easyJet: Successfully
Exploiting the Web
Kim O'Neil
Advance Aviation Technology
Ltd.
www.aatl.net
March 2003
Abstract
easyJet
consistently breaks new ground. In developing its business, easyJet has scored many firsts - particularly in its
exploitation of the World Wide Web. Yet there is even more to easyJet than meets the eye. Underlying all its
actions is a consistent business philosophy of efficiency and cost cutting.
easyJet has shaped its operation to address
the mass market and has harnessed and anticipated both passenger demand and
consumer preferences. The result has been rapid and sustainable growth in the
face of stiff competition from the big guns. It has broken the mould assumed
for low cost airlines, operating a modern and expanding fleet intensively on
competitive routes. easyJet strategies are
bold and adventurous rather than risky. In fact, easyJet takes few real risks, as it applies sound
business principles whilst carefully exploring the market.
1. Introduction
The Internet promises many opportunities. The
hyperbole surrounding the web is a phenomenon in itself and many fortunes have
already been made and lost on the Internet. As a result, most companies have a
presence on the web. Yet, for many, their websites are merely a token presence.
In reality, more time is spent on choosing which Internet web site creation
company to hire and arguing over the price of artwork than asking "what can the
Internet do for our business?". Fundamentally, most companies have a web site
because they feel they must. Many don't have a clear idea of how they can make
the web work for them. In much the same way that many MDs and CEOs still can't
use email. Yet being able to use email and 'browsing the net' doesn't mean they
have grasped the real benefits either.
Many companies simply treat their websites as
advertising or a means of projecting the image they seek in business. Whilst
advertising is important, it is only one relatively small aspect of the web.
This approach is just another manifestation of the 'corporate blues' - a
preoccupation with image, rather than with doing business.
However, there are companies that have made the
Internet the core of their business. easyJet is one such company.
2. easyJet
easyJet stakes its
claim in the market as a low cost airline operator. Yet easyJet operates quite differently from most other
low cost operators. Traditional low cost airlines fly old aircraft on routes
that the major airlines are not interested in. Old aircraft may be cheap to
buy, but they are not cheap to operate. Flying uneconomic routes doesn't help
either. This traditional mode of operation makes profit margins very thin,
simply because operating costs are so high.
easyJet completely
rejects this model. easyJet intensively operates modern aircraft, on
competitive routes. easyJet currently
operates 21 aircraft (18 Boeing 737-300s and 3 Boeing 737-700s). They have
placed firm orders for another 32 with options for a further 30. By 2004, the
easyJet fleet will consist of 44 aircraft
with an average age of less than 4 years. easyJet currently operates on 31 routes between 16
European destinations. As the fleet grows so will the number and intensity of
these routes grow.
As easyJet's fleet
has grown, so have passenger numbers: from a mere 30,000 on start up in 1995 to
a respectable 5,600,000 by the end of September 2000. During this period it saw
profits grow to £22.1M on revenues of £263.7M. Initially a private
company, easyJet floated on the Stock Exchange in November 2000 when 63,000,000
shares, representing 25.1% (of the total of 250.5M) shares were offered at
310p. A further 11-12% were reserved for staff. The airline raised £195.3
million valuing easyJet at £777
million on flotation. The sale to financial investors was over subscribed,
resulting in the further sale of 9.45 million shares at 310p bringing the
easyJet public offering to £224.6
million.
3. easyJet
Business Model
easyJet are not
afraid of competition, simply because they have developed a business model that
ensures a built-in business advantage. easyJet hack away at costs and overheads where ever
they occur. Sometimes this means taking an unconventional approach. For
example, easyJet operate modern 737
aircraft because operating costs are low (compared to older aircraft), but also
because crew training is simplified (avoiding the overhead of needing crew for
several different aircraft types).
This approach allows easyJet to develop a cost per seat model comparison
with competitor airlines. Seats are sold accordingly. Seat prices start off
very low, with the price increasing as more seats are sold (satisfying the
principle that the early bird definitely catches the worm). Yet the passenger
is always guaranteed the lowest price.
Figure 2 easyJet cost per seat model
easyJet are also
happy to spell out the reasons why they have fewer costs than other airline and
actively promote their seat-by-seat comparison with their competitors. It makes
interesting reading: No business class (Business Class can reduce seats from
149 to as low as 109 seats and increases cabin crew overheads), No agents
(easyJet was the first airline to cut out
agents), No tickets (reduces delays for passengers picking up tickets etc), No
free food (reduces costs and crew overheads), No congested airports (easyJet avoid airports with big delays). They also
make significant gains by reducing turnaround and increasing utilization.
Figure 1 easyJet - exploiting the web
Every effort is made to reduce overheads and cut
unnecessary costs. As noted above, travel agents are regarded as an overhead.
