Since the unprecedented, tragic events, of September 11th some of its profound consequences are coming to light.

As events have unfolded it has been thought inevitable that the airline industry would suffer heavily, stocks have been devalued and ticket prices are at all time lows. News headlines such as 'The unpalatable truth have considered the dire straits of the industry. The flag carriers (national airlines) have certainly been forced to retrench, cutting the number of short haul European hops where costs are too high. Sabena, Belgium's national airline and one of the oldest in the world has gone out of business. Swiss Air has had similar liquidity problems and has had to be bailed out by the Swiss government. Even now they are not running a full service. With many of the G7 economies in recession is this the way of things to come? Low-cost carriers however, have for the most part averted many problems that could be associated with consumer confidence, and have remained profitable. "Europe's low cost start-ups, such as easyJet, Ryanair and Go, are also flying high. On October 29th, easyJet announced an 82% rise in pre-tax profits in the year to the end of September.After a brief post-September 11th dip the airline, based at Luton, now says that seat sales are back to normal." The low cost carriers have been so profitable that they have been looking to expand. Over the last year they have snapped up lucrative flight slots from their more expensive rivals on short hauls, as the industry has been progressively liberalised. easyJet and their main rival RyanAir are taking away much of the business from the big airlines in Europe. RyanAir, for example, has a stock market capitalisation bigger than that of British Airways, showing the enthusiasm of investors for the lost-cost airline model. This report will look sequentially at four important angles of the airline industry, from a marketing perspective, which should allow us some insight into the low-cost airline industry. These comprise: the nature and of competition in the market and how competitive advantage is sought; an Industry analysis; a customer analysis; and finally a section detailing how PEST changes might affect the market over the next few years. The PEST analysis will focus heavily on the technological aspects; since these represent some of the most important issues that easyJet can have an immediate impact upon.

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The nature and extent of competition in the market and how competitive advantage is sought On the whole the airline industry is a service industry. Airlines are primarily concerned with customer service, and look to add value to the customers experience at different stages in the value chain. Aerlingus, for example, is a full service airline that charges premium prices for the high levels of service they provide; by comparison easyJet positions itself at the other end of the scale. Herein we are primarily concerned with customer service, and Value added throughout the process. Some may argue that this should not be so in the case of easyJet, since it is a 'no frills low cost' airline. However, Stelios the founder of the airline, understands that they have to meet and exceed customer satisfaction -or expectations. He is quoted as saying:

"If you create the right expectations and you meet and exceed those expectations, then you will have happy customers," The implication of this for strategy is that you either, provide a level of service which is insurmountable, or you manage customer expectations downward and then surpass them, thus surprising the customer. easyJet follows the later alternative by providing very cheap flights that are billed as 'no frills', but ensuring that its basic logistics work very well. For instance all of the planes are all brand new and the departure record is second to none. What easyJet does is relationship marketing; they are concerned with customer retention as much as finding new customers. This process can be summed up by the following diagram:

(Cornerstones of relationship marketing, Hooley et al. 1993,98) easyJet provides 'sound reasons' for a customer relationship: a cost effective and good quality service. As such, easyJet is able to obtain customer feedback about the service they provide, and go on improving it. The marketing communication techniques that easyJet uses, appear to operate in a very personable and candid manner. Much of this probably stems from the Stelios "tell it like it is" mentality. For example: "When someone is on a bus, he doesn't expect a free lunch. I couldn't see why we cannot educate our customers to expect no frills on board." On the basis of the success of the company, one could assume that the service offering is a good one. Of those factors included within it, cost leadership is thought to be the most important. Cost leadership is often a very effective form of competitive strategy. It is certainly very effective in the European market, where the cost of flights, are still on average twice as much as in the US. For example, easyJet is aware that customers would dearly like to be able to fly the Geneva to Barcelona route, with someone other than SwissAir, i.e. a cheaper alternative. However since Switzerland is not a full member of the EU, this route is technically an international route meaning that Switzerland has the right not to allow anyone but national carriers to operate (i.e. SwissAir and Iberia).

