Easy come, easy go. Hopefully EasyJet's use of this slogan to depict its ticketless booking and rapid check-in and boarding procedures will never apply to its presence in the European airline industry.
Few think it will. The airline's charismatic chairman, Stelios Haji-Ioannou, has made sure his startup uses technology to the full to give it the low-cost base needed to gain an edge over its competitors. And the privately held airline has the wealth of Haji-Ioannou's family firmly behind it.
Technology has enabled EasyJet to go way beyond what was possible when its role model, Southwest Airlines, was first launched in the US.
The carrier has been 100 per cent ticketless and direct sales from day one, investing heavily in advertising and promotion and sporting its reservations telephone number on its aircraft. Its head office, at London/Luton airport, is virtually paperless, with faxes and all communications sent and received via computer, and its company culture is totally open: 'Everyone has access to information; there are no power politics,' says managing director Ray Webster.
EasyJet's desire to get the full benefits of technological advance was also one reason behind its wish to bid for the ownership of Luton airport, its main base.
The carrier's rapid development has used all the available capacity at Luton and, though interim plans to expand the parallel taxiway and passenger handling facilities should be in place by next April, more needs to be done by mid-1999. EasyJet particularly wants its own terminal - which it is prepared to self-fund - and which would be purpose-designed to streamline passport control and boarding procedures. EasyJet also wants underground refuelling and the elimination of costly and complex baggage handling procedures. 'We believe that airports should be able to run at zero cost to the airlines,' says Webster. 'Some of our thinking is migrating across and we are working closely [with the airport] to take costs out. The opportunity is for Luton to become the affordable airport,' he adds.
Although the local authorities have blocked an EasyJet bid for Luton airport, saying there would be a conflict of interest, in mid October EasyJet was in the process of negotiating a long-term contract with the authority which would commit any future owner to establishing the necessary facilities and maintaining the low level of charges, says Webster. However legal action to try to secure the right to bid remains an option.
Threats by EasyJet to move much of its operation to Liverpool or Stansted unless it gets what it wants at Luton may be a bluff, but the airline did launch two new services, to Nice and Amsterdam, from Liverpool in October. Webster says Liverpool has been identified as a 'Luton II' due to its catchment area of between 5 and 8 million people, and similarly underserved market and uncongested airport. 'Two services are a toe in the water. There are a lot of markets that would work equally well. We could see two to three aircraft based there.' While EasyJet is also looking at 'innovative ways at Stansted to get a low-cost base' it is unlikely to need both Stansted and Liverpool, adds Webster.
After two years of operations, EasyJet is entering a brief period of consolidation before new aircraft come on stream next year, by investing in its own telephone, reservations and accounting systems and recruiting for expansion.
EasyJet originally started out with two leased 737-200s but now owns six 737-300s. The airline also has firm orders for another 12 737-300s due for delivery from August 1998 to November 1999. Webster says planning the airline's expansion had been difficult due to the uncertainty of obtaining used aircraft in an overpriced market and adds that this, added to an excellent deal, contributed to the decision to go for new aircraft. High utilisation levels of 11.5 hours a day, made possible by rapid 20-minute turnaround times, will bring 'the same cost of ownership as for used aircraft', he adds.
So far the airline's growth has been almost conservative. Other than its Luton services to Amsterdam, Nice, Barcelona and four Scottish destinations, and the new Liverpool services, EasyJet is present only on the Amsterdam-Nice route.
Its clash with KLM, which codeshares with Air UK out of Stansted and allegedly matched its low fares on an unrestricted basis, led to a complaint by EasyJet to the European Commission. At presstime, EasyJet was hoping for interim measures that would force KLM to put its fares back up to their previous levels pending a full investigation.
The carrier's extremely low, one-way, unrestricted fares normally give it an important edge over major carriers which typically oblige travellers to pay the same for a one-way as for a return flight and impose conditions such as Saturday night stays. Small businessmen in particular have been attracted by the ability to take in a second European city during a trip without paying punitively high fares. A 1996 UK Civil Aviation Authority survey showed the business traveller accounted for 28 per cent of EasyJet's total traffic, though the airline's high density, no frills strategy is more geared to the leisure traveller.
Stymied by KLM
However the development of Amsterdam as a continental hub has been stymied by KLM's pricing on the routes from Nice and Luton. 'KLM put every seat in the market at the lowest fare,' says Webster. 'We have already made a huge investment in Amsterdam. If we are successful in the interim measures case we will seriously contemplate Amsterdam,' he adds. Athens is another possible hub as a new airport is due to open in 2004 and Olympic is not seen as a strong competitor.
Decisions on new routes are taken quickly and Webster will not be drawn far on the shape of the carrier's future network. However a Luton-Palma service was due to begin in December and either a Geneva or a Lyons service was expected by the end of the year. Extra frequencies on existing routes were also an option. No route is under threat 'apart from Amsterdam' and 'we will have at least one continental hub up and running by the end of next year,' he adds. Beyond that the focus is on the cost base. 'If we have a cost base which is half that of our competitors, we can effectively do what we want,' he says.
In the meantime the airline continues to fill its aircraft with large volumes of travellers paying low one-way fares. Webster refutes suggestions that the carrier's fares are unprofitable.'We set our fares at a level that we knew we could make money on,' he says. However he does admit that KLM's matching of its lowest fares on the Amsterdam routes has damaged its business. 'We need a little more than our cheapest fare to break even,' he explains. On the Scottish routes the lowest fare is £29 and the highest around £69. On some routes, such as Nice, prices are lowered to stimulate business in the winter season.
But, in a bizarre reversal of the concept of yield management, Webster says EasyJet's system aims not to maximise revenues, but loads. This stems from the belief that if prices are reduced, the resulting increase in traffic will more than compensate for the reduction. Ultimately, the objective is 100 per cent load factors, though the target this year is 70 per cent.
EasyJet claims that cutting out the travel agent, computer reservations system fees and interlining removes substantial costs, as does its choice of inexpensive airports like Luton. No food is served on board EasyJet's flights, which reduces aircraft ground time while food is loaded and aircraft are cleaned. And the only staff employed by the airline are pilots, cabin crew and telephone sales staff. 'We contract out virtually everything else,' says Webster.
Despite some scepticism from its rivals, Webster claims EasyJet made a small profit in its second year of operations to September 1997 on revenues of £50 million ($81 million), after losing just £5 million in the first year.
The key to future profitability lies in how EasyJet choses to grow. If it sticks to affordable secondary markets like Luton and Liverpool, making money should continue to come easily. But, unless the airline can count on substantial EU measures to prevent KLM-style pricing policies, head to head competition with a major could easily go against it.
Source: Airline Business
