The European low-cost carrier industry as it exists today was firmly established in 1991, when Ryanair took the initiative to be the first modern low-cost carrier by adapting the successful ‘no-frills' business model made successful in the United States by Southwest Airlines. Nowadays, there are 92 low-cost carriers across Europe (ICAO 2017) which together take up to 39% of the total seats within the region (European Commission 2017). In 2017 easyJet ranked the second largest among all these LCCs (Megaw 2017). However it has recently reported a significant decrease in its profitability. From 2015 to 2017, easyJet's net income margin has decreased from 11.7% to 6.0%, while the return on assets has fallen to around half of its 2015 value. Although the company has ‘aimed to be the last one standing on the tarmac' with the European airline industry in a period of consolidation (Vincent 2017), the worrying financial numbers may weaken its determination.
This report is aimed to derive easyJet's operating performance into its business model, and extract the underlying constraints from it. Due to practical limitations, we have used secondary data, primarily from the company annual reports and professional databases. A minor of the data is from the industry reports and business journals, yet we have gone through a strict process to check its credibility.
This report reaches the conclusion that easyJet's constraints are firstly the limited size and fragmentation of the European short-haul aviation industry which brings easyJet into fierce competition with other airlines, such as Ryanair and British Airways. Secondly its moderate strategy design confines easyJet to a smaller market share from the internal capability. The market size of European short-haul aviation industry is unlikely to be expanded with most places served by existing routes. It would further be impossible to transform its original strategy design completely. It is suggested that the constraints can be solved by the company acquiring new market capacity from collapsed airlines and by connecting with long-haul routes in order to reach new markets. The report concludes by analysing the plans easyJet has made to overcome these identified constraints.
Industries upgrades usually originate from either radical technology breakthroughs or unprecedented business model innovations (Vlaar et al 2005). The aviation industry is no exception to this. In 1971, Southwest Airlines, the first U.S. low-cost airline was established and achieved strong profitability and growth. Unlike the traditional carriers, this airline did not provide its passengers with elaborate meals, luxurious seats and other relevant services. Instead, they only focussed on one metric - providing the cheapest tickets. To realise this, the low-cost carrier adopted the point-to-point flight network on short-haul routes, based their routes on mostly secondary airports, improved the occupancy of its fleets, and later, developed online booking technology. These were all measures that could reduce operating costs which could be translated into cheaper fares for passengers (Vlaar et al 2005).
Southwest's low-cost business model helped them achieve a market capitalization of $10.7 billion in 2002, which was twice as much as the other U.S. flights combined (Vlaar et al 2005). In regard to the European airline sector, the emergence and development of low-cost carriers was later and slower. The national flag carriers had enjoyed dominance over the European airline industry for a long time. These flag carriers were keen to either improve service quality or offer charter flights. However, encouraged by Southwest's success in the United States, Ryanair, a common European airline established in 1985, transformed its business model into low-cost in 1991, becoming the first low-cost carrier in Europe. Ryanair competed with the other major airlines by providing a ‘no-frills', low-cost service. Four years after Ryanair's transformation, other entrants appeared to compete in the short-haul industry with broadly the same strategy. Some legacy carriers began to respond to Ryanair's strategy by establishing their own low-cost subsidiaries, such as Go Fly (British Airways) and Eurowings (Lufthansa) (Vlaar et al 2005).
In 2017 there are now 92 low-cost carriers across Europe (ICAO 2017) and the LCCs take up to 39% of the total seats within this area (European Commission 2017). Among all the European LLCs, there can be considered to be four tiers of operators (Leigh 2017). Ryanair has undoubtedly taken the lead of this industry, it is out on its own with by far the lowest costs and highest profit. The second category covers those airlines who cannot compete with Ryanair on price, but still make profits from their relatively low costs and high average revenue, including Wizz Air, easyJet and Vueling. Apart from the traditional LCCs, those airlines that straddles the short-haul and long-haul routes are the third category. The third category, including airlines like Norwegian Air Shuttle, is trying to expand the LCC market to a new area in the long-haul market and make money from a broader base of customers. Finally, those subsidiaries of the flag carriers compose the fourth category, which are usually not competitive enough due to inefficient cost base.
