Longitudinal Strategic Development Study on easy Jet - Essay Example

? Longitudinal Strategic Development Study on easy Jet Contents Recent Past 4 Recent Strategic Development 4 Strategic Development History 4 Strategies 5 Changes in the strategy 6 Outcomes and consequences 7 Current: Current Strategic Situation 7 Macro Environment 8 Industry analysis 9 Competitive environment 10 Threat of substitute 11 Threat of new entrants 11 SWOT Analysis 11 13 Present market present product 13 New product and existing market 13 Existing product new market 14 Diversification 14 Changes and trends 14 Resources and capabilities of easy jet 15 Capabilities 16 Synopsis of strategic situation 16 Future: Strategic Decision for the Future 16 Recommendations 17 Control and Monitoring 18 Reference 19 Bibliography 22 Recent Past Recent Strategic Development Easy jet is one of the successful low cost airlines in Europe, established in the year 1995. It is based in London Luton airport and operates domestic and international services to about 400 routes in Europe and carries about 40 million passengers in a year. The airline industry and the travel agencies are competing with each other in order to build up a strong online strategy to attract the customers and in return generate sales. Easy jet has also developed online strategy by offering online holiday packages. It deals in mainly two types of holiday packages. The first is termed as ‘dynamic packaging’ which includes selling the customers tour package which involves separate charges for flight and hotels. The next type is ‘Opaque Packaging’ where the customers pay a single price for both the flight and hotels. Easy jet provided multi language option for flights but not for the holiday packages though it wanted to make the concept of holiday packages internationalise and increase the market share. To enable this service IVIS group provided the airline with a team of technology consultant to assist the team of easy jet and work tighter to understand the online processes (IVIS Group, n.d). Strategic Development History The airline industry of Europe is regulated by the European Regions Airline Association which represents about 65 intra European airlines which carry 70.6 million passengers to about 426 destinations in 61 European countries (ERA, 2011). Some of leading airlines in Europe are Lufthansa, Ryanair’s and Air France-KLM which have the best starting position in Europe and Easy jet and British Airways are the potential followers (ESMT, 2008, p.10). The European airline industry has shown a steady growth in the past decades and had doubled in size since 1990. The growth of airline industry was mainly because of the growth of low cost carriers. The demand for air travels is still the same as it was in the year 2000, but with a dip in the market share. But the low cost carrier has grown widely with double digit rates and has captured a large part of the market share. From just merely 5% of market share in the year 2001 it has now come up to 32% in 2008. With a high market share these low cost airlines relay on the cost advantage and low ticket prices which helps them to access new and potential market and generate new traffic. Easy jet along with Ryanair respectively accounts for 43 and 65 million passengers and are larger than other established carriers. Despite the facts the European airline industry is fragmented (HHL, n.d, p.9). Easy jet airlines have experienced a strong growth in terms of revenue over the years. The passenger demand has increased on an average of about 59.5%. It has got a strong financial background as in the year 2002, easy jet balance sheet shown an excess balance of about 400 million pounds (Easy jet-a, 2002). Strategies Easy jet strategy is based on the six strengths that support the competitive, sustainable growth and scalability. Easy jet strategy, which it had been following from the past are the airlines commitment to safety and service to its customers, low fare structure, strong branding, low cost of unit, a strong corporate culture and its multi based network (Williamson, 2002). The company mission states to provide its customers with safe, point to point service and good value. Thus it has maintained its mission. Easy jet concentrates more on the pricing strategy and has become one of the most successful low cost carriers. It has use the internet to reduce its distribution cost, no distribution of free lunch on board, etc. Its operational policies were to keep the cost minimum so that it can allow the airlines to offer the lowest fare. This operational model also concentrated on moving people from one point to another (ICMR, 2003). The reason why easy jet succeeded was because of commitment of providing a good service with no- frill approach. Stelios, the CEO of the company, marketed the brand with all the available means to increase the popularity of easy jet. It offered tickets almost half the price of railways. The company thrived on volumes and not on profit margins (ICMR-a, 2003). Changes in the strategy Easy jet has changed its fleet strategy and aircraft orders. At its start it used Boeing 737 aircraft bit in the year 2002 it had ordered an Airbus. The Airbus, A319, was introduced in Geneva in October 2003. The company has about 33 outstanding options with the Airbus which is valid until 2013. In the year 2002, the fleet comprised of 64 aircrafts out of which 10 were owned and the rest 54 were given under operating lease. Easy jet fleet averaged about 30.7 aircraft, with an increase of 41% as compared to last year (Easy jet-a, 2002). According to Porter, companies have only three strategies from which they can choose from and run the organisation. They are Cost leadership Differentiation Focus (Kossowski, 2007, p.10). In respect to easy jet airlines, it