ADVANCED MARKETING
Level 3, Semester 1 assessment

A CASE STUDY OF EASYJET AND THE AIRLINE INDUSTRY

BY 

FLORIAN MAYER

JANUARY 2003

CONTENTS

1. EasyJet Corporate History 3
1.2 The Southwest Model 6
1.1 EasyJet Mission Statement 7

2. Competitive Analysis 8

3. EasyJet Marketing Mix 10

4. SWOT Analysis for EasyJet 11
4.1 Internal analysis – strengths and weaknesses 11
4.2 External analysis – opportunities and threats 12

5. Competitor Analysis 13

6. Situational Analysis 15

7. Marketing Plan – Conclusion 15

Appendices 20

1. EasyJet Corporate History

Air travel is one of the world’s largest industries having generated over $300 billion in revenues in 2001 alone¹. Originally, the air travel market was driven by the demand for business travel as companies became increasingly international in their activities, reflected in the rapid growth in world trade and investment. The leisure market subsequently took off as rising living standards and extra leisure time encouraged holidaymakers to travel to destinations increasingly further a field.

A further stimulus to air travel has been privatisation and deregulation of the airline industry, ending the monopolies and protection traditionally enjoyed by state-owned flag carriers and exposing them to the forces of competition. In Europe, With the expansion of the EU, and the breaking down of trade barriers, the airline industry was deregulated in 1992. This meant that any European airline could fly and land anywhere in Europe. This offered airlines the chance to expand routes across the continent and to apply market strategies with greater accuracy. One feature of this changed landscape has been the emergence of the “no frills” airlines, which have achieved rapid growth in market share in the short haul European market. A successful example of a European no frills airline is EasyJet, brainchild of Stelios Haji-Ioannou, the son of a Greek shipping magnate who founded the company, based on the low-cost, no-frills model of the US carrier Southwest, in 1995. Today, he and his family still hold the majority of the shares. The concept of EasyJet is based on the belief that demand for short haul air transport is price elastic that is that if prices for flights are being reduced, more people will fly. Traditional airline concepts are based on the assumption that airline traffic grows in line with the economy and that cutting prices will only lead to a decrease in revenues. With the introduction of the ‘nononsense’ concept to the European market, after its deregulation, EasyJet has proven this theory wrong and goes from strength to strength by actually increasing the size of the market and more recently by taking away passengers from the majors (see appendix 1, 2 and 3 for passenger figures, financial data and employee statistics).

Today, it offers 88 routes from 36 European airports (see appendix 4 for route launch dates), with Luton, Liverpool, Geneva and Amsterdam (Schiphol) as base airports² and is operating 64 aircraft (October 2002, Go’s fleet not included). In November 1995, EasyJet starts flights from Luton near London to Glasgow and Edinburgh with two leased Boeing 737-300s with a capacity of 148 seats at a price of £29 one way. At this time the airline acts as a “virtual airline” which contracts in everything from pilots to check-in staff. Seats are being sold over a telephone reservation system only, thereby avoiding travel agents and their high commissions. In 1996 EasyJet takes delivery of its first wholly owned aircraft and goes international with first services to Amsterdam from Luton. One year later EasyJet launches its website, easyjet.com which will from 1998 onwards form an integral part of the business concept (and which provides for some 90% of the bookings today³). In January 1999 the first of five “Airline” series is transmitted on ITV, giving the company nationwide exposure to an audience of around nine million viewers, thereby providing free publicity.

“The Airline Group”, a consortium of eight UK airlines (Airtours, Britannia, British Airways, British Midland, EasyJet, JMC, Monarch, and Virgin Atlantic) of which easyJet is a member, is awarded the contract to run the UK′s air traffic control system (NATS) under a public private partnership for a 30 year term, in March 2001. EasyJet is investing £6.6 million, which is considered to be a long-term capital item as the development of a safe, reliable, and efficient air traffic system, which ensures that sufficient capacity exists in the air and on the ground, is essential to the future growth of EasyJet.

In July 2001 ten million seats have been sold through the web site, making it the UK’s second largest travel site. Autumn 2001 and spring 2002 see a great expansion of EasyJet’s network, with the launch of four new routes from London Gatwick, making it the second largest scheduled airline at the airport, and development in Paris with the launch of four routes from Paris Charles de Gaulle and Orly airports.

EasyJet further expands its fleet and routes by acquiring British Airways’ low-cost subsidiary Go. The merger deal is complete in August 2002 and creates Europe′s biggest low-cost airline, before rival Ryanair (see appendix 5 for figures). From December 2002, EasyJet is selling seats from a single reservation system for both airlines, utilising EasyJet’s yield management system. The third and substantial move towards the integration of Go – the full integration of the two airlines and the subsequent dropping of the Go brand – is expected to be completed in mid-2003. In October 2002, EasyJet purchases an option to acquire Deutsche BA, British Airways’ German subsidiary. This move is justified by the significant growth opportunities the German market presents, as it is still poorly served by low-cost airlines in comparison to the UK. The acquisition of Deutsche BA and its transformation into a low-cost carrier are seen to represent the most attractive option for EasyJet to enter the German market, as it will immediately provide EasyJet with a significant network and the personnel, systems and infrastructure to support such an operation.

Also, in October 2002, the airline signs a deal to purchase 120 Airbus, which will facilitate the airline′s ongoing growth strategy. Up until now, one of the cornerstones of the EasyJet’s low-cost model has been to operate a single aircraft type fleet - which so far has been the Boeing 737 series - because uniformity means efficiencies in  training, maintenance and operating costs. However, EasyJet’s new deal with Airbusis being viewed by the company as “stunning” as the additional costs, which incur through the new type of aircraft are “far outweighed by the financial benefits of this deal”.

EasyJet argues that both Boeing and Airbus aircraft have broadly similar characteristics but that a wider aisle on the A319 will make it quicker to embark and disembark, that it has an extra seat on board (150 on the A319 compared to 149 on the Boeing 737-700) and that overall the A319 will lower costs by about 10% compared to the current mix of aircraft, which will all contribute to lower ticket fares (see appendix 6 for Stelios Haji-Ioannou’s other EasyGroup enterprises).

1.1 The Southwest Model

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1 www.ba.com

2 www.easyjet.com

3 The Economist, (2001) “Britains take to the air“, 30 June 2001, Vol. 359 Issue 8228, p51, 2p.