When comparing the performance of the four tiers of LLCs, easyJet's status is extraordinary from its peers - good or bad?. easyJet, which is one of the second major entrants as low-cost carriers into European short-haul aviation industry, was founded in 1995 and started operating flights from Luton airport in London to Glasgow and Edinburgh. In the recent years, easyJet has performed the largest significant decrease in profitability among the big LLCs, despite the fact that it holds the second largest market shares in the low-cost carriers industry (Leigh 2017). We presumed that easyJet's worrying performance is rooted in its deviated business model from the common LCCs. As Vlaar et al (2005) suggests, easyJet's business model differentiates in two ways. First, it provides flight service on many primary airports in primary cities. Second, it adopts a heterogeneous strategy in purchasing fleets.
Thus the purpose of this report is to understand and analyse easyJet's business model from both the internal dependencies and external environment, to identify the constraints of the company's growth, and critically evaluate the sustainability of the company's business model.
The report begins by reviewing the European aviation industry and market, in order to develop an understanding of easyJet's situation and the market conditions it competes in. Following the industry introduction, two of easyJet's biggest competitors, Ryanair and British Airways, are analysed to describe their comparative advantages and disadvantages in relation and explain how these two competitors perceive the market. In examining easyJet's business model, several theoretical frameworks such as Johnson's (2010) four-box model are used to assist in finding the underlying coherence in the easyJet's business model and assess whether the airline's strategy design is appropriate for the market situation in order to achieve corporate growth. The report illustrates easyJet's business model in three aspects: sales and marketing, operational, and financial. In the financial section numbers from easyJet's annual reports and professional databases are used to evaluate its financial viability. Following this is identification and assessment of easyJet's internal and external constraints on easyJet's future growth according to our evaluation of its business model. We further expand the ideas of constraints by discussing the possibility to solve the constraints and the plausible solutions made, and in some cases implemented, by easyJet.
During the early stage of our research, we tried to collect relative information on an extensive scale and meanwhile we were selective about secondary sources. Data and narratives were mainly gathered from annual reports and official websites of three companies (easyJet, British Airways and Ryanair), aviation industry websites such as Centre for Aviation (CAPA), data feeds platform like Capital IQ, aviation commentaries in Financial Times, and other online resources published by authoritative institutions. We used names of the companies and areas concerned (such as market share, services, etc.) as keywords, looked at information generally available. Latest sources are prioritized. To verify the validity of the information, for example narratives in Financial Times, we compared them with relative data in annual reports or Capital IQ to ensure they were reliable. When content analysis was involved, we examined whether or not the narrative in the source was supported by sufficient evidence. Furthermore, we examined narratives by comparing them with those from other sources in the same topic to avoid bias. Sometimes we found information, especially narratives, contradicted with each other, however the conflicts were usually created by using different span of time in the context, which could be resolved through measuring within the same span. When conflicts were created by different stances of narrators, we tried to gather more sources about the topic from diversified stances to capture a broader landscape, thereby identifying a more unbiased piece of narrative.
Aviation Market and Industry Overview
The Global Aviation Market
2016 saw a record 3.7 billion passengers carried worldwide, a growth of 6.3% since 2015. The primary drivers of this increase in numbers has been the 3.1% growth in the global economy, continuing the trend of economic recovery since the 2008/09 financial crisis. Economic growth is the primary driver of air traffic demand. In addition to this the 43% decrease in fuel prices since 2015 which have enabled air fares to decrease as a consequence (European Commission 2017).
The European Aviation Market.
This report will primarily focus on the European short-haul aviation market, in which Easyjet almost exclusively operates.
Due to EasyJet's short-haul flight constraints, it can only serve the passengers travelling within EU countries and from EU countries to European Countries can, which compose up to 45.89% of the whole European airline market (European Commission 2017).
