Operations Strategies of EasyJet vs Virgin Atlantic


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  • ----- Meeting Notes (07/01/2012 22:50) -----Good afternoonWelcome to Group B Presentation on the Operations strategies of Easy Jet and Virgin Atlantic2 companies who compete in the same airline industry but two companies who have two vastly differing strategies and in turn different operations strategies. Our presentation will take the format outlined in the next slide and in the end we will demonstrate whether each companies operations strategies helps it achieve a competitive advantage.
  • ----- Meeting Notes (07/01/2012 22:50) -----First of all we will
  • Before we delve into detail for each company let’s have a general overview about strategy within an organization.To achieve and maintain a competitive position in the marketplace, a company must have a long-range plan. This plan needs to include the company’s long term goals, an understanding of the marketplace, and a way to differentiate itself from its competitorsThis is essentially a company’s BUSINESS STRATEGY and for a firm to succeed the business strategy must be supported by each of the individual business functions such as marketing, finance and operations. So What is an Operations strategy?The way in which organizations plan and integrate all aspects of their operations in order to achieve competitive advantage.Competitive advantage is the way in which a firm DESIGNS its operation, or other activities, so that it MAINTAINS A REVENUE STREAM AND SUSTAINS ITS POSITION relative to other firms in the same marketplace.
  • As we learned from Neely’s (2008) approach to Operations strategy and Order Winners and Order Qualifiers, when determining the operations strategy firms generally consider 5 internal performance priorities:CostQualityDependabilityFlexibilitySpeedFirms generally adopt one of the 5 approaches in its operations strategy and It is unlikely that any single organization can excel simultaneously at all of the five operations performance objectives. Consequently, organizations need to choose which performance objectives they will give priority to.
  • Today we will look at two airlines operating in the same industry but with very different business strategies . The first is Easyjet airlines(as outlined in its mission statement. offers low-cost services aimed at price-sensitive customers so To support this strategy and to achieve competitive advantage every aspect of EJ’s operation should be focused on cutting cost out of the system. Time does not permit us to examine in detail every aspect of the operation but in this presentation, we will examine the business model and operations design that Easyjet has created to achieve competitive advantage and we will analyse whether they are achieving their goals
  • Next we willanalyze Virgin Airlines which has a business strategy to compete on quality. To support this strategy Virgin offers free drinks, show the latest movies, comfortable cabins, massages and specially designed meals in the premium cabins and various other perks to ensure that their passengers get the virgin experience Both airlines are successful and although they are in the same industry their operations strategies are different due to their business strategies.
  • Before we delve into each individual operations lets look at some characteristics of the industry they compete in:
  • Some other general characteristics are: It is worth noting at this point that low cost does not imply low quality and a low cost strategy can result in a higher profit. As we’ve indicated before EJ competes in the low cost sector so lets look at some specific characteristics of the operations function of EJ.
