The Low-cost Orange Flying Machine: The Case of easyJet Essay

The colour orange is progressively becoming synonymous with the firm easyJet as it has become atomic number 53 of the military mans most profitable low-priced airlines (Alamdari and Fagan, 2005). This paper examines the basis of their winner and argues premier(prenominal)ly, that easyJet from its inception essentially adopted and stayed with the maestro inexpensive mannequin that was pioneered by Southwest airlines in the USA. provided, this is a model that has served them well, resulting in sustained avocation work and arriveth over a decade. However, our second point is that with this growth, and change magnitude competition, there are signs of the need for a change. Accordingly, in what follows, we examine in turn the historical origins of easyJet, emphasizing its values and the influence of the Southwest airlines model the essential features of its business model and around indication of its business surgical operation over time.Historical Origins Personality, Value s and the Southwest WayEasyJet was conceived in 1995, with its first flight occurring in November of that year. There are numerous descriptions of the early start-up days, scarcely one of the most vivid is surely the following (Calder 2006 113)The entrance to the sightly airlines headquarters is an impressive affair, intended to impress visitors. exactly the HQ of Britains most victoryful low- make up airline is farthest from reasonable. For a while, the modest foyer of easyland the huddle of temporary buildings from which one of europiums leading airlines is run was adorned by a tent. It was a small, two-person job, strung from the roof Take one shipping millionaire, two Boeing 737s usually used for British Airways flights and several dozen gallons of orange paint, and you take hold a revolution in the skies. But industry watchers like myself were slow to collect the scale of the upheaval signified by the first flight of easyJet.The protrude conveyed above stands in ma rked contrast to the subsequent growth and incumbent performance of easyJet. Indeed as we were preparing the first draft of this paper easyJet denote that pre-tax profits were up by 55 percent to a translate 129 million in the year to September 2006. Turnover was up 21 percent, passenger numbers by 11.5 percent (to 33 million), the share expense hit an all time high, and 52 pertly Airbus jets were to be order (Financial Times 2006). The contents of direct 1 below lists some of the happen upon milestones in the evolution of easyJet.Much of the early discussion of easyJet pivoted around its founder, Stelios Hajin Ioaanou (Stelios). His personality, background, entrepreneurial approach (Rae 2001) and managerial style were all much discussed the no frills on the job(p) environment (e.g. no private offices) and the orange culture (i.e. being up for it passionate and sharp) were held to be important legacies following his stepping down as chairwoman in 2002.In what was initially seen as very much a personality-driven organization it is important to emphasise the place and role of Southwest airlines in influencing the personality of the Chairman. As one study stated It was not until he flew on Southwest airlines that Stelios felt he had found the right ideal for a European airline. Stelios intensively searched Southwest, meeting with founder and CEO herb Kellacher and buying 250 copies of Nuts a book documenting Southwests achiever for distribution to potential employees and clients. (Sull 1999 22)Southwest airlines is very much an organization in which a high level of selective perception is apparent among observers and emulators you croup see what you want to see in it (Pate and Beaumont 2006) To easyJet the get wind message received, judge and followed faith adequatey, was to adopt and stick to the pilot light low-cost model pioneered by Southwest.The raw material Low-Cost Business sit aroundThe key features of this model are outlined below in Figure 2 below.Product Features1. Fares/ networkLow, mere(a) and unrestricted fares, high frequencies, point to point, no interlining 2. DistributionTravel agents and scream centres (today internet sales), ticketless 3. InflightSingle class, high density seating, no meals or fire alcoholic drinks, snacks and light beverages for purchase, no seat assignmentOperating Features1. quiverSingle type, Boeing 737, high utilisation, 11-12 hours per day 2. AirportSecondary or uncongested, 2030 minute turnarounds3. Sector lengthShort, average 400 naval miles4. StaffCompetitive wages, profit sharing, high productivity(Source Alamdari and Fagan 2005 378)Figure 2 The original Southwest Airlines low-cost business modelIndeed, if anything easyJet appears to have achieved only leverage along the no frills dimension of this basic model run agents were completely avoided (direct sales only) and passengers had to pay even for soft drinks and snacks (Sull 1999, 23). Such features of the easyJe t low-cost model were held to be acceptable, or indeed captivating, to people who pay for pass away from their own pockets (Sull 199923). Specifically easyJet targeted three cost-conscious and price-sensitive customer segments (1) the actler visiting relatives (2) empty travelers working brief trips and (3) entrepreneurs and managers from small firms.At this stage we need presently to comment on staff conditions (competitive wages, profit sharing, high productivity) in Figure 2. First, in a general sense, it