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Business Strategy Assessment 1

Student Name: Lin Zhu Student Number: 12018708 Module Code: ST3S03 Tutor: Simon Brooks Word Count: 3234 Submit Date: 25-Febuary-2013

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Content 1. Introduction ............................................................................................................ 3 2. Findings .................................................................................................................. 4 2.1 Identify the organisation’s strategic position .............................................................4 2.1.1 Basic Introduction ...................................................................................................4

2.1.2 Strategy Clock ............................................................................................... 4 2.2 How do the key drivers of change affect the organisation? ......................................5

2.2.1 PEST Analysis ............................................................................................... 5 2.2.2 Porter’s 5 Forces Model .................................................................................. 8 2.3 How does the organisation add value to its strategy position? .................................9

2.3.1 Resource Audit .............................................................................................. 9 2.3.2 Value Chain Analysis .................................................................................. 10 3.0 Conclusion .......................................................................................................... 12 4.0 References ........................................................................................................... 13

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1. Introduction: EasyJet, which is the best low cost airline in Europe and also is the second largest airline in U.K. This report is aiming to assesse the company’s business strategy and its strategy position. Bowman’s strategic clocks analysis is used for evaluating Easyjet’s competing strategy; the PEST framework and Porter’s 5 Forces model are used foe evaluating Easyjet’s external and internal environment; and the resources audit and value chain analysis of this airline company are also assessed. Finally, a commenting of the sustainability of Easyjet’s competing strategies will be as the end of the report.

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2. Findings: 2.1 Identify the organisation’s strategic position 2.1.1

Basic Introduction:

EasyJet Airline is a British airline, which headquartered in London Luton Airport. It is the largest airline of the United Kingdom measuring by amount of passengers carried, operating domestic and abroad scheduled services on over 600 routes covered more than 30 countries. As of 30 September 2012, Easyjet has 8446 employers, not only the majority in the UK, but also throughout Europe.

EasyJet has expanded its routes rapidly since its launched in 1995. It has grown by using acquisitions and base openings fuelled by consumer demand for low-cost air travel. Along with the subsidiary airline EasyJet Switzerland operates over 200 aircraft, which mostly are Airbus A319. It has 23 bases across Europe, the largest being Gatwick. In 2012, EasyJet carried over 59 million passengers and is the second-largest low-cost carrier in Europe, behind Ryanair. (Online Easyjet Blog, 2013) Strategy Clock: Differentiation 4 Hybrid 3 KL M CP

BA

BZ

Low Price 2

6 Ea R

Low

5 Focused differentiation

BZ

Perceived Added Value

High

2.1.2

ay

na i

sy

je t

r

7 Strategies destined for ultimate failure

1 Low price, low added value Low

8 Price

High

Figure-1: The strategy clock: Bowman’s competitive strategy options

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As can be seen from the figure above, the Strategy Clock model explains the cost and perceived value combinations many firms use; it is also a suitable way to analyze a company's competitive position in comparison to the offerings of competitors, as well as identifying the likelihood of success for each strategy which extended by Cliff Bowman and David Faulkner (1996) from Porter's three strategic positions to eight (Online MindTools, 2010).

There are 8 routes in the Clock. Because of its ‘No Frills’ strategy, the competitive position of EasyJet is shown as the red circle area.

As a well-known low cost airline company, EasyJet has an amount of competitors among the airline industry. For instance, Ryanair, the low cost airline company same as EasyJet; the British Airway, which is the flag carrier airline of the United Kingdom; Cathay Pacific, which is the international symbol airline of Hong Kong; KLM, which is the flag carrier airline of the Netherlands and Buzz airline, which is a British low-cost airline operating services within Europe operated as a subsidiary of KLM and then Ryanair. In the Strategy Clock, the Ryanair is the green circle because of its low-cost strategy same as EasyJet. Moreover, the British Airway is positing with a big circle among the area 3,4 and 5 because its large market share which caters for both long and short haul flights and its luxury marketing position. Furthermore, both the Cathay Pacific and KLM are positing in hybrid area. The reason is that for Cathay Pacific, its new Cathay Pacific Cargo Terminal at Hong Kong, which its headquarter located in, is aiming to posit Hong Kong as the world’s premier international airfreight hub (Online Cathay Pacific, 2013). Meanwhile, the KLM is focus on both the modern traveller and freight companies, in order to apply as much flexibility as possible and a wide range of choices to their target customers (Online KLM, 2010).

