Pestle analysis of Easyjet

Political Factors

Political factors reflect the political stability of the region where Easyjet is operating.

OPPORTUNITIES

  • Government grants permission to purchase new Aircrafts.
  • Government guidance and assistance available to travel and tourism businesses.
  • European Countries Collaboration and good relationship making EU politically stable. This stability is a significant advantage for the growth of Easyjet

THREATS

  • Airlines which fail to comply with strict carbon emission limits will face fines from the Environment Agency, the government has announced. BBC news Wednesday, 4 March 2009
  • Government enforces rules on airlines company to apply expensive technological solutions to detect terrorists for passenger security

Economical Factor

Despite the global recession the Easyjet is making significant profits. Easyjet was able to offset half the impact of higher fuel cost and deliver pre-tax profits of £123m.

2008 2007 Change
Total revenue (£ million) 2,362.8 1,797.2 31.5%
Profit before tax – underlying (£ million) 123.1 191.3 (35.7)%
Profit before tax – reported (£ million) 110.2 201.9 (45.4)%
Pre tax margin – underlying (%) 5.2 10.6 (5.4)pp
Return on equity – underlying (%) 7.6 13.6 (6.0)pp
Basic EPS – reported (pence) 19.8 36.6 (45.9)%
Easyjet annual report and accounts September 30th, 2008

  • Economic down-turn people are more price sensitive in their consumption. The low-fare strategy of Easyjet is exploiting the demands of the customers to travel at cheaper prices.
  • Currency exchange rates can also effect the company economically however the recent decline in the value of US dollar as compared to Euro is paying off Easyjet.

EASYJET PLC CHAIRMAN’S STATEMENT Feb. 2009

http://www.easyjet.com/en/News/agm_chairmans_statement_feb_09.html

  • Moreover, any changes in the European Commission rules regarding compensations and reimbursements to the passengers, labour laws or taxes can have viable financial impacts on the Airlines industry.
  • One of the most important factor is the Fluctuations in fuel market price as its influences the airline business. Soaring fuel costs recorded their highest price of $147 a barrel in July 2008. As a result several airlines that include Aloha, ATA, Frontier and Skybus closed their operations in 2008 but as the oil price drops airline profits soars. On April 2009 US crude closed at $48.39 a barrel, while London Brent close at $48.44

Boilerjuice [2 Apr 2009]
http://www.boilerjuice.ie/news/277/Crude+oil+prices+down+$1+a+barrel.html

Social And Demographic

During recent years there is a viable change in the life style of the people. People now a days travel more either for their holidays or businesses. The emergence of low cost airlines and their business models have fostered several changes within the tourism and travel industry as well as are having a tremendous impact on travellers’ behaviour. This increase in the travelling has a positive impact on the growth of various airlines. The development in the tourism industry especially in Europe over the past few years reflects this fact. Cultural changes towards travelling will benefit towards the growth of Easyjet.

Technological Factor

The rapid development in the technology can have significant effects on the growth and operations of the company. The use of internet enables the company to operate more efficiently and it also opens new ways for the customers to know about various holiday spots and locations. The development of e-commerce enabled 95% of Easyjet’s customers to buy tickets online and Easyjet has become Europe biggest internet air ticketing retailer even though Web booking systems made market prices transparent. In addition, the company also introduced Internet check in service, Check’N’Go, for the convenience of their customers. easyJet has to keep track of technological developments in the field of e-commerce and aircraft manufacture in order to gain a competitive advantage.

Legal Factor

CAA regulations on charges relating to take-off and landing charges at airports. Lack of take-off and landing slots makes it difficult for carriers to find suitable airports.

Government regulation obligatory for BAA to change airport regulation system for travelling “Public(customer) To Come First”

Department of Transport [Monday 9 March 2009 07:00]
http://nds.coi.gov.uk/environment/fullDetail.asp?ReleaseID=394873&NewsAreaID=2&NavigatedFromDepartment=False

• Terrorism forces Government baggage restrictions for passengers at airports

BAA news [04 January 2008]
http://www.baa.com/portal/page/BAA%20Airports%5EMedia%20centre%5ENews%20releases%5EResults/5b8a376a36547110VgnVCM20000039821c0a____/a22889d8759a0010VgnVCM200000357e120a____/

Environmental Factor

Recently global warnings are one of the top concerns. Aviation generates 3 percent of all carbon dioxide emissions in the 27-member bloc. EU's Emission Trading Scheme for aviation come into force from 1 January 2012. The purpose of this EU-wide scheme is to cap emissions from aviation and this will come into. Emissions Trading Scheme ETS could damage the industry's ability to compete in international markets.

Author: Reuters Published: July 08, 2008

SWOT ANALYSIS

STRENGTHS
• Low maintenance and training costs by having a single aircraft type fleet i.e. Boeing 737 or Airbus A-310 which reduces the maintenance and training costs.
• Low operating cost due to being No Frill, online reservations, fast check in etc.
• Efficient use of technology in case of website for promotions, bookings, buying online tickets etc
• Number one On-Time flights, least cancellations and fewest lost bags in Europe
• Higher aircraft utilization
• Lowest fares as compared to competitors and continuous fare reduction strategy
• Well established brand name and owning major market share
• Facilitating the customers and generating revenue through ancillary facilities • Rising Fuel Cost.
• Flight times are more or less limited to 2.5 hours. So can’t operate flights of longer duration without any Frill, so No-Frill becomes impossible to implement for passengers.
• Increased competition from proper carriers and other no frill carriers.
• Grabbing negative attention due to provoking advertisement
• Dependence on the Ireland-U.K. Market
• Strained Relationship with travel agents
• Over dependent on the website
• Limited access to major airports
• Dependence on third party service providers
• Providing low standard of customer service
• Less interaction and poor relationship with customers

