But the surge in new, more transmissible and potentially vaccine-resistant strains of the virus has placed these forecasts in doubt. EasyJet has cost advantages through company specific capabilities, which drive down costs throughout the value chain. Beneath the surface of EasyJets cosmetic cost savings of not offering free in-flight refreshments or different first, business and economy classes, was a philosophy of cost saving that permeated through the entire organisation. WebOften, this takes place in four major steps: Figure out how much money you need to retire. Deliver strong on-time performance, which is consistent with the focus on slot constrained, congested airports. Remote working and hot-desking have been characteristics of easyJet since the beginning. To use the Matrix, plot your options into the appropriate quadrant. With Ryanair maintaining high margins despite reducing yields through strict cost management. The54-year-old Greek-Cypriot entrepreneur hasnt had a formal management role in the airline since he stepped down as chairman in 2002, but he remained a major shareholder, owning more than a third of the company before the pandemic hit. )The crisis has also posed complications for the 54-year-old Lundgren that his competitors dont face, including some particularly unwelcome excess baggage in the form of Stelios Haji-Ioannou. Therefore, capability is strongly related to the way that resources are used and controlled. A lack of real-time reporting makes it easy to miss the signs of an approaching catastrophe. All rights reserved. liability for the information given being complete or correct. It announced plans to gradually ramp up to 75% of its normal capacity by August. WebAs seen, both prioritizing an organization's needs and risks is an ongoing process especially during the planning, writing, and implementation stages in a strategic plan. easyJets strategy will seek to continue to lead the market in sustainability, working with our partners to achieve our Net Zero Roadmap and the decarbonisation of the aviation industry. EasyJet, on the other hand, flies fewer routes but operates from many more primary airports, with a heavier focus on Western Europe. Another major industry wide threat is the volatility in price of fuel Oil price record high of $53 a barrel. this was the headline in the business pages of all the newspapers last November. If you need assistance with writing your essay, our professional essay writing service is here to help! Use of this site constitutes acceptance of our Terms of Use and Privacy Policy | CA Notice at Collection and Privacy Notice| Do Not Sell/Share My Personal Information| Ad Choices Here you can choose which regional hub you wish to view, providing you with the most relevant information we have for your specific region. Out on the tarmac, a short distance from the simulators, almost a dozen real EasyJet A320s sit idle. The airline has differentiated itself from other budget carriers by serving top-tier European airports. Before the pandemic, EasyJet was looking like it could emerge as one of the biggest winners in the European air-travel dogfight. Every so often Easyjet has aligned to face some unusual risks, for example, IT security and fraud risk, brand ownership, dependence on technology, Industrial action, financing and interest rate risk; while the key risk management system of the company is very formal rather than deepest, EasyJet came into the pandemic in better shape than many airlines: It was profitable and had a strong balance sheet, with relatively low levels of debt. So when the industry was slammed by COVID-19, government was responsive to pleas for help. )Compared to some of its low-cost rivals, EasyJet also owned more of its planes outright. Do you have a 2:1 degree or higher? The value chain analysis will show the total value added by the airline industry and EasyJet. In terms of competitive advantage, the internet offers overall cost leaders new abilities to reduce costs in primary activities such as marketing (i.e. Additionally, various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments. All office-based employees are encouraged to dress casually. Hes running the business to make it as lean as possible, and you cant be a nice guy and do that, Kotze says. British Airways. But EasyJets contract required itto paythe aircraft maker at least $6 billion through 2023a sumconsiderably greater than the airlines entire current market capitalization. The fuel-efficient jets could help EasyJet reduce its carbon footprint at a time when consumers and governments seemed increasingly likely to hold airlines accountable for their climate impact. Lundgren wasnt completely despondent: Where bookings were allowed and quarantine rules not restrictive, passengers were coming back. easyJet is delivering its strategy through four strategic priorities, which define the areas of focus to achieve their ambition. Increasing automation driving self-service capabilities for customers. In March 2020, he wrote to EasyJets chairman, John Barton, and demanded the company terminate the contract, citingforce majeure. The first is