And then, the Buzz is launched by KLM as a sub-brand of KLM UK to compete with other low-cost carriers such as EasyJet and Ryanair while it is also the first low cost airline trying to attract the high yield business travel segment, especially by promoting its flights to/from London to Frankfurt and Düsseldorf (Online Buzz, 2010).

Hence, the position of Buzz is from area 1 to 4.

EasyJet's has devoted itself to change the shape of the European aviation industry with its no-frills business strategy. Whilst most budget airlines, in order to lower airport fees, often operate in smaller airports away from the city they fly to, Easyjet tends to fly to primary airports and minimizes other operating and distribution costs.

For EasyJet, its main goals are concluded as: to be the best low fare airline in the world and to provide low cost travel with care and convenience. Meanwhile, it is aiming to minimize the impact on the environment with a modern fleet and efficient working practices. Last but not the least, EasyJet hope to establish fares appealing to business and leisure markets, attracting by low prices even people who had never flown before. As it was mentioned above, the competitive position of EasyJet is among routes 2, 1 and 8. The trend of EasyJet’s competitive position is moving upwards because of its changing marketing positioning.

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2.2 How do the key drivers of change affect the organisation?

2.2.1 PEST Analysis: Political: • Taxation: According to BBC News, the airline Easyjet supported for a green tax on air travel based on carbon produced (BBC News, 2007). It can influence the aviation market in terms of rules to the business be followed. This green tax could mean Easyjet passengers would pay less than they do with passenger duty.

• Legislation: A new EU rules on passenger compensation was launched in 2005， now enjoy lower fares and a wider choice of carriers and services than in the past(Easyjet plc, 2005). Easyjet confirmed its ongoing commitment to high levels of customer service and is ready for the entry into force of the legislation.

• Foreign Trade: The main materials for an air company, which are the airplanes, are imported from other country and any change in this international trade can cause more cost for the company (Easyjet plc, 2009).

• Terrorism: The well-known crisis that happened in USA (September 11, 2001) and in London (2005) can impact in number of customers. It may impact airline industry because customers might have the fear of fly to the terror attack countries and it can reflect directly on company’s profit.

• Employment Law: Patricia Hewitt, the Trade Secretary of Easyjet, has announced that she will unveil new proposals designed to outlaw age discrimination in employment. Under the new rules employers cannot specify a required age for a job or prevent older employees from applying for training schemes (Easyjet plc, 2003).

Economic: • GNP Trends: the GNP had increased to 389604 GBP Million in the third quarter of 2012 from 380720 GBP Million in the second quarter of 2012 which stand for more values were created by both home and abroad for the UK (Online Trading Economics, 2012), which may bring more benefits to Easyjet when people spending more money on travelling.

• Unemployment: the Unemployment Rate in the United Kingdom increased to 7.80 percent in December of 2012 from 7.70 percent in November of 2012 (Online Trading Economics, 2012). That high Unemployment Rate has a directly influence on the consumption power of the UK residents and the airline industry.

• Inflation: The inflation rate in the United Kingdom was recorded at 2.70% in January of 2013, which is lower than its averaged 2.81% (Online Trading Economics, 2012). Because of the high inflation and crisis of the fuel price, the company might have to increase cost for the customer, which is harmful to the low-cost company like Easyjet.

• Fuel Price: Petrol prices rose by 38 per cent between June 2007 and June 2012, while diesel prices went up by 43 per cent. That may make the tickets even higher to customers. In addition, the high price of flight tickets would decrease the number of customers to Easyjet.

