University of Birmingham

School of Mechanical Engineering

A Comparative Study of Pricing Strategies in the UK Short Haul Airline

Market (Focusing on EasyJet and Ryanair)

GREGG STUART

ID: 1033082

Supervisor: Professor David Walker

Project submitted in partial fulfilment of the requirements for the degree of

MSc in Project Management

This report is an examination script and must not be reproduced in whole or in part without
the written permission of the Head of School

August 2013
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Abstract

In the past decade, the airline industry has experienced massive changes. Many

airline carriers suffered from large financial losses or were consolidated as part of

mergers and acquisitions. Low cost airlines have changed the way people purchase

flights, and how the experience as a whole is now perceived. Traditional airlines have

been undercut by no-frills carriers offering simple point-to-point travel with basic

service. Price is now the main consideration for customers in choosing an airline.

The research undertaken in this paper investigates the pricing strategies adopted by

low cost airlines using EasyJet and Ryanair as two industry examples. There is a

distinction between what traditional airlines and no-frills providers offer the customer

in the current market for air travel. As a comparative study, both companies provide

means of analysing alternative approaches to pricing within the short haul sector.

The paper includes a literature review of pricing, gives an overview of the airline

market, and discusses factors that influence market opportunities and pricing

decisions. The paper also evaluates buyer behaviour of customers and the marketing

mix of the company. The author derives future prospects for both companies and

discusses possible threats in current strategy, with recommendations based on the

potential for the market to change.

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Acknowledgements

I would like to express my appreciation and gratitude to those people who encouraged

and supported me throughout the course of my project.

First of all, I would like to thank my supervisor Professor David Walker, who offered

valuable advice and guidance throughout the project.

Secondly, I would like to thank my Mother and Father, who have always supported

me in both my academic and social life.

Finally, I would like to thank Richard Moody and Allan Young for their industry

expertise, and my lecturers for the knowledge they have conveyed to me throughout

the past year.

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Contents

List of Figures................................................................................................. i

List of Tables................................................................................................... ii

1. Introduction................................................................................................. 1

1.1 Overview.............................................................................................. 1

1.2 Objectives of Research......................................................................... 2

1.3 Methodology........................................................................................ 2

1.3.1 Research Procedures.................................................................... 2

1.3.2 Data Collection............................................................................ 2

2. Literature Review....................................................................................... . 3

2.1 Pricing Influences................................................................................. 3

2.1.1 Macroeconomic............................................................................ 3

2.1.1.1 Demand................................................................................ 3

2.1.1.2 Supply.................................................................................. . 5

2.1.1.3 Cross Elasticity of Demand.................................................. 6

2.1.3 Competitor Pricing...................................................................... 6

2.1.4 Government and Legislation....................................................... . 6

2.2 Types of Pricing................................................................................... 7

2.2.1 Demand Based Pricing................................................................. 7

2.2.2 Supply Based Pricing................................................................... 8

2.2.3 Cost Based Pricing....................................................................... 8

2.2.4 Yield Management Pricing........................................................... 9

2.3 Pricing Strategies................................................................................. 9

2.3.1 Product Line Pricing.................................................................... 9

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2.3.2 Competitive Pricing....................................................................... 10

2.3.3 Promotional Pricing...................................................................... 11

3.0 Market Overview....................................................................................... 12

3.1 Brief Overview of EasyJet.................................................................... 12

3.1.1 Brief History.................................................................................. 12

3.1.2 Mission Statement.......................................................................... 13

3.1.3 Financial Performance Overview – 2012...................................... 13

3.2 Brief Overview of Ryanair..................................................................... 14

3.2.1 Brief History................................................................................... 14

3.2.2 Mission Statement........................................................................... 14

3.2.3 Financial Performance Overview – 2012....................................... 15

3.3 Other Major Players................................................................................ 15

3.3.1 Air Berlin........................................................................................ 16

3.3.2 Norwegian Air Shuttle................................................................... 16

3.4 Recent Developments Affecting Growth of the Short Haul Industry... 17

3.4.1 Globalisation................................................................................. 18

3.4.2 Fluctuations in Oil Prices.............................................................. 18

3.4.3 National Economic Performance ................................................... 18

3.4.4 Migration....................................................................................... 19

3.4.5 European Union............................................................................. 19

3.5 Current Situation in the UK.................................................................... 19

3.5.1 Improvements in Operational Costs............................................... 20

3.5.2 Technology..................................................................................... 21

3.5.3 Value of the Pound......................................................................... 21

3.5.4 Increase in Demand for Air Travel................................................. 21

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3.5.5 Air Duty Costs............................................................................. ... 22