to reduce the bottom line costs of operation (low cost strategy) and the second is to increase the value of the organisation and its reputation to customers, so that they will demand more or pay more for what they receive (differentiation strategy) (ACCA Paper 3.5 (2001)). EasyJet through its use of an overall cost leadership strategy can use internet-based technologies to reduce value chain costs in a variety of ways: On-line bidding and order processing to eliminate the need for sales calls and decrease sales force expense. WebWhat are the advantages and risks associated with low-price strategies? Finally the threats from the suppliers bargaining power, this is very strong in the airline industry for two reasons, one is highly skilled labour can command a very favourable terms and second is the price of oil. Strategic risk is a category of risk; alongside operational, financial, regulatory and other business risks, it forms part of the umbrella of risks your organization faces. The U.K. is doing well: It had approved two vaccinesone from Pfizer and one from AstraZenecain December and a third, from Moderna, in early January; by mid-May it had given 68% of the adult population at least one shot. Disclaimer: This is an example of a student written essay.Click here for sample essays written by our professional writers. EasyJet raised $1.5 billion by selling seven-year bonds, with a 1.875% annual interest rate. Potential negative outcomes include bad publicity and a The sales process is efficient, as EasyJet sells directly to customers, instead of using external sales teams. In 2020, it transported a After implementation, these are areas still must be monitored by leadership to ensure the plan's goals are being achieved. This is intensified as a result of little or no differentiation in the service offered. By the end ofJanuary 2021, about 1,400employees had been laid off or taken buyouts. 2023 Fortune Media IP Limited. In a sign of faith in EasyJets prospects, the bond sale was almost six-times oversubscribed. We need to focus on the things we can control. Findlay said only that after almost six years with EasyJet, it will be the right time to pass the financial reins to someone who will help take EasyJet into its next chapter, and Lundgren said he was sorry to see [Findlay] leave.. The primary outcomes were anxiety (GAD-7), depression (PHQ-9), risk perception towards COVID-19, interprofessional teamwork attitude, and coping strategies during the Coronavirus disease-19 pandemic. Where normally there would be the roar of engines and the trundling rumble of buses and baggage carts, the whistling wind is often the only sound. In terms of strategy, many factors are outside the control of the company, such as use of high quality components and low defect rates for its aircrafts. This analysis outlines for EasyJets management how individual activities may be altered to reduce costs of operation or improve the value offered to customers. While it is often lumped into the same European budget airline category as Dublin-based Ryanair and upstart Hungarian carrier Wizz Air, there are some key differences between EasyJet and those other airlines. Having fought off Haji-Ioannou, Lundgren and EasyJets C-suite faced other foes they couldnt control. In many instances, strategic risks and the other kinds of risk will impact one another as they are interconnected. Strategical moves like this have enabled it to reduce cost and improve the convenience for the customers. It is also anticipated that Ryanair will continue to lower costs, which will allow it to continue to engage in a price war, by lowering fares aggressively. WebEasyJets first generic strategy is to achieve an overall cost leadership in the low cost airline industry. Of popular holiday destinations, only Portugal and Gibraltar were put on the initial green list, with no requirement to self-isolate upon return. Consumers are optimistic and the travel and tourism industry are now booming again. Are you interested in testing our business solutions? Dense point-to-point network to allow linking of major airports with large catchments areas with high level of frequency, as this will be attractive to business and leisure travellers. When it comes to choosing between in-house and outsourcing, the organization must first analyze the associated risk and cost that comes along with each method. Lundgren has pulled every financial lever available to him to keep EasyJetaloft. As it turned out, it wouldnt need those flights. Worse, the company had discovered the hack back in January but hadnt notified people whose credit card details had been accessed until April, and was only now letting other customers know. Continuing to drive product conversions by improving the way ancillaries are sold and product merchandising. EasyJet was able to operate at only 18% of its 2019 capacity. Supported by innovative and effective advertising. Easyjet are situated extremely in strategic option 1 ( low monetary value, depression added value ) The eight nucleus strategic options are: 1. Organizations continue to develop new applications in or migrate existing