Social-Cultural: • Demographics: International departures by Chinese citizens reached 57 million

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in 2010 (Easujet plc, 2010). This increasing trend in tourists from those developing nations have led to much airlines opening up new route to more destinations across Europe. Easyjet will expand some new routes by using the approach named join the dots, connecting popular currently served cities to ensure passengers have easy access to the most attractive destinations.

• Social Mobility: Educational mobility has increased over time in most countries, especially in the 21st Century. Insofar, the officials said there are now some 1.27 million students attending foreign universities; meanwhile, the number of international students around the world is continuing to rise sharply (BBC NEWS, 2011). That will create more opportunities to Easyjet to expand more routes to students all over the world.

• Lifestyle Changes: Nowadays nearly 28% people choose to search tickets information online everyday so that the company’s business online can be developed quickly (BBC News, 2012). That may lead Easyjet to amend its pricing amid government plans to ban excessive surcharges when buying tickets online.

• Olympic Games: the 29th Olympic Games was held in the Great Britain in 2012 (BBC News, 2012). This big event increased a lot in the tourism and stimulates the development of Easyjet.

Technological: • New R&D Development: Airbus A350 to enter service in 2013, it has benefited from multibillion-pound research and development grants for new composite materials (the Guardian, 2006). This will improve the power of Easyjet if they would like to add new type of plan to its company whereas it needs additional money.

• Online Technics: With the development of website, airline industry offers online check-in system for baggage with codes and buying tickets (Azureholidays, 2009). With this pretty convenient method, company can increase sales, profit and reduce staff and the company can pay fewer wages, and the likeability of customers can be highly improved.

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Porter’s 5 Forces model: Potential Entrants Bargaining

Threat of new

power of buyers

entrants

Suppliers

Industry Competitors Rivalry among existing firms

Buyers

Threat

Bargaining power of

of

substitute

products or services

suppliers

Substitutes

Ø

Ø

Ø

Figure-2: Porter’s 5 Forces Threat of new entrants: The threat of new entrants of Easyjet into the Low Cost Carriers is low. Easyjet has quite a leading position in the Europe low-cost market. A high capital requirement also negates threat to some extent for Easyjet (Mayer, 2007). Meanwhile, for a new airline which is willing to entry in the industry, the original cost of is extremely high, which requires a lot of capital investments, owing to have a large number of aircrafts and maintenance facilities along with launching campaigns. Furthermore, a price war would be set due to a new carrier decides to enter the market and fly on existing routes which will be harmful to both sides (Sismanidou, Palacios and Tafur, 2009).

Bargaining power of buyers: The bargaining power of buyers falls under a moderate level. Because there are lots of other airlines which are available for customers to choose a cheaper price for their best bargains particularly with the online tickets system (Capon, 2008). Customer loyalty is necessary, or they will prefer to purchase from its competitors. However, the low prices strategy is Easyjet’s powerful weapon, which makes it difficult for customers to consider about other competitors. With the pricing strategy done by Easyjet as the earlier you book, the less you pay (EasyJet, 2011) appealing more customers, Easyjet has been placed in a leading position among the market (Mason and Alamdari, 2007).

Bargaining power of suppliers: The bargaining power of suppliers falls under a moderate to high because the Easyjet has no power to alter the price of fuel as an individual company (Mayer, 2007). In addition, the airline market is under the control by the two main airline suppliers as Airbus and Boeing. In order to 8

