The Low-cost Orange Flying Machine: The Case of easyJet
The colour orange is increasingly becoming synonymous with the firm easyJet as it has become one of the world’s most profitable low-cost airlines (Alamdari and Fagan, 2005). This paper examines the basis of their success and argues firstly, that easyJet from its inception essentially adopted and stayed with the original low-cost model that was pioneered by Southwest airlines in the USA. Moreover, this is a model that has served them well, resulting in sustained business performance and growth over a decade. However, our second point is that with this growth, and increased competition, there are signs of the need for a change. Accordingly, in what follows, we examine in turn: the historical origins of easyJet, emphasizing its values and the influence of the Southwest airlines model; the essential features of its business model; and some indication of its business performance over time.
Historical Origins: Personality, Values and the Southwest Way
EasyJet was conceived in 1995, with its first flight occurring in November of that year. There are numerous descriptions of the early start-up days, but one of the most vivid is surely the following (Calder 2006: 113):
The entrance to the average airline’s headquarters is an impressive affair, intended to impress visitors. But the HQ of Britain’s most successful low-cost airline is far from average. For a while, the modest foyer of easyland – the huddle of temporary buildings from which one of Europe’s leading airlines is run – was adorned by a tent. It was a small, two-person job, strung from the roof… Take one shipping millionaire, two Boeing 737s normally used for British Airways flights and several dozen gallons of orange paint, and you have a revolution in the skies. But industry watchers like myself were slow to realise the scale of the upheaval signified by the first flight of easyJet.
The picture conveyed above stands in marked contrast to the subsequent growth and current performance of easyJet. Indeed as we were preparing the first draft of this paper easyJet announced that pre-tax profits were up by 55 percent to a record £129 million in the year to September 2006. Turnover was up 21 percent, passenger numbers by 11.5 percent (to 33 million), the share price hit an all time high, and 52 new Airbus jets were to be ordered (Financial Times 2006). The contents of Figure 1 below lists some of the key milestones in the evolution of easyJet.
Appointment of Ray Webster as Managing Director
First international flight (Amsterdam)
One million passengers mark passed
easyJet floated on London stock exchange (shares six times oversubscribed) November 2000
Online bookings reach 80% (highest proportion in the world)
Stelios announces he will step down as Chairman
easyJet acquires GO (becomes largest low-cost airline in Europe with 81 routes) August 2002
easyJet announces that it will grow aircraft capacity by 25% per year until 2004 October 2002
easyJet exceeds £1 billion turnover figure for first time (fleet size = 44 aircraft) 2004
Two profit warnings
Ray Webster announces intention to retire as Managing Director May 2005
Icelandair acquires stock in easyJet
(Source: extracted from Jones 2005)
Figure 1: Milestone events in easyJet’s development over time
Much of the early discussion of easyJet pivoted around its founder, Stelios Hajin Ioaanou (‘Stelios’). His personality, background, ‘entrepreneurial approach’ (Rae 2001) and ‘managerial style’ were all much discussed: the ‘no frills’ working environment (e.g. no private offices) and the ‘orange culture’ (i.e. ‘being up for it’; ‘passionate’ and ‘shar’p) were held to be important legacies following his stepping down as Chairman in 2002.
In what was initially seen as very much a ‘personality-driven’...
References: Alamdari, F. and Fagan, S. (2005) Impact of the adherence to the original low-cost model on profitability of low-cost airlines, Transport Reviews 25, 3: 377-392.
Calder, S. (2006) No Frills. London: Virgin Books.
Financial Times (2006) 15th November, p24.
Jones, L. (2005) easyJet, the Story of Britain’s Biggest Low-Cost Airline. London: Aurum.
McKinsey Quarterly (2005) August edition.
Pate, J. and Beaumont, P. (2006) The European low-cost airline industry: the interplay of business strategy and human resources, European Management Journal 24, 5: 322-329.
Rae, D. (2001) easyJet: a case of entrepreneurial management, Strategic Change 10, 6: 325-336.
Sull, D. (1999) easyJet’s $500 Million Gamble, European Management Journal 17, 1: 20-38.
The Times (2006), 11th and 15th November.
Please join StudyMode to read the full document