4.0 Market Analysis.......................................................................................... 23

4.1 PESTLE Analysis................................................................................... 23

4.2 Porter’s Five Forces Analysis................................................................. 25

4.2.1 Bargaining Power of Buyers.......................................................... 26

4.2.2 Bargaining Power of Suppliers...................................................... 26

4.2.3 Threat of New Entrants.................................................................. 27

4.2.4 Threat of Substitutes....................................................................... 27

4.2.5 Competitive Rivalry........................................................................ 28

5.0 Buyer Behaviour in Short Haul Air Travel................................................. 30

5.1 Purchase Decision Process.................................................................... 30

5.2 Personal Drivers.................................................................................... 31

5.2.1 Motivation..................................................................................... 31

5.2.2 Level of Interest and Knowledge .................................................. 31

5.2.3 Perception and Attitude................................................................. 32

5.2.4 Routine or Habit............................................................................ 33

5.3 Market Segmentation............................................................................ 33

5.3.1 Leisure Passengers........................................................................ 33

5.3.2 Business Passengers...................................................................... 35

5.3.3 Social Demographics..................................................................... 36

5.3.4 Migration....................................................................................... 37

6.0 The Marketing Mix for EasyJet and Ryanair.............................................. 39

6.1 Product ................................................................................................... 39

6.1.1 Brand.............................................................................................. 39

6.1.2 Package.......................................................................................... 40

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6.1.3 Service........................................................................................... 41

6.1.4 Product Life Cycle......................................................................... 41

6.2 Place (Distribution)............................................................................... 43

6.2.1 Via the Internet............................................................................. 43

6.2.2 Via Third Party Websites .............................................................. 45

6.2.3 Via a Global Distribution System (GDS)...................................... 45

6.2.4 Via Telephone................................................................................ 46

6.3 Promotion.............................................................................................. 46

6.3.1 Advertising.................................................................................... 46

6.3.2 Sales.............................................................................................. 48

6.3.3 Alliances........................................................................................ 48

6.4 Price....................................................................................................... 49

6.4.1 Objectives of Low Cost Airline Pricing Models............................ 49

6.4.2Pricing Strategies........................................................................... 50

6.4.2.1 Demand Based Pricing Strategies......................................... 50

6.4.2.2 Cost Based Pricing Strategies............................................... 51

6.4.3Yield Management System.............................................................. 53

6.4.4Fare Comparison – EasyJet and Ryanair...................................... 54

7.0 Competitive Analysis – EasyJet and Ryanair............................................ 56

7.1 SWOT Analysis.................................................................................... 56

7.2 IFE/EFE Analysis................................................................................. 58

7.3 Analysis of Main Competitive Strategies............................................. 59

7.4 Analysis of Corporate Strategies ......................................................... 60

8.0 Future Prospects for the UK Short Haul Market....................................... 61

9.0 Discussion ................................................................................................. 62

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10.0 Conclusion............................................................................................. .. 64

11.0 References............................................................................................... 66

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List of Figures

Figure 1: UK Consumer Spending 2007 – 2013 (Trading Economics, 2013). 4

Figure 2: Seasonal relationship between demand and price (Avinode, 2013). 5

Figure 3: Changes in UK flight prices (Idealo, 2013) 8

Figure 4: The relationship between cost and quality in pricing strategies (Aviation

Marketing, 2010). 10

Figure 5: EasyJet summer marketing advertisement (EasyJet.com, 2013). 11

Figure 6: European low cost airline passenger (Million) (The Economist, 2011). 15