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ensure the quality of their facilities, Easyjet must keep good relationship with those suppliers. Moreover, airports are another vital set of suppliers; some LCCs attempt to avoid high fees from large airports. However, Easyjets relies on larger airports and main hubs to try and reduce their costs by flying at off-peak times (Easyjet, 2009). Furthermore, there is a strong connection between the increasing bargaining power from the suppliers and the PEST analysis mentioned in the previous part. Such as the government increasingly prominent environmental laws and regulations and the supporting power of the government to the industry. Ø Threat of substitute products or services: The threat of substitutes products and services for Easyjet is low. Those threat mainly comes from other transport tools such as trains, cars, boats and so on (Mayer, 2007). Nevertheless, since low-cost airlines becoming the fastest travelling tool with cheap prices, any other types of transportation would not be able to compete with them neither through timings nor prices. Ø Industry Competitors Rivalry among existing firms: The intensity of rivalry among competitors is moderate for Easyjet. It is pretty rivalrous with many competitors who also operate short-haul market in the Europe such as Germanwings, Ryanair, etc. (Which, 2010). Innovative ideas and methods of operations could easily be copied by competitors because of there are so many different airlines in a same industry. However, Easyjet is consider as the largest airline company in the UK and the fifth largest within the European airlines industry in terms of the number of passengers they carry, giving them a clear position of their strong competitive power when comparing with their rivals.

To sum it up, the airline sector is getting increasingly competitive with the changing of people’s lifestyle and the development of high-technology and the increasing pressure from the legislations. Easyjet has to acclimatize itself to those changes in order to get the maximum profit in the market competition.

2.3 How does the organisation add value to its strategy position?

2.3.1 Resource Audit: Physical Resources: Human Resources: • 1 head office at Luton Ariport • Easyjet has almost 8446 employees, who are based • 23 Easyjet bases around Europe including the UK, France, Swizerland, throughout Europe but mainly Italy, Germany, Spain and Purtagal. in the UK. • 214 aircrafts and 605 routes • High technology for training staffs • Stronger low cost operation Financial Resources: Intengibles: • ROCE: 14.5% (2012), 12.7% (2011) • Strong corporate orange culture • Dividend: 21.5p (2012), 10.5p (2011) • Increasig brand awareness • Net cash: 457m (2012), 424m (2011) • International customer database • Profit: 255m (2012), 225 (2011) • Easyjet auxiliary product such as Coach, Mastercard, Hotel, • Passengers: 58.4 (2012), 54.5m (2011)

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Oprational cost per seat excluding fuel: £33.00 (2012), £33.10 (2011) Gearing: 29% (2012), 28% (2011)

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Cruise and Cinema.

Figure-3: Easyjet Resources (Sources from: Easyjet Annual Report, 2012) From the table above, the most important strategic resource of Easyjet is its brand image and some of the sub-brands developed under its mother brand of Easyjet.

Because the Easyjet’s brand image is instantly connected with convenient and low-cost, travelling with this airline stands for getting the senses of comfort and fast to consumers. Easyjet is firmed to providing a high-quality training to ensure their business is under the safe operation, and the cultural and personal development will benefits to their customers. During the year of 2006, Easyjet Academy opened a 30,000 square foot training facility, which will contribute towards achieving the goal of existing business is as efficient as possible, both in the air and on the ground, and to strive to find ways to minimise its environmental impact in the future (Easyjet Annual Report, 2006).

On the other side, as can be seen from their financial resources, the Easyjet succeeds admirably in reducing their cost while the ridership has been increasing in 2012.

Therefore, Easyjet is taking advantages of its resources, which makes its brand image hard to copy by other competitors.

2.3.2 Value Chain Analysis:

(Source from: http://www.12manage.com/methods_porter_value_chain.html) Figure-4: Michael Porter’s Value Chain Ø Firm Infrastucture: • Main headquarters based in Luton • Strong brand awareness • Low cost operate model which values cost efficiency