has adopted a low cost strategy. It was believed that the airline were price elastic, when the price gets reduced people tend to fly more. And this was what easy jet has done and has become the cost leader. It is one of the most successful low cost airlines in Europe. Easy jet adopted cost leadership strategy with the reduction of all unnecessary services and providing the customers with just basic airline service with a smile and offering flights at a low price (Business teacher, 2011) Outcomes and consequences Easy jet strategy has led to an increase growth of its market share and attracting customers. Also the on time performance of the airline has led the company reach a stable position and acquires the market share. Despite factors like rising of fuel, the company revenue in the year 2010 grew by 7.5% to 654million pounds and also the number of passenger travelling with easy jet were up by 8.8% to about 11.9 million pounds. Easy jet has gained a respectable market share across Europe (DBS, 2010). Easy jet has become the cost leader by cutting out the unnecessary costs, frills and non value added services. Easy jet was positioned as common man airline and thus the rate of passenger increases considerably from time to time (ICMR-a, 2003). With the introduction of airbus, it has been able to attract more number of passengers. Recently the company easy Jet was marked as world’s quickest and youngest airline to reach a fleet of 200 Airbus. The Airbus A320 Family is now the world’s best single aisle aircraft family (TIACA, 2011). Current: Current Strategic Situation The current strategy adopted by Easy jet was of cost leadership. In the year 2002, took over its rival Go for 374million. Go Airways was one of the biggest competitor of the airline, thus with its takeover Easy jet became the largest low cost airline in Europe. The success of the airline depended upon its commitment of providing quality service without frill approach. The operational policies also supported the strategy of the airline and provided a competitive edge over its competitors. Easy jet strategy was to keep cost at a minimum and offer lowest fare to its passengers. The low cost airline was fairly successful in Europe because of its increasing number of passengers travelling between different countries. The airline identified the business opportunity and offered tickets at a very low price which made an intense competition between the low cost carriers (ICMR, 2003). Macro Environment The macro environment analysis deals with the environment which has a power to alter the demands for the product which are offered by an industry, the prices of the product and the way in which firm competes with each other. The factors include Political, Economical, Social, and Technological (Haberberg & Rieple, 2008, p.105). Political factors One of the basic factors is the political stability that contributes to the airline industry. An unstable political condition can pose a threat to the airline industry. For example, the 9/11 attack caused an uncertain disturbance and imposed a negative impact on the airline industry (Kamat & Tornquist, 2004, p.12). The open skies agreement allows for a partial liberalisation of air travel and has replace the bilateral aviation agreement between United States and European Union (IATA, 2011). Easy Jet was the first airline of Europe which has made history with the launch of its service between London and Marrakech, as its only airline which had flew to Morocco under the Europeans open skies agreement (Manson, 2006). Economical factors There is a direct relationship between the air industry and the country’s economy growth rate. With a high growth rate, there arise many opportunity for the airline industry. With the growth in world’s economy rate the demand for airlines had increased relatively. The growth would in turn increase the people income and with the increase of globalization, the airline industry has been affected positively. Social factors The social factors related to an airlines industry includes the changing habit of the people which has profited the airline industry to a great extend. In a country like India there are different income groups of people, the airlines should serve the individual accordingly. The status symbol that the passengers bear while travelling in a plane can also be regarded as a social factor. Technological factors The use of internet has affected the airline industry and at present almost all the air tickets are done through e ticketing. The internet has bought huge opportunities to the industry. The e-ticketing helps the industry to bypass obstacles and save money. Easy jet has an online site of holiday package where the customers can choose their desired holiday packages. Industry analysis The airline industry continues to remain one of the largest and growing industries. It encourages economic growth, international investment, tourism, and world trade and also central to globalization taking place in other industries. The airlines industry has grown about 7% in the past decade and experienced a strong demand for leisure and business purpose globally. According to IATA, the international air travel would grow at 6.6% a year by the end of the decade and over 5% from 2000 to 2010. In the developed countries like North America and Europe the growth rate tend to be bit slowly at an average of 4% to 6% but it has also been said that these countries continue to rule the markets in the future. In Europe the government is not allowed to subsidize the airlines which have incurred loss. The number of passengers has doubled, thus the success of the airlines depends on the ability to tackle the cost and improve the products and thereby achieving a high position in the world aviation industry. IATA forecasted