Effects of terrorism.

1. Executive Summary

Despite the failure of many well known carriers easyJet continues to grow and seems largely unaffected by the global downturn as well as the effects of terrorism.

However Market shrinkage, fluctuating oil and currencies have dealt further blows to easyJet and even though operating revenue has risen by 11% in 2009 the profits levels have dipped by 50% in comparison to the previous fiscal year.

This report evaluates both internally and externally and suggests that by targeting specific markets segments and increasing e-commerce efficiency easyJet are not able to progress but further strengthen their foothold within the marketplace.

This report recommends that we should now the market is ripe for further targeting of existing and new business travelers and students using methods more appropriately tailored to the individual segments.

Additional efficiencies can be made through a deeper application of e-commerce into the service offering lessening the impact of increased variable costs absorbed elsewhere e.g. increases to fuel, currency & airport tax.

1.1 Quick Facts (easyJet 2009)

* easyJet based on South West Airline concept

* 2009 total revenues reach £2.667 billion (11% increase on 2008)

* Offer quality, low cost, no frills travel

* Occupancy rate per flight is 85%

* Fly 70 routes to 114 airports, carrying 45 million passengers

* West (2002) states easyJet dominates two thirds of EU low cost airline market, and are the number one airline between London and Nice according to Nice airport statistics

2. Marketing Strategy

Stelios, the owner of easyJet is said to have an “aggressive flamboyant approach to marketing”(Perman, 2002). “EasyJet live and breathe the love of the underdog and working for the people, by offering good quality and customer service without frills. They aim for brand awareness and high levels of customer satisfaction.”(Perman, 2002)

2.1 Product

Their mission is to offer the mass-market low cost airline service. Their operation model is efficiently driven. Their current focus is on short haul point to point travel, rapid turnaround times with one type of aircraft and excellent customer service.

2.2 Price

Price is an important factor in the low cost, no frills airline industry. The company uses ‘yield management,' essentially the higher the demand for the flight, the higher the price. This is set to maximize flight capacity and revenue. Low prices are maintained through cutting unnecessary costs such as travel agents, airplane meals and tickets. Competition, which is based solely on price, could be dangerous. (easyJet, 2003)

2.3 Place:

EasyJet is a 100% direct sell operation with an on-line presence, in association with PSINet. The airline has been voted the Webs Favourite Airline. Internet sales take 90% of the revenue and the rest are sold over the phone to easyJet headquarters in Luton or rarely at the sales desk at airports. Simple distribution is maintained to keep costs low.

2.4 Positioning

EasyJet (2009) position their brand as a low cost, no frills airline, placing emphasis on punctuality. They also position themselves opposite the bigger airlines such as British Airways and other equivalents that are based in their various destinations.

3. Customer profile

3.1 Target market

EasyJet appeals to the ‘underdog', and the people who pay out of their own pockets. They target leisure travelers visiting relatives and small business managers. (easyJet, 2009) This may include companies or individuals that can afford little expenditure on travel.

According to owner Stelios Haji-Ioannou, there is an easyJet customer to be found everywhere. Easyjet provides a service for “Mr. Everybody”. This is any price sensitive traveler who wants quality service and safety but doesn't care about luxury. (easyJet, 2002)

4. Competitor analysis

4.1 Airlines

Airlines compete on fair levels, frequency, and reliability of service, brand recognition and frills. (easyJet, 2002)

However, easyJet is a no frills airline, putting it into a narrower competitive environment of price competition as well as frequency and punctuality.

Larger companies such as British Airways have higher brand recognition and resources. Some are state owned and receive aid from government.

Schafer states that post September 11th, some airlines are selling aircrafts to improve their bottom lines. This presents easyJet with the opportunity to buy new airplanes for more flights.

4.1.1 British Airways

This is a very high profile airline, constituent of FTSE 100 index that offers luxury and frills at high prices, targeting primarily business travelers.

Post 9/11 there has been a visible reduction in long haul routes to target the short haul sector.

Having launched new routes at Gatwick, easyJet comes into direct competition with BA and their ‘Club Europe' and their discerning customers.