Figure 7: Domestic European air travellers 2008 vs 2009 (Anna Aero, 2009). 16

Figure 8: UK-EU passenger traffic by carrier type (CAA, 2006). 17

Figure 9: Top 5 European airlines, ranked by seats (CAPA, 2013). 20

Figure 10: Passenger demand at Manchester Airport (millions) (CAA, 2012). 21

Figure 11: Porter’s five forces of competitive advantage (Porter, 2008). 25

Figure 12: The decision making process (USC Marshall, 2008). 30

Figure 13: The online tickets attitude model (Harcar and Yucelt, 2012). 32

Figure 14: Average number of leisure trips by individual passengers based on

household income (CAA, 2008). 34

Figure 15: 2010 passenger journey purpose by airport (Airport Watch, 2010). 34

Figure 16: Requirements of business/leisure passengers (Doganis, 2009). 35

Figure 17: Age of travellers amongst price sensitive buyers (Martinez-Garcia and

Roya-Vela, 2010). 37

Figure 18: Immigration rates in the UK, 2005 – 2012 (ONS, 2012). 38

Figure 19: Product life cycle stages and performance curve (Ronda, 2011). 42

Figure 20: EasyJet booking (EasyJet.com, 2013). 44

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Figure 21: Ryanair booking (Ryanair.com, 2013) 44

Figure 22: EasyJet’s banned business advert (Campaign, 2011). 47

Figure 23: Evolution of demand for air travel in Europe (Mauro, 2012). 50

Figure 24: Prediction for the next oil price shock (Oil Price, 2010). 52

Figure 25: Yield management system (Trianz, 2009). 53

Figure26: An average comparison of European fares (Yahoo Finance, 2012). 55

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List of Tables

Table 1: An overview of EasyJet’s financial performance 2012 (Annual Report –

EasyJet, 2012). 13

Table 2: An overview of Ryaniar’s financial performance (Annual Report – Ryanair

2012). 15

Table 3: A PESTLE analysis of the UK short haul airline market. 23

Table 4: The sequential breakdown of a product. 39

Table 5: The characteristics and brand imagery for EasyJet and Ryanair. 40

Table 6: The different stages of the product life cycle. 42

Table 7: SWOT analysis for EasyJet. 56

Table 8: SWOT analysis for Ryanair. 57

Table 9: IFE analysis for EasyJet. 58

Table 10: IFE analysis for Ryanair. 58

Table 11: EFE analysis for the short haul airline market. 59

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1. Introduction

1.1 Overview

The past decade has been the most turbulent period in the history of aviation, in light

of both the credit crunch in 2008, and subsequent changes in the way people choose to

travel. With the price of oil fluctuating at a lower rate since the turn of the decade, the

business of airline transport is finally on the brink of stability (Time, 2013).

The current price of oil (as of August 1st 2013) stands at around $104 USD per barrel

(Fox News, 2013), airlines still seem conscious of the 2008 surge in prices to a record

$147 USD per barrel. Revenue of most airline companies' fell drastically following

the credit crunch in 2008, however one sector in the industry profited in terms of both

economic growth and market share. The low cost, no-frills airline segment effectively

lowered average flight prices within the industry, consequently providing a more basic

service for the customer.

At first, these low cost carriers targeted price sensitive customers offering one-way,

single class tickets without any restrictions, which could be purchased over the

Internet. This being said, Flight Global (2011) reported a “large shift in business

travellers switching to no-frills airlines to join the leisure market in seeking a lower

price”, highlighting a shift in buyer behaviour from the business demographic to also

travel at a lower cost.

This thesis examines EasyJet and Ryanair, two no-frills airline companies competing

in the low cost sector, in relation to their pricing strategies, marketing directives and

future prospects.

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1.2 Objectives of Research

The objective of the research is to investigate and examine the pricing strategies

employed by low cost, no-frills airline carriers, particularly EasyJet and Ryanair. The

factors affecting pricing decisions and fluctuations in prices relative to buyer

behaviour and the marketing mix will be further evaluated to determine prospects for

the future of the UK short haul airline market. A competitive analysis will also be

carried out between EasyJet and Ryanair.

1.3 Methodology

1.3.1 Research Procedures

Research questions in this paper are answered using both primary (Questionnaire and

research interview) and secondary data.

1.3.2 Data Collection

Primary data was collected via informal interviews with Allan Young (Head of

Authorities – Gatwick Airport) and Richard Moody (Airline Maintenance – Gatwick

Airport).

Secondary Data was collected from organisations' annual reports, journal publications,

textbooks, news, and UK and Global national statistics. Porter's Five Forces,

PESTEL, SWOT, and IFE/EFE analysis tools were used to analyse the internal and

external factors that affect airline carriers in terms of both the current market situation

and application of strategies.

