Britain’s biggest budget airline, EasyJet, in the recent time has reported a quick fall in profits following a turbulent time for the aviation industry. There is a drop of 28 per cent since 2009 in company’s profits.
The reason behind the fall was due to “exceptional peripheral events” like apparent bombing of a Russian holiday jet, the terrorist attack in Brussels in March and a series of terror violence in Turkey. The EU referendum had a substantial impact on the airline Especially on EasyJet because a large part of its earnings are in pounds. Additionally, EasyJet need to set up a separate operation to guarantee continuity to fly lacking limitations within Europe after Brexit. The airline flies millions of people connecting European Continent under the existing open-sky rules (Kleinman.2017).
EasyJet is a British airlines working on low-cost carrier model. The company is based at London Luton Airport and operates domestic and international planned services on 700 routes between over 130 airports across 32 countries. They are listed on the London Stock Exchange and are a component of the FTSE 100 Index. Currently they have employed nearly 11,000 people, mainly in the UK (Boffey, 2017).
Due to The UK’s referendum vote to leave the European Union EasyJet has planned to set up an Air Operator Certificate (AOC) in another EU member state. The purpose behind setting up of a separate AOC is to secure the flying rights of the 30% of EasyJet's network. The company anticipates a one-off cost approximately £10 million over two years with up to £5 million obtained in the 2017 financial year. As per the reports, primary driver of the cost is regarding re-registering of aircraft in an EU AOC jurisdiction. The report provides suggestion regarding the establishment of new AOC Base at Vienna, Austria. It further provides with Recommendations why EasyJet should choose Austria as its new base and how it will help them to provide effective services (Pooler, 2016).
Macro Analysis (PESTLE)
- Austria is a democratic republic county with a stable economy,
- The country stands at 6th place among 58 industrial countries as per the World competitive Yearbook 2010.
- very low political risk in Austria
- The economy is accepted to attain $427 billion by 2018 with a CAGR of 1.7% from 2013 all the way through 2018.
- It is federal state, which consists of executive, legislative and judicial system.
- It is a well developed market economy with a high standard of living.
- It has a closely ties with the other EU nations especially with Germany.
- strong industrial sector
- Trade plays an important part in its economy
- The country is culturally advanced, has a high quality of living and a classic dwelling.
- The world competitive Yearbook 2009 has suggested Austria at number 1 place in terms of quality of life.
- The country is expected to gain at an exponential rate. The current market is focused on incorporating a G2G sectors by focusing over resources coordination.
- World leader in the environment technology.
- There are six airports in Austria (Vienna International Airport (VIE) is amongst the main)
- The employment laws are very strong and the labour organizations play an important role in the country.
- It has a business friendly tax system inviting the international companies to shift their base.
- The standard tax rate is 25 percent that is lesser than the other EU Members.
- The industrial development is the only priority of the country.
- The environment movements gained importance in late 70’s that allowed formation of environmental laws.
- The major environmental issues that are concerned in the country are related with the transit traffic and industrial pollution.
Micro Analysis -Porter’s 5 Forces
The threat of new entrants
It refers to the probable companies that have not entered the industry but can do so if they want to. The existing companies try to daunt latent entrants from entering the market in order to reduce the competition. . The threat of entry relies on the entry barriers and attractiveness of the industry. EasyJet serves as a low cost airline company that has a good reputation in the active market. Consequently; EasyJet has a low threat of entrants due to ongoing brand image, low switching cost and heavy investment. The customers depend on the company and they do have a sense of belongingness that is generated due to a sense of safe journey and a turmoil free atmosphere (Gleave, 2014). There is a risk in the European Union due to Brexit referendum. EasyJet need to shift their base otherwise the company would be boycotted by the EU. In order to retain customers EasyJet has to provide rewarding packages to its customers.
Austria already has two major airlines (Austrian Airlines and Niki). These two airlines might cause heavy competition to EasyJet hence decreasing the threat of new entrant.
The threat of substitutes
The threat of substitutes by EasyJet is medium as people travelling through air will not switch to bus, car or train. It may face risk due to fast moving trains because of their cheaper rate as compared to air transport. Therefore, EasyJet will make income from the long tour and might encounter a threat from short route (Lee and Worthington, 2010).
Austria is a famous tourist place and by shifting base to Vienna it will gain benefit on a long run by creating revenue for short and long routes (Market Research Report. 2017).
