European Management Journal Vol. 17, No. 1, pp. 20–38, 1999 © 1999 Elsevier Science Ltd. All rights reserved Printed in Great Britain S0263-2373(98)00059-0 0263-2373/99 $19.00 0.00
Case Study easyJet’s $500 Million Gamble
DON SULL, London Business School, and Commentators, Constantinos Markides, Walter Kuemmerle, Luis Cabral. This Case Study details the rapid growth of easyJet which started operations in November 1995 from London’s Luton airport. In two years, it was widely regarded as the model low-cost European airline and a strong competitor to ﬂag carriers. The company has clearly identiﬁable operational and marketing characteristics, e.g. one type of aircraft, point-to-point short-haul travel, no in-ﬂight meals, rapid turnaround time, very high aircraft utilization, direct sales, cost-conscious customer segments and extensive sub-contracting. easyJet’s managers identiﬁed three of its nearest low-cost competitors and the strategy of each of these airlines is detailed in the Case Study. But easyJet also experienced direct retaliation from large ﬂag carriers like KLM and British Airways (Go). These challenges faced easyJet’s owner, Stelios Haji-ioannou, as he signed a $500m contract with Boeing in July 1997 to purchase 12 brand new 737s. The Case is followed by critical analysis from three Commentators in the ﬁeld. © 1999 Elsevier Science Ltd. All rights reserved It was July 1997, and Stelios Haji-ioannou — owner and chairman of easyJet — glanced at his $500m contract with Boeing to purchase 12 brand new 737s. As he signed the contract, Stelios steadied his shaking hand. The words of Richard Branson, chairman of Virgin Atlantic airline, ﬂashed through his mind: ‘the safest way to become a millionaire is to start as a billionaire and invest in the airline industry.’ With the Boeing contract, signed before easyJet reached its second anniversary, Stelios (as he was called by everyone) committed to triple the size of easyJet’s fully-owned ﬂeet from six to 18 airplanes in
European Management Journal Vol 17 No 1 February 1999
EASYJET’S $500 MILLION GAMBLE
the span of two years. When easyJet was launched with a party in London’s Planet Hollywood two years earlier, no one had predicted the company’s rapid growth. In its second year of existence, easyJet was widely regarded as the model low-cost European airline and had helped shake-up the once cozy European airline industry. With more than two million passengers, ten European destinations served, and sales of more than £60m in 1997 Stelios had ample room for celebration. And yet several challenges loomed.
tures and operational inefﬁciencies. Even in 1996, after several years of buoyant demand, most ﬂag carriers provided disappointing returns (Table 1). The ﬂag carriers’ strong position had historically deterred new entrants, and there existed very few independent scheduled airlines, apart from charter-ﬂight operators which catered to the needs of seasonal leisure travelers. During the late 1980s the European Union (EU) initiated a liberalization program to increase competition in the European skies, with major regulatory changes beginning in 1992. By April 1997, any EU carrier was allowed to provide a passenger service without restriction in any domestic route of an EU member-State. This liberalization was modeled after industry deregulation initiated in the US by the 1978 Airline Deregulation Act. The US deregulation had attracted several hundred start-up airlines, but only two of the airlines founded in the 1978–92 period were still ﬂying in 1997. European deregulation also opened the door to new entrants, and approximately 80 new airlines entered the market in 1995 and 1996
Turbulence in the Airline Industry
Historically, the European airline industry had been heavily regulated by individual countries to protect their own national carriers, called ﬂag-carriers. These ﬂag-carriers, many of which were State-owned, dominated domestic...