After the deregulation of the airline industry in Europe which became fully effective in April 1997, one of the main and most interesting aspects of the free market has been the entry in the industry of Low Cost Airlines (LCA).
Taking their business model from American air carrier Southwest, Ryanair and its Luton-based rival EasyJet are by far the largest low cost airlines in Europe. Even though the two firms have slightly different strategies the competition between them is extremely intense.
This paper will be made up of three parts: first a general description will present some interesting figures of both companies EasyJet and Ryanair followed by a more accurate explanation of their strategies and eventually logistics issues will be discussed.
2. BUSINESS DESCRIPTION
LCA fly to short-haul destinations and use only one or two types of aircraft. Most competitors have chosen the Boeing 737 to have large flexibility, fewer stand-by crews, and lower training and maintenance costs (Cranfield University Report, 2000).
Headquartered in Luton, UK, EasyJet is one of the leading low fare airlines in the European airline market, with a fleet of 122 aircrafts in 2006 from which 35 are Boeing 737 and 87 are Airbus A319s (see Appendix, Table 1).The age average of the aircrafts being 2.2 years. Meanwhile Ryanair’s fleet is made of 120 Boeing 737 with a capacity of 189 passengers each.
On the 30th of September 2006, EasyJet employed 4,859 people. Among them were cabin crew, pilots, baggage handling agents and others. Meanwhile, Ryanair employed 3,453 people.
2.3 Route Network
Both firms have high frequency daily flights (which correspond to “product availability” for Kasilingam, 1998). Ryanair has even “been voted as the airline with the best punctuality and highest frequency” (Ryanair Holdings PLC Datamonitor Report, 2007). It operates between 133 airports across 24 countries on 436 routes, carrying approximately 45% of all scheduled travellers traffic between Dublin and London (Ryanair Holdings PLC Datamonitor Report, 2007). Regarding EasyJet, it flies between 74 key European airports providing a transportation service for leisure and business customers on 289 routes in 11 countries which are UK, France, Spain, Switzerland, the Netherlands, Denmark, Italy, Czech Republic, Greece, Germany, and Portugal (see Appendix, Map 1 and 2).
According to their respective websites, in 2000 EasyJet transported annually 5.996 million people while Ryanair carried 7.002 million passengers. Last year, in 2006, EasyJet and Ryanair transported respectively 32.953 million and 42.500 million customers (see Appendix, Chart 1).
3. TWO COMPANIES, ONE STRATEGY: COSTS REDUCTION
According to Proussaloglou and Koppelman (1999), when passengers choose a flight, they try to maximise their “air travel utility”. In their analysis, the elements that influence the choice of travellers are “the market presence, quality of service, frequent flyer membership, fare levels and travel restriction, and schedule convenience offered by each available flights”. Do EasyJet and Ryanair meet travellers’ requirements?
Ryanair’s Chief Executive Michael O’Leary is obsessed about keeping costs down and said “We want to be known as the Wal-Mart of flying” (Maier, 2006)
In order to be competitive and be able to offer low fare airline services, LCA try to cut all unnecessary costs so that they can boost their tight profit margins.
• Regarding the “placement of facilities”, EasyJet flies mainly to leading airports while Ryanair uses far more secondary airports; In so doing, they reduce costs as secondary airports are generally “less congested than major airports and can be expected to provide higher rate of on-time departures” (Ryanair Holdings PLC Datamonitor Report, 2007). O’Leary wants to make air travel free (free as in zero cost). By the end of the decade, he promises, “more than half of our passengers will fly free” (Maier, 2006).
• EasyJet gains efficiencies through rapid turnaround times (30 minutes and below) and progressive landing chares agreements with the airports.
• Free seating which is offered by both airlines, contributes to the rapid turnarounds.
• The use of an innovative distribution system such as the Internet enables EasyJet and Ryanair to reduce their distribution costs. Over 90% of all seats on EasyJet’s flights are sold over the Internet, making them one of Europe’s biggest Internet retailers.
“Ticketless” travel reduces costs as it eliminates the cost of issuing, distributing, processing and reconciling millions of tickets each year. Furthermore the Internet allows travellers to book; change and view flights 24 hours a day which is referred to, by Kasilingam as “accuracy of filling an order” (Kasilingam, 1998).
• LCA do not, in general, provide loyalty cards to attract frequent flyers, thereby avoid the setting up and maintenance costs of the service.
• Other ways in which EasyJet and its main rival reduce costs include not serving meals to passengers on their flights, which reduces the cleaning fee. It also means charging passengers for practically every amenity they might consume.
4. LOGISTICS ISSUES
Kasilingam (1998) defines logistics as the “process of moving, storing and retrieving material, people and information efficiently and economically”, then goes on to divide its system into major planning areas:
4.1 Customer service levels
“Product availability” and “accuracy of filling an order” have already been mentioned in sub-sections 2.4 and 3.1 respectively.
