Easyjet Cost Strategy Essay

1846 words - 7 pages

Stelios's avowed intention in entering into the budget airline industry was to take on any business that was potentially profitable. From the figures available, easyJet is successfully completing its founder's ambition with turnover increasing by 67% in 1997-1998, gross profit margin increasing from 15 -20% and with a 2.3M profit before taxation being achieved. Meeting these overall aims was made possible by a set of strategies and the achievement of a system that corresponded to key success factors in the budget sector of the airline industry.Cost advantage strategiesAmong easyJet's strategic choices in terms of reducing operating costs were the following:· No on-board catering except for snacks at additional cost· This allowed for fewer cabin crew· No business class seats, thus maximising the aircraft's capacity· Use of regional airports with lower airport charges.· Thus quicker turnaround and maximum use of assets made allowing an above average n° flights per day· Young employees thus lower wage costs.· Outsourcing· Direct marketing, use of the Internet, cutting out travel agents and thus saving on commission.Taking the list point by point, does this strategy succeed in cutting costs and providing service in line with what customers want? To what extent does the cost cutting strategy fit with its environment?· Absence of catering: short hauls, catering not necessary. It allows for faster turnaround. It is linked to shaping customers' expectations. Stelios's strategy is logical: he compares taking a plane to taking a bus. It is consistent that there should be no catering if the whole process is speeded up and if the event of taking a plane is more banal.· Absence of business class: this gains seats and maximizes capacity, but the difficulty is to attract business customers by some other means. Many private business people who are frequent fliers on short hauls do not need the comfort of business class, but they require flexibility. Though easyJet does not provide the same kind of flexibility as business class in traditional airlines, it is possible to change flights for a premium of £10, plus the difference in price. Punctuality is a priority.· Absence of ticketing and use of regional airports: both of these strategies are successful in reducing turnaround, allowing more intensive use of aircraft.· Outsourcing: this provides flexibility and reduces the investment in assets. However, by 1999 it becomes clear that certain key functions being performed by subcontractors are escaping the control of easyJet, leading to underperformance and having a detrimental impact in terms of customer service and marketing.· Direct marketing and Internet sales - Stelios recognized the potential for sales on the Internet before it had become widely available. At first a call center allowed customers to book over the phone, a more familiar communication channel...

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