Marketing issues for Easyjet airlines

Easyjet is a low cost firm and the key competitor is RyanAir. Stelios Hadji-Ioannou, the founder of Easyjet, was so impressed after flying with Southwest airlines that he decided to set up his own European version of the company. The company started from 2 aircrafts and now there are 166. (http://ec.europa.eu) This report will elaborate several marketing issues about this innovative company.

2. Marketing management

Marketing is the process by which companies create customer interest in products or services. It generates the strategy that underlies sales techniques, business communication and development. (Kotler P., Wong V., Saunders J. A. and Armostrong G., 2004).

2.1 Innovations

Baregheh A., Rowley J. and Sambrook S. (2009), defines innovation as the multi-stage process whereby organizations transform ideas into new and improved products, service or processes, in order to advance, compete and differentiate themselves successfully in their marketplace. Easyjet adheres strongly to the original low-cost model and it doesn’t offer any frills. It bypasses the travel agent mode of distribution and offers a point-to-point service. The ticket booking is exclusively conducted by telephone and online. In 2006, the company adopted an innovative approach, with the introduction of a Fatigue Risk Management System (FRMS) in order to assess the potential risks of pilot fatigue based on intensive scheduling practices. This pioneering work has led to easyJet being at the forefront of crew performance management, in the pursuit of operational safety.Top management states in the annual report of 2009: “New initiatives are continuing to strengthen our position as both a leading airline and an innovative e-commerce business”. (Annual report and accounts, 2009, pp.12).

2.2 Competitive Advantages

Competitors influenced the airline market. New entrants with aggressive competitive ideas entered the market with the strict goal to gain competitive advantage (Kangis P. and O`Reilly M.D., 2003). Rostro, F.R. and Grudzewski, R.M. (2008) fundamentally highlight Porters assumptions toward competitive advantage which is resulting from the value a firm is able to create for its customers. In order to create competitive three strategies can be chosen; these are cost leadership, differentiation and focus strategy. Lall A. and Gillen D. (2004) claimed that operational efficiency can be a source of competitive advantage.

Easyjet managed to achieve cost leadership and gain sustainable competitive advantage by reducing cost and offering low price tickets. “Significant progress on cost reduction initiatives: 19 expensive aircraft exited from the fleet; systems implemented; renegotiation of our maintenance arrangements with SRT to deliver savings of around £175 million over the 11 year life of the contract” stated in the 2009 report (pp.1) the company’s management. In addition Easyjet does not provide meals which reduce complexity of the processes and cost. The company also has generated new revenue streams by advertising on seatback trays, headrests and on the exterior of some of the aircrafts. Additional ancillary sources of revenue include travel insurance, car rentals and travel reservation services. (Annual report and accounts, 2009)

2.3 Company’s Performance Objectives

Easyjet has delivered a resilient performance despite the fact that has been one of the most challenging trading environments for many years. Against this backdrop, easyJet is one of the few airlines anywhere to remain profitable with underlying pre-tax profits of £44 million.

The main financial and non-financial areas that seem to be emphasised are

The capital. The principal measure used by easyJet to manage capital risk is the gearing ratio of debt to shareholders’ funds. Gearing increased at 2009 from 28.8% to 37.6%.

Liquidity. The objective of easyJet’s liquidity risk management is to ensure sufficient cash resources and the availability of funding as required.

Fuel price. The company is exposed to fuel price risk. The objective of the fuel price risk management policy is to provide protection against sudden and significant increases in jet fuel prices.

Return on equity. The “December 2006 award” is due to vest in December 2009. The award has performance targets relating to return on equity achieved in the year ended 30 September 2009.

(easyjet plc, Annual report and accounts, 2009)

2.4 Critical Success Factors

Critical/key success factors have several direct and several possible uses for any business unit whether it is for-profit or not-for-profit, large or small, domestic or foreign. In strategic analysis of a business unit, key success factors often initially appear as analytical tools for examining the character of the industry in which the business unit competes. They are so important to future competitive success that all firms in the industry must be competent at performing or achieving them. (Thompson A., Stricklaland A. and Gamble J., 2005).

According to McCabe R.M (1998), airlines are in part service business. In order to be successful, an airline company ought to be effective in four general areas:

1. Attracting customers

During the year 2009 the company resulted in a 3.4% increase in passenger numbers to 45.2 million demonstrating a flight to value as easyJet increased market share by attracting customers from higher fare competitors.

2. Managing its fleet

Easyjet recognized the importance of the fleet management conducting a fleet plan. The Chairman declared in the 2009 annual report (pp.4): “As part of the annual strategy process, easyJet’s Board has agreed a fleet plan that will enable company to deliver growth of around 7.5% per annum over the next five years. This fleet plan gives easyJet the ability to take advantage of the substantial commercial opportunities apparent in European short-haul aviation.”