  • Now easyjet
  • Brief history
  • Lets look at the characteristics of its Operations using the 4 Vs modelVolume: EU Low fare passengers transported in 2010-200 millionVariety: Narrow range of offeringVariation: not much variation Variability: No customization[EUROCONTROL/STATFOR ]
  • As we know the OQ for the aircraft industry are generally
  • And from those the order winnersfor EJ
  • EJ successfully competes on cost so EJ entire operations is designed to support this strategy. Some examples are with higher seating density low training cost and spare parts inventory Highly incentivized workforce (variable portion of salary up to 40%)EasyJet sells around 95 per cent of all seats over the Internet. Its online booking system uses a variable pricing system to try to maximize load factors. (Prices start very low – sometimes free, and rise as seats are filled.) The fuller the aircraft the lower the unit cost of travel.Passengers are emailed with their travel details and booking reference. This helps reduce significantly the cost of issuing, distributing, processing and reconciling millions of tickets eachyear. Neither does EasyJet pre-assign seats on-board. Passengers sit where they like. This eliminates an unnecessary complexity and speeds up passenger boarding. Eliminating free catering on-board reduces cost and unnecessary bureaucracy. Passengers can purchase food and refreshments on-board.. EasyJet flies to the less crowded airports of smaller European cities and prefers the secondary airports in the major cities. These also have lower landing charges and normally offer faster turnarounds as there are fewer air movements. EasyJet’s efficient ground operations enable it to achieve turnarounds of less than 30 minutes. This means EasyJet can achieve extra rotations on the high-frequency routes, maximizing the utilization of aircraft. EasyJet’s ability to offer point-to point travel means that it does not have to worry about onward connections for passengers and their baggage, further simplifying its operations.EasyJet has embraced the concept of the paperless office, with all its management and administration undertaken entirely on IT systems. These can be accessed through secure servers from anywhere in the world thereby enhancing flexibility in the running of the airline
  • Network ArchitectureMarkets refers to the specific customers -B2C. Transactions engagement - EcommerceCapabilities are Aircraft Crew etc.. Customer relationships - how these designed and maintainedMarket OfferingArtefacts are the routesActivity refers to flightsAccess also tends to flight ticketsValue refers to value for moneyTechnologyInfrastructure relates to the secondary airportsCore technology refers to the one type aircraft. Process technology is the flight schedule. Product technology refers to the specific characteristics Economy no frills
  • Is it working? Lets have a look at it versus its main competitors
  • `
  • Not any more. As we see from the financials they are no longer able to compete head to head with Ryanair so their strategy has evolved from the traditional low cost model to more of a hybrid model. This is based on a variety of reasons but
  • Lets look at the characteristics of its Operations using the 4 Vs model5% of trans Atlantic market share in 2008Economy Class, Business Class, First Class, Flexible on all classesSeasonal variation
  • Basic priorities that must be met
  • As we saw, Virgin claims quality is its top priority and so as a company to achieve competitive advantage it must FOCUS on on the dimensions of quality that are considered important by its customers. That normally manifests itself in two dimensions superior aesthetics on its planes, high performance and excellent customer service. There must also be consistency in the service offered by Virgin.
  • They must implement quality at every area of their organization so:
