EasyJet Case I. BACKGROUND a. What is easyJet easyJet, a subsidiary of the easyGroup brand, is a British based air transport network.

It is one of the leaders in the low-cost carrier in Europe. It was founded in November 1995 by Sir Stelios Haji-Ioannou and originally operates in only two routes, London-Glasgow, and Glasgow-Edinburgh. Currently, easyJet operates 152 aircrafts in 383 routes. The firm practices high level of aircraft utilization, quick turnaround times and low operating costs. It charges extra for b. Marketing Mix Product easyJet provides primarily a basic one-way ticket (without any food or drinks). Its customers may opt to include drinks and food, insurance, or other additional services in their flight package but with additional charge. Customers may avail of its product and services through its online booking and online check-in systems. Being a budget airline, easyJet offers very affordable, low-price flights relative to its major airline competitors.

Place Price

Communications easyJet employs a straightforward approach in promotions, focusing on the companys contact details (Web address and telephone number). It also uses both above-the-line and below-the-line communications. c. STEP Analysis

Social
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Safety and security concerns

More than anything else, customers would patronize products and services from a company that considers their welfare. For example, when booking flights on a particular airline, customers always take into account the airlines reputation on its security and safety.
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Increasing climate change awareness

People nowadays are becoming conscious on the things they do on their environment since they are the ones also who are greatly affected by their actions. Thus, increasing number of people is doing environmentfriendly practices.

Falling Demand for Air Travel

Due to the economic recession during 2008, both leisure and business air travels demand decreased. International travel to and from Europe fell by 4.6%. [1]
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Higher income groups fly more than low income groups

Certainly, people on a high income class have the capacity and money to travel from places to places. Thus, high income groups would fly more frequently than those people belonging to low income groups.
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Price Sensitivity of Consumers

Passengers are becoming increasingly sensitive to price, led by the boom in low cost travel, the transparency brought by the Internet and the intense competition in deregulated markets. [2]

The future of global travel management continues to be heavily dependent upon advanced technologies. Online booking systems provide an intuitive, easy-to-use, and environment-friendly means of reaching out to the customers. Moreover, it also serves as a tool for monitoring and control as it increases visibility of current operations through real-time reporting. [3]

Technological o Online booking and ticketing systems

Existence of fuel-efficient aircrafts

Increasing fuel prices is one of the major factors that drive aircraft manufacturers in continuously building the most fuel-efficient aircrafts possible. [4]

Economic o Fuel price volatility Fuel prices are greatly affected by several factors such as currency
fluctuations, weather conditions and fuel's supply and demand [5]. One implication of changes in fuel prices is that an increase of fuel prices means an increase in transportation costs.

Charge increase in Gatwick Airport leading to higher cost is this value

adding to the case? In November 2007, the Civil Aviation Authority has forwarded proposals for airport charges per passenger to increase to 6.07 at Gatwick, and to allow to increase thereafter in real terms at 2 per cent per annum respectively to reach 6.57 respectively by 2013. [6]

Political o Emission trading scheme

To combat climate change, the European Union launched the Emission Trading Scheme, a market-based system that puts a price on greenhouse gases to provide an incentive to reduce emissions. It allows parties to buy and sell permits for emissions or credits for reductions in emissions of certain pollutants. Companies that emit pollutants must obtain sufficient tradeable units to compensate for emissions while those that reduce emissions may have surplus units that they can sell to others. [7]

Tax increase in the Netherlands, Belgium and Ireland

New level of taxation and other regulatory charges have been introduced to some countries like the Netherlands, Belgium and Ireland. In effect, the passengers would be the ones who would bear these additional costs. This tax increase is in response to the use of aircraft which produces carbon emission. [7]

Regulatory intervention on airports

Most airports are regulated. Moreover, the slots for airport are constrained. These situations create higher airport charges for airline companies and suggest that airport slots may become not readily available. [6] Legislation in the UK Legislation in the UK made it easier for foreign airlines to operate in national territories, intensifying the countrys competition in the aviation industry.
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II. ISSUE IDENTIFICATION How will easyJet be able to maintain its price-competitive advantage over its major airline competitors? (What is next for easyJet?) Assumption/s: Time: 2008 III.