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• No ticketing system with posted ticket Human Resources Management: • Recruits young and dynamic people • Committed workforce behavior • Innovative marketing terms for marketing communications to date. Ø Technology Development: • Advanced technology, e.g online booking and services • Attractive orange website Ø Procurement: • Leassing of the aircraft like Aitbus, Boeing • Maintenance of IT software such as Microsoft • Simple staff uniforms Ø Inbound Logistics: • Thorough customer services in place at airport • A easy flight booking policy and payment methods Ø Operations: • Tickless operations • Safty guarantee • Baggage allowance Ø Outbound Logistics: • ‘we have the best’ approach marketing stratrgy • Gain access to luerative Notrh England markets Ø Marketing & Sales: • Online promotion and discounts • National compaigns Ø Service: • In flight refreshment • Focuses on lost baggage and speedy boarding for customers • Discount carhire through partner agreements (Sources from: Easyjet plc & Aunnal Report, 2012) From the bullet points above, it is clearly that Easyjet has its own attractive core capabilities that have been established in the marketplace and have perceived beneficial to consumers. The value chain analysis highlights those elements of the business that can be integrated or adjustment in order to achieve the overall goals of high margins, profitability and market share. Since the customer make a decision on travelling with Easyjet, the value chain of Easyjet has began to operate. Perceived a superior value chain system for sustaining its competitive advantage and indeed promoting the Easyjet itself into the airline market. Ø

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3. Conclusion How sustainable is the strategic position?

Being one of the fastest growing carriers in Europe, Easyjet seems to have a lot of challenging. EasyJet has a very strong position in the market but still needs to sustain its strategy in the future. In the first of all, the company is operating in a changing environment, which will affect it in different aspects. Looking back to the PEST analysis in part 2, those factors can affect the external environment of the company and its marketing plan process. It is important for Easyjet to pay attention on these issues with a strategy and also an emergency strategy for the changes that might occur.

Meanwhile, the customer satisfaction is the key for the successful of EasyJet and the company always needs to make changes based on customer demand in order to provide the best low cost airlines (the Guardian, 2010).

In addition, viewing back to the Easyjet’s internal analysis, Easyjet provides some benefits and incentives aiming to encourage their staff. However, review the history of Easyjet, all previous staff problems are caused of salaries and wages dissatisfaction.

So, if the company still cut from the staff costs, it will surely lead to strikes and frustration in their operation.

All in all, Easyjet has gotten a higher reputation than before because customers are more prices oriented nowadays. In this competitive airline industry, customers will focus more on decreasing their costs and budget when they get a plan for the outing.

There do still exist enormous scopes for Easyjet to get a better operation in the future.

Firstly, the company still needs to invest more on staff training because the company still counts on their people to launch the more routes to expand their business. The company should apply appraisal programs and rewards for its employees (Washington, 2009).

Moreover, Easyjet should enlarge its target market and focus more on business travelers as potential customers. Hence, Easyjet needs to expand its routes in big cities in Europe so that could attract more business customers to their destinations.

Furthermore, Easyjet should have a stronger advertisement campaign outside UK and Europe in order to increase its market share (The Travel Magazine, 2008).

Finally, in the area of value chain analysis, this is no doubt that Easyjet has already been doing what it thinks is useful to keep its brand reputation and service quality.

However, The company still needs to maintain a high-quality brand name and achieve the efficiency of the supply chain management, especially during the economy depression-era. In another words, Easyjet should also improve its services all the time to retain existing customers and attract more new ones.

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4. Reference BBC News. (2007) ‘Easyjet supports green air taxes’, Live of The BBC News, 18 September [Online]. Available at: http://news.bbc.co.uk/1/hi/uk/7000103.stm (Accessed: 17 February 2013).

Coughlan, S. (2011) ‘Record numbers of international students’, Business of The BBC News, 10 March [Online]. Available at: http://www.bbc.co.uk/news/business-12671198 (Accessed: 17 February 2013).

Chen, S. (2011) ‘Chinese overseas students 'hit record high'’, Aasia-Pacific of The BBC News, 18 April [Online]. Available at: http://www.bbc.co.uk/news/world-asia-pacific-13114577 (Accessed: 17 February 2013).

Cathay Pacific Cargo (2012) Cathay Pacific Cargo. Available at: http://www.cathaypacificcargo.com/en-us/aboutcathaypacificcargo.aspx (Accessed: 15 February 2013).

Dominiczak, P. (2013) ‘Ministers to blame for high fuel prices, says competition watchdog’, the Telegraph, 30 January [Online]. Available at: http://www.telegraph.co.uk/motoring/news/9836448/Ministers-to-blame-for-high-fuel -prices-says-competition-watchdog.html (Accessed: 18 February 2013).