  • Network ArchitectureMarkets refers to the specific customers -B2C/B2BTransactions engagement – Ecommerce/AgentsCapabilities are Aircraft Crew etc.. Customer relationships – Internet/personalMarket OfferingArtefacts are the transport and serviceActivity refers to flight or the seat on the planeAccess also tends to flight experience/ frillsValue refers to value addedTechnologyInfrastructure relates to the airportsCore technology refers to the various aircraftProcess technology is the flight schedule. Product technology refers to the specific characteristics full service
  • So does their operations strategy help.Due to the lack of financial information we focused on limited information but as quality is a subjective measure
  • An important way ofaccessing it is to see how they do in comparison to others on customer surveys
  • Operations Strategies of EasyJet vs Virgin Atlantic

    1. 1. MBA Executive Programme – 2011/12 MANM273 Operations StrategiesGroup Assignment(Group – B, EasyJet-Virgin Atlantic) Surrey Business School 1
    2. 2.  Introduction Market Overview Brief History of Each Airline Order Qualifiers and Winners Operations Strategy Industry Competition Conclusions 2
    3. 3. Business Strategy Operations Strategy:Marketing Strategy: Finance Strategy: The plan andDefines marketing Financial plan to integration of theplans to support the support the business operations to achievebusiness strategy strategy competitive advantage 3
    4. 4. EXCELLENT OPERATIONS GIVES THE ABILITY TOPERFORMANCE IN . . . COMPETE ON . . .Cost Low priceQuality High qualitySpeed Fast deliveryDependability Reliable deliveryFlexibility Frequent new products/services Wide range of products/services Changing the volume of product/service deliveries Changing the timing of product/service deliveries * Neely,A. (2008) Business Performance Measurement: Unifying Theory and Integrating Practice 4
    5. 5. 5
    6. 6. Vision: To be the best low fares airline in the world Operational Safety Our No.1 Priority Excellence Low cost and highly efficient Measurement F ‘06 F ‘07 Composite 0.82 0.82 Measurement F ‘06 F ‘07 risk indicator OTP 75% 75% Cost per seat ex fuel £ 28.36 26.55 Customer Low cost with care and convenience Measurement F ‘06 F ‘07 Strongly 19% 23% recommend People Revenue per 41.66 40.42 Make easyJet a great seat £ Driving place to work Financial Performance Measurement F ‘06 F ‘07 Deliver a superior return Satisfaction 68% 74% on investment Turnover 22% 10% Target 15% ROE Absenteeism 5% 4.5% PBT per seat £5+ Introduction 2 6
    7. 7. 7
    8. 8. 8
    9. 9. scheduled and non-scheduled UK Market Size-Year 2010 Operating Revenue (£) 12% Scheduled flights (12240000) 17% Non-scheduled 71% flights (2990000) Freight + Others (2078) Transported Passengers (million) Scheduled services 17% Passengers (101.5)[McKinsey] Non-scheduled 83% services Passengers (20.9) [Keynote-Market Report]-2010] 9
    10. 10. BUSINESS MODEL Full Fare (service) Low Fare (Service) Carrier CarrierStrategy Global Strategy & High Cost Niche Strategy & Low costNetwork Hub & Spokes, Global Point to point between alliance secondary airportsFleet Different type of planes StandardizationProduct Full Service Self ServiceSales Policy Sales Departments, Direct sales, call Distribution by GDS centers/Internet [P.Keller, 2002-P20] 10
    11. 11. 11
    12. 12.  1995: Easy Jet founded by Sir Stelios Haji-Ioannou. Inaugural flights go from Luton to Edinburgh and Glasgow, with two leased aircraft, 16 teenagers as reservation agents and another company’s operating license. Initially booking was by telephone only. 1996: purchased four second-hand aircraft to replace its fleet of leased aircraft. 1997: entered to contract with Boeing to purchase 12 brand new 737s. 1998: buys 40% of Swiss charter operation, TEA Basel AG. 1999: Easy Jet’s staff and passengers, is shown on ITV. 2000: floats on the London Stock Exchange. 2002: purchases low-cost airline Go. 2005: takes delivery of its 100th aircraft. 2003~2007: opened bases in Germany, France, Italy and Spain. 2009: Easy Jet truly becomes a pan European airline. 2010: Easy Jet reaffirms its strategy of Turning Europe Orange. [easyJet Annual Report 2010] 12
