The Low-cost Orange Flying Machine: The Case of easyJet

Introduction
The colour orange is increasingly becoming synonymous with the firm easyJet as it has become one
of the worlds most profitable low-cost airlines (Alamdari and Fagan, 200!" This paper e#amines the
basis of their success and argues firstly, that easyJet from its inception essentially adopted and
stayed with the original low-cost model that was pioneered by $outhwest airlines in the %$A"
&oreo'er, this is a model that has ser'ed them well, resulting in sustained business performance and
growth o'er a decade" (owe'er, our second point is that with this growth, and increased competition,
there are signs of the need for a change" Accordingly, in what follows, we e#amine in turn) the
historical origins of easyJet, emphasi*ing its 'alues and the influence of the $outhwest airlines model+
the essential features of its business model+ and some indication of its business performance o'er
time"
Historical Origins: Personality, alues and the !outhwest "ay
,asyJet was concei'ed in -.., with its first flight occurring in /o'ember of that year" There are
numerous descriptions of the early start-up days, but one of the most 'i'id is surely the following
(0alder 2001) --2!)
The entrance to the a'erage airlines head3uarters is an impressi'e affair, intended to impress
'isitors" 4ut the (5 of 4ritains most successful low-cost airline is far from a'erage" For a while,
the modest foyer of easyland 6 the huddle of temporary buildings from which one of ,uropes
leading airlines is run 6 was adorned by a tent" 7t was a small, two-person 8ob, strung from the
roof9 Ta:e one shipping millionaire, two 4oeing ;2;s normally used for 4ritish Airways flights and
se'eral do*en gallons of orange paint, and you ha'e a re'olution in the s:ies" 4ut industry
watchers li:e myself were slow to realise the scale of the uphea'al signified by the first flight of
easyJet"
The picture con'eyed abo'e stands in mar:ed contrast to the subse3uent growth and current
performance of easyJet" 7ndeed as we were preparing the first draft of this paper easyJet announced
that pre-ta# profits were up by percent to a record <-2. million in the year to $eptember 2001"
Turno'er was up 2- percent, passenger numbers by --" percent (to 22 million!, the share price hit an
all time high, and 2 new Airbus 8ets were to be ordered (Financial Times 2001!" The contents of
Figure - below lists some of the :ey milestones in the e'olution of easyJet"
Event Time
First flight /o'ember -..
Appointment of =ay >ebster as &anaging ?irector &arch -..1
First international flight (Amsterdam!
April -..1
@ne million passengers mar: passed
@ctober -...
easyJet floated on Aondon stoc: e#change (shares si# times o'ersubscribed!
/o'ember 2000
@nline boo:ings reach B0C (highest proportion in the world!
200-
$telios announces he will step down as 0hairman April 2002
easyJet ac3uires D@ (becomes largest low-cost airline in ,urope with B-
routes!
August 2002
easyJet announces that it will grow aircraft capacity by 2C per year until
200E
@ctober 2002
easyJet e#ceeds <- billion turno'er figure for first time (fleet si*e F EE aircraft!
200E
Two profit warnings ,arly 200E
=ay >ebster announces intention to retire as &anaging ?irector &ay 200
7celandair ac3uires stoc: in easyJet @ctober 200
($ource) e#tracted from Jones 200!
Figure -) &ilestone e'ents in easyJets de'elopment o'er time
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&uch of the early discussion of easyJet pi'oted around its founder, $telios (a8in 7oaanou (G$telios!"
