EasyJet strategy: SWOT and PESTEL analysis

Keywords: easyjet, corporate and business appraisal, swot research, pestel, cash flow position

This report will provide a detailed analysis of EasyJets current corporate appraisal or SWOT research. This will likely identify its strength, weaknesses, opportunities and hazards. This can help the firms decision creators understand where in fact the organisation is now. A PESTEL examination of the industry will examine the local, countrywide and global influences of political, economical, social and technical factors to comprehend opportunities and hazards well. This will provide an evaluation of the external business environment in which the company operates. This analysis will highlight the essential changes that the air travel industry is going through, especially; in defence to the turbulent environment it faces from exogenous forces (terrorism, olive oil prices, SARS etc) and endogenous causes.

Next we use Porters Five Forces research of the industry and the increasing threat of other low-cost service providers (Ryanair, bmi baby etc) and also hazards from the flag carriers (British Airways, Air France, KLM, Lufthansa etc). This can show how its critically very important to EasyJet that strategic alliance, size and know-how have on its success. Overall the research will point out the inherent risks and weaknesses endured throughout the industry, and also the value of innovation to keep low cost benefit, alliances and size to success. Finally the record will analyze the degree to which EasyJets current no frills strategy is the appropriate tactical fit to its organisation both in terms of resource functionality and business environment.

An Internal and corporate and business analysis in terms of strength, weaknesses, opportunities and dangers (SWOT) will assist in gaining a knowledge of where EasyJet is currently in terms of advantages and where improvement is required within the business and what outdoors environmental threats it may face as well as what new opportunities can be found to the company in the brief and medium term. We begins by looking at talents:

EasyJet will serve diverse ranges of Western routes with basic principle activities in both Leisure and business market segments, offering 60 key Western routes. Its current cashflow position is also strong, with cashflow from operating activities increased by 61 percent between your six months ended 31st March 2003 to half a year concluded 31 March 2004. The business enterprise has also appreciated a rise turnover and trading profits resulting in constant substantial development in underlying profitability during the last 7 years (see stand 1). This has resulted in a strong Balance Sheet - the companies world wide web assets reaching the record degree of £724 million (aided by retained profit mainly).

EasyJet is also Europes leading low-cost air travel having completed a merger package with Go to create Europes number one low-cost flight. Brand Awareness is another power that is due to the business - In November 1999, decided on as an enterprise ultra brand by the Super Brand Council, recognising EasyJet as an outstanding brand name. The companys Online arranging facility in October 1999 aided Internet sales to pass the main one million mark. This has business lead to EasyJet customers enjoying Ticketless travel - this reduces the cost of issuing, distribution, finalizing and reconciling seat tickets. EasyJet also likes internal advantages in its functions in terms of effective use of international airports - by minimizing turnarounds to 30 minutes and below, EasyJet can achieve extra rotations on the high consistency routes.

EasyJet appears to have internal strengths in conditions of brand recognition, cash moves, and operational efficiencies. But what exactly are the inner weaknesses endured by EasyJet? The primary weakness is the conception of low quality - low priced can also be seen as poor service than that made available from the established countrywide air travel i. e. English Airways. Also, suffers weakness in the area of hospitality in terms of on board offer of Free Lunch, the eliminating of free wedding caterers up to speed may lead to loss of potential clients. The prevailing competition also have strong brand image internationally, EasyJet is recognized nationally and within the Western markets, however, nationwide airlines like British Airways is recognised worldwide and has more robust brand awareness.

EasyJet also runs a set management structure, which might lack a formal willpower that is needed as the organisation grows. The thought of remote control working can also cause co-ordination and control weaknesses. It really is difficult to co-ordinate the individual staff because in principle they operate separately of every other. Its also hard to screen the performance of each individual.

So having considered the internal strengths and opportunities above, what are the opportunities available to EasyJet and what exactly are the threats faced by EasyJet both from within the Air travel industry and because of this of the world market itself. Weaknesses identified earlier may possibly also offer potential opportunities in terms of development of brand recognition internationally. The EasyJet brand is made in the Western market, but brand understanding is required beyond your continent. A couple of potential opportunities in conditions of new routes and development of services offered, EasyJet has already launched lots of new Western european routes, how about expansion into the Asian Pacific? Executing market change to globalisation - broadening outside the Western european market will be key to continuous development of business performance.