    13. 13. Low HighVolumeVarietyVariationVariability 13
    14. 14. Cost Fare level and conditionQuality Convenience and Comfort(Basic)Speed ….Dependability Schedule adherence, Delivery Ability to keep promises, SafetyFlexibility Points served and routings Frequency Timings Connections Punctuality 14
    15. 15. DEPENDABILITY COST Schedule adherence Selling Price 15
    16. 16. 1. Online sales/check in, paperless system2. Secondary airports3. Limited and customer paid catering4. No pre-assigned seats5. Fast turn around time6. Direct point-to-point flights7. Maximize use of aircrafts8. One aircraft type9. Highly incentivized workforce10. Out Sourcing [European Low Fares Airline Association (ELFAA) position paper (2004)] 16
    17. 17. Secondary Flight Airports Schedule Economy No Frill One type Aircraft TECHNOLOGY BUSINESS Value for B2CAircraft, Pil MODEL money ot, Crew Tickets NETWORK MARKET ARCHITECTURE OFFERING E FlightCommerce Internet experience Relationship Routes 17
    18. 18. 3500 Million Pound3000 EasyJet(Rev.)2500 EasyJet(Pro.)2000 Ryanair(Rev.)1500 Ryanair(Pro.)1000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 [Companies Annual report] 18
    19. 19. Ryanair 17% 5% 33% Ryanair EasyjetEasyJe t Air Berlin 17% AerLingous Others Air Berlin 28% 0 20 40 60 80 No. of Passenger (million)-year 2010 EU market share, Low fare carriers - Year 2010 [Companies Annual report] [Eurostat-Air transport passengers & European parliament study 2007] 19
    20. 20. Financial Performance-2010 Ryanair EasyJet Operation Performance-2010 Ryanair EasyJet Profit A.T. (m £) 275.8 121.3 Aircraft operation/day(hr) 8.9 574.0 10.8Anciliary Revenue(m £) 27.0 571.4 No. Countries Serving 29.0 1463.7 70.3 Operation cost (m £) No. Personnel (x100) 73.6 1851.1 load factor (%) 82.0 87.0 Total Revenue (m £) 1806.2 232.0 2973.1 No. Aircraft 196.0 150.0 No. Airport Serving 125.0 Others (m £) 11% No. Route Serving 904.0 Maintenance 509.0 (m £) 661.0 Seat length (mile) 701.9 7% 775.5 Passenger/Personnel (x10) 662.0 Airport+route Crew(m £) charges(m £) Others (m £) 13% 41% Maintenance (m £) 6% 4% Fuel cost (m £) Airport+route Crew(m £) 28% charges(m £) 15% 35% Fuel cost (m £) EasyJet-Operation costs 40% €= 0.865 £ (Ave.2010) Ryanair-Operation costs 20
    21. 21. EasyJet Costs are a focus but not the driver of its overall strategy Attempts to differentiate from its low-cost airline competitors ◦ Dealing with major hub airports ◦ Provide meals and accommodation in case of delays or cancellations ◦ Relaxed hand luggage restrictions ◦ Has Loyalty Scheme ◦ Fleet age between 7-10 yearsRyanair dealing with secondary and regional airports provide NO meals and NO accommodation in case of delays or cancellations Limit of 15 kg per passenger(below the industry standard of 20 kg) excess charge of €7 per kg Charge €2.50 per passenger per flight (purchasing by credit card –credit card purchase is the only payment option) Tickets are non-refundable(taxes and airport charges are not refunded) taxes and charges are paid for passengers actually travelling on the flight. No Loyalty Scheme Fleet age 3.5 years “Two drivers of growth, the focus on price and convenience” 21
    22. 22. 22
    23. 23. 1984: Virgin Atlantic operated its first scheduled service1986: Added another Boeing 747 and started a scheduled route fromGatwick to Miami1988: Club Air operated two Boeing 727 jet aircraft on behalf of Virgin1990: Had increasing financial problems2000: Sold 49% of the airlines holding company to Singapore Airlines2002: The first airline to use the Airbus A340-6002003: Carried 3.8 million passengers2005: Operated a humanitarian aid charter flight to the Pakistan2006: Carried 4.6 million passengers(seventh among UK airlines) 23
    24. 24. Low HighVolumeVarietyVariationVariability 24
    25. 25. Cost Fare level and conditionQuality Convenience and Comfort (Basic)Speed ….Dependability Schedule adherence, Delivery Ability to keep promises, SafetyFlexibility Points served and routings Frequency Timings Connections Punctuality 25
