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easyJet: Successfully Exploiting the Web

Kim O'Neil
Advance Aviation Technology Ltd.
March 2003


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.

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Email: kim.oneil@aatl.net

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