Follow on from market development will also create opportunities for new facilities or services Free Meal - offer on board wedding caterers facilities to contend with mainstream airlines. The increase development of world tourism will offer opportunities in conditions of undertaking jv with local/international travel companies; hence, Heading places and Thomas Cooke are already providing such services to growing range of holidaymakers each year. Finally, opportunities may also exist in the region of development and alliances, think about a joint venture plan with Ryanair to keep and enforce the reduced cost competitive benefit.

Figure1: EasyJet SWOT Analysis

Having considered the possible future opportunities what are the potential threats that EasyJet must remember? Firstly, dangers in terms of new & existing competition. Ryanair proceeds to lower costs, which permits it to persist cutting down fares aggressively. Also, mainstream airlines are actually lowering fares to engage in price competition. Another major industry huge threat is the volatility in price of gasoline - 'Engine oil price record high of $53 a barrel. ' this was the headline available pages of all newspapers last November.

EasyJet also encounters potential risks in conditions of unprecedented tragic happenings like September 11th. Potential risks in conditions of changing communal trends like getaways outside European countries (many now want to see the eastern ethnicities and travel to holiday locations like China and Japan) and also venturing via the EuroStar to Paris etc. Potential dangers of economic recession, since flights is effectively a product product, it is recession prawn. And, finally hazards of any takeover bids from national airlines.

Figure 2: Five Forces Model - ACCA Newspaper 3. 5 (2001)

Porter explains that there are five forces inherent in market, which will jointly determine the power of competition and success of EasyJet and the airline industry. The first is the risk posed by new entrants, as with the Western european deregulation of commercial aviation and the emergent of low cost carriers. The second reason is the hazards from substitutes, rail travel v air travel, the growing demand in Eurostar and cruses. The third pressure is the dangers from the bargaining electricity of purchasers, is this strong for both EasyJet and the whole air travel industry with a big number of choice suppliers, hence, the hostile rates strategy. This results in an exceedingly strong competitive rivalry on the market. This is intensified therefore of little or no differentiation in the service offered. Finally the risks from the suppliers bargaining vitality, this is very strong in the air travel industry for just two reasons, some may be very skilled labour can command word an extremely favourable terms and second is the price of oil.

All of those (political, economic, cultural, specialized, legal and environmental) factors will to some extent connect with the air travel industry.

POLITICAL - Following the Western european deregulation of commercial aviation, a fleet of low cost providers are reshaping the neighborhood airline scenery. Ryanair uncompromisingly fought its way in to the market with an extreme costs strategy.

ECONOMIC - the travel industry is vary recession prawn and also very sensitive to changes in oil prices. Since the events of Sept 11th the airline industry suffered heavily, securities plummeted and ticket prices are in all time lows. The entire world market is however, now on the up post Sept 11th. Consumers are positive and the travel and tourism industry are now booming again.

SOCIAL - changes in consumer taste and lifestyle signify both opportunities and dangers for the industry. Opportunities in conditions of worldwide vacation spots are now favored by holidaymakers and also the growing tendency in international businesses, e. g. major banks and insurance companies relocation call centres in Asia. The dangers are in terms of alternative holiday seasons Disneyland Paris via Eurostar (Euro tunnel) and P&O cruise trip.

TECHNICAL - Changes in retailing methods as a result solution sales via the web is now a typical place in flights, passengers receive an email including their travel details and booking reference point when they book online. Paperless procedure, the management and supervision of the business are undertaken on IT systems, that happen to be seen through secure servers; provide overall flexibility in the functioning of the air travel. The introduction of the next technology aircraft will also lead to technological opportunities in term of fuel efficiencies.

LEGAL - The Western european deregulation of the commercial aviation provided both major strategic hazards and opportunities, the national mainstream airlines encountered severe price competition from discount companies. Hazards are also in terms of legislative environmental regulations regarding pollution and use of more green fuel, which are at high grade prices.

ENVIRONMENTAL - The energy sources used, specifically oil has huge ecological/environmental implications. The hazards are in terms of fines and go up in expense of raw materials.

A no frills strategy is often associated with low priced air travel companies like EasyJet. This form of strategy combines a low price, low perceived service benefits (no free lunch break) and a give attention to a price-sensitive highly competitive market section. This strategy is targeted on keeping costs down and EasyJets coverage of no free lunch break and reliable use of airports by limiting turnaround to 30 minutes. Back 1995 when EasyJet was lunched it was tipped by most to are unsuccessful using its no frills strategy. However, by 12 months 2000 it has not only managed to survive but also increased its market stocks and investments of aircrafts to 74 and servicing 105 routes and holding over 20 million passengers a year. So the strategy has been very successful for EasyJet and appears to have been the correct tactical decision.