    26. 26. Perceived Quality AestheticsQUALITY Performance Features 26
    27. 27. •Type of aircraft•Interior configuration and design•Individual space•On-board service•Ground/terminal service•Airline lounges•In-flight entertainment•Customer Service•Empowered, not unprofessional people:Sales, Airport staff, Crew 27
    28. 28. Primary Airports Different class, Full Mixed type Service Aircraft TECHNOLOGY Flight Schedule BUSINESS TransportAircraft, Pilot MODEL and, Crew, Airpo Service rt Staff Aircraft Seat NETWORK MARKETB 2 C/B2B ARCHITECTURE OFFERING Internet/Per Value sonal E- Profession Added Commerce al Flight Agents Experience 28
    29. 29. [www.the beat travel.com] 29
    30. 30. Industry Standard 5 Virgin Atlantic4.5 Delta Air 43.5 32.5 21.5 10.5 0 http://www.airport-la.com/airlines/compare-VS-DL 30
    31. 31. ConclusionDoes Virgin Atlantics Operations Strategy help it achieve competitive advantage? Delta Air Virgin AtlanticRoute New York-London London - New York New York-London London - New YorkFlights DL1/DL3/DL148 DL2/DL4/DL149 VS4/VS10/VS/46 VS/3/VS9/VS45Delay(Minute)Avr./Max 19/87,38/122,49/458 28/148,14/107,16/44 38/197,45/162,30/106 28/144,30/107,29/102Price- Economy 503.4 £ 675.1 £Price- Flexible Economy 1349.9 £ 1374.1 £Price- Business 3190 £ 3804.1 £Operation Revenue 604.703 million € 1226 million $ Atlantic (883.09 €)2010 (5238 million $ total airline)[Flightstate.com-2010 ] [Delta Annual report-2010, Average 1€ = 1.3883 $ -2010 ]  Virgin is an internationally recognized brand  The Virgin Group: more than 20 separate umbrella companies, operating some 270 companies worldwide  Virgin now uses its brand as a capital asset in joint ventures  Virgin contributes the brand and Richard Branson’s PR profile, whilst the partner provides the capital input 31
    32. 32.  Books 1.Course Material 2. Jones,P. and Robinson,P. 3rd E.(2009) Operations Management. Pearson Custom Publishing Journal Articles 3.Sull, D.(1999)”easyJet $500 Million Gamble”, European Management Journal,17(1),pp.20-38. 4. Assef, A.G. and Josiassen, A. (2011) “The operation performance of UK airlines: 2002-2007” Journal of Economic studies, 138(1), pp.5-16. Electronic documents about companies 5.Data Monitor (2011) ”Virgin Atlantic Airways, Ltd.”[online] Available at: http//www.datamonitor.com (Accessed 16 May 2011) 6. Report (2010) “Virgin groups corporate responsibility and sustainable development”. [online] Available at: http//www.virgin.com Electronic company annual reports 6. Ryanair (2010) Annual report for the year 2010. Available at: www.ryanair.com. 7. easyJet (2010) Annual report for the year 2010. Available at: www.easyJet.com. 8. Delta air (2010) Annual report for the year 2010. Available at: www.deltaair.com. 9. Air Berlin (2010) Annual report for the year 2010. Available at: www.airberlin.com. Discussion papers 10. G.Morrison, W. and J.Mason, K. (2007) What is a low cost carrier?. The university of British Columbia/Vancouver 11. European Organization for safety of Air Navigation. (Euro control) (2010) Available at: www.eurocontrol.int/statfor Web Pages 12. Virgin Atlantic (Undated). Virgin Atlantic – For Students [online] Available at: www.virgin-atlantic.com 13. Trans Atlantic airline market share (2008) [online] Available at: www.The best travel.com 14. Airlines compare (2010) [online] Available at: www.Airport-la.com 15. Airline performance (2010) [online] Available at: www.Flightstate.com 16. Air transport passengers (2007) Available at: http://epp.eurostat.ec.europa.eu 17. European low fare airline association (elfaa) position paper (2004) Available at: http://www.elfaa.com 18. Virgin spreads (2005) Available at: www.brandchannel.com 19. Virgin Atlantic success (2009) Available at: www.eventmagazine.co.uk 20. Virgin Atlantic annual turn over (2010) Available at: Amadeus Market research reports 21. Key Note (2010) Air travel market: Market report: Key note 22. Key Note (2010) Air travel market size: Market report: Key note 32
    33. 33. 33