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2. Literature Review

Smith (2011) argues that the dominant forces to setting prices have each been placed

upon the common pillar of value. This suggests that prices and pricing strategies

should be based around the customer's perception of value will determine how a

company brands, markets, and distributes its product or service. As part of the

marketing mix, it is the only factor that generates profit directly in terms of an

immediate transaction (Mills, 2001).

The other factors within the marketing mix are product, place, and promotion, which

form the rest of McCarthy’s (1960) theory of the four P's. It is important to note that

all four areas must be taken into account as no one single factor contributes to the

success of a company within the airline industry (Skalen et al, 2007).

2.1 Pricing Influences

2.1.1 Macroeconomic

2.1.1.1 Demand

The relationship between demand and price is interdependent, and a positive

correlation exists by which if supply is constant, then an increase in demand will

subsequently increase price and vice versa (Hsu and Wen, 2003). Although higher

demand will influence price, an increase in price may see a fall in demand, which is

why low cost airline carriers have to be cautious of what price range to set.

In the no-frills sector of airline industry there are several determinants that influence

demand for flights:

 Disposable Income – Due to the amount of people who travel abroad in

modern times, demand for flights depends more on the annual frequency for

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which people choose to fly. The capacity to purchase flights and holidays (as

a whole) depends on the disposable income available for consumers to spend.

In the UK the average disposable income for households stood at £145 per

week in 2012 (The Telegraph, 2012).

 Availability of Substitutes – This concerns not only alternative modes of

transportation such as rail or ferry, but also other low cost carriers and legacy

airlines that may offer more attractive price schemes.

 Psychological – Fear of flying due to terrorism or local welfare in other

countries can hinder the consumer’s decision to travel via plane or in some

cases travel abroad at all.

 Economic Welfare – Higher unemployment rates and the deterioration of the

business sector has led to significant falls in GDP and consumption. Figure 1

shows consumer spending in the UK.

Figure 1: UK Consumer Spending 2007 – 2013 (Trading Economics, 2013).

The data in figure 1 shows a fall in consumer spending around the time of the

recession, however substantial growth towards the start of 2013 to average

spending of £243,765 Million GBP shows increased promise and opportunity.

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 Seasonal Demand – The time of year will influence when consumers choose

to travel abroad. This is reflected in the prices low cost airlines offer at these

times of year. Figure 2 shows how seasonal demand can affect average prices

in the industry.

Figure 2: Seasonal relationship between demand and price (Avinode, 2013).

The influence of seasonal change is evident by the increase in demand around

the summer period and the consequent reduction in average flight prices.

2.1.1.2 Supply

For no-frills airlines, it is sometimes relevant to consider the number of seats available

on a plane as the scheduled flight approaches its departure date (Debbage and

Ioannides, 1998). Supply variables will differ from airline to airline depending on the

seating and class structure they have and the type of planes they operate.

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2.1.1.3 Cross Elasticity of Demand

By estimating price elasticity of demand, companies can determine the responsiveness

of a customer to changes in price (Holloway, 1997). Cross elasticity is concerned

with how the demand for one product or service is affected by a change in price of

another. The equation for this is as follows:

Ea,b = % change in quantity demanded of service A

% change in price of service B

For customers travelling within Europe, this could be concerned with house prices in

countries abroad, or the cost of living in other areas of Europe. However, since the

credit crunch in 2008, Smith (2011) argues that consumers are becoming less

responsive to such changes in price due to the subsequent fall in global economic

welfare.

2.1.3 Competitor Pricing

Due to the exponential growth of EasyJet and Ryanair within the short haul airline

market, they have both become major players (Doganis, 2009). Since the credit

crunch in 2008, airlines place more emphasis on airline pricing strategies to remain

competitive based on rival activity.

2.1.4 Government and Legislation

The establishment of a single market within the EU has led to the diminishing of

many trade barriers (CAA, 2013). This deregulation allowed airline companies to set

their own prices and left the forces of demand and competition to determine how said

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prices may fluctuate. The European Commission initiated a “Third Package”

document that outlined three rules and was an integral factor in the deregulation

process, as follows:

1. “No Price Control” - Airlines took control of setting prices within the market

and under the influence of competition.

