Strategic Analysis Of Easyjet PLC

Company overview

The EasyJet airlines company is known as the low fare based airlines in the airport of London- Luton. EasyJet operates frequent services for their business as well as leisure passengers; it also served more than 500 routes between twenty-eight countries with over 182 aircraft (Farouk, Cherian and Shaaban, 2017). EasyJet was funded by Greek Cypriot Stelio Haji-loannou who is an entrepreneur, but in the recent it is listed on the London Stock Exchange and the Easy Group owns an only small portion of the stake. Approximately, 6000 people are employed by the company in which it includes 1800 pilots as well as 3300 cabin crew throughout Europe. In last year, the company has served 46 million passengers as well as it has counted as one of the fourth largest airlines in Europe with number one in air transport network (Mayer, Ryley andf Gillingwater, 2015). The company has initiated the use of the internet for the travel. The BMIbaby, Buzz, Ryan air and MyTrabelLite are the key competitors of the company in the UK. Germanwings, Air Berlin, Virgin Express, as well as Hapag Lloyd Express are or might become the key competitors in the light of future expansion plans. In recent, the company offers 125 routes from 39 airports of Europe as well as it operates 72 aircraft (Mills, 2016).

The company has a great reputation in the market of the airline industry. Most of the customers prefer to travel via EasyJet which enhance brand awareness among the other customers. The EasyJet has already enjoyed their perception of brand in the recent years (Lawton, 2017). The company already spread their awareness about brand particulary in the UK, but the company has now planning to spread to other more countries (McLachlan, James and Hampson, 2018).

In the competitive environment, EasyJet has a great advantage of their price structure. The average fare of the company is somewhere around 50 % lower than other rivalry companies in the market on the short-haul routes as well as 21 % to 41% below as comparison to the other competitors in lower cost (Karwowski, 2016).  Moreover, the extremely dynamic management system of revenue of EasyJet adjusts their price of tickets according to the level of demand to target maximum customers and maximize the revenue rather than to charge the low fare in a continuous basis.

Over the past few years Easy Jet has enhanced their financial performance, under the new managing team of Carolyn (CEO) McCall and CFO Chris Kennedy. The management of the company target a minimum return on capital employed of twelve percent which also includes capitalized operating leases on the capital base or 15 percent excluding the operating leases (Jackson, 2016). The company has a strong balance sheet and generation of cash as well as the return that exceed the cost of capital that make them different in the industry of airlines globally (Teker, Teker and Guner, 2016). In September 2012, the company has attained ROCE of 11.3 percent with involving operating leases or 14.5 percent ex-operating leases that are just diminutive of their targets, but contentedly in front of their cost of capital (Holloway, 2017).

Competitive environment

The cost base of EasyJet is not low as comparison to Ryanair. The company has a advantage of unit against various rivalry but cannot able to compete Ryanair for their cost. The cost per seat of Ryanair is 50 percent low as a comparison to EasyJet. Therefore, it is susceptible to direct competition on the pairs of airport to airport or even pairs of city to city from its Irish competition. The rivalry of EasyJet with the main competitor Ryanair could enhance for the period of long-term which affected the development of the company from their active networks (Horner and Swarbrooke, 2016).

It has been analyzed that the earning of EasyJet are highly seasonal as well as their profits mostly rely on a half year of summer (April to September). The company has faced the lean season as well as winters considered as loss-making which cover the moth between Octobers to March. Therefore, the profit margin of the company depends on the seasons rather than earn all the year, which make it more susceptible to any unpredicted struggle in the months of summer (Waltenberger and Ruff-Stahl, 2018).

                                                         

                                                                                         (Source: CAPA, 2013)

The brand name of EasyJet is possibly robust as comparison to other LCC competitors, but EasyJet, the company as a whole suffer from a disadvantage of brand which is related to the chief legacy carriers. Undoubtedly, the company has improved their on-time performance which is slowly changing as well as offer further features of product which cover flexibility of re-booking the tickets, allocated seating. But the products still have few accompaniments than that of full-service carriers of legacy (Ringham and Miles, 2018).