Easyjet plc (2012) Annual Report. Available at: http://2012annualreport.easyjet.com/ (Accessed: 18 February 2013) Easyjet plc (2005) New EU Passengers Compensation Rules - Easyjet is Committed to Looking After its Customers but Warns That Bad Legislation Will Be Damaging to The Industry. Available at: http://corporate.easyjet.com/media/latest-news/news-year-2005/16-02-05-en.aspx?sc_ lang=en (Accessed: 17 February 2013) Easyjet plc (2009) Easyjet to Fly to Israel with New London Luton – Tel Aviv Service.

Available at: http://corporate.easyjet.com/media/latest-news/news-year-2009/30-09-09.aspx?sc_lan g=en (Accessed: 17 February 2013) Easyjet plc (2003) Patricia Hewitt Joins Easyjet in Anti Ageism Campaign. Available at: http://corporate.easyjet.com/media/latest-news/news-year-2003/03-07-03-en.aspx?sc_ lang=en (Accessed: 17 February 2013) Fellner, R. (2002) Report of Easyjet Analysis About Industry, Market, Competition and Chosen Strategy. Available at:

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http://www.fellner.reinhard.com/budget_airline_sstategie.htm (Accessed: 13 February 2013).

Gow, D. (2006) ‘Airbus A350 to enter service in 2013’, Business section of The Guardian, 4 December [Online]. Available at: http://www.guardian.co.uk/business/2006/dec/04/3?INTCMP=SRCH (Accessed: 18 February 2013).

Henry, A. (2011) Understanding strategic management. 2nd edn. Oxford;New York: Oxford University Press.

Johnson, G. and Scholes, K. and Whittington, R. (2008) Exploring corporate strategy text & cases. 8th edn. Harlow: Financial Times Prentice Hall.

KLM, Royal Dutch Airlines (2010) Company Porfile. Available at: http://www.klm.com/corporate/en/about-klm/profile/index.html (Accessed: 15 February 2013) Mayer, F. (2003) A case Study of Easyjet and the Airline Industry. GoogleBooks [Online]. Available at: http://books.google.co.uk/books?id=M2Cl342br5EC&printsec=frontcover&source=g bs_ge_summary_r&cad=0#v=onepage&q&f=false (Accessed: 20 February 2013).

Marketing Teacher (2010) Bowman's Strategy Clock. Available at: http://www.marketingteacher.com/lesson-store/lesson-bowman.html (Accessed: 15 February 2013) Mind Tools (2011) Bowman’s Strategy Clock: Making Sense of Eight Competitive Positions. Available at: http://www.mindtools.com/pages/article/newSTR_93.htm (Accessed: 15 February 2013) Mobility and Transport (2012) Passenger rights Air - legislation in force since 2005.

Available at: http://ec.europa.eu/transport/themes/passengers/air/ (Accessed: 18 February 2013) Rothwell, S. (2011) EasyJet Extends Lead Over British Airways in Market for Short-Haul Travel. Available at: http://www.bloomberg.com/news/2011-01-07/easyjet-widens-its-lead-over-british-air ways-in-european-markets.html (Accessed: 15 February 2013).

Social Situation Observatory (2012) Social Mobility in EU Member States. Available at: http://www.socialsituation.eu/monitoring-report/mobility (Accessed: 18 February 2013) Trading Economics (2012) United Kingdom Gross National Product. Available at: http://www.tradingeconomics.com/united-kingdom/gross-national-product (Accessed: 18 February 2013)

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Trading Economics (2012) United Kingdom Inflation Rate. Available at: http://www.tradingeconomics.com/united-kingdom/inflation-cpi (Accessed: 18 February 2013) Washington, T. (2009) Employer profile: Easyjet. Available at: http://www.employeebenefits.co.uk/resource-centre/case-studies/employer-profile-eas yjet/8565.article (Accessed: 15 February 2013).

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