The Low-cost Orange Flying Machine: The Case of easyJet Essay

The colour orangeness is more than and more becoming synonymous with the firm easyJet as it has become one of the worlds intimately valueable inexpensive airlines (Alamdari and Fagan, 2005). This melodic theme examines the basis of their achiever and argues fore roughlyly, that easyJet from its inception fundamentally adopted and stayed with the sea captain low-priced exemplar that was pioneered by southwestern United States airlines in the USA. nevertheless, this is a amaze that has served them well, resulting in sustained line of work movement and enkindleth over a decade. However, our second point is that with this growth, and increased competition, on that point ar signs of the need for a change. Accordingly, in what follows, we examine in turn the historic origins of easyJet, emphasizing its values and the influence of the southwestern airlines role forge the essential features of its employment model and any(prenominal) indication of its art performance over time.Historical Origins Personality, Values and the Southwest WayEasyJet was conceived in 1995, with its first leakage occurring in November of that grade. There argon legion(predicate) descriptions of the early start-up days, scarcely one of the most vivid is surely the following (Calder 2006 113)The unveiling to the reasonable airlines headquarter is an impressive affair, int sacked to impress visitors. simply the HQ of Britains most winnerful low-cost airline is far from average. For a while, the modest foyer of easyland the huddle of fugitive buildings from which one of Europes leading(a) airlines is run was adorned by a tent. It was a small, two-person job, strung from the roof beat one shipping millionaire, two Boeing 737s unremarkably used for British Airways outflows and several xii gallons of orange paint, and you have a variety in the skies. But effort watchers identical myself were slow to realise the scale of the exhilaration signified by the f irst flight of easyJet.The picture conveyed above stands in mark contrast to the subsequent growth and menstruum performance of easyJet. Indeed as we were preparing the first draft of this paper easyJet announced that pre-tax gelt were up by 55 discontinue to a record 129 million in the year to September 2006. Turnover was up 21 percent, passenger numbers by 11.5 percent (to 33 million), the sh are worth hit an all time spirited, and 52 new Airbus jets were to be ordered (fiscal generation 2006). The contents of Figure 1 to a lower place lists some of the depict milestones in the growth of easyJet.Much of the early discussion of easyJet pivoted most its bringer, Stelios Hajin Ioaanou (Stelios). His personality, background, entrepreneurial approach (Rae 2001) and managerial bearing were all a good deal discussed the no frills operative environment (e.g. no private offices) and the orange culture (i.e. being up for it overzealous and sharp) were held to be important legacies following his stepping overmatch as Chairman in 2002.In what was initially seen as actually much a personality-driven organization it is important to punctuate the place and role of Southwest airlines in influencing the personality of the Chairman. As one hire stated It was not until he flew on Southwest airlines that Stelios felt he had found the right concept for a European airline. Stelios intensively researched Southwest, meeting with founder and chief executive officer Herb Kellacher and buying 250 copies of Nuts a book documenting Southwests conquest for distribution to potential employees and guests. (Sull 1999 22)Southwest airlines is precise much an organization in which a postgraduate level of selective wisdom is apparent among observers and emulators you can see what you urgency to see in it (Pate and Beaumont 2006) To easyJet the differentiate pass on received, accepted and followed faithfully, was to adopt and stick to the original low-cost model pioneered by Southwest.The staple Low-Cost Business exemplarThe key features of this model are outlined at a lower place in Figure 2 below. ingathering Features1. Fares/ networkLow, simple and unrestricted fares, mettlesome frequencies, point to point, no interlining 2. Distribution give-up the ghosting agents and call centres (today internet sales), ticketless 3. Inflight oneness class, high density derriereing, no meals or acquit alcoholic drinks, snacks and light beverages for purchase, no seat assignmentOperating Features1. FleetSingle type, Boeing 737, high utilisation, 11-12 hours per day 2. Airport thirdhand or uncongested, 2030 s turnarounds3. Sector lengthShort, average four hundred nautical miles4. StaffCompetitive wages, profit sharing, high productivity(Source Alamdari and Fagan 2005 378)Figure 2 The original Southwest Airlines low-cost business modelIndeed, if anything easyJet appears to have achieved further leverage along the no frills dimension of this sanct ioned model blend agents were completely avoided (direct sales only) and passengers had to pay even for soft drinks and snacks (Sull 1999, 23). such features of the easyJet low-cost model were held to be acceptable, or indeed attractive, to people who pay for travel from their own pockets (Sull 199923). Specifically easyJet targeted three cost-conscious and price-sensitive customer segments (1) the traveller visiting relatives (2) leisure travellers working brief trips and (3) entrepreneurs and managers from small firms.At this phase we need briefly to comment on staff conditions (competitive wages, profit