Management and Business Operation - Easy Jet Airline - Essay Example

Management and Business Operations (Easy Jet Airline) Management and Business Operation Easy Jet airline Easy Jet Airline Company Limited (popularly known as easy Jet airline) is one of Europe’s leading and largest low cost airlines, which brought success to the concept of ‘no frills, low cost’ in the aviation sector in the continent. It is a public limited company and has its base at London‘s Luton airport. The airline operates its flights in about 200 routes connecting 65 major cities of Europe. Low cost airlines operate on the principle of giving lowest possible airfares to passengers. They manage by this by following certain strategies. Low cost airlines do not offer the traditional complimentary services like food and entertainment free of cost on the flights. They try to have optimum plane utilization by running short flights with quicker turn around times. They keep simplified reservation procedures, provide point-to-point travel and generally avoid connecting flights. Employees are required to perform multiple roles for cost saving. Though the concept was initiated in 1949 by Pacific southwest airlines, it was popularised and met with success by Southwest Airlines in the U.S. Easy jet Airlines of Europe follows the business model of Southwest airlines. Easy jet airline was launched in the year 1995 by Sir Stelios Haji-Ioannou of the easy group. The airline started its operations on November 10,1995. Initially it had two Boeing 737-200 aircrafts and opearated between London Luton to Edinburgh and London to Glagscow. It has been growing eve since and the present fleet strength is 118, consisting of both Boeing 737-200 and Airbus A-100 , with a possible expansion by another 100 numbers. It became a a public limited company inOctober 2000 and is a consituent of FTSE index 250. The major shareholder of the airlines is the family of the founder who holds around 21.5%. It acquired a 49% stake in Tea Switezerland which was renamed as easy jet Switzerland.In 2002 it’s operations were further strengthened by the acquisition of Go Fly, a London Stansted based low cost airline. To make its claim of ‘affordable air travel to all people’ true, it followed an aggressive pricing strategy.. The airline tickets were to be booked only through phone directly and travel agents were not allowed in to the transctions. This was to avoid the commissions to be paid to the travel agents. Later bookings through the internet was introduced on a trial basis and now booking is only through online except emergeny last minute bookings. Best Airline Website Award and the Travelmole Web awards were awarded to Easy jet Best Airline web in June 2006 for its uesr friendly websites. By comparison, though easy Jet’s air fares are not the cheapeast in the budget airlines segment, the higher turnover helps it claim the leading spot in the low cost airline space. Moreover unlike other budget airlines, easy Jet caters to both leisure and business travellers, connecting the major airports(many low cost airlines operate between the secondary airports to reduce costs) and always uses new aircrafts in its fleet. But one complaint about easy Jet is it’s inability to strictly adhere to the time schedules. It is generally critisized for it’s lack of maintaining punctuality . But a low cost airline is generally not given the first priority in a major airport which handle huge traffic. As a result it’s time schedules get affected. Macro environmental Analysis Every business has certain uncontrollable factors that may affect their operations. The field of aviation is not an exception to this general rule. Increse in oil prices leading to rise in aviation fuel costs, changes in the excahange rates, security concerns due to the recent hike in terrorism, Governmental policies on aviation due to the concerns on environment are some factors which may play an important role in the successful operations and growth of budget airlines. Easy Jet too faces all these concerns. The rising oil prices have resulted in the escalation of aviaton prices too. Due to this price hike easy jet has reported an increase in loss of 14%($7.1 million) for the six months period ending March 2006. Though it’s passenger traffic volume has increased by 25% (13.5 million) compared to the previous year, the gains were offset by the increase in fuel costs. The company has so far tried to absorb the rise in fuel costs internally. These were not passed on to the passengers as no fuel surcharge has been introduced. The airline has said that the fuel costs amount to 18% of the total costs and it expects another 41 million spending in the next six months. Still the company says that it’s policy is for a balanced growth with a steady progress on costs and it expects to combat the rise in fuel prices by taking cost saving measures . Opening up of 40 new routes has resulted in increase of 1% in revenues per passenger and the overal increase in passenger volume to 26% increase in total sales. The companyhopes to present a pre tax profit matching the industry expectations,though it would be lower than last year due to the current fluctuations in oil prices and exchange rates. The continuing political uncertainties and the