Trabalho Competitiveness

7/31/2019 Trabalho Competitiveness

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International

CompetitivenessEasyJet Report : Competitive Advantage

SustainabilityPedro Ganiguer

52865



Warsaw School of Economics – International Competitiveness

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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

http://www.ryanair.com/

http://www.easyjet.com/

http://www.economist.com/blogs/gulliver/2010/07/budget_airlines



http://www.economist.com/blogs/gulliver/2010/07/budget_airlines

http://www.easyjet.com/

http://www.ryanair.com/

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