Analysis of EasyJet and Indian low cost airlines strategies

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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.

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.

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: bigger market share A New target market The barriers to enter are higher Predatory pricing

Risks: Price discrimination Customer dissatisfaction Phycological factors - low price = low quality - Prestige

EASYJETS SERVICE OFFER

SECONDARY SERVICE
Features: low fares, no frills Branding: Strong visible brand

CORE SERVICE
Tangibles: brochures, confirm mail

Core benefit Transport

Process: standardized, customers part of the service process

Packaging: other benefits included in package

Quality: level of customer satisfaction

Accessibility: direct purchasing opportunity from 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.

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 of easyJet'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

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 of easyJet'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

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.

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

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.

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

 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.

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 bookings e ticketing Enhanced cash flow management