Core Capabilities EasyJets core capabilities are made up of its assets and its competencies. Davidson has suggested that an organisations assets will be found in a number of discrete areas, and in the case of easyJet, the most important of these can be analysed as follows: Scale advantages EasyJet has made a clear decision to drive for scale and has developed to a size where it is able to offer regular services to a number of destinations. This operational scale is the key to its aggressive pricing policy. Processes The compnay has developed innovative processes (seatp pricing and booking procedures) that allow it to both differentiate its offer and improve efficiency. Customer franchises The company has worked hard to develop a service that meets customer needs and, like Virgin, to position itself has a value-for-money operation. Focussing on particular segments, easyJet has developed offers that are designed to increase retention. Sales and distribution network Again, easyJet has reengineered the traditional sales and distrubution systems. It does not work with interconnecting flights and uses the internet for bookings as far as possible (40 per cent stated in case study). In this way it has managed to cut out intermediaries from the process as well as much of the costly ticketing process. Property/Location The company works out of secondary locations rather than major hub airports. This enables the communication of a low-cost image while remaining reasonably convenient (Luton is just 27 minutes from central London) and to use smaller airports that are often more convenient for travellers who are starting to see the plane as an alternative to rail and bus (Liverpool airport). EasyJets competencies can be assessed by considering the following three key areas: Marketing EasyJet is clearly a market-led organisation. It has considered (and continues to consider) customer needs above accepting working practice in the industry. Understanding customer

needs in this way has allowed the company to develop a business that both better meets the needs of the target segments of the travelling population as well as differentiate it from the established competition for example, booking processes, free seating, refreshments on board, etc. The development of the operation shows that customer needs are constantly considered and used in deciding on new services and destinations. Selling The use of the internet and ticket-free processes are the key. Also the disintermediation of the travel agents has served to differentiated easyJets offer. The telephone number is also promoted widely. Operations Operations have been designed to both save costs and to differentiate the offer. The amount of time spent on the tarmac, the locations and airports selected as well as the booking and boarding systems are innovative. They serve to create efficient operations allowing scale and cost advantage. They are also effective in that they meet the needs of the segment approached for a no-frills approach to getting around the UK and Europe. Consideration of the Value Chain: The key elements to the value chain, and the ways in which this analysis can identify possible competencies for competitive advantage are: 1. 2. 3. 4. 5. In-bound logistics; Operations; Out-bound logistics; Marketing; Service.

Many of these items have been highlighted above. They key to the value chain however is the interrelationships between the elements. EasyJet has produced a system of delivering customer benefits than integrate the elements of the value chain to a full extent. For example, easyJets low fare airline image is supported by integrating the inbound logistics (more seats on the plane) with operations (ticketing and boarding) with out-bound logistics (locations) with marketing (plane livery and uniforms) with service (in flight refreshments).

The support activities of the value chain are also used by the company. These are: 1. 2. 3. 4. Procurement; Technology development; Human resource management; Organisational infrastructure.

In this case, easyJet also uses the value chain to support and reinforce its low-fare image and create a coherent market position. These elements are directed at procuring the correct items (planes, etc) as well as using technology (internet) and human resource management (younger, casually dressed) to deliver on the promise made to customers.

Industry Analysis with Porters five forces model

Michael Porter's seminal article, 'How competitive forces shape strategy' (1979) introduced the five forces model for analysing an industry. It is as follows:

(M. E. Porter, 1979) Threat of new entrants y y y y High capital investment, negates threat to some extent Lack of take-off and landing slots makes it difficult for new carriers to find suitable airports Overcrowded market and very strong competition deters potential new entrants Loss leader is required in order to join the low cost market - BA came a bit late with GO and it cost them 20m, and they have yet to make a profit.

