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Bl 303-067-1 University COLLEGE WORCESTER WORCESTER BUSINESS SCHOOL easyJet: The Largest Low Cost Airline in Europe This case was written by Philip McCosker, Worcester Business School, University College Worcester. Itis intended o be used as the basis for class discussion rather than ta illusrate either effective or ineffective handling of a management situation. The case was compiled from published sources. ECCH Collection g 2 3, P MeCosker, Worcester Business School, University College Worcester, UK. Retantbraras caegters at acome ERS aaa Woncmemeta ieee AS a oe ee 303+067-1 easyJet — The largest low cost airline in Europe ‘One wet and windy November morning, a litile over seven years ago, just before the crack of dawn I satin the jump seat of a wet-leased Boeing 737-200 about to take off from Luton airport bound for Glasgow. I used the public address system to welcome the full load of passengers 10 the inaugural flight of ‘my" airline! It was 7am on the 10" November 1995, and as they say “the rest is history.” Today my baby is officially becoming an adult. Stelios Haji-loannou 25 November 2002! When easyJet first commenced business no one could have anticipated just how popular the ‘no frills’ concept would prove. Although no-frills was relatively new to the UK, easyJet’s founder Stelios Haji-loannou, was confident that travellers would take advantage of his airline’s cheap fares. Operating from its easyLand base at London Luton airport with two leased Boeing 737's, easyJet initially offered flights to Edinburgh and Glasgow for just £29 each way - or as it was marketed ‘London to Scotland for the price of a pair of jeans.’ To date the growth of easylet has been phenomenal. Today, just over seven years after its first ight easyJet operates a fleet of 67 aircraft on over 100 routes between 38 European airports, and during the 12 months to 31 December 2002 carried over 17 million passengers” There are plans for further expansion, and easyJet recently announced the purchase of 120 Airbus A319 for delivery by 2007! Control of costs In order to remain competitive easyJet focuses on keeping its costs and hence fares as low as possible, This has involved the adoption of a whole range of innovative ideas, including: a) Use of secondary airports From the outset easyJet has operated mainly from secondary airports such as London Luton and Liverpool in preference to the more popular alternatives of London Heathrow and Manchester. Secondary airports usually offer landing and take off facilities at much cheaper rates than those airports located closer to city centres, In order to encourage use of their facilities, secondary airports have even been known to subsidise low cost airlines. However, the remote nature of these airports does sometimes cause inconvenience for passengers. In March 2002 Holiday Which, the magazine published by the British Consumers’ Association, criticised rival low cost airline Ryanair for using airports that were ‘miles away from the destinations they claim to serve’. In particular Holiday Which pointed out that Ryanair flights to Bologna arrive at Forli airport, which is 59 km from Bologna; flights to Oslo use Torp airport, 65 miles from the Norwegian capital; and its Frankfurt flight uses Hahn airport, 100 km from Frankfurt’ Tcasyet An Report 2002 2 eas eto March 2003 > BBC News Online 13 March 2002 303-067-1 b) Selling tickets via the Internet ‘The emergence of low cost airlines in Europe has corresponded with the enormous growth in people using the Internet, By encouraging passengers to book directly through their web sites, airlines reduce the need to employ sales staff and more importantly avoid paying commission to travel agents - vital savings in an industry that focuses on keeping costs as low as possible, British Airways (BA) on the other hand pays travel agents a commission equal to around 7% of the price of each ticket sold which amounts to almost £300 million per annum." ‘As we can see from table 1, easyJet has been particularly successful in utilising the Internet. lis on-line booking facility was launched in April 1998, and despite initial complaints from passengers regarding accessibility and more general concerns relating to security, by October 1999 easyJet had sold one million seats through its website ‘Through offering discounted prices and a range of other promotions exclusively to those passengers booking flights on-line, easyJet now sells around 90% of its tickets through the Intemet ~ more than any other European airline. This is a staggering statistic when you consider that the Internet is relatively new technology and for the European airline industry as a whole accounts for around only 7% of all tickets sold.° With an award winning website it is little wonder that easyJet markets itself as ‘the Webs favourite airline’. Ryanair also relies heavily on the Intemet, selling around 75% of its tickets in this way", ‘To further reduce costs easyJet passengers are not issued with tickets but are instead given a reference number when booking, and select their own seats upon boarding the aircraft Table Percentage of eas’ ‘Year ended 30 September % 1997 na i 612 1998, nla 75.0 1999 50.0" n/a 2000 65.1 808 2001 86.5 83.0 2002 90.9 84.6 * November 1999 — First time internet sales figures published ** Average percentage of available seats sold on each flight Source: www.easyJet.com and easyJet Annual Reports 2001 and 2002 “BBC News Online 24 January 2000 + Binggeli & Pompeo - The McKinsey Quarterly, 2002 Number 4 © Ryanair Annual report 2002

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