aircraft Co. Ltd., and EasyJet Leasing Ltd. Apart from scheduled airline and in-flight services, the other associated services offered by EasyJet includes online reservations, hotel rooms and car hire facilities. Company History Stelios Haji-Ioannou is attributed to be the founder member of EasyJet and his objective of setting up this company was to offer low cost scheduled airlines within Europe. The first aircraft that was wholly owned by the company was provided in the year 1996. The company’s website was launched in the year 1997. Since its inception the company continued to expand its operations all over Europe and started implementing various acquisitions strategy to fulfil its objectives. In the year 1998, the company acquired 40% stake in TEA Basel AG which was a Switzerland based charter airline and was later renamed as EasyJet Switzerland. EasyJet went public in the year 2000 with the listing of its shares in the London Stock Exchange (LSE). Later in the year 2002, ‘Go’ which was a low cost airline based on Stansted was acquired by EasyJet and turned into the topmost air transport network in Europe. Likewise, several other acquisitions were done by the company and expanded its routes to far flung areas in Europe in the course of its business until now. EasyJet was adjudged to be the largest airline in UK in the February 2010. Thus, EasyJet has been successful in implementing its strategies to lead to its increased performance over the years. Company Management Structure and Corporate Governance If we look at the management structure of the company it can be found that the board of directors consist of either executive board members or non-executive board members or the senior management team. Carolyn McCall is the Chief Executive Officer (CEO) and Chris Kennedy is the Chief Financial Officer (CFO) of the company. There are eight non-executive board members of EasyJet and Michael Rake is the non-executive chairman of the company. All the non-executive members are found to be independent directors of the organisation. The roles played by each of the board members of the company have been clearly defined and separated from each other. Regular meetings are arranged where the board members meet to discuss on the business activities being carried out by the company. A performance review of the Board of Directors of the company is also conducted every year. Next, if we look at the various committees formed by the board members of the organisation it can be found that four such committees are institutional at present. They are the audit committee, the remuneration committee, the nominations committee, and the litigation committee. All these committees have predefined roles to be played by them within the organisation. The internal control system of the organisation is also managed by the company directors and it has been designed with the motive of managing rather than eliminating failure risks which helps for the cause of achieving the objectives of EasyJet. PricewaterhouseCoopers LLP is the independent auditor of the firm and in the recent annual report of EasyJet for the year ended 30 September 2011, they have presented an unqualified audit report of the company. Business Strategies A business level strategy can be defined as an action plan that is developed by a business organization which gives a description about the various means through which it would compete in a given industrial or market segment (Ireland, Hoskisson, and Hitt, 2008, p. 88). The primary objective of a business level strategy formulated by any organization is to create increased value for its customers in a consistent manner. There can be five different types of business level strategies that can be employed by an organization. They are: a) Cost leadership, b) Focused cost leadership, c) Differentiation, d) Focused differentiation, and e) Integrated differentiation or cost leadership (Ireland, Hoskisson, and Hitt, 2008, p. 88). These are part of the Porter’s generic strategy framework and are a means of gaining competitive advantage through proper strategic planning and implementation (Stonehouse, Campbell, Hamill, and Purdie, 2004, p. 177). Now if we look at the business strategy followed by EasyJet it can be found that cost leadership strategy is employed by the company. This type of strategy followed by the company is quite obvious given EasyJet operating its business activities in the low cost airline industry in Europe. The business model corresponding to the low cost airline is considered to be first implemented by the US based airline company Southwest Airline and EasyJet is found to follow the same strategy in its business model (Sorensen, 2005). EasyJet has been able to gain competitive advantage in the industry by being the lowest airline provider in Europe. Cost control mechanisms are followed within the organisation by eliminating frills that are otherwise provided to the passengers who travels in other airlines (Macario, and Voorde, 2010, p. 52). Other low cost strategies employed by the company are the extensive use of internet, providing no refreshments for free within the aircrafts, employing a ticket-less operation, not permitting any kind of refunds to the passengers, and providing less legroom within the aircraft. All these activities help in reducing costs incurred by the company in a significant manner. The seat capacity gets enhanced within the aircraft as a result of these cost minimising strategies followed by the company. Apart from this the cost leadership strategy has been implemented by EasyJet through the increase in efficiency of its operations by optimising the utilisation of the company’s aircrafts. The turnaround time of each flight is greatly reduced by EasyJet which helps in ensuring that a particular aircraft is able to cover more flights in a day (Doganis, 2006). Moreover, EasyJet also operates a point-to-point system wherein there are direct flights running from one destination to another. This system helps in lowering the unit costs per flight and generating more revenue for the company (Lawton, 2002). Financial Performance Review The figure given below (Figure - 1) presents some of the highlights of the financial performance of EasyJet in its recently concluded fiscal year 2012. The figure also presents a comparative view of all the figures as against last year 2011. Figure – 1 Financial Results as at 30 September 2012 Source: (easyJet plc, 2012b) The above figures indicate that the company managed increase its revenues and the corresponding profits in 2012 as compared to last year 2011. The earnings per share of the company have increased significantly and as a result of which the proposed dividend for the year 2012 has more than doubled as compared to 2011 (Topham, 2012). There has been a rise in the Return on Capital Employed (ROCE) and Return on Equity (ROE) of the company as well. All these facts suggest that the company managed to utilise its available resources in an effective manner to generate increased returns for its shareholders. Hence, it can be concluded that the financial performance of the company has been good in the recent years. Conclusion The facts, findings and analysis presented in this study reveal that EasyJet has been successfully running its business operations since its inception in the year 1995. At present it is regarded to be the largest low cost airline in Europe. The company has successfully expanded its business all over Europe and seems to have created good relationships with its buyers and suppliers in the low cost airline industry of Europe. The company’s focus is on ensuring passenger safety and at the same time offers them with lowest fare flights in Europe. The company’s financial performance is also good in the recent years. Hence, it can be concluded that EasyJet has been successful in ensuring its future profitability and sustainability in the industry. References Doganis, R., 2006. The Airline Business. 2nd ed. London: Routledge. EasyJet plc, 2012. Annual Reports and Accounts 2011. [pdf] Available at: [Accessed 4 December 2012]. EasyJet plc, 2012b. Results for the year ended 30 September 2012. [pdf] Available at: [Accessed 4 December 2012]. Ireland, R. D., Hoskisson, R. E., and Hitt, M. A., 2008. Understanding Business Strategy: Concepts and Cases. 2nd ed. Connecticut: Cengage Learning. Lawton T C, 2002. Cleared for Take-Off: structure and strategy in the low fare airline business. Aldershot: Ashgate Publishing Ltd. Macario, R., and Voorde, E. V. D., 2010. Critical Issues in Air Transport Economics and Business. London: Routledge. Sorensen, T. C., 2005. An analysis of the European low fare airline industry - with focus on Ryanair. [pdf] Available at: [Accessed 4 December 2012]. Stonehouse, Campbell, Hamill, and Purdie, 2004. Global and Transnational Business: Strategy and Management. 2nd ed. New Jersey: John Wiley & Sons. Topham, G., 2012. EasyJet posts record profits and doubles dividend. The Guardian. [online] Available at: [Accessed 4 December 2012]. Yahoo Finance, 2012. EasyJet plc (EZJ.L): Profile. [online] Available at: [Accessed 3 December 2012]. Read More