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Case notes
September 11th, 2001
The attacks on the World Trade Center (sic) and the Pentagon in September 2001 had repercussions throughout the world. There were military, diplomatic, political and of special interest to this material, commercial repercussions.
The fact that the attacks were conducted using commercial aircraft had an immediate impact on both the global airline industry and the tourist trade. People were afraid to fly.
Within a short time, British Airways had announced massive job cuts, Sabena and Swissair were in deep financial trouble and both Boeing and Airbus cut back as airlines cancelled orders.
Why then, and this is the question you are asked to consider should low cost airlines such as the European operator easyJet based at Luton in the UK report increased profits and high levels of bookings during this unsettled period. What were they doing right and what was attracting their customers?
Some information about easyJet is included below to aid you in your consideration. You may email the author at Rcartw2058@aol.com with your ideas and for a discussion of the issues involved.
easyJet (adapted from case notes developed by the author for "The Entrepreneurial Organisation, part of the Express Exec series, Capstone, 2002 where more information about easyJet can be found
Deregulation of airlines under the Republican administrations of the 1980s in the US led to the growth of a number of low cost airline operations operating within the continental USA. Safety concerns caused some customer resistance and competition from existing operators proved quite intense.
Europe was slower to follow the deregulation path but the introduction of more open skies from 1987 onwards has led to a number of success stories, particularly easyJet and Ryanair showing how a new organization can break into what had previously been a restricted marketplace.
The low-cost, no frills airline easyJet owes its existence to the development of deregulation and an open skies policy in the Europe Union. Before 1987 European air travel was effectively in the hands of national (and often state owned) flag-carriers which considered the air routes between the major European cities to be immune from competitive influences, protected as the airlines were by the relevant governments.
Under this system the customer was almost an afterthought as flying schedules, fares and even the number of passengers that each national airline could carry were negotiated between governments through 'bilateral' agreements that had little element of competition. Competition from other airlines was almost unheard of, so regulated was the market.
The European Commission introduced its three-phase ten-year reform process in 1987. At the present time any airline holding a valid Air Operators Certificate in the EU cannot be prevented from operating on any route within the European Union, including flights wholly within another country. This is one of the "freedoms of the air", in fact the 7th freedom - the right of an airline to pick up passengers in one country and to fly them to another country without stopping in the airline's home country. Such granting of 7th freedom rights to EU airlines is wholly consistent with EU policy on the free movement of citizens and goods around the Union.
easyJet commenced flight operations as a low-cost airline in November 1995. The airline initially operated just two routes from Luton (outside London) to Glasgow and Edinburgh in Scotland. At that time the company had two Boeing 737 aircraft. By 2001 the airline had grown to 35 routes from 16 European airports and flying 21 Boeing 737 aircraft. In early 2002 easyJet announced that intended to buy a staggering 75 new aircraft so great had been its expansion.
During the financial year to 30 September 2000, the company reported pre-tax profits of £22 million on a turnover of £263 million and carried 5.6 million passengers. Even after September 11, 2001 easyJet profits continued to rise as did passenger loads.
The airline went public with a share offering ion the London Stock Exchange on 22 November 2000. The airline raised £195.3 million and was valued at £777 million at flotation. Despite being offered only to financial institutions, the shares were over-subscribed by a factor of nearly ten.
easyJet is majority owned by the wealthy Haji-Ioannou family. Stelios Haji-Ioannou, the driving force behind easyJet is a high profile entrepreneur who also controls other separate easyGroup companies such as easyEverything, easyRentacar, and easyValue. Whilst there is no formal cross-shareholdings between easyJet and these other easyGroup companies, some cross-marketing agreements do exist for example initial easyRentacar sites were at destinations served by easyJet.
The airline is based at Luton Airport to the North of London. The opening of a rail station at Luton Airport with services directly to the centre of London has relieved the problem of customers having to take a bus to the main station in Luton and transfer to trains
Keeping prices low but quality high
easyJet keeps costs low by eliminating the unnecessary costs and frills, which characterize more conventional airlines. This is done in a number of ways:
- Use of the Internet to reduce distribution costs. easyJet operates under the branding of 'the web's favourite airline', based on the fact that easyJet sells a higher proportion of seats online, through easyJet.com, than any other airline. easyJet was one of the first airlines to embrace the opportunity of the Internet when it sold its first seat online in April 1998. In January 2001 approximately 86% of all seats were sold over the Internet, making easyJet one of UK's biggest Internet retailers.
Maximize the utilization of the substantial assets. Each Boeing new 737 aircraft has a list price in the region of $35 million. Therefore maximizing utilization of each aircraft reduces the unit cost. Turnaround times are kept to the minimum - an aircraft on the ground and empty of passengers is earning no revenue.
Direct sell only. easyJet only sells tickets over the Internet, through the telephone sales centre or, to a much lesser extent, at an airport sales desk. This means there are no middlemen adding unnecessary costs.
Ticketless travel. Passengers instead receive an email containing their travel details and confirmation number when they book online. This helps to reduce significantly the cost of issuing, distributing, processing and reconciling millions of tickets each year.
