Business Strategy

Part 1. Identify the Organization’s Strategic Position

Bright orange color of easyJet Company is impossible not to remember. EasyJet Airline Company Limited better known as EasyJet.com is a British low-cost airline founded in 1995 that is based at Luton Airport (Yosef 2005). At present, the company is one of the largest low-fare airlines in Europe performing domestic and international flights from 387 destinations between 104 European and southern airports. EasyJet is the second-largest low-cost airline in Europe carrying over 30 million passengers a year. Airlines easyJet has a significant distinguishing feature of the transport budget leader. EasyJet is flying in the most convenient and popular airports continent at the lowest prices. The motto of the easyJet is low cost, along with convenience.

However, except the flights to major airports hubs, easyJet is a real low-cost airline. New aircraft of the same type, the reduced distance for the legs, all meals on board for a fee, flights point-to-point, fast turnaround of aircraft at the airport (no more than 30 minutes), high bandwidth and sale online only (in 2006, 98% of tickets were sold through the airline's website). The largest share of revenue the airline receives from additional sources: pay excess baggage charges to change tickets and expedited landing fees from the sale of rooms in hotels, car hire, bank and phone cards (Andrew 2003).

 

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The "Strategic Clock" scheme indicates the main directions of business strategy, based on a combination of price and quality. The strategies proposed in this model are based on the principle that organizations achieve a competitive advantage by providing the customers with the products of high quality or low costs. There are eight strategies that “Strategic Clock” involves. They are differentiated by the price and added values differences (Kirkland 1999). The easyJet Airlines are working with the first type strategy: low cost/low added value. With this strategy usage, easyJet is highly competitive because of lack of differentiated value in the products of the company. The strategy of easyJet can be also characterized by the continuous attracting of new customers through the effective and cheap form of tickets and additional products selling.

Nowadays, the market of low-cost flights is full of different companies that offer their customers different relationship of price and added values that companies proposed. The main strategy of low-cost airlines is to concentrate efforts on reducing costs by all possible means (Buckley 2002). The easyJet Airlines is not the only company that is working in this segment. Its main competitors are American company Southwest, European company - Buzz, Asian – AirAsia, British – Virgin.

The easyJet and Buzz airlines are defined as "no frills" because, flying with them, people are prepared for the fact that they have to carry luggage on the plane, pay for water, etc (Creaton 2007). However, all these limitations make the price of airline tickets the lowest in the market (Calder 2002). Otherwise, AirAsia low cost airline is finding that it is cheaper to offer some service to attract more affluent and demanding category of passengers by adding special free services such as water, snacks. Virgin and Southwest airlines, with a minimum service, offer their passengers the highest level of comfort during the flight: new planes, leather seats, super-modern in-flight entertainment system, which includes individual monitors at each seat, TV and internet. Flights with these airlines are more expensive, but the flight is even more comfortable than that of most of the traditional carriers. Therefore, the “Strategic Clock” of the easyJet Airlines Company and its competitors is shown below.

Part 2. The Key External Drivers of Change that Affect the Organization

In order to formulate an effective business strategy, a company should take into consideration not only those factors that directly influence its activity, but also those that provide the general framework of the business thus influencing the whole industry rather than a particular company (Jones 2005).  Among such, it is necessary to differentiate political, economic, socio-cultural and technological ones. Consequently, the so-called PEST analysis describing the influence of those factors can be made. 

Among the major political factors that currently influence easyJet’s business is the constant threat of war that cannot be ignored when a company operates in the Middle East (Binggeli 2002). While the company’s Air Mile scheme cannot be viewed as a taxable perk yet, the situation may change soon allowing easyJet to compete with its major competitors more effectively. Also, new markets are likely to emerge with European Union’s east-enlargement. 

Among the negative economic factors, it is important to mention that the fuel costs are likely to increase, new environmental restrictions can emerge, and insurance costs are likely to grow as a result of terrorism risks. However, there are positive factors too: globalization processes are constantly boosting the air traffic bringing new possibilities and customers, particularly from Europe.

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One of the major socio-cultural problems is that while the customers typically strive for the cheap flights, the negative reaction may appear when they realize that the actual price for the flight on a day they need is much higher than the one written in a newspaper advertisement.  There are also problems associated with the customers’ habit to use credit cards instead of the internet pay that would be more convenient for the company. 