The pricing strategy: Good Value

SITUATIONAL ANALYSIS

a.

Business objective To be the leader in Europes aviation industry. Current market status (easyJets share) - 7% market share; 4th largest; fragmented market with approximately 230 carriers in total Source of business Non-users of easyJet - those who use competitors services. Marketing Objective Market Penetration Major business issue Consumer insight

b. c. d. e.

Leisure Travellers and Business Travellers Leisure travellers value low prices, friendly service, on-time performance, and accurate baggage handling. They value mostly to get to their destinations as cheaply and effectively as possible. They would gladly trade a meal or a movie for a lower price. Easyjet recognized this and focused on serving this target segment. Business travellers, on the other hand, value flexible scheduling, reserved seating, first class options, meals, entertainment, larger and roomier planes, frequent flyer points, frequent flyer clubs, on-time performance, and accurate baggage handling. Their time is one of their most priorities. So, they avail products or services that maximize their time. f. Marketing strategy How it works easyJet uses a good-value pricing strategy. This strategy offers just the right amount of quality and good service at fair price. easyJet aims to satisfy the needs of its consumers with the lowest possible cost at a service standard that exceeds customers expectations. Se easyJet was able to charge at the lowest possible cost by focusing on keeping its operation costs low. This is achieved through the elimination of unnecessary costs and cutting back on frills. It uses the internet to reduce distribution and administrative costs by allowing online booking, ticketless travel and online check-ins. It also reduces costs through the elimination of free onboard catering and middlemen or travel agencies. easyJet is also able to give quality service by having brand new fleetBoeing 737s and by ensuring that the departure records matches those of the major carriers. One-way ticketing policy
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Logic behind pricing strategy Strategies are primarily for leisure travellers. Value added pricing versus good value pricing Adopting value-added pricing strategy means attaching valueadded features and services to differentiate their offers rather than lowering prices to match competitors. Thus, it supports higher prices. Value-added pricing strategy in an airline can be applied to both the before the flight and during the flight. Before the flight, an airline can improve the airport lounge by offering buffet food stations, television area, private meeting rooms, phone, fax, wireless and Internet access and other business services. During the flight, the airline can provide improved dining (cooked by world-renowned chefs) , comfort (suites, first class to economy class), and more entertainment (movies, games). This strategy are appropriate for business travellers. Evaluation (SWOT Analysis)

Value-added Pricing

easyJet operates a reverse price system. The lowest fare is offered to the market first and, as the seats are sold and the departure date approaches, the price increases. This approach encourages customers to book early, which provides easyJet with the advantage of having the customers cash early and being able to assess demand for every scheduled flight. Moreover, easyJet eliminates unnecessary features (frills) and unnecessary costs that are common among conventional airlines.

Strengths 1. Low cost offering

2. Ease of booking flights (online) and cost-efficient check-in systems, paperless ticketing
Because of the use of online booking, ticketless travel and online check-in systems, easyJet doesnt have the tickets to be printed, distributed, processed and reconciled. The company is essentially paperless.

3. Competitive advantage over Ryanair

easyJet has a major competitive advantage over Ryanair, its closest competitor. easyJet primarily flies into the main airports of the cities that it serves. Ryanair, to cut costs, flies into secondary airports, some of which are considerable distance from the city. This will add another cost, time and inconvenience for the traveller. easyJet is effective in using advertising and public relations exercises to gain maximum coverage and improved customer awareness of its services. It has become involved in wrangles with conventional carriers such as British Airways and uses this as a way of promoting its services and low fares. easyJet always tried to cut down its turnaround times to 30 minutes or less. This allows it to maximize the use of its aircraft and gain extra flight with the same aircraft over the same route.