Bargaining power of the buyer
EasyJet’s customer can be categorized in those who are travelling for the business and personal purpose. Austria is important for business point of view and in the recent time the tourism industry has also grown widely contributing greatly to the income of the country (Belobaba, Odoni and Barnhart, 2015). EasyJet being low-cost airlines has potential scope to contribute in country’s economy. Moreover there will be growing opportunities that will allow in growth and development. Due to economical cost, it is extremely suggested to make effective investment (Wilson and Gilligan, 2012).
Moreover the switching power of customers is very low and travel companies are entering into the business deals making the opportunity for the customer very low.
Bargaining power of supplier
The aircraft industry finds it easy to switch suppliers. EasyJet have a long term contract with the suppliers and have a favourable credit terms. There are very few suppliers in the industry making a very low switching cost. Hence in case if the company shifts their base to Vienna the bargaining power of the supplier will remain very low.
The industry competitors
There is a huge competition in the low cost airlines industry hence reducing the profit of other Low cost airliners like Rynair. Due to an intense competition the industry is attractive and highly growing. The airline industry is very sluggish. This is at a mature stage of the business cycle. The number of competitors in the industry remains same in the long run. It doesn’t seem to be under or over capacitated. In the current market scenario the fixed costs are particularly high in this industry. This will leave the industry in a difficult situation due to the long-term loan agreements (Kangis and O'Reilly, 2003).
The competition in the industry is reduced due to tapering brand identities of the companies. For instance, Easyjet is known for its low cost. This can be equally dispersed as each firm has its own part of the marketplace. The switching costs is low hence none of the under company holds an important percentage (Aaker and McLoughlin, 2009).
Analysing the internal and external business environment;
Value Chain Framework
EasyJet is a low cost carrier that provides with a low price. The business process includes set of activities that add value to their products and services. It provides with a competitive advantage and reduces the risk of Competition. The activities can be divided into two parts:
It is necessary for EasyJet to gain operational effectiveness and the primary activities are the major concern for EasyJet (Barbot Costa and Sochirca, 2008).
The airline is running over 700 routes between over 130 airports across 32 countries.
It is a low cost services airline offering a lowest price. They are using a highly efficient technology to reduce the weight and adding value to the environment(Source: Easyjet Fact Sheet, 2017).
They EasyJet personnel have increased progressively over the period from 5,354 to 9,034 employees. They are providing a high level security and safety services. The crew members are well trained and ground staffs are provided with strict direction to the help staff.
The customers are allowed to bring a hand baggage along with them. They are also providing with rental car services from airport to different places. They are also providing with multiple options for hiring cars like long-time hire, on way rentals and many more(Pels, Njegovan and Behrens, 2009).
Marketing and Sales
They are using effective promotional and advertising services. The main promotional value is their low price structure offering exemplary discounts. As a part of CSR they are taking initiatives to reduce pollution through improvement in technology. Moreover they are using electronic means to save value and time of customers.
The organization assists in achieving competitive advantage over the other companies.
They have got strong brand awareness in the European market and expanding their business operations in order to manage the rapport in the market. Most important part is their low cost model creating high efficiency,
They recruit young people and encourage diversified environment. They are considerably investing in the human resources adding continuous value. Employees are getting ample of benefit through the extensive training and development program.
They are implemented high-end technology mechanism that is helping in improving the quality of services and achieving a great sense of performance. Their online portal is supportive and helping in managing customers query. Their mobile app is more customers friendly and is easily accessible (Dobruszkes, 2006).
The major part of EasyJet is the Airbus and Boeing. It is also dealing with the IT Companies in order to meet their targets. It has launched several functions in order to accommodate customer’s need.
SWOT analysis of EasyJet
- They are following a free, punctual and safe, atmosphere hence providing with a good experience.
- Well- known brand name in the market.
- It is a Low costs airline for the customers.
- They are providing with an efficient working and quality service for gaining competitive advantage.
- Linking traffic is a significant contributor to the success of the Vienna hub.
- The airliner is prominent among the frequent travellers due to its affordability
- user friendly website
- Leading brand name in the UK
- offer an online promotion alert
- function as a fast and efficient service (Easyjet Fact Sheet, 2017)
- They are undergoing Heavy running and continuation costs.