The reason to select such strength and weakness is that these strengths play a major role in the success of the business. They are the actual strength of the business. Through such strength, the company would able to cope up from the challenges which they have faced. With the help of such weakness, the company would able to get knowledge about their performance gap and would able to work to change the weaknesses into strength.

Scandalously cyclical as well as presently going through a lethargic point, the segment of aviation remains growing industries, which cover medium to long-term by the general consent. The company as a considerable player in the market is well-placed to contribute in such a growth. The company with their cost advantage as well as existing capacity compete from most of their bequest carrier competitors will help to lay down and gain the shares in marekt (Myint, Lupi, and Tsomocos, 2017).

SWOT analysis

In order to maintain the cost advantage, the company must ensure that it maintains their cost advantage unit against their legacy carriers that are continuously looking to cut the cost as well as transfer the significant parts of their short-haul network to lower cost subsidiaries. The initiative such as EasyJet Lean has identified the areas for reductions which include airports, engineering, and fuel, ground handling, as well as aim to decrease the costs by GBP190m by 2015 of which it had delivered c.GBP100M to the closing stages of September 2012.

It has been estimated that approximately 18 percent passenger of EasyJet were flying for the purpose of business. It would be an opportunity for the company to target business class passengers. Therefore, there is an aim of EasyJet to enhance this to 21% – 25% over 3 to 5 years. The attraction for business travelers involves their prime airports, a relative focus on privileged frequencies as well as their flexibility fares product that allow the passenger’s free data changes.

In the recent, as the EasyJet has developed and their model of business has also grown which covers unbundled pricing, the superfluities such as allocated the seating as well as the channels of distribution such as GDSs has also been increased the complexity in the business. The increase in the complexity could be the threat for the company if the management loses their focus on the complexity.

In the recent scenario, from a well-organized and balanced approach EasyJet is benefiting which help in to measure the development in their market as comparison in the past. Any occurrence of loss restraint among the competitors would create a threat for the company. It can be explained with an example as the low-cost alternatives of legacy airlines entrance in the new markets, could also intimidate the benevolent succumb situation that the company EasyJet is enjoying.

The increase in the fuel price, as well as fluctuation in the rate of the currency, would greatly affect the company as a whole. The increase in the price of fuel would definitely increase the price of EasyJet that would make tough for the company to compete in the competitive environment. The jet fuel price is responsible for approximately 30 % of the cost of the company which is highly unstable. It does not only reflect the volatile price of crude oil, but also variation in the refinery premium or crack spread. Moreover, fluctuation in currency rate would increase the cost of EasyJet up to 35% without revenue. These could be the threats for EasyJet (O’Connell and Williams, 2016)

External analysis

The company has enchased lots of opportunities but these are the main opportunities that need to be concerned by EasyJet. Moreover, in the uncertain market, the company has to face some threats, these three are the main threats which the company needs to focus, and get prepare for such a threat. It would help the company to stand in the competitive market and able to overcome from the threat which can face in the near future by the company.

Return on sales (ROS)	= Net income / Revenue	0.06439469
Return on assets (ROA)	= Net income / Total assets	0.054429744
Liquidity Ratios
Current ratio	= Current assets / Current liabilities	1.038323353
Quick Ratio	= Cash + Marketable securities + Accounts receivable / Current liabilities	1.038323353
Debt ratio	= Total liabilities / Total assets	0.530731871
Financial leverage	= Total assets / Total equity	21.325

	· Protectionism · Political Instability · Aviation Policy
	· Economies of Scale · Crude Oil Price · Enhancement in Disposable Income
	· Increase in Travellers · Changing Population Demographics · Increase in Tourism
	· Increasing in fuel-efficient aircrafts · Increase refinement of technology with mostly focus on the smartphones · Increase in Videoconferencing
	· Open Skies Agreement with the U.S. · Open Skies within the country Europe
	· Noise Pollution · Greenhouse and Carbon Emission

The threat of new entrants is low because of the recent economic downturn. High investment of capital is required.