Beneath the surface of EasyJets aesthetic cost savings of not offering free in-flight refreshments or different first, business and market classes, was a idea of cost keeping that permeated through the whole organisation. The 2002/03 annual report reconfirmed this business design of the airline:

• Dense point-to-point network to permit linking of major airports with large catchments areas with high level of rate of recurrence, as this will be appealing to business and leisure tourists.
• A strong and visible brand to make a high level of consciousness with consumers. Reinforced by ground breaking and effective advertising.
• Dynamic fares with a simple structure and also ensuring that it are the cheapest fare on the route. Therefore, demand led with proprietary yield management system.
• 100 per cent direct offering of fares; over 90 per cent of sales are online. This gets rid of the necessity to any commissions to external sales agency.
• Highly utilised fleet of aircrafts that are large, modern, successful and relatively green. This results in high degrees of asset utilisation and reduced unit costs.
• Finally, the key to sustaining high levels of growth is the scalability of the procedures. This also reduces the marginal cost of incremental expansion; increasing scale brings valuable economies (Johnson, G. , Scholes, K. , Whittington, R. , (2005).

Another price-based strategy is the hybrid strategy this seeks to achieve an factor of differentiation and a price lower than that of rivals. Implementing this strategy successfully will depend on EasyJets ability to deliver enhanced benefits to customers over its rivals together with low prices. However, if EasyJet could significantly differentiate its service over its competition then it might obtain higher prices. Therefore, the low cost strategy is the ideal strategic fit to its environment. Combining perceived low price with perceived added value can be considered a highly successful plan but the one that requires innovative thinking.

EasyJets competitive advantages via low prices are sustained in several ways. EasyJet in its pursuing of low-price strategies may be prepared to admit the reduced margin either since it can sell more fares than challengers. EasyJet may prepare yourself and must a big extend engaged in price war with competitors via its less expensive composition (economies of scales due to its larger businesses) and also has the financial resource capability to finance brief to medium-term losses with the aim of driving out competitors in the longer terms. A prime example of this was the next takeover of Pass EasyJet. Price wars are becoming more frequent as traveller use the Internet to compare prices and shop around. EasyJet has cost advantages through company specific capacities, which drive down costs throughout the worthiness chain.

Porter feedback on cost authority as the low-cost developer in its industry must find and exploit all sources of cost advantages (Porter M. E (1980)). We will consider the worthiness string for EasyJet in greater detail later in our discussion. Cost advantages might be achieved because of EasyJets efficient use of international airports. This will require a frame of mind where technology (in cost reduction) is regarded as essential to survival. EasyJet is an international example, The intro of Airbus A319 plane, combined with retirement of old technology Boeing 737 aircraft, will cause a two-type new technology fleet, that will commonality and reduce complexity and deliver high level of property utilisation and reduce product costs. Finally, EasyJet has sustained its price-based benefit by focusing on market sections where low fares are critical and valued by customers.

EasyJets first common strategy is to accomplish an overall cost control in the reduced cost air travel industry. Therefore, it is essential for EasyJet to have a thorough comprehension of these costs and cost drivers. EasyJet is permanently trying to realize a cost level that is low in accordance with its rivals.

EasyJet cost efficiency is achieved in a variety of way as shown in the following diagram:

The success of low-fare (cost) strategy is mostly dependent on the maintenance of an inexpensive base. This is crucial for EasyJet having analysed the competitive rivalry position on the market. With Ryanair maintaining high margins despite minimizing yields through strict cost management. Lower costs will be the only competitive gain in the short-haul economy sector as flights is effectively a commodity product. Additionally it is predicted that Ryanair will continue steadily to lower costs, that will allow it to continue to take part in a price conflict, by minimizing fares aggressively.

Managing for value includes handling both value activities and cost individuals. This involves EasyJet retaining funds from operations; hence, a wholesome Balance sheet in conditions of retained revenue. Significant investment in belongings and managing financing costs. Funding strategies advancements is obviously important for the reason that the nature of financing must be appropriate and compliments the reduced cost strategy of EasyJet, by making certain interest costs are low. Strategies are largely determined by the magnitude to which they deliver cost effective to both customers in terms of being competitiveness in the marketplace (leading low priced airline) and also to provide value to shareholders. EasyJets no frills strategy does not only indicate a chop in Cabin team and denial of food, but also permits a faster pre-flight preparation, thereby reducing enough time grounded as well maintaining fare.