is remarkable how little kind-hearted resources and staffing matters issue in discussions of the easyJet strategy (Sull 1999 Jones, 2005) they are essentially conspicuous in their absence. Secondly, if one turns to more specific matters there are grounds to question the worldly concern of the staffing approach in Figure 2. For example, on the competitive salary front, it has been estimated that pilots at easyJet earn around 25% less than pilots working for traditional ca rriers (Jones 2005 151). This differential coefficient was a considerable source of tension and difficulty when easyJet took over the airline GO in August, 2002, with calls for strike action occurring at the time (Jones 200591). In the latter part of this paper we turn to look at these sorts of human resources and employment related matters in more detail.The Basic Business Model and the Bottom LineEarlier we made reference to the impressive performance figures of easyJet for the year to September 2006. This has not been an isolated success story. For example, easyJet pre-tax profit figures go up from 5.9 million in 1998 to 40 million in 2001, and now to the on-going all time high of 129 million.At least one major study has attributed this success to easyJet sticking very closely to the original features of the low-cost model outlined in Figure 2. In essence this research (Alamdari and Fagan 2005), which involved 10 low-cost carriers in Europe and the USA, inform that, firstly, easyJet adhered very closely (74% compatible) to the original model, a figure only exceeded by that for Ryanair (85%) (Alamdari and Fagan 2005 388). Moreover their second key result was that the closer one adhered to this model, the higher was profitability.The success of easyJet (and Ryanair) in this regard has been noted in other studies. For instance, the McKinsey Quarterly (2005) reported that easyJet and Ryanair account for about 50 percent of seat capacity in Europes low-cost market, with between 2004 and 2006 only easyJet (8.9%) and Ryanair (29.4%) having positive average operation margins.Although both easyJet and Ryanair are always hailed as the two monetary success stories of the European low-cost sector, with both adhering most closely to the original low-cost model (Figure 2), it is important to recognise important differences between them. For example, easyJets unit costs are reported to be double those of Ryanair, with the precedent break-even point (76% of capacity ) being higher than that of Ryanair (63%) (McKinsey Quarterly 2005). Other differences between the two, which have been noted, are that easyJet has more head to-head competition with the conventional carriers because it uses more naturalized airports than Ryanair (Jones 2005 211).Much of the bottom line success of easyJet has been attributed to its fruit management remains which seeks to extract the maximum revenue per flight (Jones 2005 212). It is these sorts of sentiments which underpin their micro-type targets. For example, the aim is to grow the current profit per seat figure of some 2.50 to 5 by the end of 2008.Are there Signs of pitchs in easyJets Business system?Current profits are good and the emphasis on yield measurement and tough targets will still remain. This said, there are signs of some actual or proposed changes in the business model. These have arisen because of the rise of new low-cost competition, changes in the conventional carriers (limited frills), and ex ternal pressures such as vegetable oil price rise.The changes are designed to address some concerns of existing customer segments and to attract new customers. For example, in April 2003 easyJet launched a dedicated website for business travel arrangements which allows corporate customers to access monthly management information so that they back end track travel spend. In June 2005 it introduced easyJet lounges, which passengers had to pay for, but which were viewed as attractive to business travellers. Figures released inThe Times (11th November, 2006) suggest that they have been relatively prospering in capturing the business market Stansted and Luton (easyJets London bases) have the highest comparison of frequent flyers among major airports at over 50 percent as compared to 39 percent of passengers at Heathrow. Measures have also been taken in recent years to address customer concerns regarding the lack of clarity of the full fare until the last stage of booking, through an upgraded software system. A key question remains can easyJet consistently capture the business traveller sector, with their considerable expectations of added extras while remaining true to their winning formula of cost leadership? Only timewill tell.ReferencesAlamdari, F. and Fagan, S. (2005) Impact of the adherence to the original low-cost model on profitability of low-cost airlines, Transport Reviews 25, 3 377-392. Calder, S. (2006) No Frills. London Virgin Books.Financial Times (2006) 15th November, p24. Jones, L. (2005) easyJet, the report card of Britains Biggest Low-Cost Airline. London Aurum. McKinsey Quarterly (2005) August edition. Pate, J. and Beaumont, P. (2006) The European low-cost airline industry the interplay of business strategy and human resources, European precaution journal 24, 5 322-329. Rae, D. (2001) easyJet a case of entrepreneurial management, Strategic Change 10, 6 325-336. Sull, D. (1999) easyJets $500 Million Gamble, European Management Journal 17, 1 2 0-38. The Times (2006), 11th and 15th November.View as multi-pages