EasyJet: Making Travel Easy and Affordable

EasyJet's mission is to deliver market leading returns to its shareholders through maintaining a leading European network at primary airports, with a clear focus on making travel easy and affordable for its customers.

EasyJet proposes in Europe a low cost business model similar to the one pioneered by Southwest Airlines in the US. Its vision is to be the Europe’s preferred short-haul airline by combining a leading network of primary airports with great fares and friendly service.

BipPic

Operations:

Point-to-point operations allow airlines to better stager flights over the day, something impossible in hub and spoke operations, which require passengers to change aircraft at some point in their itinerary. As a result, ground staff are better utilized under point-to-point operations.

Enabled by the point-to-point model, EasyJet can use a single aircraft type in its fleet. It currently operates Airbus A319 and Airbus A320 (larger than the former but similar in many aspects). These aircraft are well known for their fuel efficiency and reliability. This combined with a very young fleet, EasyJet’s average aircraft is 6.3 years old compared to 12.7 for the British Airways’ one, offers significant maintenance expenses savings.

EasyJet’s aircraft cabins are configured in a single class with high density layout. Aircraft utilization of near 90% compared to 70% of other traditional carriers combined with a higher number of seats per aircraft (156 seats rather than the standard 140 seats for the A319) offers EasyJet significant cost advantages. EasyJet achieves such a high utilization by using triangle patterns and multiple bases to offer the most appropriate flight times for different customer types (Figure 1).

Figure 1: Triangle patterns and multiple bases.
Figure 1: Triangle patterns and multiple bases.

To be able to scale its fleet according to business requirements, EasyJet targets an owned to leased split of aircraft of 80:20.

EasyJet has a policy of charging for extras such as priority boarding, check-in baggage, snacks and drinks. Over the last years, EasyJet has been very efficient in developing partnerships to offer products such as Starbucks coffee. Onboard sales are an important part of the airline’s ancillary revenue.

Cost advantages also come from higher asset allocation. EasyJet’s aircraft are in the sky an average of 11 hours per day compared to 9 hours per day for a typical traditional carrier (including long-haul flights). Among other reasons, this is enabled by quick turnaround times, typically under 30min.

Initially EasyJet did not allocate seats to passengers except for those that paid for “Speedy Boarding”. However, since 2012 all passengers are allocated numbered seats before boarding commences. This measure has proven not only not to slow down boarding times but also to be a source of revenue. New passengers are more likely to pay for extras such as more legroom, fast track access through an airport as well as purchase more food and drinks onboard.

Flight booking can happen via phone and internet. EasyJet was one of the first airlines to skip the travel agent and to start advertising on its planes. EasyJet’s distribution channel heavily rely on its IT system. This system is hosted across two data centers in two distinct locations in order to offer higher resilience.

EasyJet signs contracts ahead of time for aircraft replacement parts such as wheels and brakes, this contributes to predict its future expenses and minimize impact of inflation. Good practices such as delaying engine starts, using a single engine while taxing and installing lightweight seats and trolleys contribute to further reduce costs through fuel savings.

Cost
Figure 2: Cost breakdown for different airlines

Staff

EasyJet reduces labor costs by hiring junior employees (pilots at EasyJet earn typically a 25% lower salary) and by making a better use of its employees’ time (pilots fly as much as 50% more than pilots of other carriers). Effective recruitment process, orientation programs for new hires, and a commitment to growing and developing employees has led to a 6.7% employee turnover and a 97% employee attendance rates. To mitigate negative effects of union actions, EasyJet has localized employment terms and conditions in each one of the country it operates, in this way it mitigates the risk of a large-scale union action.

Upcoming Challenges

EasyJet has recently shown interest in initiatives to reduce the carbon footprint per passenger as well as technologies that can offer fuel savings. Investment in customer service improvements coupled with lower fares and flights to primary airports has increased business travelers demand. EasyJet has reacted by creating a frequent flyer program.

Keeping EasyJet’s low cost operating model while increasing the number of business passengers (currently at 20%) seems to be the biggest upcoming challenge. Management is confident that these changes favoring higher class travelers will not harm its focus as a budget airline.

 

Sources:

[1] https://en.wikipedia.org/wiki/EasyJet

[2] http://www.airfleets.net/ageflotte/EasyJet.htm#Photo

[3] http://www.businessmodelsinc.com/easyjet-business-model-a-source-of-inspiration/

[4] http://www.telegraph.co.uk/finance/newsbysector/transport/11237378/easyJet-maintains-low-cost-model-despite-business-and-frequent-flier-focus.html

[5] http://corporate.easyjet.com/~/media/Files/E/Easyjet-Plc-V2/pdf/investors/result-center-investor/annual-report-2014.pdf

[6] http://corporate.easyjet.com/~/media/Files/E/Easyjet-Plc-V2/pdf/investors/presentations/Pre-close-statement-presentation11.pdf

[7] https://uk.finance.yahoo.com/news/easyjet-maintains-low-cost-model-080016364.html

[8] http://commons.erau.edu/cgi/viewcontent.cgi?article=1443&context=jaaer

[9] http://www.kellogg.northwestern.edu/faculty/chopra/htm/research/Airline_RESEARCH,7sept06.pdf

[10] http://corporate.easyjet.com/~/media/Files/E/Easyjet-Plc-V2/pdf/investors/results-centre/2012/investor-day-presentation-2012.pdf

 

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7 thoughts on “EasyJet: Making Travel Easy and Affordable

  1. Great post – I learned a lot about the operating model of airlines that I didn’t know before. It seems that their business and operating models are well aligned currently, but I wonder how successful they will be at growing by targeting business passengers given their no frills approach and flights only have a single class. In addition, many companies form relationships with airlines and I wonder if only offering intra-Europe flights would deter companies from using EasyJet as opposed to airlines that offer more routes.