4. Deft in Advertising and Public Relations

5. Fast Turnaround Time of Aircrafts

Weaknesses 1. Lack of Customer Loyalty Programs

easyJet does not currently employ

programs to reward those who frequently use the airline. This may result to customers shifting to other airlines.

companies folded.

Opportunities: Untapped demand since some airline

1. Use of Easygroup lines to better provide service

Threats 1. Competitors matching their low-price strategy (e.g. Ryanair)

There is a major issue on whether it is still effective to continue the use of low-pricing strategy by easyJet despite a lot of other carriers are beginning to adopt the same strategy. Europe has an extensive network of railroads such as the Eurorail that allows people to travel around the continent. Although a number of cheap air carriers have blossomed in Europe, there are still itineraries wherein trains offer the shortest and most convenient journey. This is true, especially when going from city center to city center where tourists usually want to be.. [6]

2. Indirect competitors: Other modes of transportation

3. Terrorism and Major Epidemics

Terrorism threats could cost the airlines billions of dollars. Demand for air travel would significantly dropped as public confidence on air travel would plummet. This will result in the fall of the revenues of airline. [9] In addition, transportations can be a medium for extensive diffusion of communicable diseases. This issue concerns the early phases of a pandemic where transportations system, especially airlines, to spread an outbreak at a global level. This can cause all airports to close. [10]

4. Limited fuel hedging policies

Fuel costs comprise a substantial part in the operation cost of an airline. Limited fuel hedging policies make easyJet expose to the risk of the fluctuation in fuel prices unlike its main low-cost competitor Ryanair which engages in fuel hedging strategies. [11].

The aftermath

Determining Demand (Elastic and Inelastic Demand Curves) The consumers of air travel industry is segmented into two separate markets the business professionals and the leisure travelers. There is a less elastic demand for business travelers because of their regular need for travel and since moving from places to places is a part of their normal business transactions. On the other hand, leisure travelers tend to have more elastic demand for aviation services because of seasonal need for travel. They are usually affected by the changes in air travel prices and seasons. Pricing Objectives Currently, easyjets pricing objective is to obtain its possible maximum market share through offering the lowest possible price in the industry price-sensitive market. IV. RECOMMENDATIONS In our recommendations, we focused on two major actions that can significantly add value to the easyJet line: one, strengthen easyJets brand equity and two, utilize the reinforced brand equity to increase market relevance in the business travel market. In line with the first recommendation, we propose a unique selling point that the company can use to unify and strengthen its campaign in the aviation industry.

easyJet is the premier green, low-cost airline that provides travelers, both business and leisure alike, convenience in the cheapest price.

The unique selling point focuses on the key strengths of easyJet as a business: lowcost, convenient, and practices green services. The following are plan of actions that easyJet can take to further strengthen their USP. Service differentiation through convenience easyJet cannot solely rely on price for its competitive advantage or USP. Thus, it must differentiate it service from its competitors. Given the strengths and the brand identity of easyJet, it would be best if it would be known also for convenience. First, it should own a wide variety of establishments such as hotels, car rentals, restaurants that it would be very easy for easyJet to set-up deals. Thus, consumers could book anything from the website.

Another alternative is making its flights very convenient in rebooking. This is apparently a very big factor that people would consider when they choose an airline to travel especially for business purposes.
Build equity as the premier green airline With the ongoing global trend to combat global warming, consumers are becoming more and more conscious about the environmental effects that they consume. Consumers nowadays tend to favor products and services that promote ecofriendliness. This can be an advantage for the company because this trait is very wellaligned to the easyJets business model of cutting costs and minimizing waste. In fact, easyJet, according to their 2008 annual report, aims to lead the way into shaping a greener future for the aviation industry. It actively engages with aircraft manufacturers to produce quieter and cleaner planes through the easyJet ecoJet concept: an aircraft 25% quieter, and emits 50% less Carbon Monoxide and 75% less Nitrous Oxide, a significantly greener aircraft model compared to the current planes being operated. In addition to this, easyJet strives for efficiency both in ground and in air, this made them cut unnecessary costs and led them to produce less waste compared to the other regular aircrafts. We believe the proper communication of these two factors to the consumers will help sway demand in favor or easyJet. This two propositions appeal for both the benefit and the emotions of the customer of the aviation industry. However to sustain growth, we have identified that the business travel market requires more attention because not only does it hold the other half of the air transportations (the other one is leisure travelers) but also it provides greater revenue generation to the company because a business seat sells in average cost 20% more than the average, However, business travel has different booking requirement compared to the other industry (leisure travel)