EasyJet holds approximately 9% of the European short-haul market. The total European short-haul market grew by 6% in the year prior to 30th September 2016 (easyJet 2016), 8% in easyJet's markets. easyJet's performance of 7% capacity growth was therefore broadly in line with this industry metric, albeit slightly lower than its competitors (OAG 2016?). The primary factor driving such growth in the market has been low fuel prices (easyJet 2016).
The European airline market is also highly fragmented. In the United States the biggest six airlines provide 90% of domestic capacity. The six largest European carriers provide just 43% of capacity. The consequence of this is that the European market is much less profitable given the high amount of competition, and consequent need to lower fares to attract passengers.
Figure 1: Market Share of total seat, Western Europe, 2017
per cent, each rectangle represents an airline
(Source: OAG n.d. cited in Powley 2017a)
Despite the market growth during the past year, the aviation industry in general has been experiencing many challenges over the past few years. Low oil prices, whilst permitting growth, have also contributed to increased competition in the market. The ‘cut-throat' European short-haul market has allowed larger airlines to take advantage of the low fuel prices by greatly increasing capacities, increasing the pressure on smaller operators (Powley, 2017).
The United Kingdom's decision on June 23rd to leave the European Union has potentially significant implications for UK-based airlines. From the existing regulatory perspective, an Air Operator Certificate (AOC) would be required in another EU member state. Consequently in July 2017 easyJet established EasyJet Europe, located in Austria, securing easyJet's ability to continue operating intra-EU flights following the UK's future withdrawal.
There remain additional economic consequences following the 2016 vote. The pound sterling has greatly depreciated against the dollar over the past year by about 10%, resulting in increases in costs for UK airlines, of which fuel prices are the most important. Such cost increases were identified by Monarch's administrator KPMG as a primary factor in the collapse of the UK's former fifth largest airline. For example, [insert figure]. The more expensive Euro exchange rates further reduced demand for British travellers during the busy summer period. Demand also decreased owing to the terrorist events in Egypt, Paris, Brussels, Turkey and Nice.
A major trend in the airline industry in recent years has been that of consolidation. The highly competitive and fragmented European market has seen weaker airlines leave the market, whilst the stronger airlines continue to grow (Powley 2017a). 2017 alone has seen the collapse of major airlines such as Monarch, Air Berlin and Alitalia. Other airlines such as easyJet have seized the opportunity to purchase assets from their former rivals. Since 2010 approximately 100 airlines have collapsed. The industry is now an environment where the larger airlines will seemingly only get bigger. According to a panel at the Routes Europe Strategy Summit, Ryanair and easyjet are expected to have 35% of the intra-European market share by 2024, a substantial increase from the 22% they held in 2015 (Marello 2015).
Low-cost airlines vs. Traditional airlines
There are broadly two main types of airlines operating in Europe and across the globe, traditional airlines and low-cost carriers. A ‘traditional airline', also known as a ‘legacy' or ‘flag carrier' typically provides a wide range of pre-flight and onboard services, such as different service classes and connecting flights. They also primarily operate the hub-and-spoke model, with most aircraft operating from a main airport base or ‘hub'. Examples of such airlines include Air France/KLM, Lufthansa, and British Airways (Reichmuth et al 2008).
A low-cost carrier (LCC), also known as a budget airline, does not include many traditional services such as baggage in the fare and provides a less comfortable ‘no-frills' on-board experience. Such airlines make greater use of ancillary revenues such as charging for on-board food, seat allocation and baggage. Examples of LCCs are Southwest Airlines, Ryanair, and easyJet itself.
As Figure ?() demonstrates, this is a market in which LCCs have thrived in, steadily eroding the market share of the traditional flag carriers, such as British Airways. In 2015, the European airline industry was composed of 168 carriers, with LCCs making up approximately 40% of the European capacity (Marello 2015).
