Company Background• Started by Stelios Haji-loannou in November 1995 .• Headquarters “easyLand” @ Luton airport, London.• Initial investment - £ 5 million.• Began operating easyJet with 2 leased aircraft.• Staff- Mostly teenagers.• Most airline operations were outsourced.• Followed the concept -"to offer low-cost airline service to the masses“.
Outsourcing• Done for lowering costs and increasing efficiency.• Apart from planes, pilots, cabin crew, marketing/sales people all other functions were subcontracted.• Helped in maintaining 20 minutes turnaround and remaining ticketless.• Workshops/simulations were held for subcontractors and were evaluated on quantitative and qualitative grounds.
Initial Days• Started services from Luton instead of Heathrow/Gatwick airports.• First flight was from London – Glasgow @ £29.• Advertising campaign – “Fly to Scotland for the price of a pair of jeans!”• Stelios was inspired by the business model of Southwest Airlines: ▫ Single aircraft model ▫ Point to point short haul travel ▫ No in-flight meals. ▫ Rapid Turnaround time ▫ High Aircraft utilization
Initial Days contd.• Added customization to the business model: ▫ Avoided travel agents ▫ Issued no tickets ▫ Encouraged direct sales over internet ▫ Used Brand “Boeing” having 149 seats. ▫ No frills travel• Suffered losses of £3.3 million in 1996/97.• Reported profit for the first time in 1998 amounting to £2.3 million.
Impact of Deregulation of EAI• Deregulation of EAI took place in 1992.• Meant any European carrier could fly to any destination and demand landing slots.• Increased competition from low cost carriers reduced aircraft fares.• However, no. of competitors spawned after this were less in comparison to US.• Low cost carriers had to compete with high speed rail service.• Of 80 carriers that started after deregulation, 60 got bankrupt by 1996.
Cost optimization techniques – Todeliver low prices• Saved £14 per passenger by eliminating meal service.• Saved £10 per passenger by flying into London’s Luton airport.• Saved costs by not offering business class seats.• Encouraged internet sales by offering discounts.• Decreased flight turnaround time (Each plane was flown for 11.5 hrs per day)
Creating Brand Awareness• 10% revenues spent on newspaper, magazines and radio adv.• Helped differentiate from competitors.• Improved sales and fostered growth.• Resulted in High Brand Recognition Rate of 88% in London and 82% Geneva.• Involved in Full Scale attacks on competitors.
Company strategy for providingcompetent services – Creating Value• Customer satisfaction was given significance.• Customer safety was not compromised even though it meant higher costs.• Experienced pilots were hired.• Punctuality was given utmost importance.• Stelios portrayed image of Man of the people by personal interaction with customers.• No reimbursement offered for missed flights.• Cost for changing flight - £1o + fare difference.
Company strategy for providingcompetent services contd..• No pre-assigned seating offered. Allotment was based on first come first serve basis.• Target customers were “People who pay for travel from their own pockets.”Which meant loss of 50% customers.• Used Yield Management: ▫ To maximize seat utilization. ▫ To draw customers in search of cheap fares.
Competition• Ryanair ▫ Established in 1985 ▫ No Frills Carrier ▫ Used services of Travel Agents, issued tickets, participated in global distribution system ▫ Fleet of 20 Boeing servicing 26 destinations.• GO ▫ Established by BA in 1998 ▫ No Frills Carrier ▫ Was founded when acquisition offer to easyJet turned down, to defend BA market share ▫ Copycat of easyJet and considered to be subsidized by BA
Competition contd.• Virgin Express ▫ Established in 1996 ▫ Formed alliance with Sabena Airlines, flag carrier of Belgium. ▫ Provided short to medium haul jet service.• Buzz ▫ Established in 1999 ▫ Started by KLM based at Stansted airport. ▫ Covered new destinations.
Challanges• Whether to take privately held company public? ▫ Management style of Stelios not suited for this• Maintaining quality of “easyJet” brand by Subcontractors ▫ Did not attend customers’ needs effectively.• Needed to become more corporate ▫ Lack of senior managers.• Relative youth and inexperience of some employees. ▫ High rates of absenteeism.
Analysis• Is budget airline segment attractive place to compete? ▫ Budget airlines charge less so profit margin is less ▫ Employees have to be paid as per industry std. ▫ But cheaper tariffs help steal greater no. of customers compensating low profit. ▫ However, as per the case 60 out of 80 low cost carriers got bankrupt. ▫ So , in order to leverage this segment companies have to operate effectively.
• Should Stelios extend the easy brand? ▫ Brand Awareness of Easy was high ( 80%) ▫ Stelios was the Man of the people ▫ People could relate him to the brand ▫ Satisfaction of easy Jet customers was high (resulted in repeat bookings) ▫ USP’s included high punctuality, quality , safety, customer value and satisfaction ▫ So current image of Easy brand was positive and should be used to diversify business.