EasyJet: Developing a Corporate Strategy - Case Study Example

easyJet: Developing a Corporate Strategy Introduction 2 Main Body 2 Suggested Strategies 7 Conclusion 7 Appendix 1: SWOT Analysis Strength 9 Weakness 9 Opportunities 10 Threats 10 Appendix 2: Ansoff Matrix for strategy development 11 Introduction The case study for the following essay is development of the corporate strategy for easyJet. It is a European Airline with low budget and very low cost with affordable fares formed in 1995 by Sir Stelios Haji-Ioannou. Since then easyJet has grown rapidly to become fourth largest airline passengers carrier. Following are the basis on which the easyJet’s future strategies are based? These following strategies are: Overcoming hostile takeover bids and competition; formulating policies to grow and spread its operations without producing any negative impact on its operational margins; focusing on geographical markets and expanding its empire outside Europe and adopting the ways through which the sources of ancillary revenue can be increased. Main Body Strength of the company lies in the qualities and capabilities especially innovative and proactive style shown by its leader. The company’s brand name easyJet has capability to catch customers’ attentions at ease. It provides flights to main destination centers all over Europe, which are most conducive for business purposes, it is more efficient than others as regards to the turn around time with progressive landing charge agreements with airports and maximizing asset utilizing. Its low fare has made its operations more efficient with passengers at the full capacity level. The average age of fleet is lowest with highest fuel efficiency. It is first among all the LCC’s to introduce 100 per cent E tailing and removing intermediaries and other costs. Besides, company has reduced other overhead costs due to the flat structured organization, adopted quality employee culture, ensures passengers safety with over wing exits and less quantity of CO2 emissions in their new flights and maintain low cost in supervisory and training. (Air Scoop 2007: 9). But the company suffers from various weaknesses as regards the continued sustenance of cost leadership which is very difficult in dynamic market, the frequency of flights are more as a result nearby airports seems to be crossing their natural limits. The increase in fleet capacity is very difficult to fill due to the lean period and increase in competition. There is high speculation that landing charges and access to the airport is conducted more by regulatory decisions and less by negotiations which could increase cost in future and with the low operational margins company could bear additional taxes and other charges and could not gain customers loyalty due to lack of scheme. Besides others, it does not have any long-term strategy for expanding business outside Europe and does not have any scheme to attract customers. It does not have any schemes to attract business travellers and more over its labour force is powerful because it has the support of the labour union striking bargaining techniques, which could have adverse affect on business. (Air Scoop 2007: 9) It is expected that its pretex profit to fall between £110m and £120m, if we exclude one time cost of £12m related to the takeover of GB Airways. (McDonough 2008: Online). In this scenario, for the company, flexibility is very important and easyJet is in the process to analyze its schedule and make adjustments both to remove any unnecessary expenditure, reduce any flights which are not making profits and seizing any opportunity which company analysts are seeking in the industry. As a means of operational efficiency, its aircrafts fly at airports providing services at a very low cost and are generally not the main airports serving at any destination and can be some distance away from them. Flights operate in very tight schedule and are only allowed 25 minutes to offload and load one set of passengers. It is less than the time taken by other flights. Flights are leaving the airports and landing at the airports in time, without any delay. If there is any delay, they have to face severe consequences as flights could also be delayed. If any thing goes wrong with the plane then there could be cancellations and delays, cabin crew in the plane is very less as compared to its competitors. (Burns: 2003: 1) Less staff and more of passengers creates number of hurdles and problems in customer servicing. Moreover they don’t have any provision for free drinks, or meals, no compensation is granted to passengers for any lost baggage or delays, they could not give guarantee of any transfer of passengers to other flights in case of any delay and last the low cost airlines concentrate on point-to-point flights, whereas the full-fare airlines concentrate on hub-and-spoke traffic. The average age of one flight is 25 years and has only one class. Its Airbus A319 constitutes two pairs of over-wing exits instead of one-pair, meeting full safety requirements for passengers. (Air Scoop 2007: 8) Its additional sources of revenue are card fees, extra charges for baggage, boarding fees, fees for any sports equipment, ticket charge, infant fee, lounge fees, share of profit from the in-flight sale of food, beverages, and boutique items and commissions