Figure 2: European airline market shares, 2015
By available seat capacity(%)
(Source: OAG, cited by Financial Times)
The traditional airlines have begun changing their strategies in order to potentially counter some of the erosion of the market share by their low cost rivals. They have primarily done this by adopting many of the same tactics introduced by the LCCs. This has led to a growing convergence of different airlines business models. British Airways for example began charging for food and drink on its short-haul economy flights across Europe (Powley 2017b). This led to accusations it was trying to “Ryanair-ise” its service, as well as for some analysts to suggest that the distinction between the different types of airlines is continually diminishing. In other cases certain traditional airlines have sought to set up subsidiaries to compete against LCCs, without completely overhauling their existing business models. For example Lufthansa has set up a long-haul LCC subsidiary, Eurowings.
There has also been a trend across the industry of seeking to increase the ancillary revenues of airlines. Globally airlines have increased the amount of income from ancillaries from 4.8% of total income in 2010 to 9.1% in 2016 (Powley 2017c). Ancillary revenues are attractive to airlines given they are generally a high-margin revenue source. As airlines are often competing for the lowest fares, they can make up the lost revenue by selling other services.
EasyJet's Business Model
According to easyJet's CEO Carolyn McCall: "The image of a low-cost airline continues to be that it's just very cheap." However she believes there is a gap between that perception and "what we really are, which is low fares, very convenient, and good service" (Miller 2013).
Sales & marketing model: how it creates values
EasyJet is a low-cost European point-to-point airline, providing low fares and convenient service to its customers. It considers the number one and number two network positions and excellent performance in operating point-to-point routes its advantages to deliver low fares. In the meanwhile, devoted and well-trained people are said to be the driving force to offer customers friendly service (easyJet 2017a). Facing customers who are mostly low to middle income, easyJet boasts safety, simplicity and one team to be their values (easyJet 2017a), which are more accord with this group of people's demands for an airline: simple, easy and reliable. Following the simple and easy marketing strategy, easyJet put efforts making people easier to buy flight tickets through its website and App platforms, which have more than one millions visits in total every day (easyJet 2017a).
Operational Model: managing key resources and key processes
EasyJet's ability to provide cheaper flight tickets with relatively better convenience hinges on its lower landing and handling expenses, lower fuel costs, better airport positions, better employment and higher technology level by investing in scale to get number one or two positions in primary airports, upgauging fleet to A320 aircrafts, developing and promoting easyJet App and being a good employer. This combination of easyJet's key resources and key processes support its cheap-convenient business model.
Lower landing expenses and better positions: Airport network
EasyJet has built good relationships with 132 slot-constrained airports in 31 countries, enabling it to operate 803 routes. EasyJet's dependence on primary airports ensures the convenience for its passengers since the primary airports usually have better facilities and near to the city center. For easyjet itself, a primary airport usually has more slots, thus makes it more possible to increase its flight numbers to the frequently-visited cities, and additionally in different time periods. Most importantly, the No.1 or 2 positions in primary airports built up strong competency for the company. According to company data, a number one airport and route position delivers over 50% greater contribution than a number one position on both (easyJet 2017a). 97.6% of easyJet's capacity touches those airports where it holds No.1 or 2 position. Additionally, 83% of easyJet's capacity involves a flight Occupying the biggest portion of the airport's capacity means that easyjet has a strong advantage to negotiate with the airports for cheaper landing fees and associated charges (Isaka 2012). The decrease of the airports and ground handling costs, which make up to about 45% of easyJet's operating cost (easyJet 2017a), can definitely support the company to deliver its low-cost strategy.
Lower fuel costs: Aircrafts
Up to the reporting time, EasyJet owns 279 aircrafts, which are composed by 143 A319s and 136 A320s. Airbus A320, which takes up 49% of EasyJet's fleet, is the new 186-seat, fuel efficient aircrafts. The upgauging of the fleet enables the group to save around 11% to 13% of the cost per seat in 2017. In 2018, the portion of A320 will increase to 73%, and additionally the group will receive 30 A321neo aircrafts, with 235 seats. The increase of the seats per flight and efficiency of the fuel consumption helps the airline to cut down its cost per seat, thus supporting its low-price-ticket strategy (easyJet 2017a).