Set to become the third largest carrier in terms of annual revenue after agreement to merge with Iberia Airlines. (Rucinski, 2009)

4.1.2 Ryanair

In 2008 passenger numbers grew by 15% to 59 million. (Ryanair, 2009)

Ryanair is the largest airline in Europe in terms of passenger numbers and the world's largest in terms of international passenger numbers. (IATA, 2008)

Are unafraid of undercutting prices to squeeze out competition as seen with easyJet on the Cork route in 2004 and with Go on the Dublin route.

They maintain a fleet over 200 in number servicing 950 routes from 39 bases. Like easyJet, they are also a direct sell operation.

4.2 Railways

As easyJet fly short haul routes, they are exposed to national and international rail competition. These are government owned and heavily subsidised.

In past years, with expenditure on rail fares rising per week in the UK (OFT 2004) airlines have been losing share to high-speed rail.

With their Paris route, easyJet are placed in direct competition with the Eurostar. EasyJets low fares make rail travel a very close substitute.

Channel Tunnel traffic towards European destinations has increased according to a survey by the Department of transport indicating another close substitute to low cost airlines.

5. Company Strengths and Weaknesses

5.1 Strengths

* Short haul flights have not been affected by September 11th and easyJets low cost concept makes it less susceptible to economic down turn (Sept 26th 2001 reported figures back to normal).

* Industry analysts say that staff on low cost airlines, are more loyal and more motivated (younger) as it is more exciting to work for someone who pokes fun at its rivals. (Keating, 2001)

* EasyJet offer flights early morning and late afternoon including the “red-eye” flights which cater not only for leisure but also business travelers. (Keating, 2001)

5.2 Weaknesses

* EasyJets' size is a weakness. Lack of resources in comparison to larger competitors makes it difficult to compete on the same scale.

* Access to congested airports is based on historical precedence; meaning easyJets age is a weakness and may prevent reach of appropriate target markets.

* EasyJet fly to airports which are far away from major city destinations i.e. Luton 30 miles from London. Many customers may perceive this as inconvenient.

6. Company external analysis (PEST)

6.1 Terrorism

Following September 11th 2001 we have seen drastic changes in the airline industry. The market has seen an increase in demand for low prices as well as safety.

* Security regulations may affect passengers as air marshals may take up seats.

* Aircraft delays may occur due to extensive security checks.

* Restrictions are being enforced on carry on luggage, causing problems at check-in.

These factors led to higher security costs, which may be passed to consumers, affecting prices.

Post September 11th, there has been a decrease in demand for air travel and fear of further terrorist attacks on transatlantic flights. On January 25th 2002, according to the association of European airlines, a loss of 5 million passengers was reported for airlines since the attack. (Airwise, 2002)

6.2 Socio-cultural

6.2.1 Leisure travel

The leisure market is discretionary and susceptible to economic downturns. However, low cost airlines in a time of recession may gain passengers as they look for a cheaper deal. This became apparent in 2009 when easyJet increased traffic figures despite an unsteady economic climate. (Airwise)

Changes in travel spending patterns may also affect the company. According to

The Family expenditure survey, out of the UK, London had the highest expenditure on holidays in 2004, with 26% above the UK average indicating a growth in leisure travel.

EasyJet believe that the leisure traveler will respond when the right price is offered. (Day, 2001)

A survey by Mori (2002), ” freedom to fly” found that the most common reason for traveling is holidays, and even after September 11th, 44% of the public hope to fly more frequently,' which suggests restored confidence.

6.2.2 Business travel

Business travel is less discretionary than leisure travel as it is not seasonal. This indicates a year round profitable segment for easyJet.

One in two passengers from London to Edinburgh and Glasgow routes are business travelers (easyJet, 2003) indicating a business destination.

VISA card issuer Barclaycard discovered in a survey that business travelers have grown to 53% from last year. (Hoovers)

The United Kingdom Tourism Survey, by the National Tourist board indicates that there is an increasing trend for traveling for business or work purposes. (NTB, 2001)

Unsteady economies indicate that companies, big and small will be more price sensitive when traveling for business purposes, wanting to save on travel expenditures.

6.2.3 Media

An increase in travel media is educating customers on many of the leisure destinations that easyJet travel to. This results in the public being exposed to a variety of potential destinations, giving them a wider degree of choice.

EasyJet uses Television as a media tool indirectly. The ‘Airline” TV show, a series by ITV1, dedicated to easyJet, communicates both positive and negative aspects to the public.

EasyJet use it to reinforce brand positioning of transparency and informality. However at times, negative exposure may over shadow positive aspects.