  2. Great questions!

    EasyJet is targeting business passengers while still offering them the same seating class as for economy travelers. EasyJet focus its value proposition to business travelers around time savings. Its main strength resides in the fact that it flies to more primary airports on the top 100 European routes than any other carrier. They also offer other advantages to business passengers as for example: boarding the plane among the first, going through fast-track security lines at certain airports, changing to earlier flights for free, generous baggage allowance, no extra booking fees, free route changes and unlimited free date changes under certain conditions. In my opinion, EasyJet is trying to attract business travelers of small and medium enterprises that are price sensitive, not too much concern about comfort during flight (typically EasyJet flights are under 2 hours) and that greatly value the flexibility to make last minute changes to their flight plans.

    Operating intercontinental flights would be very difficult for EasyJet as it will have to radically change its operations. The point-to-point model would no longer be possible, it would have to use a hub-and-spoke model. Flying between hub cities would imply that its fleet cannot have a single aircraft type any more so many of the cost saving (i.e. those related to maintenance or personnel training) would not be realized. Similarly, ensuring high employee utilization would be challenging in this new model as its flights would highly be concentrated around certain peak hours. Norwegian Air is an example of a low cost airline that has recently decided to start intercontinental flights. Norwegian had to buy a new aircraft type (the Boeing 787) exclusively to support their long haul operations. It is going to be interesting to observe how the airline competes in this new arena.

  3. Great post, Alberto! One question that comes to my mind is do you think EasyJet will be able to continue with its low-cost offering once the airline has aged and matured. From my (limited) understanding of the airline industry, younger airlines tend to do better as newer planes have lower operating costs (as mentioned) and can pay their pilots and crew less due to their limited tenure. As EasyJet grows older, do you think they will be able to replenish their fleet to maintain a low average and more importantly, do you think they will be able to continue to pay their pilots a lower salary without losing them to competitors? Thanks!

  4. Thank you, Alberto. You mention that their vision is great fares and friendly service, but unfortunately, the few times that I have tried EasyJet I have been horrified by their service. First, their check-in counters are very inconveniently located – often in a completely separate terminal from VAT and requiring quite a long walk to the gate. Second, they are incredibly short-staffed, with often just three or four people responsible for checking in ~150 passengers per flight across multiple flights. And last, they charge extra for everything! While I understand that these policy decisions are likely to keep costs low, do you think EasyJet will be able to achieve passenger loyalty with this kind of service? I wonder, especially considering increased competition and the emergence of other low-cost carriers.

  5. Thanks Alberto, this is very interesting. EasyJet has indeed disrupted the airline industry, and has been a leader in Europe in low costs plane travel. I don’t worry as much as PVD about customer service, their customer base is very price sensitive, and as long as they manage to keep their prices low, they will still have a crucial competitive advantage. They have particularly benefited from the entire opening of the airline market, and the free competition within the European Union on all routes.
    The biggest risk that I see with their business model is on safety. As you mentioned, they have been reducing costs continuously through reduced check up time for planes, longer working hours for pilots and by hiring junior staff. They should be careful not to push their cost reduction too much to not compromise safety, that remains the most valuable factors for passengers.

  6. Hi Alberto, great job! I thought the most interesting part of your analysis was the emphasis on the cost structure for employees. It makes sense that in fairly highly regulated labor markets in Europe they would try to negotiate separately with each local union. Are there any safety concerns raised by consumers about EasyJet hiring more junior pilots?

  7. Very interesting model, thanks for writing this Alberto. My wife and I flew on EasyJet frequently when we lived in Europe. They seemed to have found a middle-ground between the real budget airlines such as RyanAir and the main carriers. I think it was really important to differentiate themselves from RyanAir by renting gates at primary airports instead of smaller more remote ones like RyanAir normally does. I can think of a few times when I personally bought EasyJet over RyanAir just because RyanAir flew out of remote airports that were hard to reach. Very impressive how they have been able to cut costs relative to competitors. I heard a talk a few months ago by the founder of an airline here in the US, called Beacon, and he said that all of the major US airlines had already cut costs down to essentially minimums and that they couldn’t have a competitive advantage over others by cutting costs. Interesting that in Europe it is different. Also interesting that the US doesn’t yet have real budget airlines. We have Southwest and others, but they are still a pretty penny compared to EasyJet RyanAir fares of 10 Euro (on occasion). I am still wondering about these things…

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