2. “Open Market Access” - Airlines were free to operate in any EU country

providing they agreed terms with the necessary local authorities and without

any particular trafficking regulation.

3. “Air Operators' Certificates by EU member states and Operating Licenses” -

These were required as certification to operate to and from different European

destinations. (Doganis, 2009)

2.2 Types of Pricing

2.2.1 Demand Based Pricing

In terms of demand based pricing, Pride and Ferrell (2011) state that “Customers pay

a higher price for when the demand is strong and a lower price for when the demand

is weak”. Under these circumstances operational costs and overheads are not

neglected.

In the airline industry, costs such as tax are included in the price to give a complete

total, resulting in the price being dictated by the customer’s willingness to pay. Flight

data is very useful (figure 3) in terms of airlines determining upcoming prices and

opportunities where additional marketing may be used to boost sales (Shaw, 2007).

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Figure 3: Changes in UK flight prices (Idealo, 2013)

Figure 3 shows that around the 5 week period prior to a flight, the price of fares rise,

potentially to signal a shortage of supply and to stimulate demand. As the flight

draws nearer there is a more obvious increase in the fare prices.

2.2.2 Supply Based Pricing

Some low cost airlines will raise the price of fares to popular destinations around

times of high travel activity as they know the seats will get sold. At other times of the

year they may decide to decrease the price gradually and use some of the other

marketing mix strategies to ensure as little spare capacity remains as possible

(Holloway, 1997).

2.2.3 Cost Based Pricing

Cost based pricing is influenced by internal factors within a company such as

production, marketing and distribution costs (Mills, 2002). These do not take into

account the market environment for which the company is a part of, which restricts its

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use to certain sectors. This being said, Morrell (1997) argues that a certain degree of

cost based pricing ensures desirable profit margins are achievable.

2.2.4 Yield Management Pricing

In the market for air travel, yield management pricing is used to set the price in

relation to profit maximisation and demand (Knorr and Zigova, 2004). The system

classifies customers in terms of income elasticity as well as general demographic to

measure the capacity to which the product or service may be demanded (Ferreira,

2007). With certain aspects of all three previous types of pricing (2.2.1, 2.2.2, and

2.2.3), this is a system adopted by most operators within the industry.

2.3 Pricing Strategies

In the airline industry, most carriers will adopt a combination of three methods of

pricing: product line, competitive, and promotional.

2.3.1 Product Line Pricing

Hsu and Wen (2003) report that “product line pricing centres more around the

customer, in terms of geographic location, demographic position, and income”. Prices

are manipulated to help develop sales and account for external factors that may affect

purchasing of a product. With a range of destinations and seating classes offered by

legacy airline carriers, premium pricing is used. Figure 4 shows how this strategy

focuses on providing a perceivably higher quality product, at a higher price (premium)

(O'Connell, 2006).

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Figure 4: The relationship between cost and quality in pricing strategies

(Aviation Marketing, 2010).

EasyJet and Ryanair offer services that cross between the other three segments

highlighted in figure 4 including penetrative, skimming and economy standard pricing

strategies.

2.3.2 Competitive Pricing

As suggested in section 2.1.3, competition in the airline industry is fierce and pricing

strategies in many cases either reflect an initial move by a competitor, or highlight an

opportunity for which one firm wishes to gain an advantage (Doganis, 2009).

Penetration pricing is a strategy adopted by firms new to a market and also those that

want to try and push out competition, as they possess the means to offer a lower price

or higher quality of product (or both).

This is evident in figure 4, where Porter (2008) argues that penetrative pricing can

make a market place less desirable for potential new entrants, especially when the

companies implementing these practices hold a large share of the market.

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2.3.3 Promotional Pricing

In most industries, promotional pricing will be offered to customers on a short term

basis, although some companies offer them repeatedly (Small Business, 2013). This

may depend on the success of the prices set in response to sales and the economic

climate in which they are made available. In the airline industry, special event pricing

is used by low cost carriers to generate sales by stimulating demand. This is shown

by an EasyJet advertisement on their website in figure 5.

Figure 5: EasyJet summer marketing advertisement (EasyJet.com, 2013).