that the ROI would increase from 4% to about 7% to 8% and would match the cost of capital. Net profit would also increase to about $30 billion (Tarry, 2011, p.1). Competitive environment Competitive environment can be analysed by the help of the Five forces model proposed by Michael Porter. The more power each force has, the less attractive the industry will be. The five forces include suppliers, consumers, new entrants, substitute and rival firms (Bohlander & Snell, 2009, p.53). Bargaining power of supplier The bargaining power of the suppliers is high as the market is dominated by few suppliers such as Boeing and Airbus, the seller having greater power over airline. The switching cost of the supplier is high. This makes the supplier bargaining power high. Bargaining power of consumers The market is flooded with a large number of competing firms giving consumers a wide variety of choices. The switching costs are also considerable low for the customers ensuring a high bargaining power of consumers. Threat of substitute Substitutes for the participants of the airline industry include road transport and railways. These modes have better reach and penetration and also popular considering the lower pricing strategy. The threat of substitute is high as there are numerous forms of communication and the switching cost is relatively low. Threat of new entrants The airline industry requires a good amount of capital to enter the market, the profit margin being low; there is no differentiation between the products and services. The industry is also highly capital intensive and a new player requires access to huge volume of funds. Thus the threat of new entrant is low. Rivalry The rivalry among competitors is high as there are many big players in the industry like Ryanair, which is an also a low cost carrier. Price rivalry among the airline industry is also quite common with the introduction of low cost carrier SWOT Analysis Strength: Easy jet is the provider of low budget and with no frill air travels. It is one of the recognised brands in UK. It offers a high quality of service at low price and has a user friendly web site. Weakness: The airlines do not offer free food service to its passengers. Some of its competitors can restrict and shape pricing on the airline as it comprise of less profitable routes. Opportunities: The airline can open up routes to other cities of Europe particularly from Dublin to UK as this route would provide with potential travellers because of soccer match. Apart from this, it can offer refreshments on longer routes. Threats: Threat may be from its competitors flying in the same route, from external forces like an increase in the cost of fuel or economic down turn. Ansoff Model Figure 1: Ansoff Model (Source: Stone, 2001, p.51) Present market present product The low cost airlines follow a strategy of market penetration. Easy jet with no other exception also applied the market penetration strategy and identified routes between airports and had gained market share, competitive factor being frequency of the airlines. Easy jet has achieved market penetration with the acquisition of Go Airways. New product and existing market New product development includes introduction of new aircrafts or any kind of benefits offered by the company. Easy jet had introduced selling of tickets through websites. The new flexi fare would allow business travellers to book fares through its website and the company ensures that they always get the best available price. Existing product new market Easy jet has followed a policy of growth and expansion with new routes, with this easy jet has become the largest low cost carrier in Europe. Diversification To compliment the airline, Easy jet has launched many budget hotels. The airline has diversified its business toward hotels which would further help its passengers in travelling with Easy jet (Newbusiness, 2009). Thus analysing the SWOT and Ansoff model, easy jet has options of market penetration into new routes such as Dublin. The diversification strategy adopted by Easy jet has also proved to be a success. Only section where Easy jet did not live up to the expectation was of providing free lunch or any kind of refreshment but this weakness was overcome by its strength of offering a low cost fare with the facility of new method of flexi fare. Thus overall the airline has been a success and according to the Chairman the airline would continue to emerge as successful source of revenue for the company. Changes and trends The airline industry has changed since its inception. With the introduction of low cost carriers the airline industry is experiencing a huge success. With the deregulation of the industry, airlines reconfigured the routes and the equipments. The airfares were taken into consideration and were adjusted during inflation with a dip in the prices of about 44.9%. The deregulation has benefited the airline industry (Smith & Cox, 2008). The airline industry has recovered from the 2009 downturn, as the traffic has increased 6.9% globally and will grow 4.7 and 4.9 respectively in 2011 and 2012. The aircrafts would to mitigate the footprints of the aviation industry on the environment and help to combat the climatic changes (IISD, 2011). Easy jet success is linked with the well being of the easy jet customers and the communities. According to the company, the safety of the people is the topmost priority of the easy jet airlines. They focus on to attract the right target, in 2010 the company introduced IT system to improve the cabin crew. In order to get the right people for the organisation, Easy Jet focuses on the talent, engagement and communication. The organisations aim is to ensure that the people contribute to business; they aim to recruit the best employees and can easily