Higher technology level: Technology and insight
EasyJet's APP has 23 million downloads and over 600,000 uses per day (easyJet 2017a). About 27% of the booking are made from e-commerce, 24% of its passengers turn to use mobile boarding passes and 30% of its cooperative airports now provide real-time data exchange for boarding information and luggage delivery (easyJet 2017a). The convenient service provided via its App simplify the purchasing process for passengers,and help them to save time when boarding and picking luggage. Flight experience get boosted, which may bring the company more returning customers. Apart from increasing customer loyalty, easyJet save costs on intermediary agencies, thus strongly delivering its low-cost strategy.
Better customer service: employment and handling
One aspect of good service from an airline is safe and reliable, which is what easyJet aims to deliver through its employment strategy. Up to 30 September 2017, easyJet has 12,280 employees across its whole network. It recruited crews on local contracts in eight European countries, rather than on one contract across all the areas. The cost of this recruitment strategy might be higher, yet easyJet builds its responsible and reliable brand image among the local. Additionally, its crew are trained to provide better service, and build the airline to be “fun and different”and has a service which is much exceeding its price (Anon 2002).
Figure 3: EasyJet's key resources and key processes
Like other LCCs, easyJet makes of ancillary revenues as an important part of its profit formula. With price the key metric through which easyJet competes with the other airlines, there is a clear priority to keep the basic fare as low as possible. Ancillary revenues are a way for the company to compensate for the lower revenues secured from fares, and to compensate for ticket pricing pressures.
Figure 4: easyJet's ancillary revenue sources, 2016
Based upon disclosures and estimates
(Source: Sorensen and Lucas 2016)
In the 2017 financial year easyJet grew its ancillary revenues by 17.8% to £986 million. Its most significant source of ancillary revenue is its baggage costs, accounting for 47%. This demonstrates the benefit easyJet gains from non-inclusive baggage. It allows for the company to offer cheaper basic fares than full-service airlines, important in initially attracting customers. Yet there is still a considerable demand to purchase baggage allowance, so easyJet still makes a large amount of revenue through this. easyJet also has partnerships with other travel-related industries such as car rental (with Europcar) and hotels (with Booking.com), whereby easyJet receives a portion of the sales when booked from easyJet's site (easyJet 2017b).
In recent years easyJet has made greater efforts to make its service more attractive to business passengers, who might typically be thought to fly on the legacy airlines. In 2016 the airline launched a frequent flyer card as part of its Flight Club scheme. It is aimed at those who fly 20 or more times over a 12 month period, and offers benefits such as no charges when altering a ticket (Powley 2015). According to McCall this is a way to give “passengers benefits that they really value”. It also helps ensure those passengers who travel with the airline the most frequently have an incentive to continue to do so, thereby increasing the retention rate of passengers.
easyJet's strategy of flying to primary airports also helps the airline to attract more business passengers. Business travellers are less willing to accept an airport that is located an extra hour away from their destination (Rigby 2013). In 2017 easyJet grew its total number of business passengers by 3.6%, resulting in business passengers comprising 16% of the airline's total customer base (easyJet 2017b).
Financial Model: managing profits
With no exception, easyJet's profit is created from the profit formula, deleting total cost from the total revenue. The revenue is made up by two parts: the passenger revenue and the ancillary revenue. In recent years, the ancillary revenue, which includes the provision of checked baggage, seats allocation, change fees and non-seat revenue (easyJet 2017a), has shown a visible increase from 1.4% of the entire revenue in 2015 to approximately 20% in 2017. As for the passenger revenue, it is created by timesing the total seat number with the revenue per seat. In the latest three financial years, the former has slightly increased while the latter dropped significantly. The three main parts of easyJet's costs are employee expenses, airport and ground handling and fuel cost. Except for fuel cost, the other two parts have increased by 27% and 30% respectively, which resulted the shrinkage of easyJet's profit margin.
