Post on 05-Apr-2018
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International
CompetitivenessEasyJet Report : Competitive Advantage
SustainabilityPedro Ganiguer
52865
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Summary
This essay focuses on EasyJet´s, a low-cost airline company. I will try to
analyze the potential sectors where EasyJet is able to gain competitive advantage
and, more important than that, sustain it.To achieve this goal I will present airline´s environment, EasyJet´s mains strengths
and weaknesses and, further, opportunities to explore and threats to be prepared
off and try to avoid.
I thought it would also be crucial to understand its main competitor´s way of
working and how EasyJet should deal with this menace.
I chose to develop this essay in a more theoretical overview instead of
analyzing profits, costs, revenues, etc. I think its more adequate and interesting
regarding this course´s goal.
Introduction
EasyJet is a clear example of an European
low-cost airline company. It raised for the
initiative of Mr. Stelios Haji-Ioannou, the son of a
Greek shipping magnate who founded the
company. Today, he and his family still hold the
majority of the shares. The concept of EasyJet is
based on the belief that demand for short
distances air transport is price elastic. Thismeans that, if prices for flights are being
reduced, more people will fly. Traditional airline
concepts are based on the assumption that
airline traffic grows in line with the economy and
that cutting prices will only lead to a decrease in
revenues. With the introduction of low-cost
concept to the European market, after its
deregulation, EasyJet has proven this theory wrong and goes from strength to
strength by actually increasing the size of the market and more recently by taking
away passengers from the majors tradicional airline companies.
This Brithish airline currently carries more passengers than any other UK
airline company, operating domestic and international scheduled services on over
500 routes between 118 European, North African and West Asian airports. It
employes more than 8000 people.
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COMPETITIVE ADVANTAGE
Competitive advantage is whatever allows a firm to earn and sustain a return
that outperforms direct competitors. For an airline, this might show up as an ability
to earn a larger surplus between unit revenues and unit cost than direct competitors
are able to earn.
Therefore, the aim of each organization is to achieve competitive advantage,
but this is not enough. The question is what resources and competences might
provide a competitive advantage in ways that can be sustained over time? A crucial
point is to find out a competitive advantage that is difficult, or better yet impossible,
for competitors to imitate or substitute. Indeed, barriers to entry must be created
or, if they already exist, sustained in order to protect the chosen strategic position.
Moreover, competitive advantage is context-dependent, meaning that
competitors with different and perhaps new perceptions of the marketplace canundermine it by changing an industry’s context. Low-cost carriers have been doing
this in some air transport markets for a number of years, and their impact on how
the industry competes is continuing to rise. In the same way, it is important to say
that competitive advantage varies from market to market. For instance, in the
context of internationalization, the competitive advantage for one market may not
be effective in another.
To sum up, the question is what kind of resources can provide an efficient
competitive advantage to the company? I chose three sources of advantage that
may be difficult to imitate and therefore can be sustained along time:
Organizational culture: This cannot be precisely imitated by competitors, and
thus, if it is service-oriented and relevant to the airline’s vision of what it wants to
achieve for its customers, can be a vital source of advantage. The style of service
delivery is much less easy to imitate than the functional attributes of a service.
Competitors might be able to see what an airline is doing, but not how it is
being done. If the ‘what’ matters to customers and the ‘how’ is not imitable,
competitive advantage can be sustainable.
Brand image: This includes everything an airline does and stands for, and is
the foundation of its ‘customer franchise’. If relevant to the targeted customers,
favorable and actively developed, it can be a powerful and sustainable source of
competitive advantage.
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BASES OF COMPETITIVE ADVANTAGE IN LOW- COST SECTOR
Organisations that try to achieve competitive advantage obviously hope to
preserve it over time. In EasyJet´s case sustainability is achieved mostly through
low-price advantage.
Sustaining Price-based Advantage
An organisation pursuing competitive advantage trough low prices might be
able to sustain it in several ways:
Operating with lower margins may be possible for a firm that has greater
sales volumes than competitors, due to economies of scale by diluting fixed
costs on unit prices.