from the any sales from hotel bookings, travel insurance, credit cards etc. (Air Scoop 2007: 8). The Company has lot of potentials and opportunities to grow with leisure passengers predicted to increase within next five years as the growth of EU resulted in the increase of the new markets and their reduction of the fares would increase the opportunity for the job seekers and also increase tourism industry and increase in entrepreneurial activities in new EU member units would allow for the growth of the business and economy travel etc. The company could also face threats from terrorism, or loss from accidents, or infrastructural support, it could face threat from increase in environmental taxes and increase in costs and limited or no slot could be a hurdle in expansion plans. Besides, company might have to face the consequences of fuel price fluctuations and increasing variability in costs. The company could also face excessive competition from competitors as they could also resort to cutting cost measures etc to lure away easyJet passengers. Though the company has penetrated in to the market by providing services at low prices yet to overcome crises and competition and overhead costs, its future strategy lies in the rigorously application of Ansoff Matrix Model. It’s a model based on the matrix provided by Igor Ansoff whose main concern is in focusing on the present and prospective markets or we can call customers of the company. For this we are provided four product-market combinations like Market penetration, Market development, Product development and Diversification. Wilson & Gilligan 2005: 303) Another is a Strategy Clock based on Cliff Bowman works and another way to adopt the competitive position of the company as compared to its counterparts. This strategy clock has low price with low added value, low price, hybrid, differentiation, strategies designed for ultimate failure, and price. With the help of this, company has competitive or differentiation advantage. (Evans, Campbell & Stonehouse 2003: 220) Bowman formulated these core strategic points and the company with the principles of following low price or no frills options follows this strategy. There is price war risk, margins are low and here the company is required to be the leader in terms of cost. The company is indeed the leader in terms of cost and has modified the market conditions by advertising and promotion of its low price strategy. The next strategy is Value Chain Analysis, which is adopted by companies and is concerned with the strength of the business involving two activities: Primary as well as Support activities. (Campbell, Stonehouse & Houston 2002: 44) It is a method to identify the activity, which is best suitable for the business and is totally different than the others. easyjet comprises both the activities primary as well as support activities. (See appendix 4) Screening Matrix is the structured method through which the risks or threats can be identified in the different areas such as risks posed due to competition from other airlines such as Ryanair. Real competitive value of the organization is revealed through competitive matrix. How much value does the market or its customers place to the product and services of the easyJet can be known through it and future strategy can be formulated according to it. Suggested Strategies As its future strategy, Company need to voraciously follow market penetration approach according to the Ansoff Matrix Model, as it is least risky and could easily make use of its existing resources thus increasing the market share. As many of the airline companies are on the verge of closing down with many of the passengers stranded as reported in several media outlets, easyJet can penetrate into these potential customers and attract them with their advertising strategies as it had been doing. The company should expand geographically and find new markets. As its development plan, it could spread its operations in new regions especially in Russia, Middle East, Africa and Asia to overcome intense competition in Europe. Another strategy it can adopt is screening and competitive matrix model whereby it could cover majority of its weaknesses mentioned above. It could reduce fleet capacities that had become very difficult during the lean period due to increase in competition and should increase the services like providing quality food services to the customers, giving guarantee to their luggage, the costs of the same could be overcome by charging extra fare from the customers for these additional services. It could be the best strategic move to cover the costs. The airline should further bring innovations in its services to attract more of the business class. It should make plans for expanding low cost medium haul sector, as short haul routes are more than full. With the addition of more services, it could overcome its competitors and easily adopt to the sectors. The trend of following low cost strategy in operations will go down in the future therefore easyJet having very sensitive operations could develop the plans for overcoming these hurdles without causing any hurdle on no frills advantage. Conclusion Its basic strength lies in the aggressiveness, and ostentatious marketing approach being adopted by its ex-chairman Sir Stelios that had enabled the airlines