disturbances in the west Asian region only contribute towards the increase in oil prices. If the current scenario persists,it would be interesting to watch how far the airlines can accomodate the rising fuel prices without eroding its bottomline and not passing on to passengers. Another major factor is the changes caused in the environment by aviation fuel emmissions and the demands to control it by necessary governmental policies. For quite some time,environmental pollution is a cause for major concern and the role of aviation industry in contributing to that effect has come under major ciriticism.Aviation causes noise and air pollution in the environment. Residential areas situated near major airports face theis problem of excessive noise over 100 db produced by the landing and takeoff of flights. This high level of noise can produce hearing loss,blood pressure and immune deficiencies. More critical is the emmission of green house gases from the aircrafts which causes global warming. Global warming leads to climatic changes in the world which may adversely affect the balance of human life in the planet.The main green house gases that are produced due to the combustion of aviation fuel are carbon di oxide, oxides of nitrogen,sulphur oxides and carbon monoxide. Air travel has become more affordable due to low budget airlines and the air passenger traffic has increased manifolds over the past decade. European Low Fare Airlines Association has said in its report that impact of low cost airlines on environment shoiuld be studied Environmentalists argue that low cost ailrlines have contributed mailnly to the increase in the air traffic and stringent measures should be taken to regulate them. . Easy jet has responded to this accusation by saying that it operates only newer and fuel efficient aircrafts and its mode of operation to fly short flights save more fuel than many long distance flights. However, in response to the growing demand that green house emmisions due to aviation be checked , the various Governments have agreed to find a solution through the International Civil AviationOrganisation. One of the suggestions is introductionof aviation fuel tax. The effect of governmental regulations in this regard on the low cost airlines is to be seen. The recent increase in terrorism across the globe has brought many changes and uncertainities in the aviation sector. This has resulted in airlines taking more stringent measures with respaect to air travel security which results in increased costs. Also a terror alert in one place affects the air travel in other sectors too and this causes unexpected losses to the airlines in the form of cancellation of flights and reimbursement of passenger fares. This puts more burden on low cost airlines than the normal carriers. Easy jet ,continuing with its policy of providing the passengers with safe,economic point to point air service, has outsourced its IT infrastructure services to servises firm Savvis. It has aid this was done with an aim to reduce costs and improve efficiency. As 98% of the airline’s business is done through online, it is important that the IT services(comprising ticket reservation, flight operations and managing the web site ) be maintained in an efficient manner. Easy Jet hopes that the resultant cost reduction would help it offer low fares to the customer. Micro Environmental Analysis Easy jet was listed in London stock exchange in october 2000, five years after it was launched. The family of Stelios Haji-Ioannou (founder of easy Jet)continued to be the major share holderin the company with a holding of 17%. But in 2004, The FL group (owners of Iceland Air and Sterling) started accumulating the shares of easyJet and by next year it held 16.9% of the stock. This caused speculation in the industry about a possible of a take over bid by FL group. But they sold their stake in April 2006 for a profit of 140 million. The easy group continues to be the primary share holders in the group with a holding of 21.5%. There are many low fare airlines operating in the country fuelling a sky war among them. Easy jet faces stiff competiton from Ryan Air, another leading low fare air carrier in Europe. When easy Jet operates between all major cities, Ryanair connects secondary airports. While easy Jet targets both business and tourist travellers RyanAir tries to attract mainly the business travellers. Ryanair is more aggressive in marketing. They claim their air fare is half of easy jet’s. But in practical, their higher fees and taxes and their services only to the smaller airports (which may be slightly far from the original destination of the passenger ) result in the total fare being much higher than Easy Jet. Still there is an impression that most of Ryan air’s marketing and advertising strategies are done with easy Jet a rival. Generally low fare airlines operate with a single type aircraft and Easy Jet too followed this with flying only Boeing 737 aircrafts.It’s present operating business model warranted the expansion of the fleet with more aircrafs while realising a low total fleet operating cost. Hence in 2003 it decided to acquire 120 numbers Airbus 319 aircrafts. Since then there is an increase in the number of Airbus 319 in its fleet and the older Boeings are gradually