EasyJet Pan-European Airline Company - PEST Analysis, the Value Chain Analysis - Research Paper Example

1. PEST ANALYSIS Introduction EasyJet is a pan-European airline company that operates on a low-cost strategy globally. The airline company flies in more than 600 across 30 nations. The macroenvironment are major external factors that cannot be controlled that impact on the firm’s decision making, as well influence its performance (Kotler and Keller, 2010). They include, political, economic, social conditions, environmental, and technological changes. In the same way, strategic analysis is evaluating the factors that impact on the business operations. The strategic goals are defined together with the business strategy of the firm. A PEST analysis of the organisation is carried out to establish the macro-environmental impact on the firm. PEST analysis framework (Marketing Minefield, 2014) Political It is the level of government intervention in the economy (Kotler and Keller, 2010). Trade restrictions EasyJet operates in more than 30 countries that have do not have trade restrictions. This increases revenue since the firm can cover more areas. Due to the global terror threat, Germany, the United Kingdom, France, Israel, and Spain among other countries have put restrictions to ensure passenger safety. This has reduced travels to some extent. Governments have also put baggage restrictions for airlines along with passengers (Taneja, 2012, p.56; easyJet, 2013). Tax policies The firm complies with various tax policies in its areas of operation. Most of the tax regulations are favourable to the firm, thus impacting positively on the flight operations. For example, the corporate tax policy in Europe is business-friendly. This has also enabled the process of optimisation in service delivery to meet the customer needs and requirements regardless of existing precedents and territories on implementing the system (Jones, 2012, p.34). Economic Economic factors include factors such as economic growth, interest rates and exchange rates (Kotler and Keller, 2010). Reduced fuel costs The reduction of fuel costs have made the firm increase its revenue due to reduced operational costs, thus reducing the cost of capital for the firm (easy Jet, 2014). The reduction in fuel costs has also increased competition in the aviation industry as various airlines have reduced the ticket prices, thus making more customers use service and also leading to price wars (Katie, 2013, p.123). Besides, globalisation is projected to boost air traffic in the long run. More people are projected to travel due to increased interconnection among people across the globe. Exchange rates In the same way, as Europe becomes integrated; the introduction of the single currency is expected to bring more business to easyJet (easyJet, 2014). The Euro is used in over 19 nations among the member states of the European Union. The financial reports evidence that the firm is improving economically. At the moment, pound is against the euro with roughly one pound equals to 1.40 Euros. This may encourage the U.K travels to the mainland Europe (Adrian Haberberg, 2013, p. 689; easyJet, 2013). Social These are the cultural aspects of a business environment (Kotler, 1999). Change in lifestyle The firm has caused a change in lifestyle where people traditionally believed that travelling by plane is costly (Taneja, 2012). The cultural change of people’s attitude towards travelling as well as increased domestic tourism will be beneficial towards the growth of easyJet (Jones, 2012). Besides, increased staycations may increase the firm’s growth. Aging population With an increasing aging population between 55 and 75 years of age who make up 40% of the total population (Jones, 2012), increased income and the need to have a work-life balance, people prefer to spend more money online and leisure positively, thus impacting positively on easyJet. With the advances technology, most young people also prefer to spend money online rather than dealing with travel agents (Ranej, 2012), which is more likely to increase the ticket sales. Technological The technological aspects greatly impact on the growth and development of an organisation (Kotler and Keller, 2010). Internet There is an increase in Internet use making the firm to use Internet-enabled phones to carry out its operations more efficiently together with opening new ways for the clients to have knowledge about holiday locations. The development of e-commerce has made it possible for about 96% of easyJet’s customers to purchase tickets via the Internet. This has made the booking systems to be transparent. Besides that, the firm has also introduced Internet check in services (Adrian Haberberg, 2013, p. 689; Jones, 2012,). Use of smartphone in online marketing Another technological effect on the firm is the emergence of social media, which the firm has used as a marketing tool. The use of social networks, like MySpace, Instagram, Twitter, Facebook, and Whatsap have not only accesses a wider customer base, but also increases sales. Conclusion In summary, easyJet operates in politically stable nations. It has also changed the notion that travelling by plane is expensive by providing affordable air prices. The utilization of advanced technologies such as the automation and Internet has improved the firm’s performance. The major concern for the airline firms is to use aircrafts that do not pollute the environment. The firm needs to reduce carbon emissions and noise pollutions. 