(is personality, bac:ground, Gentrepreneurial approach (=ae 200-! and Gmanagerial style were all
much discussed) the Gno frills wor:ing en'ironment (e"g" no pri'ate offices! and the Gorange culture
(i"e" Gbeing up for it+ Gpassionate and Gsharp! were held to be important legacies following his stepping
down as 0hairman in 2002"
7n what was initially seen as 'ery much a Gpersonality-dri'en organi*ation it is important to emphasise
the place and role of $outhwest airlines in influencing the personality of the 0hairman" As one study
stated) G7t was not until he flew on $outhwest airlines that $telios felt he had found the right concept
for a ,uropean airline" $telios intensi'ely researched $outhwest, meeting with founder and 0,@ (erb
Hellacher and buying 20 copies of /uts 6 a boo: documenting $outhwests success 6 for distribution
to potential employees and customers" ($ull -...) 22!
$outhwest airlines is 'ery much an organi*ation in which a high le'el of Gselecti'e perception is
apparent among obser'ers and emulators+ you can see what you want to see in it (Iate and
4eaumont 2001! To easyJet the :ey message recei'ed, accepted and followed faithfully, was to adopt
and stic: to the original low-cost model pioneered by $outhwest"
The #asic Low-Cost #usiness Model
The :ey features of this model are outlined below in Figure 2 below"
Product Features
-" FaresJ networ: Aow, simple and unrestricted fares, high
fre3uencies, point to point, no interlining
2" ?istribution Tra'el agents and call centres (today internet
sales!, tic:etless
2" 7nflight $ingle class, high density seating, no meals
or free alcoholic drin:s, snac:s and light
be'erages for purchase, no seat assignment
Operating Features
-" Fleet $ingle type, 4oeing ;2;, high utilisation, ---
-2 hours per day
2" Airport $econdary or uncongested, 20K20 minute
turnarounds
2" $ector length $hort, a'erage E00 nautical miles
E" $taff 0ompetiti'e wages, profit sharing, high
producti'ity
($ource) Alamdari and Fagan 200) 2;B!
Figure 2) The original $outhwest Airlines low-cost business model
7ndeed, if anything easyJet appears to ha'e achie'ed further le'erage along the Gno frills dimension of
this basic model) tra'el agents were completely a'oided (direct sales only! and passengers had to
pay e'en for soft drin:s and snac:s ($ull -..., 22!" $uch features of the easyJet low-cost model were
held to be acceptable, or indeed attracti'e, to Gpeople who pay for tra'el from their own poc:ets ($ull
-...)22!" $pecifically easyJet targeted three cost-conscious and price-sensiti'e customer segments)
(-! the tra'eller 'isiting relati'es+ (2! leisure tra'ellers wor:ing brief trips+ and (2! entrepreneurs and
managers from small firms"
At this stage we need briefly to comment on staff conditions (competiti'e wages, profit sharing, high
producti'ity! in Figure 2" First, in a general sense, it is remar:able how little human resources and
staffing matters figure in discussions of the easyJet strategy ($ull -...+ Jones, 200!+ they are
essentially conspicuous in their absence" $econdly, if one turns to more specific matters there are
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grounds to 3uestion the reality of the staffing approach in Figure 2" For e#ample, on the competiti'e
salary front, it has been estimated that pilots at easyJet earn around 2C less than pilots wor:ing for
traditional carriers (Jones 200) --!" This differential was a considerable source of tension and
difficulty when easyJet too: o'er the airline D@ in August, 2002, with calls for stri:e action occurring
at the time (Jones 200).-!" 7n the latter part of this paper we turn to loo: at these sorts of human
resources and employment related matters in more detail"
The #asic #usiness Model and the #otto$ Line
,arlier we made reference to the impressi'e performance figures of easyJet for the year to
$eptember 2001" This has not been an isolated success story" For e#ample, easyJet pre-ta# profit
figures rose from <". million in -..B to <E0 million in 200-, and now to the current all time high of
<-2. million"
At least one ma8or study has attributed this success to easyJet stic:ing 'ery closely to the original
features of the low-cost model outlined in Figure 2" 7n essence this research (Alamdari and Fagan
200!, which in'ol'ed -0 low-cost carriers in ,urope and the %$A, reported that, firstly, easyJet
adhered 'ery closely (;EC compatible! to the original model, a figure only e#ceeded by that for
=yanair (BC! (Alamdari and Fagan 200) 2BB!" &oreo'er their second :ey result was that the closer
one adhered to this model, the higher was profitability" The success of easyJet (and =yanair! in this
regard has been noted in other studies" For instance, the &cHinsey 5uarterly (200! reported that
easyJet and =yanair account for about 0 percent of seat capacity in ,uropes low-cost mar:et, with
between 200E and 2001 only easyJet (B".C! and =yanair (2."EC! ha'ing positi'e a'erage operation
margins"
Although both easyJet and =yanair are always hailed as the two financial success stories of the
,uropean low-cost sector, with both adhering most closely to the original low-cost model (Figure 2!, it
is important to recognise important differences between them" For e#ample, easyJets unit costs are
reported to be double those of =yanair, with the former brea:-e'en point (;1C of capacity! being
higher than that of =yanair (12C! (&cHinsey 5uarterly 200!" @ther differences between the two,
which ha'e been noted, are that easyJet has more head 6to-head competition with the con'entional
carriers because it uses more established airports than =yanair (Jones 200) 2--!"