From the data and trends shown in the table, some comments and doubts can be made. Firstly, the increase of easyJet's revenue is unlikely to be a positive indicator. In 2017, easyJet earned about 986 million pounds from ancillary revenue, deleting which easyJet could make far less revenue than it did in 2015. The ancillary revenue is not easyJet's main business, thus its growth should not support the sustainability of easyJet's financial viability. As far as it shows in the
Ryanair and easyJet are the exception; their ancillary revenue ranking occurs through a reliance on a la carte fees and the commissions earned from travel retail activities at the website, such as car hire bookings and travel insurance sales (easyJet 2017b).
Secondly, although easyJet's total passengers has increased from 2015 to 2017, it does not indicate that easyJet is seizing more market shares. The growth of easyJet's passenger number should be compared with the increase of the entire European aviation market. From 2015 to 2016, easyJet's total passenger growth rate was at around 6.5% , while the European total flight passengers increased by 10.6% (Eurostat 2017), which suggests easyJet was slower than the development speed of the whole market.
Thirdly, the decrease of the company's net income margin, along with the decline of the Return on Assets %, indicates that easyJet might not utilize its assets efficiently to enhance its profitability.
From what stated above, easyJet's business model delivers profits with less satisfactory, The reason for this outcome might be either a flaw in its strategy design or the fierce competition in European short-haul aviation industry.
Conlusion: easyJet's goal and dependencies
EasyJet's goal is “to be Europe's preferred short-haul airline, delivering market-leading returns” (easyJet 2017). To pursue this, easyjet creates value by utilising unparalleled network, market positions, low-cost models to provide cheap flight tickets and relatively convenient services to customers. Its customers are mainly middle to low income people, students and a small bunch of business travellers who have highly price elasticity demand, thus providing low-price tickets is the first characteristic of easyJet's strategy. The low price is realised by maintaining the economy of scale and a lean cost structure. Usually, leveraging its leading position in airports, utilising its strong capital base, upgauging fleets, and adopting local employment policies enable the action of this strategy. However, a single cheap-ticket strategy is not enough for easyJet to stand out from a large number of Low-Cost carriers (LCCs). Thus apart from the cheap-flight strategy, easyJet puts efforts on providing convenient customer service to boost customer satisfaction and returning ratio as well. The convenient customer service is demonstrated by the simple and personalised process of ticket purchase, different choices of routes and primary airports, flight punctuality, crew effectiveness and ancillary services.
Insights on EasyJet's Constraint
Limited market size (External)
The essential factor that hinders easyJet's expansion is that the European airline market size is limited. Due to its configuration as a short-haul budget airline, easyJet is currently not able to adopt bigger aircrafts to provide long-haul flights across continents, thus hard to approach the American or Asian airline market. Consequently, it is limited to deliver its short-haul flight service within the European and nearby countries. However, as mentioned before, of the 1.92bn of European passengers, about 54.11% of which are travelling across the continents, thus leaving 45.89% of the potential market to easyJet. Additionally, in the 45.89% of the market, about 40% of which has been taken up by flag carriers like British Airways. Lastly, in the rest of the market, easyjet is facing strong short-haul LLC competitors like Ryanair. In a word, easyJet shares only ?% of the whole short-haul market with strong competitors like Ryanair and British Airways, which take up ?% and ?% separately. If easyJet still has ambition to become the leading European short-haul airline, it should fight to seize more market shares from both the flag carriers like British Airways and other LLCs like Ryanair.