Some firms may have unique access to low-cost distribution channels, beable to obtain raw-materials at lower prices than competitors or be located
in an area where labour cost is low
Organisationally specific capabilities may exist for a firm such that it is able to
drive down cost throughout its value chain.
Of course, if either of these two last approaches is to be followed it matters
that the operational areas of low cost do truly deliver cost advantages to support
real price advantages over competition. It is also crucial competitors find these
advantages difficult to follow. This requires a mindset where innovation in costreduction is regarded as essential to survival.
An example of this is precisely Ryan Air, EasyJet´s main competitor in the low
price airline sector, who, in 2006, declared it was their ambition to be able to
eventually offer passengers flights for free.
There are however dangers with trying to pursue low-prices strategies:
Customers may start associating low price with low product/service benefits
Cost reductions may result in an inability to obtain a differentiation strategy.
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THE ENVIRONMENT
The environment is what gives organizations their means of survival. In the
private sector, satisfied customers are what keep an organization in business.
Nevertheless, environment is also the source of threats: hostile shifts in market
demand, new regulatory requirements, revolutionary technologies or the entry of new competitors. Environmental changes can be fatal to firms. It is vital that
managers analyze their environment carefully in order to anticipate and – if possible
– influence environmental change.
Airlines Industry Evolution
The air travel is one of the world’s largest industries having generated over
$300 billion in revenues in 2001 alone. 2001 is a reference year for the industry
because of the atentate to the Twin Towers in New York on September 11. The civil
aviation industry suffered a lot, because of security fears. Originally, the air travelmarket was based on the demand generated by business travel as multinational
companies grew during the ’60’s and early ‘70’s. As international companies
developed their activities, the number of flights increased. The leisure market
(tourism and travelling not related to business) subsequently took off as rising living
standards and extra leisure time encouraged holiday makers to travel to
destinations, short and long distances. The industry grew rapidly in the ´80’s.
The first low-cost companies were Freddie Laker’s (Paris-New York) in the
late ‘60’s and Virgin Airlines (from Sir Richard Branson).
The industry is a capital-intensive one and is very vulnerable to the oil prices,
as the price of fuel makes up to more than one third of its operating costs.
A further stimulus to air travel has been privatisation and deregulation of the
airline industry, ending the monopolies and protection traditionally enjoyed by
state-owned flag carriers and exposing them to the forces of competition. In Europe,
with the expansion of the EU and the breaking down of trade barriers, the airline
industry was deregulated in 1992. This meant that any European airline could fly and
land anywhere in Europe. This offered airlines the chance to expand routes across
the continent and compete against each other according to free competition insteadof the oligopoly of flag carriers. Oligopoly (a market dominated by a small number of
companies) always leads to higher prices to the customers and , therefore, to a
lower activity level.
One consequence of airline industry liberalisation was the surge of the “no
frills” airlines, which have achieved rapid growth in market share in the short haul
European market. “No frills” airlines, the company concept developed by Sir Freddie
Laker in the late ‘60’s, means as little service as possible, so that ticke ts become
cheap: no free meals, smaller seats, less area per passenger and cheaper landing
airports, sometimes many km’s away from the city destination centers.
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EASYJET SWOT ANALYSIS
The SWOT analysis enables us to understand what the opportunities and
threats that represent the environment of the company are. This environment is
essential to work on a competitive advantage that can be sustained over time. Also,
this analysis permits us to know the strengths and weaknesses of EasyJet.
INTERNAL FACTORS
Strengths:
EasyJet is seen as a pioneer in terms of low-cost carriers in Europe. The law of
the first arrival: rather the first than the best.
Cost efficiency model
Business demand. Introduced in June 2005, the lounges offer free drinks,
snacks and magazines, as well as the standard flight information and access
to phone, Internet and email. Moreover, EasyJet operates competitive routes
between major cities
The EasyJet Culture Committee is responsible for establishing social events.
