Analysis of EasyJet and Indian Low Cost Airlines Strategies
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Transcript of Analysis of EasyJet and Indian Low Cost Airlines Strategies
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8/3/2019 Analysis of EasyJet and Indian Low Cost Airlines Strategies
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Analysis of EasyJet and Indian low cost
airlines strategies
Group no 807BM8016 G PAVITHRA
07BM8035 VINAY NARKAR
07BM8054 S KRISHNAMURTHY
07BM8077 VIVEK BORAH
07BM8098 KALYAN RAY
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EasyJet
Introduction
Founded in March 1995 by Stelios Haji-Ioannou - the family remains the major shareholder
The airline is based at easyLand, at Luton airport
EasyJet Airline Company Limited, styled as easyJet, is a low cost airline based at London
Luton Airport. It is the second largest low-fare airline in Europe, after Ryanair, operating
domestic and international scheduled services on 387 routes between 104 European and north
African airports
easyJet consistently breaks new ground. In developing its business, easyJet has scored many
firsts - particularly in its exploitation of the World Wide Web. Yet there is even more to easyJet
than meets the eye. Underlying all its actions is a consistent business philosophy of efficiency and
cost cutting. easyJet has shaped its operation to address the mass market and has harnessed and
anticipated both passenger demand and consumer preferences. The result has been rapid and
sustainable growth in the face of stiff competition from the big guns. It has broken the mould
assumed for low cost airlines, operating a modern and expanding fleet intensively on competitive
routes. easyJet strategies are bold and adventurous rather than risky. In fact, easyJet takes few real
risks, as it applies sound business principles whilst carefully exploring the market.
More about EasyJet
easyJet stakes its claim in the market as a low cost airline operator. Yet easyJet operates quite
differently from most other low cost operators. Traditional low cost airlines fly old aircraft on routes
that the major airlines are not interested in. Old aircraft may be cheap to buy, but they are not cheap to
operate. Flying uneconomic routes doesn't help either. This traditional mode of operation makes profit
margins very thin, simply because operating costs are so high.
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easyJet completely rejects this model. easyJet intensively operates modern aircraft, on competitive
routes. easyJet currently operates 21 aircraft (18 Boeing 737-300s and 3 Boeing 737-700s). They
have placed firm orders for another 32 with options for a further 30. By 2004, the easyJet fleet will
consist of 44 aircraft with an average age of less than 4 years. easyJet currently operates on 31 routes
between 16 European destinations. As the fleet grows so will the number and intensity of these routes
grow.
As easyJet's fleet has grown, so have passenger numbers: from a mere 30,000 on start up in 1995 to a
respectable 5,600,000 by the end of September 2000. During this period it saw profits grow to
22.1M on revenues of 263.7M. Initially a private company, easyJet floated on the Stock Exchange
in November 2000 when 63,000,000 shares, representing 25.1% (of the total of 250.5M) shares were
offered at 310p. A further 11-12% were reserved for staff. The airline raised 195.3 million valuing
easyJet at 777 million on flotation. The sale to financial investors was over subscribed, resulting in
the further sale of 9.45 million shares at 310p bringing the easyJet public offering to 224.6 million.
easyJet Business Model
easyJet are not afraid of competition, simply because they have developed a business model that
ensures a built-in business advantage. easyJet hack away at costs and overheads where ever they
occur. Sometimes this means taking an unconventional approach. For example, easyJet operate
modern 737 aircraft because operating costs are low (compared to older aircraft), but also because
crew training is simplified (avoiding the overhead of needing crew for several different aircraft types).
This approach allows easyJet to develop a cost per seat model comparison with competitor airlines.
Seats are sold accordingly. Seat prices start off very low, with the price increasing as more seats are
sold (satisfying the principle that the early bird definitely catches the worm). Yet the passenger is
always guaranteed the lowest price.
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easyJet cost per seat model
Strict cost control achieved through:
- Simplicity (using one aircraft type)
- Productivity (fast turnaround terms)
- Direct distribution (using the internet for
bookings and payment)
- On board: no drinks, no meals
-Secondary airports with low taxes
-Few destinations with higher frequency
Price elastic demand:
-Means that demand increases when costs
fall.