applications to cloud-based services. The minute consumers start to make a choice based on this, and I think they will, an emphasis on sustainability will pay off, says BCG consultant Molenaar, and EasyJet has been out front in preparing for this.. 1 or No. And the simulators have been kept busy virtually around the clock, even during the pandemic, as EasyJet has sought to keep its pilots properly certified so they will be ready when flying returns. This involves EasyJet retaining funds from operations; hence, a healthy Balance sheet in terms of retained profits. Strategic risk management is the process of identifying, quantifying, and mitigating any risk that affects or is inherent in a companys business strategy, strategic objectives, and strategy execution. The existing competition also have strong brand image globally, EasyJet is recognised nationally and within the European markets, however, national airlines like British Airways is recognised worldwide and has stronger brand awareness. But the disposition of EasyJets fleet would soonreignite a long-simmering feud between EasyJet and its founder. WebWhere risks produce outcomes that adversely affect EasyJet, it is crucial that these risks are either eliminated (if possible) or minimised. Statista assumes no Adjust your investments to Balance your retirement plan with your other financial goals. The company has announced plans to reduce its 15,000-person workforce by 30%. As previously mentioned manual processes can increase the chances of fraud, but they can also result in other unnecessary risks. Take it up as a as a proactive exercise embedding it into the organizations strategy instead of merely keeping it a reactive one Periodically monitor, review and update the digital risk framework. Many of those airlines are limping along on government funding they might never be able to repay, says Leah Ryan, managing director of Alton Aviation, a leading industry consultant. From June 15, when EasyJet resumed flying, through September 2020, it carried 9.5 million passengers, compared to 37.1 million in the same period the year before. Therefore, the low cost strategy is the ideal strategic fit to its environment. easyJet seek to strengthen their position in key markets as the competitive landscape evolves. In an interview with LondonsEvening Standard newspaper in January, Lundgren sounded down, admitting he missed frequent trips to the Spanish island of Majorca, where he owns a house and where he and a friend also own a recording studio. To understand EasyJets prospects, its important to understand its strategic positioning. This will identify its strength, weaknesses, opportunities and threats. The airline couldnt simply abandon it without jeopardizing any chance of a quick recovery when the crisis ended.Lundgren also thought the contract made long-term strategic sense. However, by year 2000 it has not only managed to survive but also increased its market shares and assets of aircrafts to 74 and servicing 105 routes and carrying over 20 million passengers a year. But the strategy also burdens EasyJet with higher costs as it tries to recover from the pandemic. We're here to answer any questions you have about our services. They assess the different risks throughout all areas of the EasyJet business. Highly utilised fleet of aircrafts that are large, modern, efficient and relatively environmentally friendly. EasyJet in its pursuing of low-price strategies may be prepared to accept the reduced margin either because it can sell more fares than competitors. Firstly, threats in terms of new & existing competition. The company benefits from being one of just four airlines globally thatcurrentlyhave an investment-gradecreditrating, according to Gerald Khoo,a transportation analystwith brokerage firm Liberum. Effective use of digital and data tools to underpin growth and deepen customer relationships. The CEO told theFinancial Timesthat Haji-Ioannous campaign was highly undesirable, unhelpful, and a distraction. EasyJet pointed out that the contract contained noforce majeureclause. When the pandemic struck, Haji-Ioannou decided to renew his pressure to convince the airline to abandon the purchaseultimately mounting a proxy campaign to remove directors from the board. Investing in new generation fleet to replace older types drives economic value, lowering fuel and maintenance costs. Therefore, it is vital for EasyJet to have a thorough comprehension of their costs and cost drivers. When rival European budget carrier Air Berlin went belly up in 2017, Lundgren spent$48 millionto buy its operations at several German airports and take on 25 of its airplanes. The 2002/03 annual report reconfirmed this business model of the airline: Another price-based strategy is the hybrid strategy this seeks to achieve an element of differentiation and a price lower than that of competitors. Ive always said the four core markets are where we want to put our focus on U.K., Germany, France and Italy, he told the World Travel Market conference in 2018, shortly after the Air Berlin deal concluded. EasyJet also enjoys internal strengths in its operations in