Advertisement like “affordable as a pair of jeans” reinforce the image
Reputation and brand awareness. These are primarily due to the Easygroup
products that have built the reputation of EasyJet. Also, EasyJet is concernedwith customer satisfaction which is not true for most low-cost carriers.
Weaknesses:
Management troubles. In August 2002, EasyJet and Go completed a merger
deal to create Europe’s number one low-cost airline notably with the
acquisition of Deutch BA. But EasyJet is in trouble because of the cultural and
managerial differences.
Image of low-cost airline. Moreover, customers still are worried about thesecurity of low-cost Airlines
High cost structure. This is explainable by the preference for principal airports
or airports closer to city centers, which practice higher landing agreements
Non profitability of Easygroup products
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EXTERNAL FACTORS
Opportunities:
Growth of petrol cost. In the face of rising costs, the traditional companies
set an overcharge on their price that enabled low-cost airlines to stabilize orincrease their price without losing their competitive advantage. What is bad
for low-cost airlines, is calamitous for the others, and, in an ideal world, the
low-cost would prefer to have high petrol cost for a long time
Market growth. The volume of passenger traffic using air transport should be
twice comparing the railways by 2030, reaching 923 billion passenger
kilometers.
This map shows EasyJet Airlines potential covering almost all European Continent.
Threats:
Government intervention. Some major airlines like Air France, Alitalia, etc.
are helped by the government, authorizing them to turn in non-profitability.
This obviously is an unreal scenario on the private sector
Crashes and European terrorism: customers are worried about safety
especially in the low-cost airlines. Thus, a crash of any one low-cost carrier
could give birth to prejudice and even eradicate them. The 11 September
terrorist attacks failed to affect low-cost airlines, as they occurred in America,
and they have no transatlantic routes. European terrorism would have had
totally different effects on the low-cost carriers.
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FIVE PORTER FORCES
This model has shown how the rivalry within the airline industry is important.
Indeed, the deregulation of the industry permitted the entry barriers to fall down.
This led to airline proliferation, mainly within the low-cost segment. In 2005, there
were 54 low-cost companies in Europe. Subsequently, more airline companies led to
more power for suppliers like the airports. At the same time, the substitutes are
becoming more and more competitive, which give the buyers more power.
Moreover, the 11th September incident and the crashes that occurred since
then have led to fear among the customer with respect to airline transport,
increasing the power of the substitutes.
The growth of the Internet particularly gave the customers the option to make the
right choice (involving the notion of marketing).The threat of buyers, added to the threat of substitutes, is especially affecting
the industry that is in a situation of exacerbated competition.
I can conclude that most of the low-cost airlines are going to die or to merge with
others, leaving EasyJet and Ryanair in a dispute within the segment.
The Intensity of the
Rivalry is important.This is notably due
to the threats of
buyers andsubstitutes.
POTENTIAL ENTRANTS
-EU regulation removesbarriers to entry for air lines
based in Europe.
-Expending of market
towards Eastern countries.
BUYERS
-Increased use of theInternet, approaching a
situation of perfectknowledge and thus pushing
the industry to perfect
competition.
-Very volatile Customers.
-Wide range of substitutes.-Worries about security.
SUPPLIERS
Surge in oil pricesdecreasesthe marginsof budget
carriers.
Mainairportsare
overcrowded which involvesmore power for them.
SUBSTITUTES
-Road, rail or boat travel.
-High speed rail expanding in
Europe (like Eurostar).
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RYANAIR´S ANALYSIS
As it has been said, most of the low-cost companies are going to collapse.
Since I am analyzing Easy Jet I thought it would be relevant to understand how its
main competitor – Ryanair – works and its main strengths and weaknesses.
As I did a research on this company
I clearly understood Ryanair is the
cheapest airline. Furthermore it can be
considered the one with best cost-
efficiency. Firstly due to a perfect process
of management - one type of aircraft built
by their own engineers. Secondly because
of the strategy of using secondary airports
which allows Ryanair to have a huge
influence on this specific supplier. Finally, it was the first European low-cost createdin 1985 and has been “collecting” customers since then, as they become familiarized
with this firm.