This particular advert focuses on summer and the use of seasonal marketing. This

being said, other forms of special events pricing can be based around international

events or use a range of destinations, all available at the same price (Francis et al,

2006). For example: five different European countries for under £20 GBP.

Odd-Even pricing is used by many airline carriers to make prices seem considerably

lower than they are (Schindler and Warren, 1988). In the UK, most airlines adopt this

format as it targets the psychological nature of how people purchase, say by

marketing a flight at £29.99 GBP as opposed to £30 GBP.

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3. Market Overview
As the global economy has begun to move towards a period of potentially sustainable

growth, many industry experts believe the low cost sector will continue to dominate

the short haul market. Airline Leader (2012) reports that “In summer 2003, low cost

carriers were offering only 17% OF SEATS on European domestic and short-haul

international routes. By summer 2010, the latter’s share had risen to 44%”.

3.1 Brief Overview of EasyJet

3.1.1 Brief History

EasyJet is a Luton-based airline carrier established in 1995 by Stelios Haji-Ioannou,

as a bi-product of the EasyGroup Corporation (SFU, 2013). It first offered UK based

routes from London's Luton airport to Glasgow and Edinburgh. One of its main

subsidiary projects today is aircraft trading and leasing (Thomas Edwards, 2010).

Strong marketing campaigns and a low cost business model meant that EasyJet was

able to build a modest reputation throughout the 90's until the turn of the century

when its growth became apparent (EasyJet.com, 2013). Before the credit crunch in

2008 EasyJet already had a strong share of the market, which grew even more as the

European and global economy went into decline. EasyJet currently operates over 600

routes to more than 30 countries and in 2012 carried over 60 million passengers

(Annual Report – EasyJet, 2012).

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3.1.2 Mission Statement

The following mission statements have been set out by EasyJet, and form an integral

part of their business objectives:

1. Safety is our number 1 priority, with no compromises.

2. We aim to break the mould and pioneer to find new opportunities.

3. One unified team as we work better as one.

4. We are passionate and ambitious to be the best we can be.

5. In terms of integrity we mean what we say and follow through with it.

6. We work hard to keep things simple and easy for everyone.

(EasyJet.com, 2013).

3.1.3 Financial Performance Overview - 2012

Table 1: An overview of EasyJet’s financial performance 2012 (Annual Report –

EasyJet, 2012).

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3.2 Brief Overview of Ryanair

3.2.1 Brief History

Ryanair was established in 1985 by the Ryan family operating their first services from

Waterford (Ireland) to London Gatwick airport. Thanks to deregulation and

privatisation of the aviation industry in the 1990's, Ryanair (and EasyJet) were able to

exploit new opportunities within the short haul market. As a result, they surpassed

British Airways and Aer Lingus in terms of a dominant share of the most popular

European route, London to Dublin (Business and Finance, 2009).

Claiming to be Europe's only 'ultra-low cost carrier', Ryanair gained recognition in

2003 from Google, in which they achieved status as the most popular airline company

on the search engines database (Thomas Edwards, 2010). Ryanair's mercenary

approach to low pricing and cost skimming has managed to guide them through the

recent economic downturn. It now operates over 1600 routes to 29 different

countries, and in 2012 carried over 79 million passengers (Ryanair.com, 2013).

3.2.2 Mission Statement

Ryanair does not have any specific mission statement, but does list a passenger charter

as part of their service to customers:

1. Offer the lowest prices at all times on routes.

2. No fuel surcharge guaranteed.

3. Minimise the numbers of passengers facing delays.

4. Respond quickly to passenger complaints and provide prompt refunds.

5. Speed up check-in.

6. Notify passengers of known delays, cancellations and diversions.

(Ryanair.com, 2013)

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3.2.3 Financial Performance Overview - 2012

Table 2: An overview of Ryaniar’s financial performance (Annual Report –

Ryanair 2012).

3.3 Other Major Players

The short haul market is one of the most competitive sectors in the air travel industry,

due to exponential growth and attractiveness to other firms over the past 10 years

(Shaw, 2007). Figure 6 shows the increase in passengers carried by some of the major

European players.

Figure 6: European low cost airline passenger (Million) (The Economist, 2011).

The data reflects the high risks and potential start-up costs associated with entering

this market segment, of which firms would only realistically be able to penetrate via

large investment or some sort of corporate alliance (Porter 2008).