As financing from procedures are clearly a major contributor to value creation. In the long term, this is concerned with the level to which the organisation is working profitably. Stand below provides an examination of EasyJets sales revenue and profitability percentage since 1998. Ventures in possessions are also key account in value creation in that account of the amount to which property and working capital are being utilised. EasyJet appears to have developed competences in supporting much higher degrees of business from the same advantage bottom part than other rival airlines. This influences value creation as follows:

• The cost of capital investment
• The management of the factor of working capital

Table 1: Sales and Trading Income of EasyJet

Most theories dispute that proper success and much better wealth generation stem from two strategies. The foremost is to lessen the bottom level range costs of procedure (low priced strategy) and the second reason is to boost the value of the company and its reputation to customers, so that they will demand more or pay more for what they acquire (differentiation strategy) (ACCA Paper 3. 5 (2001)). Porter through the use of the value chain illustrates how resources should be utilised to enhance least-cost creation or differentiation strategies (the universal strategies recommended by Porter). The value chain analysis will show the full total value added by the air travel industry and EasyJet. All airline companies within the industry will have similar value chain, which will include activities such as obtaining petrol, designing fare buildings, airport facilities, producing co-operative agreements, and providing customer service. Value chain analysis provides important insights into what management need to focus on strategically.

In conditions of evaluation, EasyJets distribution activities are essential in terms of e-commerce, as EasyJet like to consider itself as the webs preferred flight. Standardisation in its activities as an airline contributes to both economies of level and an easier product, which is cheaper and much easier to distribute. The price tag on EasyJets seat tickets various as a function of the amount of seats remaining, the time until the airfare, and historical styles. This is done to be able to increase the yield from a air travel, as much of the costs associated with owning a flight are set relative to the amount of passenger up to speed. Produce management is a form of risk management and for that reason, offers value. The sales process is efficient, as EasyJet markets directly to customers, rather than using exterior sales teams. It has been streamlines by using e-commerce, firstly by telesales and now through the Internet.

Marketing and sales will involve making customers aware of EasyJets services are price information and also retailing. This will involve retention of best salespeople recognized by HR management, executive support in terms of maintenance of the net page recognized by technology development to ensure that internet site gets the latest prices and route and airfare information. This must be up to date constantly as this will be a live system. EasyJet handles its sales process extremely proficiently, its offers its tickets immediately. Recently it used telesales and today sales are through e-commerce internet site. As Internet transactions have less cost associated with it EasyJet promotes its customers to book on-line by offering them a discount for on-line ticket reservations. Savings created from e-commerce is another way to obtain value creation.

In terms of competitive advantages, the internet offers overall cost market leaders new abilities to reduce costs in primary activities such as marketing (i. e. e-commerce) and support activities such as fir infrastructure (e. g. quick order control). EasyJet through its use of a standard cost leadership strategy can use internet-based technologies to lessen value string costs in many ways: On-line bidding and order control to eliminate the necessity for sales phone calls and decrease sales team expense. Another good thing about Internet technology is lower exchange costs at multiple levels in value chain activities. Such lower costs gain EasyJet primarily as innovation is rewarded. However the sustainability of competitive advantages may be problematic: as rivals duplicate successful strategies, EasyJet will loose its initial advantages. And finally, service, activities that ensure that customers enjoy their flight by giving friendly on board service and assisting traveller with any special needs requirements.

In terms of support activities, EasyJet takes advantage of technological developments in order to reduce costs. EasyJet likewise have a reputation for paying low pay consistent with its low priced strategy. Procurement and firm infrastructure as a support activity does not add much additional value. In conditions of strategy, many factors are outside the control of the company, such as use of high quality components and low defect rates because of its aircrafts.

This evaluation outlines for EasyJets management how individual activities may be transformed to lessen costs of procedure or improve the value wanted to customers. Those changes will ensure that EasyJet sustains its current market show and position and can also increase margin. EasyJet may be especially proficient at outbound logistics lined to its marketing and sales functions and backed by its technology development. It is possibly much less good in terms of operations and its inbound logistics. This will help management to choose as to what EasyJet should be focusing on and what requires de-emphasising or even outsourcing. EasyJets overall cost management strategy uses low costs at each point in the value chain to lower costs. The clients of EasyJet have been using the Internet to make bookings. Moreover, EasyJet has been offering no in-flight dishes, no in flight movies. Also, only 1 type of airplane is used, to be able to minimise maintenance costs.