On the other hand, Ryanair has also its weaknesses. The fact that this
company obviously provides the minimum customer services is a negative point.
Also judicial troubles that have occurred along the years of firm´s existence prejudice
Ryanair´s brand. Last, working in secondary airports may be considered an
advantage but is also a weakness in terms of traffic, as the firm has no presence in
big metropolis where movement is bigger.
Comparing EasyJet and Ryanair
EasyJet Ryanair
Main target market Middle segment and
business
Discount segment
Product -Good service quality,
relaxed attitude of the
staff
- Easygroup
- Business lounges
- Minimum services and no
payback
Price A bit more expensive The cheapest of the
market
Place Major and secondary
airport
Minor airport
Promotion Tone of advertisement:
Humorous and irreverent.
Tone of advertisement:
Aggressive advertising
sometimes towards the
competitors.
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Business Positioning as a Competitive Advantage
As I said before, one of EasyJet´s specific qualities is its positioning on the
business segment. This could represent a competitive advantage that outperforms
the direct competitor, on three points:
EasyJet has some routes to major towns within the major airports;
EasyJet has special business lounges;
Good service quality. This is primordial with this kind of customers;
Although, it is extremely important to indicate Ryanair does not want to
operate on the major airports. But even if Ryanair wanted to, the surcharge of major
airports makes it almost impossible. Here EasyJet is able to sustain competitive
advantage over time.
Service Quality and Brand Image as Competitive Advantage
It has been shown that one of the strengths of EasyJet and one of the
weaknesses of Ryanair is the service quality and the brand image. Developing
customer loyalty by providing unique benefits to customers via customer satisfaction
and service quality image is a precious competitive advantage. Nowadays I would say
it is vital mainly for two reasons:
Increased use of the Internet. This point gives buyers a considerable power.
Indeed, it enables them to choose the best company answering to itsdemand.
Very volatile customers demand. Their needs and requests are in constant
change as industry development is faster and faster
We can see now this is absolutely relevant. I think Ryanair is not going to
change its positioning anytime soon. Service quality and brand image are impossible
to achieve or change in a short term.
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Main Competitor´s Threat
As we´ve seen before, RyanAir is able to present lower prices than EasyJet.
This was not crucial before financial crisis grew as consumer still had the power to
choose a more expensive ticket in exchange for other advantages. But times are now
so difficult in Europe that scenario can easily change.
In fact, as we can see on the graph, Ryanair registered, between August 2008
and September 2009, a bigger growth on passengers number and this tendency has
continued until nowadays.
My point is that RyanAir is, in fact, a real menace as a really strong
competitor and EasyJet must continue showing arguments to compete and gain
advantage threw its mains market opponent.
Passen ers number evolution between Au 08 and Se 09
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MAINTAINING BUSINESS POSITION
In order to get competitive advantage over Ryanair, EasyJet must continue its
policies and keep developing its services and staff. Here stay some goals/attitudes to
adopt in the long-term:
1. Until a real change takes place within the airline industry, it is important to keep
this specific quality of EasyJet. Indeed, this positioning still makes the company
attractive to the business consumer.
2. Maintaining the promotion focused on strengthening firm´s brand
3. Any investment in this competitive advantage seems to be risky. Wait to invest in
certain occasion and don´t commit the mistake of not evaluating market scenario
correctly
4. Investing in service quality and brand image
5. Reduce or eradicate management trouble in order to get a perfect guiding line
within the staff enabling them to follow the target of service quality
6. Create more physical evidence of service quality.
The goal of these actions is to associate the service quality and the value for
money to the brand image.
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Bibliography
Wikipedia
Principles of Marketing by Philip Kotler, Gary Armstrong, Veronica Wong and
John Saunders, 5th European Edition
www.ryanair.com
www.easyjet.com
The Economist
http://www.economist.com/blogs/gulliver/2010/07/budget_airline
http://www.economist.com/blogs/gulliver/2010/11/easyjet
Technology, Organization, and Competitiveness: Perspectives on Industrial and
Corporate Change by Giovanni Dosi and Josef Chytry