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3.3.1 Air Berlin

The German based airline Air Berlin is considered to compete within the low cost

market segment, but in comparison to EasyJet and Ryanair, offers slightly higher

pricing structures for consumers. It provides a higher quality service and uses a

hybrid model to convey to the customer that the product is more ‘premium’ than its

competitors (Seat Maestro, 2013), based on the model in figure 4. Air Berlin carried

over 30 million passengers in 2012 and adopts more alliance strategies than EasyJet

and Ryanair (CAPA, 2013), most recently with British Airways and Pegasus Airlines.

3.3.2 Norwegian Air Shuttle

Norwegian Air Shuttle trades under the abbreviated name Norwegian and has become

a major player in the short haul industry in the past 5 years (Plane Spotters, 2013).

For topographic reasons the Norwegian air travel market is one of the largest in

Europe, and the airline started by making most profit in the Scandinavian area (BBC,

2013). This statement is supported by the data in figure 7.

Figure 7: Domestic European air travellers 2008 vs 2009 (Anna Aero, 2009).

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This figure suggests that the Norwegian population on average fly at a substantially

higher rate than other countries, considering its size. Norwegian carried over 17

million passengers in 2012 and is recently venturing into the long haul aviation

market (BBC, 2013).

3.4 Recent Developments Affecting Growth of the Short Haul Industry

Since the establishment of no-frills air travel, the rate of growth of the sector has

increased at a high rate relative to others in the aviation industry (Doganis, 2009).

Figure 8 shows how the no-frills market began to grow with the turn of the century,

compared to full service and charter airlines.

Figure 8: UK-EU passenger traffic by carrier type (CAA, 2006).

This data reflects movement in globalisation, fluctuations in oil prices, migration, and

national economic performance, amongst other more historical factors, such as the

creation of the European Union.

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3.4.1 Globalisation

Globalisation is the method by which companies can expand via means of a wider

geographical reach, in turn integrating cultures (Eaton, 2001). By influencing

economies and improving business networks through expansive communication and

trade, airline companies based in one country are able to offer attractive incentives to

others (Eaton, 2001). This may include increased tourism or higher consumption.

3.4.2 Fluctuations in Oil Prices

As stated in section 1.1, oil prices currently stand at around $104 USD per barrel,

although in recent times due to tougher economic circumstances (2008-2010), oil has

been key in the growth of each sector of the airline industry (O'Connor, 2001). The

short haul market has taken advantage of this due to the shorter distances for which

they operate.

3.4.3 National Economic Performance

The performance of the economy is a key determinant in the rate at which any market

may be able to grow or survive (Morrell, 1997). In the UK, income has dictated the

demand for air travel and the propensity for customers to invest in substitute services.

Moreover, Richard Branson (Virgin) highlighted that the airline industry in the UK

did not get any financial support from the government during the recession, and

argued that “The Government must acknowledge the crucial role aviation will play in

the economic recovery of the UK” (Thomas Edwards, 2010).

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3.4.4 Migration

In the period 2000 – 2005, inward migration of Eastern Europeans to Western Europe

was the main driver for growth of the sector in relation to people chasing a higher

standard of living (Shaw, 2007). As immigration laws have become stricter,

populations’ in Western Europe may start growing at a less substantial rate (Wilson et

al, 2013). This being said, the implication of Western households purchasing property

abroad and visiting other parts of Europe has acted as a key driver in the growth of the

short haul market (Shaw, 2007).

3.4.5 European Union

The European Union's establishment, as well as the single currency adopted by most

countries within it, has allowed for a greater ease of trading by reducing exchange rate

fluctuations (Doganis, 2009). This concerns not only the relationship between airlines

and potential destinations but also the relationship between the companies and the

customer. Airlines are able to assess the geographic and demographic needs of

consumers across different parts of the continent (Francis et al, 2006) and figure out a

subsequent hedging strategy.

3.5 Current Situation in the UK

Figure 9 shows how EasyJet and Ryanair hold a large share of the European market in

terms of available seating.