The idea of the value string is particularly useful in understanding an organisations proper capabilities since its specializes in value activities and the linkages between activities rather ran just resources. Therefore, functionality is tightly related to to just how that resources are used and controlled. The linkages with the value chains of programs and customers which are the substance of EasyJets ability and which can protect its market leadership and maintain cost authority competitive benefits from opponents. This section we will check out EasyJets resources as a means of evaluating the organisations proper capability.

Analysis of money in order to understand the strategic capability of EasyJet will need study of financial capability and performance. Table 1 demonstrates EasyJets sales has increase time on season since 1998, with revenue and gross margins also experiencing a confident trends. The company has also grown up in terms of its acquisitions of GO and also increase in acquisitions of its aircrafts. EasyJet also has a strong cashflow position mainly from its policy to retain profits and reinvest it back to the business. A WELL-BALANCED scorecard methodology is need to effectively conclude balanced perspective on EasyJets reference capability in order to ensure that the low cost strategy is backed which is the right fit environmentally for the company. The Balanced scorecard way considers the financial point of view in conditions of successes, financial/sales and margins as well as the customer (in conditions of effectiveness, belief), internal business (in terms of efficiency, procedures) and the training and growth point of view in terms of investment/determination, knowledge/creativity and skills and time to market.

EasyJet is a company with a very strong Balance Sheet with multitude of tangible possessions, particularly, its fleet of aircrafts. The company has four hubs in European countries and its own HQ is situated in London Luton, which really is a relatively a low cost location (keeping in line with its low cost strategy). In conditions of intangible resources, the biggest is technology for EasyJet, as it feels that the use of technology invention is essential to gaining efficiency, such as with the distribution channels, and also in terms of remote working. A essential technological innovation that EasyJet has developed is that of the true time rates system, which can automatically revisions ticket prices with respect to the demand structure and amount of time remaining until the flight takes off. However, Competitors like Ryanair has similar systems set up.

The EasyJet shiny orange logo is now recognised by consumers and has created a brilliant brand which has intangible value to the organisation in terms of reputation for value for money and then for operating in the consumers interest. EasyJet is recognized for its low cost strategy and the simplicity of package with customers through direct selling via the web rather than providers.

EasyJet also favours a flat management structure to avoid and eliminate unnecessary costs and also works a casual organisational culture, where employees are told never to wear ties.

Conclusion

The environmental and source analysis support EasyJets current no frills strategy as the appropriate tactical fit to its company. The Five Forces model shows that the flight industry, the environment where EasyJet performs is seriously competitive. Competitive rivalry is strong with Ryanair working an aggressive charges coverage; therefore, the adoption of cost authority universal strategy by EasyJet is the most suitable strategic choice. The worthiness chain research illustrated that EasyJet has properly identified the cost drives of its business and successfully resolved and used those in conditions of technical development to get competitive benefits over its competitors. Technological advantages in conditions of e-commerce solutions via the use of on-line booking facilities through the EasyJet website, using its real time rates system.

Resource analysis shows that EasyJet has both real human and financial resources in location to carry out its preferred cost command strategy and compete with its main competitor Ryanair. EasyJet has illustrated its financial capacities with the acquisition of GO to increase its market shares and to end up being the leading low priced airline in European countries. The financial features are also clearly noticeable from the multitude of wholly owned acquisition of airplane fleets.

Using the success criteria by which tactical options can be judged, hence, suitability, acceptability and feasibility we can also conclude that no frills strategy is the correct strategic fit because of this organisation. The strategy is suitable are it addresses the circumstances where EasyJet is operating - the tactical position. In conditions of acceptability from stakeholders, the financial results signify that this strategy has efficiently met the expected performance outcomes (such as the return or risk). AND LASTLY, EasyJet seems to have the source and competences to provide this strategy. You will find further analytical techniques that can further examine tactical options against these three conditions.

1. ACCA Newspaper 3. 5 Strategic Business Planning and Development (2001) The Financial Training Company
2. Johnson, G. , Scholes, K. , Whittington, R. , (2005) Exploring Corporate Strategy Words and Conditions, 7th Edition, Feet Prentice Hall
3. http://www. easyjet. co. uk/
4. Johnson G and Scholes K (1993). Discovering Corporate and business Strategy - Wording and Situations. Cambridge: Prentice Hall.
5. Porter M. E (1980) Competitive Strategy-Techniques for Analysing Companies and Rivals.
6. M. E. Porter, Competitive Gain: Creating and Sustaining Superior Performance, Free Press, 1985

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Footnotes

[1] Corporate and business appraisal (or SWOT evaluation) consists of the internal appraisal of the organisations durability and weaknesses and an exterior appraisal of the opportunities and hazards open to organisations in competition within industry.