In regard to the technological aspect, it is not still possible to conclude whether the costly technological advancements will be able to offset growing pressures on costs and prices.  Also, technological advancements are viewed as a reliable way to gain competitive advantage that is why the company needs to constantly keep track of new possibilities and technologies. 

The next stage of the business strategy assessing is the accomplishment of industry analysis (Porter’s 5 Forces model), which is described below.

An effective way to determine the strength of the company’s market position is to use the five force analysis. The analysis is aimed at describing whether there is a threat of new product substitutes and new competitors showing the bargaining power of both the suppliers and customers and providing the extent of competitive rivalry. 

In easyJet’s case, there is a strong industry and low-fare barriers that make it hard to enter the market, thus making the threat of new entrants low. The industry is very capital-intensive; each new entrant will suffer many months or even years of losses before the company starts to make a profit. If the entrant is going to lease the planes, such company needs to have a very good credit rating. Comparing to the old market players, such companies do not have the necessary knowledge and experience, strong balance sheets and internal cash flow, and much time will pass before they gain positive publicity and recognition. 

Talking about the bargaining power of easyJet’s suppliers, it is rather moderate, comparing to the bargaining power of the company itself (Costa 2002). The company’s effectiveness was not dramatically influenced by the Iraq war, and the petrol and airplane suppliers do not have such big power over the company as some might think.

The bargaining power of the company’s buyers is also moderate. The customers’ distribution is really wide.  easyJet’s prices are quite low, which makes it hard for the customers to switch to competitors. This advantage is reinforced by the free information flows that allow customers to compare prices among the competitors. 

EasyJet’s business has a moderate to low threat of substitute. It has the cost advantage even over the rail services. However, the train stations are more localized, making it more convenient for the customers to get there without the need to travel a long distance. Though the train journeys are more time-consuming, they provide a good opportunity for sight-seeing.  Concerning the bus or car journeys, they are surely more flexible and easier to control, but they are very costly and time-consuming. 

The extent of competitive rivalry is also moderate: easyJet has a strong market position (one of the largest European airline services), however, the competition is likely to become more intense. Its major competitor and the biggest challenge is British Airways, but it is a traditional carrier, not a low-cost one. Among the low-cost carriers, easyJet is still in a leading position owing to its competitive advantages. One of the major problems is connected with the tour operators which are selling only scheduled seats in order to reduce prices.

Part 3. How does the Organisation Adds Value to its Strategic Position

Resources are the things that can be used by companies to achieve their goals, meet their own needs and perform effectively. Resources of the company include financial, physical, human and intangible ones, and all of them ensure stable operation of the business, the implementation of its obligations and making a profit. Resources guarantee to provide competence and competitive advantage business. The resources of easyJet are analyzed below.

Physical resources of the easyJet Airlines include more than 190 fleets (Airbus A319-100 – 141 items; Airbus A320-200 – 49 items). All the aircrafts are new, and the company has planned to increase the plains during the next periods for 20 units. Such a range of aircrafts give the advantage to the easyJet Company as it can be seen as a source of differentiation in contrast with other low-cost airlines companies. This differentiation occurred because the competitors of the easyJet use second hand and old plains. As a result, using the easyJet, the customers enjoy the advantage of the superior aircrafts exploiting for the similar ticket prices.

Financial resources of the company are money meant to ensure its effective operation, meeting financial obligations and economic incentives for employees. Funding sources is the authorized (share) capital (profit), trust receipts, fees, reserve capital, long-term loans, the proceeds from the sale of shares, bonds and other securities, dividends, income from financial transactions, loans, insurance, subsidies, investment (Feldmann 2002).

EasyJet Airlines has currently strong financial position because of the high returning and intense 2012 performance year. The company obtained strong market position despite the fuel costs increase and macroeconomic challenges across the world especially in Europe. In 2012, the profit before tax of easyJet has grown by 27.9% and became £317 million; as a result, £4.81 is the profit before tax that the company obtained per seat. It is essential to note that, in 2012, the company has increased its profits after the tax paid by 13.3% in comparison to 2011 financial year. This increase has made £255 million. Total revenue of the easyJet in 2012 made £3,854 million. This is a great result of company’s performance because, in spite of the market competition and macroeconomic problems, the easyJet increased its revenue by 11.6%.