2. ANSOFF MATRIX Introduction The Ansoff matrix is defined as a model used by managers and senior executives at corporate level to strategise on how to grow the business through new or existing products as well as in existing or new markets (Beech & MacIntosh, 2012, p.14). Corporate level decisions are strategic decisions made that often affect the entire organisation and multiple markets (Ketler and Koller, 2010). Figure showing Ansoff matrix (Ansoff, 1957). Market penetration Market penetration entails increasing the market share within the market segments that you already operate in (Westwood, 2012). Low-cost strategy The firm has penetrated the airline market by means of a low-cost strategy. In other words, the firm provides low cost flights. easyJet operates in a mass market that comprises of price sensitive customers. This makes them to react considerably to any change in prices downwards thus increasing the market share. Promotion EasyJet can also enhance its market penetration by increasing advertising both using print and electronic media and adding more sales representative in order to increase the sales (Beamish and Ashford, 2012; Jones, 2012). Product development In this strategic option, a firm needs to come up with new products for the existing market and customers (Westwood 2012). easyJet currency card It targets the existing market by developing a currency card that offers better value for money as compared to its rivals. The pre-paid card enables the user to spend money across Europe. The use of the card complements the online and cash payment systems, thus increasing efficiency. Passenger classification based on quality The firm has also introduced business class in addition to the single-class passenger outfit (Beamish & Ashford, 2012, p. 44). The clients using the business class planes travel more frequently in key business routes as well as in new and emergent markets in search of business opportunities. Market development Market development involves searching for new markets for the existing products (Baker, 2012). Moving in new markets by establishing new routes The organisation attempts to expand its geographic coverage by way of moving into new markets like new markets abroad. EasyJet has grown tremendously by providing new routes for flying including the Funchal-Manchester Intl, Amsterdam-Toulouse, London Gatwick-Stuttgart, Krakow-Lyon, Seville-Toulouse, Lisbon-Ponta Delgada, and Bologna-Hamburg routes among others (Ingold, Yeoman and McMahon-Beattie 2012). By operating in the new geographic markets, the firm increases its probability of expanding its services to new markets as well as a small number of non-EU destinations. Internet marketing With the recent advent of online marketing, the firm can use online selling channels such as social networks (Facebook, My Space, and LinkedIn), video-sharing sites (You-Tube), micro-blogging sites (Twitter), and photo sharing (Taneja, 2012; Jones, 2012). The utilization of social media as a marketing tool will enable the firm access a wider market globally. Diversification Diversification entails moving of new products into new markets (Baker, 2012). New business ideas Even though the provision of flight services is major business of easyJet, the firm has diversified into other programmes with each supply chain owned by the company producing different products as well as market-specific services. EasyJet has diversified into Easycar, for car rental services, offices, booking.com that broker hotels, Internetcafe, easy money, and gyms among others (Withey, 2013, p. 68). As for the rental cars, when the passengers arrive they can rent the cars to make the mobility easier. Booking.com acts as broker between the clients and hotels that offer services required by the clients. These activities increase the firm’s revenue. However, the advent of easyMobile failed due to stiff competition from established mobile operators. This reduced the firm’s revenue. Travel solutions The firm offers different services such as providing travel solutions package in order to cater for the broad range of client expectation and requirements of both the holiday as well as frequent travellers. This caters for the common need of comfortable flights. The provision of travel solutions is aimed at connecting the consumer and corporate sectors of the business (Beamish and Ashford, 2012, p. 44). Conclusion EasyJet has effectively used the low-cost strategy to gain entry into foreign markets and it is core business. By lowering its fares and using different classes, Easy Jet ensures that more people are able to travel. Market penetration involves lesser risk as compared to product development and market development. Diversification is the riskiest strategy since the more the organisation moves away from what it has been doing in the past, the higher the probability of more uncertainties being created. On the other hand, when the current business activities are being threatened, diversification assists to spread the risk. 3. VALUE CHAIN ANALYSIS Introduction The business level strategies are plans firms use to carry out various functions in the business operations (Verweire, 2014, p. 22). EasyJet strives to add value to its products and services in order to attract more customers in the high competitive aviation industry by analysing its value chain. A value chain is a structures framework for evaluating performance. Porter’s c value chain analysis model comprise of primary and support activities. While the support activities support the primary activities, the primary activities are related directly to the manufacture, sale, and support of the good or service. The value chain analysis allows firms to their performance and efficiency. Besides, it also determines which area may add customer value. Value chain analysis (Porter, 1985). These coordinated and integrated actions are aimed at gaining competitive advantage. Primary activities i. Inbound logistics It involves arranging the movement of the inbound materials (Kotler, 1999). Fuel hedging The firm uses fuel hedging to cushion the firm from the rising fuel costs. This increases profits, therefore, adding value to the firm’s operations. Cargo monitoring The firm has warehouses to monitor its cargo, fuel, and drinks. The stock is managed to make sure that are reductions in the stock turnover. As a result, it reduces wastage and ensures safety of the stock, as well as reducing storage costs. ii. Operations Operations entail the management of the process that transforms inputs into outputs (Kotler, 1999). First, the airline uses a single type of aircraft. This makes maintenance easy. Second, there are quick turnarounds, which have increased the firm’s performance (Verweire, 2014, p. 22). This results in increased trips and reduces waiting time, ultimately increasing profits and revenues. iii. Outbound logistics Outbound logistics is the process associated with storage and movement of the final product (Kotler 1999). More airports The firm has increased its airport locations (130 airports) (Mayer, 2012). By having more airport locations, more customers can be accessed to the firm’s services leading to more sales and profits for the firm. Ticketless travel The use of ticketless travel is not inexpensive to the customer, but also results in reduced operational costs for easyJet since the travel agents have been eliminated. Besides, it eliminates the occurrence of fraud among the customers. For example, a passenger purchasing a paper round-trip ticket for a one-way journey so as to avoid paying the higher one-way fare. iv. Marketing and sales Marketing and sales involve selling the service and process for developing offerings that are of value to the customer (Kotler 1999). Electronic marketing The use of Internet promotions, advertisements, and electronic tickets has ensured that the firm has a low marketing budget and increase customer base and needs (Henry, 2011, p. 194; easyJet, 2014). The Internet is also an actual sales channel where ticket purchases can be made directly. More than 90% of the tickets are sold online (EasyJet, 2014). Print media The firm carries out promotions using posters, sales personnel, putting adverts on aviation magazines, posters, sticker, and brochures alongside digital marketing. This has increased awareness of the firm’s products and services. v. Service Service includes all the activities needed to keep the service working successfully for the buyer after being delivered (Kotler, 1999). Provision of in-flight refreshments and services for lost baggage and complaint follow up (Verweire, 2014; Mayer, 2012). The value chain does not suit the service, since the service industry as services are inseparable and perishable, meaning there is no product to provide after care for. Support activities The support activities that help in the smooth functioning of the value chain are discussed below. i. Human resource The human resource comprises of all the activities ranging from recruitment, to hiring, compensation, and dismissal. Recruitment and selection The firm recruits mostly young people (Koller and Keller, 2009). As of December 2013, easy Jet had 8,900 employees. The young people are motivated to work than old people. This is because most of them are fresh from training and do not have family obligations as older people. Most are motivated by being rewarded more financially in comparison to the rivals. A motivated workforce results in increased job performance, which in turn, adds value by increasing the firm’s revenue and profits. Training and development The firm also trains and develops pilots, yield analysts, and in-flight attendants. EasyJet’s staffs need to improve their performance to make customers come again (Jones, 2012, p.34; Tanje, 2012; Mayer, 2012). Training and development enhances service delivery such as customer management. ii. Technology department Technology involves software, hardware, equipment, and technical knowledge in the transformation of inputs into outputs (Kotler, 1999). Booking and ticketing online Technology plays a very crucial part in reducing costs through computerised booking system, and Internet ticketing. The online reservation system makes 90% of the firm’s sales. This reduces the time taken and costs to acquire the ticket. Computerised baggage system The baggage training system improves the delivery of high quality services (Verweire, 2014, p. 22; Jones, 2012; Mayer 2012). More baggage can be handled and there security is guaranteed creating trust in the customers for using the service. iii. Procurement Procurement is the acquisition of services and products from an external source (Kotler and Keller, 2010). Suppliers easyJet purchases its planes from Boeing and Airbus. Besides, most of the spare parts used by the easyJet fleet are imported. This implies that more costs are incurred in the procurements of the parts. However, by using the same type of plane it means the cost of maintenance are reduced. Inventory The use of inventory management and warehousing reduce operational costs and increase performance (Jones, 2012; easyJet, 2014). iv. Firm infrastructure The firm has a relatively flat organizational structure (Easy Jet, 2014). This results in low overheads. Correspondingly, the bottom-up management structure ensures that decisions made by the firm’s management were proposed by the employees. Besides, the managers can easily communicate goals and values to the employees. This enhances planning. Quality assurance EasyJet uses total quality management because its main purpose is to provide quality products to the customers, which in turn, would lower costs and increase productivity. Also, EasyJet has less check-in desks that reduce operational costs (Jones, 2012). Legal The firm has a fleet of more than 200 aircrafts that are compliant will the safety measures as required by law (Mayer, 2012; Jones, 2012). Once safety is guaranteed, the customer’s trust with firm’s services is built. Limitations The major limitation is that the value chain is designed for the manufacturing firms with physical products. However, the firm deals in intangible things, thus not an ideal model for the service industry (Sherry, 2008, p.32). Conclusion EastJet value chain has been creating value for the company as evidenced in the geographical coverage of the firm as well as annual revenue. In essence, Easyjet’s core competencies are operations, technology, and inbound and outbound logistics. The no-frills airline is reinforced by incorporating more seats on the plane with Internet operations, with locations of airports, with marketing, and in-flight refreshments. However, some sections of the value chain are weak resulting in reduced performances, such as procurement department needs to be looked into since most of fleets’ parts are imported. Read More