Threat of substitute is medium with the reason of high-speed train as well as development in the infrastructure of the road across Europe.

The bargaining power of customers is high with the reason that the consumer is more sensitive towards price as there are airlines with a low fare, therefore, the consumer can easily switch of other airlines.

The power of bargaining of suppliers is medium as the manufacturers of aircraft can switch from the carrier of supplying to commercial carriers to the defense carrier.

Rivalry

The market of LCC is highly competitive. There are various service providers than needed in both the local and international market (Moreno-Izquierdo, Ramon-Rodríguez and Perles-Ribes, 2016).

The revenue of EasyJet grew from 14 percent to $2 billion in the third quarter till 30^th June 2018, with the ancillary revenues such as the baggage up 21.1 % to $400 million. it is estimated that 10 % more passenger flew as a comparison to the last year (BBC News, 2018).

EasyJet serves transparency in price as a comparison to Ryanair. The website on EasyJet provides the facility of debit and credit cards as well as show the actual price on the flight selection screen whereas Ryan does not showcase the actual amount until after the individual put all the passenger details (Dobruszkes, Givoni and Vowles, 2017).

The strength can be improved from the following way:

• The EasyJet can develop their strength by expanding their presence in the international market. The company should enhance their flights at international level to cover the potential of huge market. The company does not have their existence in the international flights towards the countries such as USA which has a vast market.
• EasyJet has already enjoyed the advantage of low fare but they should maintain their focal point on the recent strategies of operational distinction and should focus on consumers as well as a financial discipline which are the main pillars for the triumph of the company.
• Moreover, EasyJet can expand their services as well as fleet size for the penetration in the market. The borrowing power such as low debt ratio as well as a brand image which carried highest passengers is readily available for the successful expansion.

The weakness of the company can be resolved in the following ways:

• The fare of the company is not low as a comparison to Ryanair therefore; the company can provide free food service to their passenger to compete their rival company Ryanair. It will help the company to cope up with the weakness that they face.
• The earning of EasyJet is based on the season. In summer, the company earns a huge amount in a comparison to winter. Therefore, the company should diversify rather than investing their entire amount into a particular business it would help the company to increase their earning as well as decrease the dependency from one source of income or on the season.
• The company should begin their flights to Asia as well as Africa to keep away from the potential losses due to the dispersion in the industry of aviation in near future. EasyJet can able to attract maximum customers for the reason that of their sturdy brand image as well as low fare policy.

The company can exhaust the opportunities from the following ways:

• The company can offer free refreshment on their flights with a travel time of over two hours or more than two hours. This would help the company to offer an extra perk as well as deliver comfort to their passengers which make their experience with EasyJet more enjoyable as well as comfortable.  
• The company can provide an updated version of the fly on the documentaries wall which would provide the brand of the company with more coverage as well as publicity.
• It is an opportunity for the company to expand their roots. The company can offer packages of tour and travels which would able to attract potential customers, who are seeking the specific type of travel experience.
• The carrier should consider the developing strategic partnership with the airports that would help in expanding their route system as well as offer more travel options for their customers.

The company can cope up from the challenges of the threat from the following ways:

• To overcome the threat of the return of competitor capacity growth, the company should provide as well as formed some kind of loyalty scheme which includes the loyalty cards and member cards. Then the customers will gather the points each time when the passenger travels when the passengers have earned sufficient points they could able to receive several kind of rewards which covers offer discount on flights or can also offer free flights and so on. It would benefit both EasyJet as well as the consumer would want to travel with EasyJet instead of another company.
• The company should evaluate the competitors properly to cope up from the threat of competition. The main competitor of EasyJet was British Airway which merged with Swedish airlines. The merger helped British Airways to cover their losses as well as achieve cost efficiency. Therefore, EasyJet should focus on their marketing strategies as well as efforts to tackle with the synergies created by the merger.