&uch of the bottom line success of easyJet has been attributed to its yield management system which
see:s to e#tract the ma#imum re'enue per flight (Jones 200) 2-2!" 7t is these sorts of sentiments
which underpin their micro-type targets" For e#ample, the aim is to grow the current profit per seat
figure of some <2"0 to < by the end of 200B"
%re there !igns of Changes in easyJet&s #usiness !trategy'
0urrent profits are good and the emphasis on yield measurement and tough targets will still remain"
This said, there are signs of some actual or proposed changes in the business model" These ha'e
arisen because of the rise of new low-cost competition, changes in the con'entional carriers (limited
frills!, and e#ternal pressures such as oil price rise"
The changes are designed to address some concerns of e#isting customer segments and to attract
new customers" For e#ample, in April 2002 easyJet launched a dedicated website for business tra'el
arrangements which allows corporate customers to access monthly management information so that
they can trac: tra'el spend" 7n June 200 it introduced easyJet lounges, which passengers had to pay
for, but which were 'iewed as attracti'e to business tra'ellers" Figures released in The Times (--
th

/o'ember, 2001! suggest that they ha'e been relati'ely successful in capturing the business mar:et)
$tansted and Auton (easyJets Aondon bases! ha'e the highest proportion of fre3uent flyers among
ma8or airports at o'er 0 percent as compared to 2. percent of passengers at (eathrow" &easures
ha'e also been ta:en in recent years to address customer concerns regarding the lac: of clarity of the
full fare until the last stage of boo:ing, through an upgraded software system" A :ey 3uestion remains+
can easyJet consistently capture the business tra'eller sector, with their considerable e#pectations of
Gadded e#tras while remaining true to their winning formula of cost leadershipL @nly time will tell"
3
(eferences
Alamdari, F" and Fagan, $" (200! 7mpact of the adherence to the original low-cost model on
profitability of low-cost airlines, Transport Reviews 2, 2) 2;;-2.2"
0alder, $" (2001! No Frills" Aondon) Mirgin 4oo:s"
Financial Times (2001! -
th
/o'ember, p2E"
Jones, A" (200! easyJet, the Story of ritain!s iggest "ow#$ost %irline& Aondon) Aurum"
&cHinsey 5uarterly (200! August edition"
Iate, J" and 4eaumont, I" (2001! The ,uropean low-cost airline industry) the interplay of business
strategy and human resources, European 'anagement Journal 2E, ) 222-22."
=ae, ?" (200-! easyJet) a case of entrepreneurial management, Strategic $hange -0, 1) 22-221"
$ull, ?" (-...! easyJets N00 &illion Damble, European 'anagement Journal -;, -) 20-2B"
The Times (2001!, --
th
and -
th
/o'ember"
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