brand name to attain high recognition. But looking at the current problems, easyJet should expand its vision including progressive measures and by modifying its current strategic moves. As the current markets in Europe are undergoing saturating phase, the LCC industry needs to explore new avenues for growth and development and with few modifications in the existing services while gaining loyalty of customers would make a lot of difference. Appendix 1: SWOT Analysis Its brand name easyJet is not the name to be easily forgotten and is easily remembered and recognizable. Strong innovative and proactive leadership provided by ex-chairman and CEO, which is being continued. Company provides flights to all the main destination centers all over Europe, best for the passengers who have to travel for business purposes. It is more efficient than others as regards the turn around time with progressive landing charge agreements with airports and maximizing asset utilization. Its low fares make its operations more efficient with full capacity of passengers. The average age of fleet is lowest with highest fuel efficiency. It is first among all the LCC’s to introduce 100 per cent E tailing and removing intermediaries and other costs. Weaknesses Continued sustenance of cost leadership is very difficult in dynamic market More of flights frequency and more of nearby airports seems to be crossing their natural limits. The increase in fleet capacity could be very difficult to fill on account of the lean period and due to increase in competition. Landing charges and access to the airport is considered more by regulatory decisions and less by negotiations that could increase cost in future. On account of the low operational margins, the company could have to bear additional taxes and other charges It cannot gain customers loyalty due to lack of any scheme. Opportunities The Company has lot of opportunities to grow with leisure passengers predicted to increase within next five years. The growth of EU resulted in the increase of the new markets and their reduction of the fares would increase the opportunity for the job seekers and also increase tourism industry, Increase in Entrepreneurial activities in new EU member units would allow for the growth of the business and economy travel etc. Threats The company could also face threats from terrorism, or loss from accidents, or infrastructural support It could face threat from increase in environmental taxes and increase in costs, limited or no slot could be a hurdle in expansion plans. Company could have to have to face the consequences of fuel price fluctuations and increasing variability in costs. The company could also face excessive competition from competitors as they could also resort to cutting cost measures etc to lure away easyJet passengers. Appendix 2: Ansoff Matrix for strategy development Ignor Ansoff presented matrix, which offered strategic choices to achieve the objectives of growth. He focused on the present and prospective markets or we can call customers of the company. For this are provided four growth strategies of product-market combinations like Market penetration, Market development, Product development and Diversification. (Wilson & Gilligan 2005: 303) Market penetration is achieving the growth of the company in the existing market with an aim to increase its market share. With Market development strategy, the growth of company is sought by targeting existing products in new market segments. Product development strategy focuses on the development of new products to be marketed in the existing market. Through Diversification, firm aims to achieve its growth by developing new products for the new markets. With the application of Ansoff Matrix Model, company has penetrated into the markets and developed more markets but the company need to apply this model more rigorously through the intensive advertisement and utilize the current economic conditions of the other airlines companies to its advantage. The existing resources of the company need to be fully applied to increase the market share. The target requires attracting the customers of the other airline companies, which are closing down due to economic losses. The company can also start with new services focusing on the business group outside Europe in the Middle East. Besides, airlines can initiate upon to start schemes like special privileges for the safety of the luggage of customers, secondly providing one meal free for children below ten years with passengers preferring to travel in economic class. Appendix 3: Strategy Clock Strategy Clock based on Cliff Bowman works is another way to adopt the competitive position of the company as compared to its counterparts. With the help of this, company has competitive or differentiation advantage. (Evans, Campbell & Stonehouse 2003: 220-221) Bowman gave following core strategic options: First Option- Low Price or No Frills: Segment specific Second option- Low Price: Price war risk; margins low; required to be cost leader Third Option- Hybrid: base is low cost and reinvestment is done in low price and differentiation. Fourth Option- Differentiation: without price premium i.e. Benefits are shared by user and yielding markets; with price premium i.e. added value perceived is enough to bear price premium. Fifth Option- Focused