- The company is facing under – utilization of resources.
- They do not provide a free food service on longer flights of 2 hours +.
- peripheral competitive forces can limit and shape pricing policy
- They are facing growth due to healthy relationship with the customers and the employees
- Growing opportunities due to a high economic growth in Austria.
- There are opportunities due to diversification at the Austria (Vienna) headquarters.
- probable opening of substitute routes to major cities in Europe
- offer of free food and drink on flights
- Whole world is undergoing the threat of terrorism.
- There are continuous threats due to Political to EU referendum.
- There can be trouble due to different currency.
Critically evaluation of EasyJet’s current vision and mission statements in Vienna (Austria)
The mission of the organization is to gain trust by providing customers with a best experience. Their aim is to provide customers services at a low price. Their purpose is to provide customers with a sound relationship in order to gain long term sustainability. The vision of the company is to add values to the customers and the employees by ensuring (Cento, 2008)
- One team
These values help in adding effectiveness in working structure hence increasing the overall capacity. In order to gain efficiency at work Easyjet should not change its strategic plan hence it should strive hard to improve the structure. While changing its base to the other country it needs to keep a heavy focus on improving the current strategic operations while keeping a control over the efficiencies. In the current competitive business scenario it has to focus on the business efficiencies. However it is suggested to improve the structure in order to make basic improvement. It is suggested that the airliner need to carry its same vision and mission statement in order to gain competency in the industry. Shifting of base requires accomplishment of majority of operations from the same Austria. With a booming economy and increasing opportunities it is evident that EasyJet can gain competitive advantage (The Statistics Portal, 2015).
Justification for recommended EU city
As per the report published, Austria’s airports host an average of 1.1 percent annual Origin Destination trips per capita this is similar to the averages in Germany, Italy and Switzerland. Austria serves 1.6 of Europe’s total air passenger traffic, but 3.5% of the continent’s linking traffic. Austria’s share of Central European traffic has risen to about 6% in 2013 to about 5% in 2002. The growth in airline industry has increased due to an increase in the overall capacity on existing routes (Dobruszkes, 2013). Austria is a booming economy in the recent time creating ample of opportunities by providing with a robust structure. The future success of Austrian Airport is associated with a closely association with the effective market share. There are emerging financial stability in the Austrian market that will help in growth and development. Austria has an aviation tax that operates on similar concept to that of the German aviation tax. The taxation rates are slightly at a cheaper level. Moreover the Levy excuse transfer passengers that is significant given their distinction at Vienna (Coface.2017; Barros and Peypoch, 2009).
Marketing Mix for EasyJet
- Product: Their Flights are always punctual and on time. The brand name is famous for providing cheap flights in more than 30 countries. The Strong value chain process of Easyjet allows them in gaining a competitive advantage. It is therefore important to gain concrete objectives by providing eminent services (Special assistance, 2017).
- Price: The airliner is known across the world as a low priced airliner. The rates are economic for travellers and promotional discounts are also provided.
- Place: Most of the business is done through its website. Their core distribution channel is its website that provides users with easy options to choose flights (Statista, 2016).
- Promotion: most prominently the airline company is using advertisements trough online marketing techniques. They have a strong social media presence that is enabling the organization in gaining a competitive advantage (Morrish and Hamilton, 2002).
Evaluation and Risk factors
There are certain risk factors that are associated while transferring the base to Vienna. Firstly the current economy is based on the German and central/eastern European economic situation. Secondly the country is facing Lack of venture capital and insufficient R&D. Lastly there is Lack of competitiveness of public services and frequent regulated professions. This is been causing issues in managing the affairs in an easy way. While shifting the base there are certain risks due to excessive exposure. Terrorism is one of the serious concerns in the market that has created a huge trouble in the recent time (de Wit and Zuidberg, 2012).
Conclusion and recommendations
To conclude, it is important to notice that Brexit has caused majority of changes in the European Union effecting majority of countries. The report provides the purpose for Choosing Vienna as EasyJet’s next base. The purpose is due to the booming economy and growing opportunities. The purpose behind setting up of a separate AOC is to secure the flying rights of the 30% of EasyJet's network. It is suggested that the company need to make certain changes as per the growing market needs. It will take time to transfer the base in coming future in order to manage a strong customer base that the airliner gets from rest of the Europe.
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