22% of the european market of ryanair and easyjet in total
Moderate strategy design (Internal)
However, easyJet's moderate strategy design constraints its competitiveness over Ryanair and British Airways in some ways. Apparently, Ryanair's success is based on its incomparable low-cost structure and low price, and British Airways has built a solid brand for travelling convenience and first-class services. To avoid the reduplication of the competitors' business models, easyJet designed its strategy in a moderate way-- a compromising of low price and convenience, hoping to attract those passengers who want to pay more, compared to Ryanair, to travel between the primary airports but less, compared to British Airways, to get a simple service. Unfortunately, this moderate strategy brings restrictions to the company's development. The fact of easyJet's small market shares indicates that only a small group of passengers actually have the need of compromising low price and convenience. In the meanwhile, the majority of the passengers prefer either the cheapest tickets or classic flag-carrier service. Under this situation, easyJet can neither compete with Ryanair on cheap tickets nor afford to provide better service than British Airways. In a word, easyJet's strategy design locks itself into a small market share.
Why it can be solved, and now?
Despite that the European airline market size is limited and its strategy design is relatively unsustainable, easyJet can still find opportunities to expand its business at present.
In the recent years, the airline industry has been going through a period of consolidation with the collapse of unperformed airlines. The collapse of the rivals, including Monarch, Air Berlin and Alitalia (Megaw 2017), has created various opportunities for easyJet to take advantage of. For instance, 98% of Monarch's grounded flights are from Luton and Garwick airports, which used to compete directly with easyJet (Grahns, 2017). Monarch's collapse released extra market shares which can be gained by easyJet. Additionally, the short-haul network it had can be consolidated to easyJet's group if easyJet is keen to expand its scale through acquisition. In a word, although the competition with Ryanair and British Airways is still fierce, and the moderate strategy remains as a barrier, the present trend of consolidation in airline industry is a chance for easyJet to achieve an unexpected growth.
In 2015 easyJet and Ryanair commanded 22% of the intra-European market share. By 2024 this is expected to have increased to 35% (Marello 2015). The trend of LCCs continuing to gain market share from the traditional airlines in the European short-haul market is therefore expected to continue, and easyJet is well placed to take advantage of this.
Plausible solutions: What Easyjet is doing
easyJet has responded to this challenging competitive environment by taking steps both to increase its number of customers from both within its existing market, and also seeking to expand to new ones.
easyJet has sought to capitalise on the collapse of its rivals by purchasing assets from some of the failed airlines. easyJet agreed to buy part of Air Berlin's operations at Berlin Tegel Airport, the city's primary airport. The deal includes the purchase of 25 aircraft and other assets such as flight slots. Previously easyJet only served Berlin's secondary airport, therefore this deal is a strategic decision which accords with, and strengthens, its existing business model. easyJet also expressed interest in purchasing some assets from Alitalia when the sale takes place in April 2018. With the industry therefore appearing to be going through a period of consolidation, easyJet seems well placed to take advantage of this, and has been taking steps to do so.
In addition to this, easyJet has also announced plans for a long-haul connecting service called ‘Worldwide by easyJet'. This involves a partnership with two low-cost long-haul carriers, Norwegian Air Shuttle and Canada's WestJet. It will enable passengers flying long-haul to, at least initially, the US and South America, to book their flights through easyJet's website. The airline is also in talks to expand the service in the future. According to easyJet's CEO, this will enable the company to gain access to the market of about 70 million passengers who fly long-haul through the airports in which easyJet operates. 96 new long-haul routes have been introduced in Europe since 2012, the most of any other region (Boeing Current Market Outlook 2016-2035). The long-haul market in Europe is therefore growing, and easyJet are seeking to capitalise on this.
This plan has several advantages for easyJet. It opens up an entirely new customer base to easyJet - those who travel long-haul. As the partnership is with two low-cost long-haul carriers, the type of customer will be similar, those expecting a no-frills service, but who are flying to distances outside easyJet's existing reach. Ryanair's CEO Michael O'Leary has spoken of launching a similar service for years, but has been unable to make significant progress on the initiative. The plans therefore will allow easyJet to steal a march on its low-cost competitor. Furthermore, the partnership does not require substantial reconfiguration of easyJet's operations. easyJet can maintain its core competence of short-haul European air travel, yet gain access to the long-haul customer market without needing to invest huge sums on assets to set up, or purchase, its own long-haul service. It additionally means that any potential exit from the strategy would be relatively cheap, should the service not be successful.
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