6.2.4 Demographics

Generations X and Y are cynical and skeptical of advertised low prices. This shows that price differentiation alone may not be enough to attract these young segments (students with low income).

An ageing population in the UK mirrors an increasing demand for high quality rather than low prices, pushing easyJet to emphasize quality and customer service . (National Statistics, 2002)

6.2.5 Consumer trends (behaviors and attitudes)

November 2001 saw a slump in passenger traffic numbers for long haul flights(12% less than last year), as fear of flying dominated attitudes.

However this improved in March 2002 as confidence was restored, according to figures from BAA, the airports operator. This initial slump forced airports to fill gates with cheaper slots presenting an opportunity for easyJet.

According to mori.com, “freedom to fly”, 85% of the British public agrees that air travel should match public demand and even those who have never traveled on a plane before have positive attitudes towards air travel.

6.2.6 Attitudes towards low cost airlines

In recent months there has been an increased degree of skepticism towards low cost airlines. An article in the Evening Standard (2002) found that passengers are paying far more for ‘no frills' travel.

These types of articles are making passengers more skeptical of the low cost concept.

Consumer groups are worried that passengers may be missing out and are urging passengers to “shop around”. (Fletcher, 2002)

This illustrates that price differentiation alone may not be enough to keep customers satisfied.

7. Political-legal

7.1 Regulatory bodies

* BAA (British Airport Association) are operators of Luton and Gatwick. Regulations enforced directly affect easyJet operations.

* EasyJet operate under EU regulations which impact on the company.

The Competition commission was under pressure to offer financial aid to troubled airlines after September 11th placing easyJet in an unfair position.

* Deregulation of air travel in the 1990s allowed easyJet to operate under a low cost no frills concept.

* Department of Health and Safety may force easyJet to reduce seats on aircrafts due to security and health (LSE, 1999). These additional costs, leading to higher prices, may not be accepted by consumers.

* As easyJet practice comparative advertising in communications, they are subject to Ad Associations regulations, limiting the ability to attack competitors directly.

7.2 Airports

Airport operators and handling agents may cause delays that airlines are not responsible yet scrutinized for. E.g. when it takes one hour after disembarkation for baggage to reach baggage claim it is not the airport that is blamed, it is the airline traveled on.

Airport access is the biggest operating cost of the airline and its increase may impact on operations and ticket prices.

7.3 Taxation

Airport tax is a fixed tax on the sale of airline seats; the UK's being one of the highest in Europe. If airport tax increases it may not be possible to pass the cost to the customer who is price sensitive, as a rise in price will be more noticeable on a cheaper ticket.

7.4 Licensing

EasyJet do not own their trademarks, domain names or any rights in the orange color or name, but instead license them from EasyGroup IP Licencing, controlled by Stelios Haji-Ioannou.

Licensing is hard to protect and restricts the ability to develop a business.

They cannot monopolise their colour, or name ‘easy'. This enables other me-tooers or companies in any sector to use the name and colour, affecting the image and quality of the “easy” brand.

7.5 Government

Nicol states that government may provide aid to troubled airlines after September 11th and during the current recessionary period, giving them an advantage in getting slots at airports over easyJet (anti-competitive practices).

He explains that security measures imposed by government may cause delays which if more than 4 hours require a full refund. Delays affect customers' perception of the airline.

8. Economic

8.1 Economic climate

Transport & communications output is forecast to grow in the UK by over 4 per cent per annum - until 2015. (Cambridge Econometrics, 2001)

Andreas Papatheodorou, lecturer in tourism at University of Surrey states that “no frill airlines are built for recession as people do not want to pay high fares, switching to low cost airlines”.(Keating, 2002) This implies easyJet is less susceptible to a recession as seen in 2009 year end figures.

Economic climates in other countries may present opportunities for new geographic segments.

8.2 Oil prices

Fuel costs are a big operating expense, whose increase could affect operating costs. Airlines cannot control or predict these costs as they are subject to economic conditions.

In April 2009 easyJet trading profit suffered a drop of 50%as a result of rising oil prices and forward pricing strategies and higher variable costs.

8.3 Currencies

EasyJet is an international airline and deals in other currencies. Fluctuations may affect ticket prices causing economic climates to affect fare affordability.

Forward buying of dollars to offset and rise in fuel costs.