taken off from the service except the ones those were due for delivery in2004. Easy jet entered in to a contract with Airbus for supply 120 Airbus 319 from September 2003 for five years and for another 120 numbers for the same price to be ordered at any time before 2012. The suppliers of engines and other necessary avionic accessories were chosen by the company after negotiating among many engine manufacturers and components vendors. Those found suitable were approved by the board of the company. Easy Jet managed to get considerable credits and other benefits from the engine manufacturer and the other ancillary suppliers. The credits thus obtined will be adjusted against the price of Airbus aircraft that would be purchased unde r the initial airbus contract. Also Easy jet has obtained extended warranty from the ancillary suppliers which would give them protection even after the period agreed with Airbus. This expansion is a major decision for Easy Jet with a long term perspective. Easy jet expects to handle the financing of these new Boeing and Airbus aircraft through various means such as sale and lease-back transactions, debt finance, bank borrowing secured on the relevant aircraft owned by easy Jet, public debt offers and easy Jet’s internal resources and cash flow. In the present condition it hopes to meet the terms of Boeing and Airbus by any of the above mentioned methods but there is no guarantee that these would be available to it in the future at the current rates. But presently it is expected that easy Jet would continue to have more number of leased aircraft to take advantage of the following factors. It can limit it’s depreciable value exposure on disposal of aircraft, present lease rates are very low and it can utilise the complete asset financing. Internal Analysis of easy Jet airlines As mentioned earlier Easy Jet was founded by Stelios Haji-Ioannou and it operates independently from other easy groupcompanies like easymoney,esaycar .com and easy value. Though it is a public limited company, its ‘easy’ brand is not its own and has been licensed to it by it’s founder who controls other easy group entities. Living true to its principle of low cost, the office of easy Jet is also located in a building next to the main taxiway. Easy Jet has a moto of providing safe, good value and point to point services to the leisure and business travellers with low fares across Europe and to realise that, it owes to develop its employees and maintain lasting relationships with suppliers. The main strategies followed by easy Jet to maintain the low costs are introduction of ticketless travel (Passengers are requird to book online and bring the confirmation sent by easy Jet . This avoids the cost of issue, distribution and checking of tickets), internet bookings ( to reduce distribution costs ), paperless operations ( all the operations, administration and management are completely computerised and can be accessed from any where – this has simplified the running of the airlines), efficient use of airports (though easy Jet operates between the major busy airports, by maintaining a turn around time of less than 30minutes, it is able to get more trips on high frequency routes at better charges. It gets better utilisation of the aircraft and the airports), reducing the unit cost of a every aircraft by optimum utilisation as mentioned earlier and not providing free food and drinks on the flight (though food and drink can be bought by passengers). The working culture of easy Jet is very simple. It follows an informal working style with a flat company structure, no hierarchies. It reduces work getting repeated and unnecessary management.Remote working and hot desking are key features of Easy Jet. Employees working in the office can wear casual clothes and ties are not allowed. The only exception to the dress code is the pilots. Stelios Haji-Ioannou, Founder of the airline retired as its chairman in November 2002 and rejoined as its non executive director in 2005. The group is presently headed by Sir Colin Chandler, Non-executive Chairman , Andrew Harrison, Chief Executive and a board of non executive directors . The day to day operations of the company are managed by Andrew Harrison, Chief Executive, Jeff Carr, Group Finance Director, Saad Hammad, Chief Commercial Officer, Andrew Barker, Planning Director, Mike Campbell, People Director and Toby Nicol, Communications Director. References Company overview, easy Jet.com Accessed 20th November, 2006 Done, Kevin, EasyJet to buy more aircraft as performance soars , November 15,2006 Accessed 20th November 2006 https://registration.ft.com/registration/barrier?referer=http://www.google.com/search?sourceid=navclient&ie=UTF-8&rls=GGLR,GGLR:2006-32,GGLR:en&q=technological+impact+of+easyjet&location=http%3A//www.ft.com/cms/s/a8bb44d6-744d-11db-8dd7-0000779e2340,_i_rssPage=87ef6c98-3018-11da-ba9f-00000e2511c8.html Ferguson, Tim, easy jet outsources IT, Tuesday 24 October 2006, Accessed 20th November 2006, Fuel costs to dent easy Jet profit, Accessed 20th November 2006. http://news.bbc.co.uk/1/hi/business/4574789.stm Low cost carrier, wikipedia, the free encyclopedia, Accessed 20th November 2006 http://en.wikipedia.org/wiki/Low-cost_carrier://en.wikipedia.org/wiki/EasyJet Read More