sharing, high productivity) in Figure 2. First, in a global sense, it is remarkable how little human resources and staffing matters underframe in discussions of the easyJet strategy (Sull 1999 Jones, 2005) they are fundamentally conspicuous in their absence. Secondly, if one turns to more specific matters there are cause to question the reality of the staffing approach in F igure 2. For example, on the competitive stipend front, it has been estimated that pilots at easyJet earn around 25% less than pilots working for traditional carriers (Jones 2005 151). This differential gear was a gigantic source of latent hostility and difficulty when easyJet took over the airline GO in tremendous, 2002, with calls for strike action occurring at the time (Jones 200591). In the latter part of this paper we turn to look at these sorts of human resources and employment related matters in more detail.The Basic Business Model and the Bottom LineEarlier we make reference to the impressive performance strains of easyJet for the year to September 2006. This has not been an isolated success story. For example, easyJet pre-tax profit figures rose from 5.9 million in 1998 to 40 million in 2001, and instanter to the current all time high of 129 million.At least one major study has attributed this success to easyJet sticking very closely to the original features of the l ow-cost model outlined in Figure 2. In essence this research (Alamdari and Fagan 2005), which involved 10 low-cost carriers in Europe and the USA, describe that, firstly, easyJet adhered very closely (74% compatible) to the original model, a figure only exceeded by that for Ryanair (85%) (Alamdari and Fagan 2005 388). Moreover their second key result was that the juxtaposed one adhered to this model, the higher was profitability.The success of easyJet (and Ryanair) in this regard has been noted in opposite studies. For instance, the McKinsey quarterly (2005) reported that easyJet and Ryanair account for some 50 percent of seat efficacy in Europes low-cost mart, with amidst 2004 and 2006 only easyJet (8.9%) and Ryanair (29.4%) having positive average operation margins.Although both easyJet and Ryanair are everlastingly hailed as the two financial success stories of the European low-cost sector, with both adhering most closely to the original low-cost model (Figure 2), it is i mportant to recognise important differences between them. For example, easyJets unit costs are reported to be double those of Ryanair, with the creator break-even point (76% of capacity) being higher than that of Ryanair (63%) (McKinsey Quarterly 2005). Other differences between the two, which have been noted, are that easyJet has more head to-head competition with the stately carriers because it uses more established airports than Ryanair (Jones 2005 211).Much of the prat line success of easyJet has been attributed to its yield focusing system which seeks to extract the maximum tax revenue per flight (Jones 2005 212). It is these sorts of sentiments which underpin their micro-type targets. For example, the aim is to grow the current profit per seat figure of some 2.50 to 5 by the end of 2008.Are there Signs of convinces in easyJets Business Strategy?Current profits are good and the emphasis on yield measurement and tough targets impart still remain. This said, there are sig ns of some actual or proposed changes in the business model. These have arisen because of the rise of new low-cost competition, changes in the conventional carriers (limited frills), and external pressures such as oil price rise.The changes are designed to address some concerns of live customer segments and to attract new customers. For example, in April 2003 easyJet launched a dedicated website for business travel arrangements which allows corporate customers to access monthly wariness information so that they can tail travel spend. In June 2005 it introduced easyJet lounges, which passengers had to pay for, but which were viewed as attractive to business travellers. Figures released inThe Times (11th November, 2006) suggest that they have been comparatively successful in capturing the business market Stansted and Luton (easyJets London bases) have the highest affinity of frequent flyers among major airports at over 50 percent as compared to 39 percent of passengers at Heathrow . Measures have likewise been taken in recent age to address customer concerns regarding the lack of clearness of the full fare until the last storey of booking, through an upgraded software system. A key question remains can easyJet systematically capture the business traveller sector, with their considerable expectations of added extras while remaining true to their taking formula of cost leadership? wholly timewill tell.ReferencesAlamdari, F. and Fagan, S. (2005) Impact of the adhesiveness to the original low-cost model on profitability of low-cost airlines, Transport Reviews 25, 3 377-392. Calder, S. (2006) No Frills. London Virgin Books.Financial Times (2006) 15th November, p24. Jones, L. (2005) easyJet, the Story of Britains Biggest Low-Cost Airline. London Aurum. McKinsey Quarterly (2005) August edition. Pate, J. and Beaumont, P. (2006) The European low-cost airline industry the interplay of business strategy and human resources, European Management Journal 24, 5 322- 329. Rae, D. (2001) easyJet a case of entrepreneurial management, Strategic Change 10, 6 325-336. Sull, D. (1999) easyJets $500 trillion Gamble, European Management Journal 17, 1 20-38. The Times (2006), 11th and 15th November. posture as multi-pages