3. Managing its people

The chief execute of easyjet, Andrew Harisson, states in the 2009 company’s report (pp. 16): “We have outstanding people, including our front line cabin crew and pilots who are highly trained and professional. They all make a crucial contribution to our success and help to create an easyJet personality which is an important.” The people in easyjet are totally connected to the effectiveness and success.

4. Managing its finances

Since economic conditions remain challenging, easyJet success is driven by the low cost, the efficient business model and strong financial position. These will ensure that it is able to take advantage of the current recessionary period by:

driving cost out of the business

carefully targeting capacity increases and share gains in valuable markets across Europe ensuring that easyJet is well positioned to exploit profitable growth opportunities when economic conditions improve.

(Annual report and accounts, 2009)

2.5 The Experience Curve effect in EasyJet

The learning or experience curve describes an empirical relationship between output quantities and input quantities where learning induced improvement is present (Horngren C. T., Foster G. and Datar S.M., 2000). Managers are able to formulate low-cost production strategies leading to increased market share, or they can use it to help address product decisions through correct estimation of learning curves.

Easyjet is respectively a new corporate that its personnel is highly experienced but mostly in other companies. Easyjet’s chief executive claimed that the exceptionally resilient performance of the company the year 2009 is the result of the strong business model, the quality of people and network. All aspects of the business model are designed around safety and efficiency. He also stated: “the operating model we work every day on improving the efficiency of our flying, and in the last year implemented a number of fuel saving initiatives” (Annual report and accounts, 2009, pp.34). Learning within the production process can also significantly impact management decisions related to break-even, setting prices, setting standard costs, and capital budgeting (Togo F. D., 2001). In the case of easyjet, the learning curve effect was not the only reason for low cost and good profit margins. Innovative spirit, sustainable competitive advantage, minimizing the intermediaries, no-frill services was of high importance in achieving the profitability objectives.

2.6 Positioning and Segmentation

EasyJet entered the market in 1995 with a highly credible brand positioning, limited European destinations but effective and low cost. With the takeover of Go, formed by a management buyout from British Airways in 2001, EasyJet became the largest low-cost airline in Europe last year. (Knox S., 2004)

Concerning these four dimensions (see Appendix/A), easyjet is positioned as:

cheap

Fit for purpose, few routes

Corporate brand focused on budget traveller paying for own trips

Not as part of the brand

2.7 Elasticity of Demand for air-transport services

Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. It gives the percentage change in quantity demanded in response to a one percent change in price. Price elasticity is lower business class travellers than economy class travellers. This is because the lower price sensitivity in the business class customers, due to the higher valuation of time among these travellers. (Brons M., Pels E., Nijkamp P. and Rietveld P., 2002). In the case of easyjet since price elasticity of demand is high, managers have to be careful with changing prices.

2.8 The BCG matrix in EasyJet

The Growth-Share-Matrix, known as Boston Box, was developed by the Boston Consulting Group (BCG) in1970’s. It is a tool of portfolio management (see Appendix/B).

Drummond G. and Ensor J. (2004) claim that both “dogs” and “question mark” are industries with relative small market share. Easyjet prefers to allocate its resources and sell its services to air-port markets that are equivalent to “dogs” and “question marks” opposed to “cash cows” and “star” products. The company operates in popular destinations/ resorts such as London, Athens, Berlin, Amsterdam, Milan and others. Easyjet operates also in less popular airports with relative small market share, such Luton airport in London which is a popular destination but the operating cost is lower and there is not such traffic (Annual report and accounts, 2009).

2.9 Strategic implications

Easyjet base location is constantly under review. The company has increased the number of aircraft based in Italy from 3 to 16 since 2006 and in France from 11 to 14 in the last 12 months. At the same time, they have reduced capacity at under- performing bases such as Luton. Overall, easyJet’s capacity (measured in seats flown) grew by 1.8% during 2009, with an increase of 16% in mainland Europe, focused on France (up 30%), Italy (up 78%) and Spain (up 16%). EasyJet’s capacity at Gatwick grew by 12%, partly driven by the full year effect of the GB Airways acquisition in 2008 (Annual report and accounts, 2009).