8.4 Disposable income

“Travel agents say it is not foul weather that spoils their business in February and March, but leftover Christmas bills” (Boyd, 2001). Disposable income after holiday season is low, affecting air travel. Customers at these times may turn to low cost airlines. Increase in disposable income. (Boyd, 2001), indicates more money for holidays but also affordability for higher airfares.

9. Technological

9.1 E-commerce

The Internet is a sales and communication channel for the company. The ability to sell seats profitably depends on acceptance of e-commerce. Presently e-commerce acceptance is growing, however if it ceases, it will affect cost effective sales.

An OFT survey (2002) on “Adults who have used the Internet by social class,” states that households headed by someone managerial or professional are more likely to access the Internet. This bodes well for the business travel market indicating an increase in business travelers accessing the Internet, and perhaps being exposed to easyJets offering.

A rising expenditure on leisure (see 6.2.1), points out that there may be less time in the home, hence less chance of accessing the Internet for ticket bookings.

EasyJet are dependant upon the security measures taken by PSINet, their Internet provider. Credit card payments on line are encrypted through the SSL security system. (PSI Net, 2002) This indicates a risk of confidentiality issues bringing legal claims against easyJet.

10. International

EasyJet fly to many international destinations and are presented with cultural differences in various markets. Different communication techniques may be needed, for example in Mediterranean countries, where escapism or fantasy appeal may not be effective.

Economic conditions at easyJet destinations may present them with opportunities but also problems.

A trend for internationalisation and global competition is apparent at present (Kotler, 2010). This places easyJet against a variety of airlines but also gives them an opportunity to change perceptions of travel being time consuming.

11. Other relevant factors

11.1 Seasonal variations

The airline industry is seasonal in nature. Bad weather conditions may cause runway closures, and cause delays or cancellations.

Demand for air travel is high in the summer; however, airlines face lower utilization levels in winter due to high levels of pre-planned aircraft maintenance. (easyJet, 1999)

12. Recommended Strategies

12.1 General recommended theme

After having analysed easyJet's microenvironment it became apparent that certain core values of the company must be kept and emphasized in their marketing strategy. It is recommended that easyJet build on the core values of simplicity (“easy” brand name) and fun (the colour). In the light of recent articles questioning the low cost concept, easyJet should not merely differentiate on price but must emphasize the ethos of fun and simplicity, which the company is built upon.

“True differentiation can come only from a core value of the company” therefore we recommend this theme.

12.2 Targeting business travelers and students

The following trends have led to this recommendation:

* Economic downturns nationwide and in many other easyJet destinations, causing businesses to be more price sensitive.

* An increase in business travelers in Europe.

* Leisure travel can be considered seasonal whereas business travel is a year round activity.

It is recommended that easyJet build on the theme of simplicity and fun to attract business travelers for not only business but also leisure purposes. They should reward and encourage loyalty from business firms.

This segment should be targeted through one on one communication to form relationship marketing.

Students respond to a specific message appeal, and should be targeted by easyJet as a main segment. They represent Generations X and Y, who are skeptical of low prices and advertising appeal. A tailored message with puns and humor would appeal to this segment.

12.3 Seasonal messages

EasyJet should not alienate leisure travelers by focusing on business customers. It is recommended, that when demand for holiday destinations is low in winter, escapism and fantasy appeal should be emphasized in a seasonal campaign to attract the “underdog” lower class segment.

12.4iEmbracing increased acceptance in e-commerce

Efficiency of easyJets' Web Site is important, as it is the first point of contact for customers with the brand. To encourage increased acceptance of the Internet, encourage customers to visit the Web site as well as making them feel in control of prices, easyJet should allow bidding for tickets.

12.5 Bringing Europe closer together

* There is currently a trend for internationalization implying barriers being broken down in Europe bringing it closer together. The Euro has been introduced in any easyJet destinations, changing perceptions of distances between locations.

* Most easyJet airports far away from big cities. This may cause potential customers to consider the journey too time consuming.

* Patriotism makes customer less keen to travel to foreign destinations

* It is therefore recommended that easyJet change customer's perceptions of flying time by emphasizing A to B travel. For example that it takes longer to drive to Newcastle than to fly to Greece.

* This aspect should be combined with fighting the Eurostar, which a new competitor for the Paris route. This will build easyJets advantage of a shorter journey to Paris.

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