Advantages:
A bigger market share
New target market
The barriers to enter are higher
Predatory pricing
Risks:
Price discrimination
Customer
dissatisfaction
Phycological factors
- low price = low quality
- Prestige
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EASYJETS SERVICE OFFER
SECONDARY SERVICE
CORE SERVICE
Core benefit
Transport
Features:
low fares,no frills
Branding:
Strong visible brand
Process:standardized,customers partof the service
process
Tangibles:brochures,
confirm mail
Packaging:other benefits
included in packageQuality:
level of customersatisfaction
Accessibility:direct purchasing
opportunityfrom internet
easyJet are also happy to spell out the reasons why they have fewer costs than other airline and
actively promote their seat-by-seat comparison with their competitors. It makes interesting reading:
No business class (Business Class can reduce seats from 149 to as low as 109 seats and increases
cabin crew overheads), No agents (easyJet was the first airline to cut out agents), No tickets (reduces
delays for passengers picking up tickets etc), No free food (reduces costs and crew overheads), No
congested airports (easyJet avoid airports with big delays). They also make significant gains by
reducing turnaround and increasing utilization.
Every effort is made to reduce overheads and cut unnecessary costs. As noted above, travel agents are
regarded as an overhead. Consequently, it is not possible to book tickets on easyJet through a travel
agent. The passenger must book directly by telephone with easyJet or on the web, where the
passenger is offered additional discounts on the ticket price. easyJet was the first airline to advertise
its telephone booking number on the side of its aircraft (in the staid civil aviation market, this seemed
more than a little 'brash'). This bold strategy has paid off, resulting in easyJet operating with high and
profitable load factors on its routes.
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The end result is an airline operating on sound and competitive business principles that has simply
learned to think "outside the box". What makes it really go with a bang, is the way easyJet has
incorporated the Internet into its business model.
easyJet on the Web
easyJet has based its ticket sales on the web. At present over 82% of its sales are sold directly through
the website www.easyJet.com. This is all the more remarkable, given known consumer hesitation
about buying anything online. Booking is offered in three languages (English, French and Spanish)
reflecting the core ofeasyJet's current route structure.
What easyJet offers on its website is choice. This choice is offered 24 hours a day, seven days a
week. When booking a flight, the passenger is not only offered a choice of flights, but the best fare
available on each flight. Not only are the offered fares lower than the competition, they can even seem
ridiculously lower. Fares are quoted one way. That means that the best price for the most convenient
flight can be obtained both ways, optimizing the round trip cost for the passenger. This approach
compares very favourably with the inflexible pricing and ticketing structures offered by conventional
airlines. Further reductions are offered for booking on the web.
For illustration purposes only, typical fares booked on the web could cost either of 27.50, 47.50,
87.50 and 117.50 compared with competitor fares of, say, 400 to 600 (e.g. usually at the lower
end i.e. 10% to 50% of the conventional fare) on the same route. These are real price comparisons and
not just worst-case examples.
What the passenger gains is not only a good fare, but a new set of expectations.
easyJet On-line Experience
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The on-line experience for the passenger, reinforces confidence in the booking process. A five-step
approach is taken, allowing the passenger to exit at any time. The booking form remembers essential
passenger information, so saving irritating re-entering of basic details if passengers want to
experiment with dates and times. It also remembers these details from one booking session to the
next, for registered users, speeding up the whole process for the passenger.
This is especially useful, as it allows the passenger to optimize the price they are willing to pay for
both the outward and return legs of their journeys. Hence there are real benefits to the passenger for
registration, other than merely allowing an airline to capture passenger details.. Once a
passenger has booked his ticket for the first time it seems almost as if a bridge has been crossed. For
the first time, the passenger can directly influence the price of his ticket and is given choices not
available elsewhere.
As a result, there seems little doubt about the fact that easyJet's customers enjoy their online
experience, so ensuring that these customers come back regularly and often.
easyJet Web Strategy
This is all part ofeasyJet's web strategy, weaning the passenger away from conventional attitudes to
booking airline tickets through agents, with all its big airline assumptions and overheads. The term
'low cost' is made into a virtue, breaking the implied link between low cost and poor service. The web
is thus presented as one of the enablers of this low cost but high value strategy.
So confident is easyJet in its web strategy, that it is now seems ready to take the next step in this
process and become the first "web only" airline, completely doing away with telesales (something
already achieved for easyRentacar). Its aircraft no longer carry the telephone booking reservation
number, but only its website address (www.easyJet.com) - the writing was literally 'on the wall' for
telesales (with 82% of tickets sold on the web, the remaining 18% is taken by over 200 telesales staff.
For many airlines, this may seem utterly inconceivable - a true leap into the void. But easyJet
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maintains its confidence in this approach based on the real and dramatic growth in its web sales. The
fact that easyJet can do this, is a reflection of way consumer attitudes have developed over the last
decade and the fact that the Internet and mobile telecommunications technology have increasingly
become integrated into everyday life. This process is likely to lead to even more significant changes in
the not so distant future (another story!).