Opportunities

• Huge untapped market, especially for business travellers and "for-the-first-time-flying" segment.
• Regional International flights of 2.5 hrs duration.
• Sell more, profitable services or products to passengers (in flight)
• Offer for sale pre-departure refreshments at the gate
• Expansion into other markets
• Exploring new destinations & routes
• Mergers or partnership with other airlines
• Acquiring bankrupt airline companies
• To reduce traffic congestion airlines like Easyjet is using secondary airports located away from main city

Threats

• Intense competition (due to the OAA agreement - Open Aviation Area)
• Currency fluctuations
• Rising Fuel prices
• Development in the rail and road infrastructure across Europe
• Competitors offering higher service for same fare price and undercutting fares
• Maintenance problems, Aircraft, Faults, Un-serviceability
• Reputation Loss in event of an accident
• Terrorism/Hijacking
• European Union polices about environmental issues especially CO2 emissions

Porter five forces

Competitive rivalry within the an industry
HIGH

Bargaining power of customers
HIGH

Threat of new entrants
LOW

Bargaining power of suppliers
MEDIUM

Treat of substitute
MEDIUM

The Threat of new entrants is low due for easyjet as to the current economic downturn. Since high capital investment is required for any new entrants in the airline industry this seems to be highly unlikely in current economic situation.

Threats of substitutes are medium in the form of high speed train and development in the road infrastructure across the Europe. Usually the time and cost advantage of the low-cost carriers far outweigh the increased comfort and flexibility of trains or cars. On international routes distances are usually too great for car or train to be an alternative to air travel, expect maybe from London to Paris, which can be reached by Euro Star.

Airline industry is quite large and worldwide spread and there are small and large players in the airline industry. There are many low fare airlines competing with easyjet and customers can easily switch from one airline to a different airline. It means that easyjet will have to keep competitive prices in order to capture market share. Therefore thebargaining power of the customer will be high because customers are more price-sensitive.

The bargaining power of suppliers is medium which is favourable for Easyjet. 90% of aircraft came from two commercial aircraft manufacturers (Airbus, Boeing). Aircraft manufacturers can switch from supplying to commercial carriers to defense carriers or, can either choose a different buyers or short supply aircrafts due to economical changes or market conditions like the price of aviation fuel is directly related to the cost of oil on which Easyjet has almost no control. But since easyJet has a contract with Airbus to deliver 120 aircrafts from September 2003 over 5 years. Although the dependence on spare parts from only one manufacturer could pose a risk but on the other hand the more easyJet expands the more power it will posses over its suppliers.
teledyne control news room

http://www.teledyne-controls.com/newscenter/easyjet.asp
The LCC market is highly competitive. There are more service providers than needed in both local as well as international markets. There are already many new budget airlines with Ryanair and easyJet as the famous ones, but also Virgin Express, Debonair, KLMuk and Air One. However the competitive rivalry between those two groups stays moderate, while it is quite high within each group. However, for Ryanair, low levels of existing rivalry as the two major low-cost airlines have avoided direct head to head competition by choosing different routes to serve. If any company does decide to compete on the same basis as Ryanair there will be heavy pressure on prices. The competitive rivalryis very high and easyjet in operating in a highly competitive market this fact is explored in detail in later sections.

Who are their major competitors?

easyJet's main competitor is Ryanair, which was the largest European low cost airline before easyJet acquired Go Fly. In early 2003, though, Ryanair bought one of the smaller firms in the market, Buzz. There is now some debate about which firm is now the largest. They both have a similar number of routes; easyJet carries more passengers (43.7m); Ryanair is worth three times the stock market value of easyJet
Ryanair are by far the most important competitor. The other big competitors are;

Air Berlin (the other big discount airline in Europe)
The Package Holiday airlines (Thomas Cook, etc)
Aer Lingus (moving to a discount airline model)
Air France-KLM
Lufthansa
British Airways

Apart from the above there are some smaller European flag carriers (Iberia, etc) and regional discount airlines. However they usually only compete with Easyjet on one or two routes so should not be considered main competitors

Competitor
Firm ___: Ryanair
Future Objectives
Strategy -high volume/low costs
Current Strategy
Low Fare Airline
To be the biggest airline in Europe
Continual Growth–Disciplined &
Dynamic
Assumptions About Itself and
Industry
Capabilities
Firm ___: Aer Lingus
Future Objectives
Current Strategy
Assumptions About Itself and
Industry
Capabilities
Who are their major competitors?
easyJet's main competitor is Ryanair, which was the largest European low cost airline before easyJet acquired Go Fly. In early 2003, though, Ryanair bought one of the smaller firms in the market, Buzz. There is now some debate about which firm is now the largest. They both have a similar number of routes; easyJet carries more passengers (20 million); Ryanair is worth three times the stock market value of easyJet (at the time of writing).
Ryanair are by far the most important competitor. The other big competitors are;

Air Berlin (the other big discount airline in Europe)
The Package Holiday airlines (Thomas Cook, etc)
Aer Lingus (moving to a discount airline model)
Air France-KLM
Lufthansa
British Airways

Apart from the above there are some smaller European flag carriers (Iberia, etc) and regional discount airlines. However they usually only compete with Easyjet on one or two routes so should not be considered main competitors

Firm ___: Ryanair
Future Objectives
Current Strategy
Assumptions About Itself and
Industry
Capabilities

 

Source: Essay UK - http://www.essay.uk.com/coursework/pestle-analysis-of-easyjet.php



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