SAA 1 – Evaluating the Suitability of EasyJet’s strategy
EasyJet’s existing strategy can be characterised as low price/low value added (route 1 on the strategy clock) concentrating on Luton and Liverpool hubs (not the main UK airports) and targeting routes with little direct competition from other airlines (which builds up elements of access and variety based positioning).
EasyJet exploited the major environmental change that resulted from the initial liberalisation of the EU airline market. The attractiveness of this “low cost” strategic group within the market has brought in new competitors (like BA’s GO) so the industry structure is changing. EasyJet’s decision to buy new aircraft and open new routes can be seen as an attempt to pre-emptively protect and build on their current position. The deals with Geneva airport and TEA also allow them to exploit an EU “open skies” agreement with Switzerland if finalised using the same strategic approach.
The strategy is largely expanding upon existing capabilities in operating a low cost airline. Expanding the fleet of aircraft potentially offers cost efficiency advantages in terms of economies of scale and scope across a bigger number of routes. Standardising on new Boeing 737-300s and 737-700s should also help minimise operational costs as well as the purchase economies from the deal (discounts). Other parts of the value chain are also consistent with this low cost approach – headquarters at Luton rather than a more expensive location (although not mentioned in the illustration the HQ is pared down to a minimum to reduce overheads. Aircraft maintenance is also contracted out). As EasyJet is privately owned then the massive increase in gearing implied by the financing of new aircraft is perhaps less unattractive to investors than would be the case if the company was public.
Ideally, it would be helpful...