Penetrate the business travel market easyJet has been able to capture the leisure travellers by being the cost leader in the market. They must now venture into capturing the businessmen. Unlike leisure travellers, the demand for travel of businessmen are very stable and not seasonal so it ensures you have consumers at any time of the year. Furthermore, since the euro is currently on a decline, surely businessmen are on the lookout for cost effective ways to travel. Differentiating easyjet as convenient would definitely attract this segment but that might not be enough. A strategy easyJet can employ is the value-added pricing strategy. This means attaching value-added features and services to differentiate their offers rather than lowering prices to match competitors. Thus, it supports higher prices. In an airline, value-added pricing strategy can be applied to both before the flight and during the flight. Before the flight, easyJet can improve the airport lounge by offering buffet food stations, private meeting rooms, phone, fax, wireless and Internet access and other business services. This lounge will be appropriate for businessmen because of its comfortable seating, quiet environment, and better access to customer service representatives than in the airport terminal. During the flight, easyJet can provide more entertainment such as in-flight contests and lucky draws. It can also surprise customers by offering freebies. It can also provide greater comfort in terms of its airline seats. Seats can be made wider and better connected to electronics., Another value-added strategy is to create loyalty programs for its consumers. Since businessmen travel a lot, having a chance to earn freebies would really weigh more than usual in the factors they consider when choosing an airline. Lastly, communicating to businessmen that easyjets flight frequency is high and that they do not have to worry of not finding the perfect schedule would surely do the trick.

Customer Education Since easyjet is the first company to introduce this new pricing strategy, most people might still be expecting the perks of the airlines employing the value added pricing strategy such as complimentary food, entertainment systems and private lounges. Proper expectation setting should be done so customers do not expect more than what easyjet can provide. As Sir Stelios Haji-Ioannou, founder of easyjet, said if you create the right expectations and you meet and exceed those expectations, then you will have happy customers. Notes: 1.) Emphasis on business travelers (data on business travelers)

References: [1] http://www.telegraph.co.uk/finance/newsbysector/transport/8224099/Recessioncut-air-travel-demand-by-a-quarter-finds-Civil-Aviation-Authority.html [2] http://www.iata.org/whatwedo/Documents/economics/air_travel_demand.pdf [3] http://www.goctm.com/our-services/travel-technology.cfm [4] http://www.nytimes.com/2012/07/09/business/global/steep-fuel-prices-drivingpush-for-efficient-aircraft.html?_r=1&pagewanted=all [6] http://www.caa.co.uk/docs/5/ergdocs/heathrowgatwickdecision_mar08.pdf [5] http://www.usnews.com/opinion/blogs/on-energy/2012/06/13/supply-and-demandthe-key-indicator-of-gas-prices [7] http://www.environment.nsw.gov.au/licensing/emissionstrading.htm [7] http://corporate.easyjet.com/~/media/Files/E/Easyjet-Plc-V2/pdf/investors/resultcenter-investor/easyJet_ar081.pdf [8] http://www.independenttraveler.com/travel-tips/europe/europe-by-plane-or-by-train [9] http://www.ehow.com/facts_5011704_effects-terrorist-attacks-airline-industry.html [10] http://people.hofstra.edu/geotrans/eng/ch9en/appl9en/ch9a3en.html [11] http://www.wikinvest.com/stock/Ryanair_Holdings_(RYAAY)/Fuel_Price_Exposure_Hedg ing