Differentiation: Particular segment is given added value thereby premium price is warranted Sixth Option- Increased Price / Standard: margins are higher if risk of losing market share is not valued by competitors. Seventh Option-Increased Price / Low values: This is feasible only if there is in monopoly in market. Eighth Option- Low Value/ Standard Price: This results in decline in market share For clients, quality matters more than the price, here the easyjet’s emphasis should be more on improving the quality in their services and their comfort. Their marketing strategies should be devoted to more by luring the customers towards latest comforts they can provide to them in their economic class seats at naturally cheaper rates. Profit margins can be retained through the additional services, as they want. As from the beginning, the air company’s strategy has been low cost and low fare, with the strategy clock as the option; company can mould the attitudes and preferences of customers by advertising and promotions to change the market conditions. Appendix 4: Value Chain Analysis The next strategy is Value Chain Analysis, which is adopted by companies and is concerned with the strength of the business involving two activities: Primary as well as Support activities. (Campbell, Stonehouse & Houston 2002: 44) It is a method to identify the activity, which is best suitable for the business and is totally different than the others. Activities undertaken by business is directly linked to achievement of competitive advantage. Primary activities include Inbound Logistics, Operations, Outbound logistics, Marketing and sales and Service. Support activities include Procurement, HRM, Technology Development and Infrastructure. Value chain analysis can be done in three steps: breaking down organization or market into main activities placing them under major headings of the model; assessing the potential value through cost advantage or differentiation or identifying current activities which are at competitively disadvantage; last is determining strategies through which competitive advantage can be obtained in those activities where it is possible. easyJet comprises both primary and secondary activities of Value chain analysis. In fact easyjet has made the system, which focuses on delivering benefits to customers rather than integrating the elements of value chain. Now it can be seen that airline’s image of low fare is supported by the integration of inbound logistics i.e. number of seats are more on the plane with the operations such as ticketing and boarding. This is in turn is integrated with marketing such as booking processes made easy through internet, free seating which is integrated with services such as in- flight refreshments. Value chain is utilized by the company for reinforcing image of low fare and creating a position of coherent market. The efforts are made to procure correct items, use Internet technology, manage human resource and deliver promise made to the customers. Appendix 5: Screening Matrix Structured method is provided to the developers by the screening matrix for identifying areas of risk in early development process. It also depicts the areas or concepts, which are strong and bear no risk and the areas, which are risky or unknown to the members. Discussion is focused on the customer need and technical feasibility, as the screening matrix scores cannot be backed up by the screening matrix in the initial stages. (Belliveau, Griffin, Somermeyer 2002: 396) Competitive value matrix is also known as the radar of an organization as it gives the details of the competition posed by the key players in the market in terms of quality and price. This strategy has its own benefits as real competitive value of the easyJet can be known from this matrix and not the value, which the company thinks or wants. It provides clear picture of the market and customers understanding and their evaluation of the products and its services not only on national level but also on global level. In this way, the company can formulate its strategies to increase its market share and profits. Through this model, company can overcome its major weakness as mentioned in SWAT analysis. To maintain the profit while providing cheaper rates and quality services to the customers, easyjet needs to decrease its fleet, as it is not conducive in the lean period. Screening Matrix also takes into point threat and risk factor as mentioned above. To reduce the risks, company needs to provide many latest technological security arrangements for the passengers from the point of their entry in their airport until they reach their final destination. Company also faces risk from their opponents in the form of stiff competition in terms of cost and prices and to over come this, they have to adopt strategies preferably lure customers with more facilities like internet bookings and turn the market trends in their stride. Reference List Air Scoop. 2007. SWOT Analysis of easyJet. [Online] Available: http://www.air-scoop.com/downloads/SWOT_easyJet_Air-Scoop.pdf [20 December 2008] Belliveau, P. Griffin, A. & Somermeyer, S. 2002. Product Development & Management Association. West Sussex: John Wiley and Sons Burns, Paul. Case Studies in Entrepreneurship: easyJet. 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