Elimination of free meals and drinks on board. Eliminating free catering on-board reduces cost and unnecessary bureaucracy and management. It is also an important differentiator between easyJet and other airlines and a reflection of the easyJet no frills - low cost approach. Passengers can purchase food and drinks on-board. - Use the most appropriate airports. Within the UK, easyJet uses smaller airports as its base airports. Not only are smaller airports - such as London Luton or Liverpool - cheaper to fly from than bigger airports such as Heathrow, Gatwick or Manchester - they are also much less congested and turnaround times for aircraft are considerably shorter. By reducing turnarounds to 30 minutes and below, easyJet can achieve extra rotations on the high-frequency routes, thereby maximizing utilization rates of its aircraft.
- One kind of aircraft. easyJet only operates Boeing 737 series aircraft, the best selling jet aircraft in history. Each aircraft has 149 seats. Commonality maximizes efficiency in the recruitment and training of staff (engineers, pilots, cabin crew etc) and allows the airline to move aircraft around the network with greater ease than a traditional airline, which may have many different aircraft types.
- Paperless operations. Since its launch easyJet has simplified its working practices by embracing the concept of the paperless office. The management and administration of the company is undertaken entirely on IT systems which can be accessed through secure servers from anywhere in the world enabling huge flexibility in the running of the airline.
- Despite being a low cost airline easyJet staff are well trained not only in the safety aspects required by law but also in customer care. Operating in a low cost environment can mean that customers unused to airline procedures travel with the airline and they may not be aware of legal and safety requirements that compel the airline to take some of the actions they do.
In 2000 and 2001 easyJet were the subject of a documentary, fly on the wall type series broadcast by one of the UK commercial television stations. The programs showed the good and the not so good sides of the operation. Some customers were rude even abusive. easyJet's low cost approach means that there is not the flexible ticketing that more traditional airlines operate. Customers who have paid only £29 ($47) for a single ticket from Luton to Glasgow should not be surprised if there is a hefty surcharge should they miss their flight. However as is human nature some are very upset.
easyJet – the operation
easyJet has four main operating bases - London Luton, Liverpool, Geneva, and Amsterdam. It is a truly European operation and was one of the few airlines to take advantage of the reforms offered by the single European aviation market as discussed above.
easyJet, employs over 1,400 people.
The culture of easyJet
easyJet operates an informal company culture with a very flat management structure, which eliminates unnecessary and wasteful layers of management. This type of flat structure is typical of entrepreneurial organizations where the source of executive power is often vested in a small number of senior managers or even a single entrepreneurial individual, in this case Stelios Haji-Ioannou. All office-based employees are encouraged to dress casually. Ties are apparently banned - except for pilots! Home working from remote sites and hot-desking have been characteristics of easyJet since the beginning, again not unusual developments in a young entrepreneurial company.
The low-cost European air travel market
The overall air transport market in Europe is expected to grow substantially in the coming years. The International Air Transport Association estimates that the number of international scheduled passengers travelling between countries in Europe will grow from 176 million in 1999 to 215 million in 2003, reflecting an average annual growth rate of 5.1%.
By contrast, the low-fare segment of the market is expected to grow at a significantly higher rate. It is estimated that low-cost airlines which carried 4% of all domestic and international passengers within Europe in 1999 will increase that a figure 12-15% by 2010 making them major players in the European air travel market.
The low cost market segment is a very diverse one indeed. Within the UK the easyJet operation (and the operations of its major competitors GO and Ryan Air) offer facilities to both leisure and business travellers. Given that the flight times from Glasgow and Edinburgh to Luton are less than one hour the customer has no real need of a food and drinks service as there are excellent facilities at the airport. The building of a rail - air interchange at Luton has greatly aided the business traveller use of both Luton, previously mainly a holiday charter airport and easyJet. Luton is used as the hub of easyJet's hub and spoke operation with virtually all flights departing or arriving in Luton.
Low cost airlines have brought the possibility of inexpensive breaks abroad to the leisure market and have made business travel considerably less expensive. easyJet do not offer the same frequent flyer programs as traditional airlines this being one way of keeping their costs down
Passenger statistics
As the growing passenger figures detailed below indicate, since its advent in 1995 easyJet has made air travel an affordable option for many more people by offering a reliable, quality service at fares that are below the norm for the UK and Europe.
Year Passenger Total (000)
| 1995 | 30 |
| 1996 | 420 |
| 1997 | 1140 |
| 1998 | 1180 |
| 1999 | 3670 |
| 2000 | 5996 |
Figure easyJet passenger numbers - source easyJet web site
Financial information
Revenue and profit
| Year to end September | Revenue (£m) | Profit (£m) |
| 1998 | 77.0 | 5.9 |
| 1999 | 139.8 | 1.3 |
| 2000 | 263.7 | 22.1 |
Figure easyJet revenue and profit - source easyJet web site
easyJet and its charismatic chairman have clearly chosen the market well. The fare levels are low enough to tempt those who might previously not have considered an airline for their break or business travel. The importance of analysing the environment has been stressed in this material. The deregulation of European air transportation was the type of political factor that allowed an entrepreneur such as Stelios Haji-Ioannou to take speedy advantage of an opportunity. By offering what his customer base want; value for money, the routes they require and safety he has been able to build up a successful operation in a very short period of time. That he has charisma as was shown by his television appearances in the UK documentary - Airline - as described earlier is another factor in making easyJet one of Europe's leading entrepreneurial organizations. Other airlines have their names emblazoned on their aircraft - easyJet does the same but adds the telephone number and the web address in large bright orange numbers and letters as well!