? Regarding staff language skills we can say that English being one of the most popular language worldwide, staff members from United Kingdom are advantaged. But, it is not enough. Both companies require their cabin crew to be fluent in written and spoken English. No other languages are required and no language training is conducted. According to Ryanair and EasyJet passengers’ comments, staff language skills are respectively “very poor” and “poor” (Skytrax). This could be a major problem for both airlines as globalisation is expending very fast. Wanting to avoid language training costs or not hiring enough qualified staff could make them lose customers as it diminishes the quality of the customer service provided.
? This lack of skills can also result in complaints. EasyJet and Ryanair had to face lot of complaints regarding the fact that there is no information about compensation for missing a flight and no attempt to provide alternates solutions to travellers.
Some passengers put forward the fact that it is cheap but the cheap prices do not in any way make up for the lack of services (Skytrax). The fact that these companies are viewed as “money grabbing tactics” users is damaging both companies’ brand image and reduces their competitiveness.
4.2 Location decision
The competitive advantage taken from “Placement of facilities” has already been discussed in sub-section 3.1.
4.3 Transportation Management
“Transportation mode, fleet size, route selection and just in time” have been examined in section 2.
But we can also point out that the creation of new route networks leads to another logistics issue. More routes imply more flights and consequently more planes. This means that, the more routes companies take on, the more planes they will have to purchase.
Apart from Kasilingam major planning areas, companies like airlines have to face other issues related to logistics:
We all know that petrol is one of the commercialised goods that suffer fluctuation nearly everyday. It affects not only direct consumers in gas stations (car/motorcycle owners) but also airline companies who generally augment ticket prices to cover the rises. Ryanair remains one of the only airlines to guarantee “no fuel surcharges ever”, prompting even more passengers to flock to their lowest fares. This marketing strategy allows the firm to keep the same price range whatever the variation of petrol price. In doing so, its customers will not be affected and thus not disappointed by the petrol fluctuation.
4.5 Airlines and the Nature
By owning young fleet and flying to short haul destination, with an average of 954 kilometers in 2006, EasyJet was able to reduce CO2 emissions and fuel burn per passenger kilometre. Ryanair has as well achieved to reduce fuel consumption and emissions of almost 52% between 1998 and 2006 (Ryanair).
Both airline companies deliver travellers directly to their destination, it is to say with only one flight (“point-to-point”).This avoid passengers to take connection flights which necessitate two take-offs and two landings, in so doing both airlines limit emissions. This concern for environmental issues does not go unnoticed by clients and, like for the petrol issue, it permits both companies to gain new clients and/or keep their customers.
Bad weather is a big worry for airlines, and LCA are well known for their lack of organisation when it happens. Kevin Shanahan, an EasyJet client, witnesses on the 20th March 2007 on a Skytrax passenger forum: “Inbound flight to Geneva couldn’t land due to bad weather late at night. Found out by phoning home before EasyJet told us at the airport. No help from EasyJet staff to find a hotel for the night (Too late for tourist information), no help to get transport to the hotel. Insufficient places on flight next day […]”. Once again disappointment is present.
“The traditional low-cost model has been that of the charter or non-scheduled airlines which have been such a success in Europe. But the second model introduced into Europe in the late 1990’s is that of the point-to-point, low-cost, no-frills scheduled airlines like EasyJet and Ryanair” (Doganis, 2001). Europe’s LCA models are without a doubt EasyJet and Ryanair, but as every other firm, they have to cope with logistics issues. In this report we have tried to examine them at a strategic level, not focusing on what they do and how, but on WHY.
? Cranfield College of Aeronautics, 2000. Europe’s Low Cost Airlines. An Analysis of the economics and operating characteristics of Europe’s charter and low costs scheduled carriers. Air Transport Group, Cranfield University, Cranfield.
? Doganis, R. (2001) The Airline Business in the 21st Century. New York: Routledge
? Easyjet, About us (2006) Information pack. [Cited 20th March 2007].
? Kasilingam, R.G. (1998) Logistics and Transportation: design and planning. Kluwer Academic.
? Maier, M. (2006) A radical fix for airlines: Make flying free. Business 2.0
Available on CNN Money website
? Proussaloglou, K. and Koppelman, F. S., 1999. The choice of air carrier, flight, and fare class. Journal of Air Transport Management. 5: 193-201.
? Ryanair, About us (2007). [Cited 21st March 2007].
? Ryanair Holdings PLC Datamonitor Report, 2007.
? Skytrax, Airline Ranking (2007). [Cited 26th March 2007]
? Yahoo, Finance UK (2007) Investing. [Cited 15th March 2007] < http://uk.finance.yahoo.com/q/pr?s=EZJ.L>