achieve the objectives. The organisation comprises of nine crucial members who contributes to the success of Easy Jet (Easy jet plc, 2010). Resources and capabilities of easy jet Easy jet financial resources are considered stable and supports expansion plan and ensure that the company can ensure external shocks. The liquidity target for the company is 4million cash per aircraft. According to the annual report of easy jet, the company is cash generative and has an ability to maintain a balance sheet with formulaic returns to its shareholders. The first dividend issued by easy jet will be payable in 2012. Thus with the introduction of dividend, the most relevant target is ROCE (return on capital employed) (Easy Jet plc, 2010). Capabilities Easy jet has opened up new routes from Scotland including 41 destinations. The airline indicated that new A320with 180 seats would compliment Easy jet Edinburgh with a capacity increased to 3, 00,000 seats. The airline is preparing to replace one of its aircraft from Glasgow to carry 40,000 passengers (Mortgage Calculator, n.d). Synopsis of strategic situation Easy jet one of the most successful airlines in Europe would remain to be the low cost carrier in the future and plans to succeed over this strategy. According to the statement given by easy jet Chief Executive, the airline has given an exceptionally tremendous performance which is considered as a tribute to the business and its people. During the recession easy jet could make profit of 43.7 million euro and an increase in revenue by 12.9% this was possible because of the factors like better network quality and lower cost. Thus easy jet would stick on its ground of being a low cost carrier and providing the people with safety (Easy jet, 2009). The company can also introduce new strategic polices which would help the airlines in a positive way and help it to generate revenue. Future: Strategic Decision for the Future From the above sections, it has been analysed that the airline easy jet has been operating as a low cost carrier giving the passengers what they need in terms of price. One of the challenges that the European airlines are facing is the pressure to reduce the cost and Easy jet has been the cost leader in the low cost carrier category. Easy jet has been the most successful low cost carrier operating in Europe. It has achieved cost leadership in order to stay ahead. Along with the cost leadership strategy the company can explore on different choices which would make the travelling experience much more memorable for its passengers. The company has diversified and introduced budget hotels which would provide ease and comfort for passengers travelling from one place to another. The future strategies for the airlines can be it can enter into code share agreement with other countries or states which would help it to go for international expansion. Easy jet can increase its network and can link every possible airport so to increase the demand and attract customers (Delfmann, 2005, p.111). Since the European airline industry has been saturated, Easy jet can opt for international expansion in countries where the growth is promising in the near future. It can expand in either China or India. Lastly the airline can go for market penetration which would help the airlines to increase its market share in the existing market Recommendations Based on Ansoff model and SWOT analysis of Easy jet, the airline can build up networks with other routes which in turn would help the airline to link some of its major cities together. For example a key route can be build from Dublin to the United Kingdom, as this route comprises of large travellers who goes to watch the soccer match in UK (Business Teacher-a, 2011). Easy jet can thus extend in new cities with its current aircrafts. According to Ansoff model, the airline can expand itself in new and emerging countries which are expected to grow in the aviation sector in the near future to come. The Asian countries are potential aviation sector where easy jet can expand. China is the second largest aviation market and India ranks ninth in the aviation sector. Both the countries have different infrastructure and related problems to it. The infrastructure of China is incredible but its air traffic control is not efficient enough whereas in India, the biggest issue is its infrastructure but with the development of new terminals the Indian aviation section would bring in cost effective solutions that would facilitate the growth of industry (IATA-a, 2010). Easy jet can go for market penetration within the industry as the company has already acquired Go airways. The company can look out for acquisition of other low cost carriers within its country which would prove beneficial and help it further in market extension. For strengthening its promotional and marketing tools, it can update versions of its fly on the documentaries which would help it to promote its brand and would increase publicity (Business Teacher-a, 2011). This would help the airline to gain more market share in the industry. Control and Monitoring The airline can control and monitor its financial as well as non financial measures by way of balance scorecard. This would provide in evaluating the performance and what actions needs to be taken so that the airline can gain market share as well as profit margin (Balanced Scorecard Institute, 2011). Reference Balanced scorecard institute. (2011). What is the balance score card. [Online]. Available at: http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx. [Accessed on October 29, 2011]. Bohlander, G. & Snell, S. (2009). Managing Human Resources. Cengage Learning. Business Teacher. (2011). A case study documenting easy jet success and challenges. 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