terms of efficient use of airports by reducing turnarounds to 30 minutes and below, EasyJet can achieve extra rotations on the high frequency routes. Developing the range of ancillaries on offer such as the Inflight retail proposition. As hard as it has tried to inoculate itself against the pressures of the pandemic and to convince passengers it will be safe to fly, its fate remains up in the air, subject to unexpected and unwelcome turbulence. It takes up to last extend in the time. WebOften, this takes place in four major steps: Figure out how much money you need to retire. Terms & Conditions. The pandemic, of course, wiped out business and leisure travel alike. Value chain analysis can provide important insights into what management need to focus on strategically. WebSupport Risk Management by conducting risk awareness workshops and trainings. The business has also enjoyed an increase turnover and trading profits resulting in continuous substantial growth in underlying profitability over the last 7 years (see table 1). It has been streamlines by using e-commerce, firstly by telesales and now through the Internet. Failure to acquire adequate funding for your business can damage the chances of your business succeeding. The reason for EasyJet to put so much emphasis on the human factor as one of the primary risk sources is quite understandable. Potential threats in terms of changing social trends like holidays outside Europe (many now want to experience the eastern cultures and travel to holiday destinations like China and Japan) and also travelling via the EuroStar to Paris etc. When EasyJets board did not accede to his demands, Haji-Ioannou carried through on his threatrequesting a special meeting to vote on the removal of board member Andreas Bierwirth, a former Austrian Airlines and Lufthansaexecutivewho Haji-Ioannou termed a friend of Airbus. When the board tossed out this request on a technicality, Haji-Ioannou resubmitted his call and asked for the removal of the chief financial officer, Andrew Findlay, too. The customers of EasyJet have been using the Internet for making bookings. It was enough to make any airline CEO play the blues. Although mostly private now, many of these airlines were once state owned, and some still have not insignificant government stakeholdings. Normally there would have been close to 100. It is possibly not as good in terms of operations and its inbound logistics. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs. It is not helpful to have a shareholder barking up managements neck the whole time, Morningstar analystKotze says. EasyJets first generic strategy is to achieve an overall cost leadership in the low cost airline industry. Our mission to make business better is fueled by readers like you. Table 1 shows that EasyJets sales has increase year on year since 1998, with profit and gross margins also experiencing a positive trends. Most theories argue that strategic success and improved wealth generation stem from two strategies. Barton, EasyJets chairman, tried to put the episode behind the company, saying publicly that he hoped EasyJet could reengage constructively with its founder, but that the negative headlines and publicity has placed unnecessary pressure on a dedicated management team and negatively impacted the reputation of this great British and European brand. Indeed,though Lundgrens management team had won the showdown, there were signs of damage. The globalization is also another factor influencing which build up the air traffic as lifelong. This needs to be updated constantly as this will be a live system. This level of disruption and deterioration of the operation cannot continue," the email reads. 1 Based on share price of 6.62 at 30 September 2021 This enables easyJet to be efficient with network choices, with an emphasis on maximising returns. Whats more, it included maintenance and avionics support for EasyJets existing fleet. EasyJets revenues in 2019 were $8.9 billion, on which it made$600 millionin profit. Front and center was the existential risk of the coronavirus. 6. WebSome compliance risks are specific to an industry or organizationfor example, worker safety regulations for manufacturers or rules governing the behavior of sales representatives in the pharmaceutical industry. To enjoy unlimited access to our journalism, subscribe today. In the May showdown vote, the disgruntled founders effort was roundly defeated, with 99% of the shares not held by the entrepreneur and his family casting ballots against removingthe directors. This form of strategy combines a low price, low perceived service benefits (no free lunch) and a focus on a price-sensitive highly competitive market segment. EasyJets no frills strategy does not only mean a cut in Cabin crew and denial of food, but also allows for a faster pre-flight preparation, thereby reducing the time grounded as well maintaining fare. EasyJets overall cost leadership strategy uses low costs at each point in the value chain to lower costs. The customers of EasyJet have been using the Internet for making bookings. In addition to that, EasyJet has been offering no