Bargaining Power of Customers yAlthough the customer does not affect ticket prices much; they are still fickle and vote with their feet in order to find value for money. yIn times of economic depression (slump) then customers have a tendency to opt for cheaper ticket flights - this can go some way to explaining the success of easyJet in the current economic climate. y Customers have the Civil Aviation Authority (CAA) on their side. From the CAA: yProvides protection against the consequence of travel organiser failure for people who buy package holidays, charter flights and discounted scheduled air tickets; and yLicenses airlines and ensures compliance with requirements of European and UK legislation relating to financial resources, liability and insurance of airlines. Bargaining Power of Suppliers yThe price of aviation fuel is directly related to the cost of oil, as an individual company easyJet does not have the power to alter this. y"The impact of the supplier depends on the availability of alternative suppliers and product substitutes" yThe more easyJet expands the more power it will possess over its suppliers The threat of Substitute Products or Services yOther modes of transport - no tenable threats, distances too great except from London to Paris, which can be reached by Euro Star. The industry jockeying for position among current competitors As was suggested earlier easyJet operates cost leadership and differentiation strategies. The other strategy that it does not or is not able to implement is that of 'Focus' (Porter, 1980). It does not maintain close links to its market, after all 50% of its customers are business customers who are not even in easyJet's target market. easyJet sustains a cost leadership advantage over all other operators, as it doesn't use travel agents. Airlines normally pay commission to travel agents for flights booked with them. easyJet bookings are taken directly either through the Internet site or through their call centre. As stated earlier easyJet takes 90.1% of its bookings online, it follows that it is also ticketless and therefore incurs none of the typical administration costs. Another cost advantage is that it only flies out of 'uncontested, inexpensive airports', which have by comparison much lower airport charges. At some airports such as Heathrow these charges can double the price of a ticket.

Customer Analysis - Consumer buyer behaviour

When making a purchase, customers can be seen to follow particular patterns of behaviour. This has allowed marketers to break down the decision process that a customer undertakes, and to understand their behaviour more intimately at each of the stages. The main stages given are typically the following:
Need recognition / problem

Information Search Evaluation of Alternatives Purchase Post purchase evaluation of the decision

Marketers can then look at these stages in turn to see how the customer is motivated. It follows from these that there are also important implications for targeting and segmentation. The decision making process is impacted upon by a range of person specific, psychological and social differences. People also have different levels of involvement in a purchase. For example although the buyer actually purchases a flight, this may be due to the influence of their spouse. Motivations to buy Motivation can be either in a positive or a negative form. Negative motivation is where a person is trying to solve a problem that they face. Whereas positive motivation is concerned with making things better and adding value to something. People are motivated either by push or pull factors. Push factors such as basic instincts drive people toward their goals, i.e. you have to eat if you are hungry. Pull factors are concerned with the attraction of goods, persons, situations and behaviours. In the case of easyJet is seems likely that customers are pushed to meet there wants and needs. They are attracted to a country (situational factor) and in order to meet this want they are pushed in finding some means of travel, air travel. It seems reasonable to assume, that for the most part people are not attracted to the idea of air travel (in the sense of commercial air travel), it merely fulfils a need to get from A to B. Therefore, two of the major factors affecting the choice of a flight, are the destinations that carrier goes to and the price they charge for a particular flight. There are however other area of the 'easy' businesses that combined with easyJet can create customer pull factors. The

combination of easyJet with easycar for example, makes easyJet more attractive vis--vis other airlines since customers are able to organise other transport for their trip in conjunction with their flights, over the Internet. The separation, the extent of which that lies between each of the 'easy' business is very important for the segmentation of the easyJet market. easyJet can feasibly segment its market in many different ways (e.g. by age, type of customer, how often they fly, which routes they take etc.), however their overall marketing strategy is one of mass marketing.

PEST analysis
Political Analysis The widening and deepening of the EU over the next few years could have many important implications for airlines. These could be: 1) The inclusion of the Balkan states will make them more stable and accessible to tourists increase the demand for such destinations. 2) Moves toward a federal government for the EU will likely mean attempt to create heightened competition on a Europe-wide basis. 3) Airlines are now able to operate a base out of any European Country, giving many more opportunities for expansion.

Economic Analysis Currently nearly all of the G7 economies are in or near to recession However since predictions vary over the expected economic climate even for the next few months it is always difficult to ascertain demand Of all the airlines the low-cost ones are the best positioned to withstand recession, but perhaps their stock market valuations are about to peak. On January 8th 2002 easyJet announced a plan to open new hubs in Gatwick, Frankfurt and Paris, with 75 new planes worth 2.7bn. These plans are for over the next five years.

Social Analysis The public are general quite friendly to the prospect of cheap flights. However they may feel begrudged where they see promotions found in news papers where flight are for 10 only to find that the actual cost is much higher for the particular time or day they wish to fly on.