The net cash of the company that was generated by the operation activities has risen by £33 million and became £457 million. The company has paid £196 million for special and ordinary dividends. The net debt of the company was £74 million; however, last year the company’s net cash was £100 million. Such changes in the company’s operations results have occurred because of payment of special dividends, the mortgage loans repayments, reduction of leased plains, and the new units of aircrafts purchase.

Human resources of the company are a combination of all company’s employees who are occupied in a legal entity governed by a contract of engagement in a certain period of time. From the quality of the labor force, the results of the enterprise and its competitiveness depend. The concept of human resources reflects its potential. The use of labor resources of the enterprise should be highly effective, efficient and sophisticated (Holbeche 2009). The easyJet employs 8,000 people that include two thousand pilots and four thousands five hundred cabin crews. The employees of the company have served over 55 million passengers during 2012 year.

The company is concentrated to employ the most talented staff. That is way the special personnel strategy and uSay system were created. EasyJet personnel organization is based on the specific team building. The teams are well organized, highly motivated with all team roles establishment. As a result, the company’s staff is working effectively and efficiently, which increases the customers’ loyalty and creates additional value for the company.

In order to receive employees’ feedback, the easyJet management had decided to create the uSay system. It has been developed for the communication improvement along all organizational units. The system creation resulted in the increase of employees’ satisfaction and grew up to 40%.

The employees of the easyJet company are also motivated through the specific award scheme named Spirit. This award has more than five thousand nominations that allow any employee, despite the position, rang and working age, to obtain it.

Intangible resources of the company are those that create the company’s value without any material resources creation or usage (Pringle 2001). The threshold intangible resources of easyJet include the contracts and partnerships of the company with the premium IT companies, such as Sopra and Microsoft; reliable suppliers companies: Airbus, Boing and other resources supplying companies.

Unique intangible resources of the company include: strong “orange” corporate culture that encourages employees and customers and creates specific added value for the company at multinational area and can be seen as strong competitive advantage of easyJet; the increase of brand awareness and international customer database. These intangible resources of the company distinguish easyJet among its competitors and create an additional competitive advantage that cannot be copied or stolen.

The easyJet company has rather developed and interrelated the value chain. The company has also created the specific system of the effective benefits delivering to the customers that had integrated all elements of value chain by full the extent. The easyJet’s value chain has been developed and shown by the Figure 2.

Figure 2. The Value Chain of the easyJet Airlines

The company has created effective value chain that fully support and reinforce the company’s low-fare image and helps to build strong and coherent market position of the company. All the elements of the company are working withing the interrelations in order to deliver the promise made for the company’s customers.

Part 4. How Sustainable is the Strategic Position

The purpose of this paper was to make the business analysis of the easyJet airlines company. It shows that the company obtains strong market position and has been rather competitive in the low-cost airlines segment. The “Strategic Clock” analysis of the company has identified the strategy of the company and its place in the airlines market. It was founded that the company has been used the “no frills” strategy, which is characterized by the low prices and low added value system usage. This allows company to obtain strong demand for its services among specific categories of people. In spite of such a strict business strategy usage, easyJet is focused on the effective, efficient and coherent service provision. The next step of the easyJet business analysis devoted to the PEST analysis of the company functioning area. According to its results, it is necessary to stress that the company has no strict, strong and extensive negative factors that can hardly influence the performance of easyJet Company. The company’s resources analysis assures that the company has the effective system of all resources provision. It is important to stress that the key resource of the company – employees – is well organized and have a strong strategy of its further development. The analysis of the value chain of easyJet opens the fact that all the company’s primary and secondary elements performing effectively because of their interrelationship. All these facts assure that the company is a strong player of the low-cost airline market.

In order to guarantee that the easyJet company will be as strong as today, company’s management should focus on the continuous improvement of the easyJet market performance. This also will have positive reflections of the rate of company’s competitiveness. There are several ways that can improve the profitability and performance of easyJet. Firstly, company should focus on its activity expansion; this would rather increase the amount of passengers that would use the esayJet services and, as a result, increase company’s profits. Then, company can concentrate on the additional services provision. This can be done through cooperation with domestic small businesses. With the increase of competition in the low-cost airlines market, it would be rather effective to create specific loyalty programs for regular corporate clients of the company. There are enough resources for the company to implement such elements, and that will help to sustain competitive position.