Capacity was reduced in weaker performing markets such as Luton and the UK regions. At Gatwick, easyJet is now the leading airline with 39 based aircraft and a 30% share of the airport’s passengers and continues to leverage that position in order absorb competitive pressures. Longer sector routes are performing well and slots acquired with GB Airways were optimised in the period with business orientated routes being allocated to peak slots and leisure routes moved later in the day. Easyjet is winning the competitive battle on traditional sun routes with excellent load factors, albeit with weaker market pricing. The company has also benefited from legacy competitor withdrawal on key business routes. Dortmund, Germany is an underperforming airport but there is a stragegic interest due to its low cost (Annual report and accounts, 2009).

3. Research Proposal

Since the completion of the three liberalisation packages in the European Union, the air transport market has become increasingly competitive. The low-cost airlines have focused marketing activity primarily on the leisure market, however each now report significant proportions of their customer base as being business travellers. (Knox S., 2004) In order to collect data so as to help the company’s management understand better the author develops a brief research proposal.

3.1 Research Objectives

The objectives of the research are:

Investigate the customers’ perception and any complains about the company

Understand better the business travelers

Identify the profile of easyjet customers in order to specify the tarket market

Find way to attract new customers and

Identify any new market segment

3.2 Research Methodology

Kogut B. (2001), has pointed out that innovations in research methodologies and design strongly influenced and developed the international business field. According to Pedhazur E.J. and Schmelkin L.P. (1991), the data collection method has major influence research reliability and validity. Some frequently used methods include survey either by mail or by questionnaire, experiment, personal or telephone interviews, and secondary data. Each data collection method has its advantages and disadvantages. (Yang Z., Wang X. and Su C., 2006). For example, conducting surveys by questionnaires may induce problems of vagueness and generalizability.

For these reasons researchers advocate multiple methods of data collection, such as a combination of qualitative and quantitative methods, to overcome single method bias. As Sauders M., Lewis P. and Thornhill A. (2003) suggest, the approaches and strategies don’t exist in isolation and therefore can be mixed and matched. Burns A.C. and Bush R.F. (2002) discussed about the aspects significantly affecting reliability and validity of the findings of a study. They concluded that are the data collection method, sampling techniques, population (the entire group under study as defined by research objectives), sample frame (a master list of the entire population), sample (a subset of the population), sample subjects, sample size, and the response rate.

People by different countries and areas differ in many ways, like demographic and psychographic characteristics, which could influence external validity of the research findings (Pedhazur E.J. et al., 1991). So the author suggests that passengers from all the airports that the company has bases have to be the sampling source. Pedhazur E.J et al. (1991), also claim that the sample size influences accuracy of estimation. In general, the larger the sample size the more accurate the research findings in terms of generalizability and sampling errors.

. Thus, the easyjet’s managers have to examine the certain constraints such as time and financial resources having in mind that the bigger the number of the passengers under research, the more helpful the result.

In the case of easyjet the author choice concerning the data collection method is mail survey, personal interview and a simple questionnaire. Zhilin Y. et al. (2006, pp.606) in their findings claimed that “mail questionnaire survey is the most popular method, followed by administered questionnaire survey, personal interview, and telephone interview”. Mail survey will be used especially for business travelers because they haven’t time to spend in the airport and also there is high possibility to be familiar with internet. Business people will be requested to leave their e-mail address in the “easyjet survey agent” and with the e-mail questionnaire they get also advertising material attached.

Concerning the personal interviews, the “easyjet survey agents” are going to approach travellers after they flight and just after they take their luggage. They will answer some accurate questions filling up the questionnaires by themselves. Motivation for answering the questions can be given by offering some gifts, such as discount on ticket prices or participation in a lottery. This simple contact method has the advantage of immediate results and the disadvantage of “bias” answers due to “face to face contact”.

Taking in mind that the time of the travellers is limited, especially for the business segment, the questions should be accurate and should require short answers. In addition, the questionnaires will be designed for the travellers that are in the waiting room before the flight in order to have the time to answer them. Then an “easyjet agent” will gather them just before the travellers getting on board. The questions will be slightly different taking in mind the percentage of people travelling with easyjet for the first time.

According to Dobruszkes F. (2006), EasyJet sells 95% of its seats through the Internet. A research conducted by Castillo-Manzano J. and Lopez-Valpuesta L. (2009,pp.639) showed that: “the profile of a passenger who has a greater likelihood of making bookings online is that of a young person, a student or educated to a high level, a habitual traveller, booking a simple journey and using a low cost airlines”. Thus an on-line questionnaire may bring a lot of useful information in the company.

4. Conclusions

The above marketing issues and methodology as well as customers’ perceptions should be taken under consideration in order to launch a successful advertising campaign. Easyjet should maintain its competitive advantage and preserve customers’ loyalty.

References

Annual report and accounts 2009

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http://ec.europa.eu

http://www.themanager.org/pdf/BostonBox.PDF