easyJet’s ‘no frills’ strategyMultiple bases for keeping costs down can provide a basis for a successful no-frills strategy

Launched in 1995, easyJet was seen as the brash young upstart of the European airline industry and

widely tipped to fail. But by the mid-2000s this Luton- based airline has done more than survive. From a

starting point of six hired planes working one route, by 2003 it had 74 aircraft flying 105 routes to

38 airports and carrying over 20 million passengers per annum.

Beneath the surface of easyJet’s 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 whole company. The 2002/03 annual report reconfirmed this business model for the airline:

‘Our overriding commitment is to safety and customer service, rooted in a strong and dynamic culture

that can accommodate our continuing rate of growth. The business model is:

1. Dense point-to-point network

– Linking major airports with large catchment areas

– High levels of frequency

– Attractive to business and leisure travellers

2. Strong, visible brand

– Extremely high levels of awareness with consumers – Supported by innovative and effective advertising

3. Dynamic fares

– Simple fare structure; the earlier you book, the less you pay– Aim to be the lowest fare on the route– Demand led, with proprietary yield management system

4.100 per cent direct sales – easyJet does not pay commissions to intermediaries – over 90 per cent of sales are online

5.Highly utilised fleet

– A large, modern, efficient and relatively environmentally friendly fleet – The introduction of Airbus A319 aircraft, combined with the retirement of ‘old generation’ Boeing 737 aircraft, will result in a two-type ‘new technology’ fleet, which will increase commonality and lessen complexity – High levels of asset utilization reduce unit costs

6.Scaleable – The key to sustaining high levels of growth is the scaleability of the operations – This also reduces the marginal cost of incremental growth – Increasing scale brings valuable economies.

Despite impressive financial results (£96m profit on £932m revenue (≈ A144m on≈ A1.4bn) ) the

report also acknowledged that the company had to continue

its efforts:

‘Our first priority continues to be increasing frequency on existing routes as this brings economies in

terms of the operations and increases the attractiveness of easyJet’s

service to consumers – particularly in the business sector. It is also the lowest risk route to growth and in

the year to September 2003 this accounted for approximately two

thirds of the net growth in capacity.

Our second priority is to add flights between existing destinations, known as joining the dots, which

benefits from synergies with existing operations and customer

relationships at each destination.

Our third priority is to add new destinations to the network. These [latter two] collectively accounted for

the other one third of the net growth in capacity in 2003.

Questions 1. Read sections 1 and 2 and identify the bases of easyJet’s no-frills strategy. 2. How easy would it be for larger airlines such as BA to imitate the strategy?