Consequently, it is not possible to book tickets on easyJet through a travel agent. The passenger must
book directly by telephone with easyJet or
on the web, where the passenger is offered additional discounts on the ticket
price. easyJet was the first airline to
advertise its telephone booking number on the side of its aircraft (in the
staid civil aviation market, this seemed more than a little 'brash'). This bold
strategy has paid off, resulting in easyJet operating with high and profitable
load factors on its routes.
The end result is an airline operating on sound and
competitive business principles that has simply learned to think "outside the
box". What makes it really go with a bang, is the way easyJet has incorporated
the Internet into its business model.
4. easyJet on the
Web
easyJet has based
its ticket sales on the web. At present over 82% of its sales are sold directly
through the website www.easyJet.com. This
is all the more remarkable, given known consumer hesitation about buying
anything online. Booking is offered in three languages (English, French and
Spanish) reflecting the core of easyJet's
current route structure.
What easyJet
offers on its website is choice. This choice is offered 24 hours a day,
seven days a week. When booking a flight, the passenger is not only offered a
choice of flights, but the best fare available on each flight. Not only are the
offered fares lower than the competition, they can even seem ridiculously
lower. Fares are quoted one way. That means that the best price for the most
convenient flight can be obtained both ways, optimizing the round trip cost for
the passenger. This approach compares very favourably with the inflexible
pricing and ticketing structures offered by conventional airlines. Further
reductions are offered for booking on the web.
For illustration purposes only, typical fares booked
on the web could cost either of £27.50, £47.50, £87.50 and
£117.50 compared with competitor fares of, say, £400 to £600
(e.g. usually at the lower end i.e. 10% to 50% of the conventional fare) on the
same route. These are real price comparisons and not just worst-case
examples.
What the passenger gains is not only a good fare, but
a new set of expectations.
5. easyJet
On-line Experience
The on-line experience for the passenger, reinforces
confidence in the booking process. A five-step approach is taken, allowing the
passenger to exit at any time. The booking form remembers essential passenger
information, so saving irritating re-entering of basic details if passengers
want to experiment with dates and times. It also remembers these details from
one booking session to the next, for registered users, speeding up the whole
process for the passenger.
This is especially useful, as it allows the passenger
to optimize the price they are willing to pay for both the outward and return
legs of their journeys. Hence there are real benefits to the passenger for
registration, other than merely allowing an airline to capture passenger
details………….. Once a passenger has booked his ticket for
the first time it seems almost as if a bridge has been crossed. For the first
time, the passenger can directly influence the price of his ticket and is given
choices not available elsewhere.
As a result, there seems little doubt about the fact
that easyJet's customers enjoy their online
experience, so ensuring that these customers come back regularly and often.
6. easyJet Web
Strategy
This is all part of easyJet's web strategy, weaning the passenger away
from conventional attitudes to booking airline tickets through agents, with all
its big airline assumptions and overheads. The term 'low cost' is made into a
virtue, breaking the implied link between low cost and poor service. The web is
thus presented as one of the enablers of this low cost but high value
strategy.
So confident is easyJet in its web strategy, that it is now seems
ready to take the next step in this process and become the first "web only"
airline, completely doing away with telesales (something already achieved for
easyRentacar). Its aircraft no longer carry
the telephone booking reservation number, but only its website address
(www.easyJet.com) - the writing was
literally 'on the wall' for telesales (with 82% of tickets sold on the web, the
remaining 18% is taken by over 200 telesales staff. For many airlines, this may
seem utterly inconceivable - a true leap into the void. But easyJet maintains its confidence in this approach
based on the real and dramatic growth in its web sales. The fact that easyJet can do this, is a reflection of way consumer
attitudes have developed over the last decade and the fact that the Internet
and mobile telecommunications technology have increasingly become integrated
into everyday life. This process is likely to lead to even more significant
changes in the not so distant future (another story!).
7. Other Services
easyJet also
offers a growing number of services. These are offered in a fairly low-key
manner on the web site (if one ignores the distinctive orange banners!). These
include: holidays, hotels, travel insurances, easyRentacar (an Internet only operation), online
shopping, gifts etc. For some of these items, you really need to be an easyJet fan or love the colour orange. However, most
are genuinely added value to the airline passenger e.g. car hire, car parking,
currency and phone hire. It's also nice to be able to sort out all of these in
one place.
8. Summary
There seems little doubt that easyJet is changing passenger expectations in terms
of both price and service. Undoubtedly, other airlines will follow this route -
which will, in turn, also increase the commercial pressure on easyJet. But easyJet seems determined to stay ahead of the
competition whilst always in-line with passenger expectations. As a market
shaper, easyJet has constructed an enviable
position. One that has undermined competitor confidence in what was thought to
be a well understood market. It seems clear that more change is in the
pipeline. It is also likely that easyJet
may present itself as a champion of passenger rights, since it is vigorous in
its condemnation of all the hidden charges that add significantly to ticket
prices, including: airport ticket taxes, airport operator charges and ATC
charges to name but a few.
easyJet seems
determined to ride the wave whilst others merely surf the net. |