in-flight meals, no in flight movies. Also, only one type of aircraft is used, in order to minimise maintenance costs. Haji-Ioannou said the result was rigged, arguing that the fund companies with Airbus pension business should have been ineligible to vote. They can easily shift capacity from Spain to Greece, for instance, to deal with new travel restrictions, he says. Background Coronavirus disease-19 emerged in December 2019. The threats are in terms of fines and rise in cost of raw materials. However the sustainability of competitive advantages may be problematic: as rivals copy successful strategies, EasyJet will loose its initial advantages. Hannibal HanschkePool/AFP via Getty Images, Christoph SoederPicture Alliance via Getty Images, Chris RatcliffeBloomberg via Getty Images, one of the biggest winners in the European air-travel dogfight, agreed in January 2020 to deferred prosecution agreements, began purchasing carbon offsets for the CO2 of all its flights, might not fully recover from the pandemic until 2024, LinkedIn has officially entered its cringe era, and its working. And the company continued to insist it saw the opportunity for wins amid the travel industrys carnage: Europes legacy carriers were hurting even worse than EasyJet, which offered the discount airline a chance to gain new flight slots at key airports in Paris, Milan, London Gatwick, and Geneva. The airline resumed flying on June 15, 2020, with limited routes within the U.K. and to France. When the risks are specific to a certain activity the risks will be managed, and maintained It has been a value-for-money proposition rather than trying to be the cheapest in the market.. Figure 2: Five Forces Model ACCA Paper 3.5 (2001). But the training center is the only part of EasyJets operation at Gatwick still humming. The airline also managed to reduce itsfuel cost per seat flown by 2.9% through a series of small changes: instructing pilots to use only one engine when taxiing, for example, and to climb to cruising altitude as fast as possible, since level, higher-altitude flying is more fuel-efficient. This has resulted in a strong Balance Sheet the companies net assets reaching the record level of 724 million (aided by retained profit mainly). EasyJet may be prepared and has to a large extend engaged in price war with competitors via its lower cost structure (economies of scales due to its larger operations) and also has the financial resource capability to fund short to medium-term losses with the aim of driving out competitors in the longer terms. Lundgrencomplainsthat the British governments travel rules remain too onerous. But what are the internal weaknesses suffered by EasyJet? The airline founders misgivings had only mounted after the aircraft maker agreed in January 2020 to deferred prosecution agreements with the U.S., France, and the U.K. and to pay billions of dollars in fines stemming from charges that it had for years routinely bribed airline executives to secure contracts.When the pandemic struck, the aggrieved founder saw an opportunity to force EasyJet to abandon the deal. At the end of March 2020, EasyJet grounded its entire fleet. Budget airlines that rely on the leisure market make most of their money from April to August. But with new, more infectious variants of COVID-19 spreading rapidly in Europe, in October renewed lockdowns were imposed across many parts of the U.K. and from Helsinki to Tel Aviv. It also offers passenger a few more extras, such as allowing them to check in at the airport without charge (Ryanair charges passengers who dont check in online) and a loyalty program that confers priority boarding privileges. In 2020, it hemorrhaged the same amount. EasyJet announced it had lost more than $1 billion in the 12 months through September 2020. Finally, in February 2021, the company took advantage of a sudden uptick in investor confidence on the news that vaccinations in the U.K. might allow international travel to return by late summer. If it failed to do so, he threatened to call a vote to remove one director from the board every seven weeks, until the board acquiesced. In terms of support activities, EasyJet takes advantage of technological developments in order to reduce costs. An important part of easyJets strategy is to operate a modern fleet and based on the current business model, We are seeing significant benefits already from operational resilience processes and predictive maintenance. These large airline groups are so big and so important for so many economies that the national governments will do whatever they can to keep them alive, saysDirk-Maarten Molenaar, atravel and tourismindustry consultant at Boston Consulting Group. EasyJets decision to use its aircraft as collateral for loans it needed to get through the pandemic means that its cost base will be higher going forward, once debt service is included in the calculations, says Savanthi Syth, an airline analyst for brokerage Raymond James & Associates: Theyve traded liquidity for today in exchange for their aircraft ownership costs going up in the future.. 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