Technological Analysis In the 12 months to October 2001 90.1% of easyJet customers purchased their tickets online. This represents a significant reduction in costs by comparison to other airlines The more customers that purchase online then the fewer call centre staff that easyJet will need to employ. 152 people are currently employed in the call centre gradual reduction in this number could produce significant savings.

Technological Analysis of The easyJet website As we have noted the website is an integral and crucial part of the easyJet service offering, so we will devote some time to its effectiveness. According to a report by PhoCus Wright Inc., airline websites accounted for 58% of all air travel bookings in 2000, compared with 53% in the previous year, and will account for 9% of all sales made on the Internet. As such airline websites are a crucial part of the whole industry and to an individual company an important way to add value to the customers experience. Websites that account for this amount of transactions need to be able to cater for users of all abilities. NPD Online Research polled 13,000 visitors to airline sites and found that only 18% found the information they were looking for every time. The lessons to be learnt from this are crucial because of the ease with which a customer can navigate or often stumble across a competitor. If a customer should have a good experience with a competitor then they are more likely to show loyalty to them in the future. A study of the websites of five airlines was conducted where different criteria were awarded a score of 1-5: 12Criteria not in evidence on the website Minimal/Poor performance

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Reasonable performance Good performance Excellent performance

The criterion for assessment were deduced from an extensive literature survey and recommendations made by a key sources in the field; IBM's Ease-of-use guidelines. The criterion fell into three areas: navigation, product / service information and the offer. Navigation Overall for navigation easyJet came second from last out of the five. Although the customer is able to navigate with some ease to the product that they are looking for, there is still much room for improvement, such as in the area of navigation back from the cart to the product search. Amazon.com for example displays a list of 'recently reviewed items' on the left side of every page, i.e. items that you have just been looking at. Product / Service Information easyJet.com does not provide evidence of only one of the criteria for product information. Some of the criteria may however be considered spurious to the low-cost airlines, such as personalised content which BA mainly aims at business class travellers. Again however there are many areas such as allowing customers to compare flights i.e. departure times, prices, destinations etc. The offer Only the RyanAir website offers any form of guarantee. Many potential customers need reassurance when purchasing online that it is a safe and viable process. It is advisable that this is visibly displayed on all pages in the 'shopping basket' process. They also need to know exactly when they are making a purchase. A simple and understandable shopping basket is very important. Since the study was done easyJet has added privacy and credit card security sections to its site.

ASKM/aircraft ASKM/passenger Cost/aircraft Cost/passenger Revenue/Passenger Passenger/employee

BRITISH EASYJET GO RYANAIR VIRGIN SOUTHWEST AIRWAYS SWISSAIR 350125 157846 150000 132891 271677 5801183 314418 1.633 1.026 0.61 1.022 1.44 3.58 3.324 70.56 41.5 47.55 100.38 66.17 300.94 170.04 15.125 6.38 11.65 13.05 12.42 48.77 53.46 71.73 25.5 61.83 100.76 79.18 316.63 597.58 4352 4000 4478 4068 2034 706 279

Looking at figures above, we can clearly see that the ASKM/aircraft of easyjet is excellent as compared to other low cost carriers like GO, RYANAIR, VIRGIN and SOUTHWEST so is the ASKM/passenger. Revenues are low because of the low cost structure but employee efficiency is high. With very low sales to asset ratio, they should work on their pricing policy because their pricing is far too low as compared to the competitors. It can be tweaked up in order to push the sales assets ratio and with a very low fleet and such high numbers, they can easily think of pushing up sales by taking more routes and therefore increase the number of aircrafts. Conclusion In the next few years easyJet has set itself an optimistic expansion programme to increase its fleet by 70 new aeroplanes, to a total of 90 by 2007. The success of this is contingent on a number of factors, such as: whether they can maintain low prices operating out of new airports such as London Gatwick and Frankfurt, where airport charges are higher - and still maintain their competitive advantage. Competitive advantage may also be threatened by the choice of aircraft that they buy. Currently they solely run Boeing 737s in which their maintenance teams specialise. There is pressure for them to buy planes from airbus (a European company), as this will support the jobs of thousands of British workers. Thankfully easyJet seem aware of what makes their business model a success, and so we may see share prices rise even further.