Low cost
carriers in
Europe
The key success factors of Low
Cost Carriers
• Simple product: catering on demand for extra
payment, planes with narrow seating (but
bigger capacity) and one only single class,
there is no seat assignment, ticketless travel
• Positioning: aggressive marketing, use of
secondary airports
• Low operating costs: low wages, low air fees,
low cost for maintenance, reduced
employment, no air freight, no hub services,
short cleaning times
The easy way to
succeed
easyJet
• Established in 1995, as a low cost airline
• Its mission: “safe, good value, point-to-point air
services”
• biggest low cost airline in Europe flying more routes and
planes than Ryanair (which until 2002 was number one).
• By 2003 one of the most recognised brands in Europe.
easyJet Background
• Stelios – son of a greek shipping magnate (who built up on of the
biggest maritime empires in the world) wanted to have a different
business from his father because he felt too controlled.
• The idea of easyJet came when he was on a Virgin Airways flight
and found himself chatting with the person who was seated next to
him. That person was an investor in Virgin and wanted Stelios to
invest in the company.
• Intrigued by the investment offer Stelios meet the founder of
Virgin, (Richard Brandson) and this discussion impressed Stelios so
much that instead of investing in Virgin he decided to set up his
own airline.
• With $7.5 milion borrowed from his father he started looking for
sites to base his airline. He came across a tin shed near Luton
Airport in London and found it the ideal location for his operations.
• The Luton headquarters of easyJet were called easyLands!
easyJet
1995
• March: incorpored as an European airline
operator.
• October: first flight booking were opened at
the easyjet telephone booking center in
EasyJet Land
• November: Two inaugural flights flew from
London to Glasgow and Edinburg.
The inauguration of the services was supported by an advertising
campaign that said “Making flying as affordable as a pair of jeans £29 one way”
easyJet 1996-2002
• April 1996 – delivery of first wholly owned Boeing aircraft, first
international operation between London and Amsterdam.
• 1997 – official website easyJet.com to provide information about the
airline.
• November 2000 – the company was listed on the London Stock Exchange
and easyJet starts to be funded: purchase of new 32 Boeing 737-700s
which were to be delivered by 2004.
• In 2002 Stelios retires from the post of easyJet’s chairman to pursue his
other interests and the chairmanship was taken over by Sir Colin Chandler.
• Initially easyJet had only two leased Boeing 737-200 aircraft
• By 2002 the company had 64 jets and more 120 on order. It covered
105 routes to 38 destinations in Europe and employed over 3000
people and had a market value of £1.5 billion with a net income of
$76.5
easyJet
Operational
mode
• keep costs to a minimum to allow the airline to
offer the lowest fares possible.
• moving people from point a to point b in the best
and cheapest possible way, stripping out all
unnecessary costs.
easyJet
Successes thanks to 2
strategic imperatives:
• Sweating the assets:
- make sure planes were as full as possible and flying as much as possible
• Sophisticated yield management system
- which could set up an infinite number of fares for a given flight, based on
the demand and supply position for that flight. The prices for the seats
fluctuated depending on the demand for them at a particular time
easyJet
Operational policies:
The airline followed a strategy of costs focused by adopting the following
operational policies:
-No Food On Flights –
instead of serving food offer to passengers the choice of purchasing drinks or
snacks from easyKiosk (an on-flight kiosk).
Benefits – the passenger pays less for the ticket
-Ticketingeliminate commissions payables to middlemen and encourage direct booking
of tickets by passengers (internet or telephone) which made the tickets much
cheaper.
no ticket travel: passengers only needed a passport and the confirmation
number
easyJet Operational policies:
(I)
The airline followed a strategy of cost focus by adopting the following
operational policies:
- Pricing Policy –
price of the tickets based on demand and supply of seats on a particular route
at a particular time.
prices dynamically determined by proprietary yield management software
that constantly revised and recalculated prices according to demand and
supply.
e.g. if a person booked very early the ticket price would be low, as a number of
seats would be available. As the seats got taken, the reduced supply would
increase the price.
flying with empty seats was a loss for the company (because same costs of
flying whether full plane or not).
If low demand for that flight – the ticket price would be lowered to encourage
booking
easyJet Operational policies:
(II)
The airline followed a strategy of cost focus by adopting the following
operational policies:
-The Fleet –
standardization
-flew only one type of plane: Boeing 737s to simplify the maintenance;
-reduced training requirements for the pilots & cabin crew, as they had
to only learn to operate a single type of plane.
easyJet flew new planes.
-more fuel efficient, cost less on maintenance than old ones (none of
them were more than five years old) compared to Ryanair’s ones
which were over 15 years old.
easyJet Operational
efficiencies:
- Fly to main destination airports around Europe using smaller airports in the
cities: less congested & lower price.
- 10 trips per day against 6 of another airlines
- The airline did not assign seat numbers
- Short and medium haul point to point flights and not use strategic located
airport (the hub) as a passenger exchange point for flights to and from
outlying towns and cities.
-Cutting unnecessary costs was a way of life at easyJet-
easyJet marketing:
- Estensive use of orange colour the crew wore orange clothes,
planes were painted orange- Controversies about their
marketing -using celebrities in
their advertisments without
permission- (e.g. In early 2003 the airline was
involved in a controversy for using David Beckham in
newspaper advertisements. When Beckham
demanded that the airline pay £10.000 to a children’s
charity for using his name in advertisements, the
airline responded by saying that it would double the
donation if Beckham paid £10.000 to the charity
himself.)
easyJet not always easy:
• -even it had become a successful airline within a very short time,
analysts wondered how long this model of success could sustain
itself.
• 1) the prices were around 60-70% percent higher than those of
Ryanair.
• 2) the earnings of easyjet were susceptible to price swings (as the
airline did not hedge fuel costs) -this could be a major problem in
case of fuel crisis• 3) the easyjet’s break-even load factor was 71% compared to
competitor Ryanair’s 53%.
However the major advantage easyJet
-had was that it flew a newer fleet of planes compared to Ryanair. --fly to small airports within major cities despite to remote
destinations far away from major cities (like Ryanair does).
easyJet
To provide an answer to the low-cost flights:
Carries approximately 50% of the company’s german and European flights
But even more…
2009
For the first time in its history
Lufthansa created a new company
called "Lufthansa Italia" with the aim
of making Malpensa its fourth hub
(after FRA, MUC and ZRH).
Lufthansa is basing 6 A319s in MXP,
already with direct flights from MXP
to Paris and Barcelona, from next
March to Bruxelles, Budapest ,
Bucarest, Madrid, Lisbon and
London.
1990 - was the national airline carrier of the Federal Republic of Germany
almost bankrupt (with a record loss of $350 milion)
2003 - privately owned & profitable aviation : profit of $718 milion
Lufthansa’s goal - from an airline company to an aviation group (one of the
founding members of STAR ALLIANCE which is the most competitive airline
network in the world)
For low cost - Lufthansa Regional
Planes from other partners are operated via wet-leasing whereby Lufthansa
leases the aircraft complete with crew and mantenance contracts. In this
case the planes are integrated into Lufthansa’s scheduling (same flight
numbers) and the company carriers the risk of the revenue only.