References

BBC News. (2018) EasyJet [Online]. Available from: https://www.bbc.com/news/topics/c302m85q52jt/easyjet [Accessed on 13/11/2018]

Business-to-You. (2016) Porter Five Forces [Onlne]. Available from: https://www.business-to-you.com/porters-five-forces/ [Accessed on 03/08/2016]

CAPA. (2013) EasyJet Swot Analysis [Online]. Available from: https://centreforaviation.com/analysis/reports/easyjet-swot-analysis—is-stelios-strength-weakness-opportunity-and-threat-all-in-one-96290 [Accessed on 05/02/2013]

Dobruszkes, F., Givoni, M. and Vowles, T. (2017) Hello major airports, goodbye regional airports? Recent changes in European and US low-cost airline airport choice. Journal of Air Transport Management, 59, pp.50-62.

EasyJet plc. (2018) Report and Presentation [Online]. Available from: https://corporate.easyjet.com/investors/reports-and-presentations/2017 [Accessed on 14/11/2018]

Farouk, S., Cherian, J. and Shaaban, I. (2017) Low cost carriers versus traditional carriers and its impact on financial performance: a comparative study on the UAE airlines companies. International Journal of Value Chain Management, 8(4), pp.325-341.

Holloway, S. (2017) Straight and Level: Practical Airline Economics: Practical Airline Economics. London: Routledge.

Ho, J.K.K. (2014) Formulation of a systemic PEST analysis for strategic analysis. European academic research, 2(5), pp.6478-6492.

Horner, S. and Swarbrooke, J. (2016) Consumer behaviour in tourism. London: Routledge.

Jackson, J. (2016) Airline finance. Air Transport Management: An international perspective, p.169.

Karwowski, M. (2016) The risk in using financial reports in the study of airline business models. Journal of Air Transport Management, 55, pp.185-192.

Lawton, T.C. (2017) Cleared for take-off: structure and strategy in the low fare airline business. London: Routledge.

Mayer, R., Ryley, T., and Gillingwater, D. (2015) Eco-positioning of airlines: Perception versus actual performance. Journal of Air Transport Management, 44, pp. 82-89.

McLachlan, J., James, K. and Hampson, B. (2018) Assessing whether environmental impact is a criterion of consumers when selecting an airline. International Journal of Advanced Research, 6(3), pp.740-755.

Mills, G. (2016) The Airline Revolution: Economic analysis of airline performance and public policy. London: Routledge.

Moreno-Izquierdo, L., Ramón-Rodríguez, A.B. and Perles-Ribes, J.F. (2016) Pricing strategies of the European low-cost carriers explained using Porter’s Five Forces Model. Tourism Economics, 22(2), pp.293-310.

Myint, S., Lupi, A. and Tsomocos, D.P. (2017) How Investment Opportunities Affect Optimal Capital Structure. Journal of Applied Corporate Finance, 29(4), pp.112-124.

O’Connell, J.F. and Williams, G. (2016) Ancillary revenues: The new trend in strategic airline marketing. In Air Transport in the 21st Century (pp. 195-220). London: Routledge.

Ringham, K. and Miles, S. (2018) The boundary of corporate social responsibility reporting: the case of the airline industry. Journal of Sustainable Tourism, pp.1-20.

Teker, S., Teker, D. and Guner, A. (2016) Financial performance of top 20 airlines. Procedia-Social and Behavioral Sciences, 235, pp.603-610.

Waltenberger, J. and Ruff-Stahl, H.J.K. (2018) Implications of Short Scheduled Ground Times for European Carriers. International Journal of Aviation, Aeronautics, and Aerospace, 5(3), p.8.