Other Services
easyJet also offers a growing number of services. These are offered in a fairly low-key manner on the
web site (if one ignores the distinctive orange banners!). These include: holidays, hotels, travel
insurances, easyRentacar (an Internet only operation), online shopping, gifts etc. For some of these
items, you really need to be an easyJet fan or love the colour orange. However, most are genuinely
added value to the airline passenger e.g. car hire, car parking, currency and phone hire. It's also nice to
be able to sort out all of these in one place.
Summary
There seems little doubt that easyJet is changing passenger expectations in terms of both price and
service. Undoubtedly, other airlines will follow this route - which will, in turn, also increase the
commercial pressure on easyJet. But easyJet seems determined to stay ahead of the competition
whilst always in-line with passenger expectations. As a market shaper, easyJet has constructed an
enviable position. One that has undermined competitor confidence in what was thought to be a well
understood market. It seems clear that more change is in the pipeline. It is also likely that easyJet may
present itself as a champion of passenger rights, since it is vigorous in its condemnation of all the
hidden charges that add significantly to ticket prices, including: airport ticket taxes, airport operator
charges and ATC charges to name but a few.
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Indian Low cost airlines
Air Deccan
SpiceJet
IndiGo Airlines
Go Air
Jetlite (Formerly known as Air Sahara)
Business Model of Low Cost Carriers
A single Passenger class
A single type of airplane reducing training and service cost
No frills such as free food/drinks, lounges etc.
Emphasis on direct sale of ticket through Internet avoiding fee and commission paid
to travel agents.
Employees working in multiple roles
Unbundling of ancillary charges to make the Headline fare lower
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Airline Industry in India :
Service Vs Price Graph
Air Deccan
Come SIMPLIFLY With Us
Established in 2003
First private Indian operator to fly Airbus aircraft.
Launch of IPO on 25 Jan 2006
Stiff competition from players like Kingfisher, Spice jet , Air Sahara etc.
India's first low-cost airline, Air Deccan started service on August 25, 2003. The airline's fares for the
Delhi-Bangalore route were 30% less than those offered by its rivals such as Indian Airlines, Air
Sahara and Jet Airways on the same route. The success of Air Deccan has spurred the entry of more
than a dozen low-cost airlines in India. Air Deccan now faces stiff competition from other low-cost
Indian carriers such as SpiceJet, GoAir and Paramount Airways. IndiGo Airlines recently placed an
order for 100 Airbus A320s worth 6 billion USD during the Paris Air Show, the highest by any Asian
domestic carrier. After a year of operation, in 2006, Kingfisher Airlines changed its business model
from low-cost to value airlines.
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Price
Rock-bottom prices.
Cheap fares in spite of increase in aviation turbine fuel prices.
The earlier you book, lower the price.
Promotion and Education
Spending 20 Cr on promotional activities.
Freedom at midnight tickets at Rs 500 (plus taxes)
Joined hands with AVA merchandising to launch an inflight shopping scheme Brand
for less.
Place
Launch of ICICI Bank Air Deccan travel agent Purchase Card .
Option of booking, payment and rescheduling of flights through SMS.
Easy transaction completion through internet.
Product
Air safety equipments from US technology conglomerate Honeywell.
Honeywell systems include :
Enhanced ground proximity warning system
Weather radar
Solid state flight data recorder
Cockpits voice recorder
Productivity and operations
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Tie up with jigrahak
Intranet to reduce manpower requirement
Three levels of power backup
Deployment of VSAT in the eastern and central sector
Flight delays hampering productivity
Plans
IPO offered to build infrastructure and de- leverage the balance sheet.
Inducting 2 aircrafts, an airbus and an ATR every other month.
Rapid expansion to other cities.
People
LEAN AND MEAN APPROACH to staffing.
Low aircraft to employee ratio.
Good work culture with a skilled workforce is the backbone of the company.
Wage negotiations going on.
Features
Interiors are plush, new seats.
No in flight refreshment service.
Inflight choice of meals.
Lack of physical space.
No business class offered.
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Marketing Strategy
Common Man :
The Brand Ambassador for Air Deccan, the peoples airline is Mr. R.K Laxmans Common
Man
Free Tickets :
Advertisement through print, radio and billboards
In flight magazine for revenue generating
In flight shopping scheme called Brand for less AVA Merchandising
Tie-up with Caf Coffee Day
ICICI-Travel agent purchase card
Tie-ups with HPCL and Reliance Web World
How Air Deccan cuts cost?
Quicker turnaround time
Lower distributions costs
All economy seating configuration
No free catering on board
Alternative revenue channels
100% web enabled bookingse ticketing
Enhanced cash flow management