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Figure 9: Top 5 European airlines, ranked by seats (CAPA, 2013)

Although this data shows Lufthansa as the top ranked carrier, in terms of passengers

carried throughout the year 2012 Ryanair holds market dominance at over 79 million

(Ryanair, 2013). Considering the recession only 3-4 years prior, this suggested

substantial improvements for EasyJet and Ryanair (Airline Leader, 2012). This is

mainly due to improvements in operational costs, technology, the value of the pound,

an increase in demand for air travel and air duty costs.

3.5.1 Improvements in Operational Costs

EasyJet and Ryanair are pursuing higher frequency times between flights, aiming at a

20 minute turnaround in the coming years (Richard Moody, Airline Maintenance).

By using mobile steps to transport passengers onto flights, whereby they are

organised in the terminal, costs are reduced (Airline Leader, 2012). This allows time

for luggage to be weighed and passengers to be registered, which directly contribute

to the data used to measure how much fuel to load onto each flight, thus operating

more efficiently.

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3.5.2 Technology

The materials used on the current EasyJet Airbus A319 fleet and Ryanair’s Boeing

737-800 series are very light, reducing the costs of flying the plane (Time, 2013). The

fuel used by airlines is called JetA1 (specific for aeroplanes) and is loaded each wing

first to improve aerodynamics and balance of weight for when the flight is airborne

(Richard Moody, Airline Maintenance).

3.5.3 Value of the Pound

As the British pound gets stronger with the economy gathering pace, it provides good

news in terms of flight sales in the UK, providing the Euro improves itself (BBC,

2013). This is based on views that both currencies gain strength concurrently as

demand in the UK to travel to countries operating under the Euro will depend on the

exchange rate between the two (BBC, 2013).

3.5.4 Increase in Demand for Air Travel

Figure 10 shows the demand for air travel at Manchester Airport.

Figure 10: Passenger demand at Manchester Airport (millions) (CAA, 2012).

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This resurgence of demand reflects the current improvements in the UK economy,

which ties in with increases in consumer spending (figure 1). With increasing

competition from rail and ferry crossing services, it is important that airlines offer

attractive prices to deter customers from taking advantage of low switching costs

(Small Business, 2013).

3.5.5 Air Duty Costs

Even though Air Duty costs doubled in 2007 from £5 to £10 per passenger, this came

at a time when air travel was about to enter a steep decline (CAA, 2008). Short haul

airlines such as EasyJet and Ryanair where able to pick up business lost by other

carriers through the recession and have now incorporated these costs effectively into

their prices structures to ensure customers who switched stay loyal (Doganis, 2009).

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4. Market Analysis

4.1 PESTLE Analysis

This analyses the external environment of the short haul airline market, covering

political, economic, social, technological, and environmental factors.

Table 3: A PESTLE analysis of the UK short haul airline market.

Privatisation of the airline industry meant that the responsibility of

airports shifted hands from government control to that of private
regulators (Shaw, 2007). Examples include the British Airways
Authority of the UK as part of the 1986 Airports Act, and
Aeroports de Paris in France. Increased competition in the industry
and higher demand for air travel led to said privatisation (Ferreira,
2007), with airports competing for business.
Such recent events as the Ethiopian Dreamliner plane that caught
fire on Heathrow runway (Sky News, 2013) triggered the use of
state aid given to airlines in exceptional circumstances. In this case
flights were cancelled or transferred. A more financially
devastating example was the volcanic ash cloud in 2010 ($2.8
Billion USD loss for European carriers) that adversely affected
Political European flights for weeks. EasyJet is currently undergoing
measures to prevent a repeat performance by trying to run tests to
determine how safe it is to fly in an ash cloud (Mail Online, 2013).
Securities in airports across the world were tightened after the 9/11
attacks in New York, 2001. Airports now have to enforce much
stricter and rigorous methods of security (Shaw, 2007), increasing
operational costs for airlines. This being said, USA today (2010)
reported that “the airline industry had needed to change for a long
time regardless of this disaster”.
The European commission’s “Third Package” agreement (section
2.1.4), allows carriers to price and trade as part of a single market
(CAA, 2013). Any signs of discrimination against foreign
competition or preference towards airline companies from home
nations were removed (Shaw, 2007).
The current economy is in a transition period towards recovery
following the credit crunch in 2008. With consumer spending
growing again (figure 1), this should boost the UK economy.
The British Pound is getting stronger compared to the US Dollar
and the Euro (BBC, 2013), albeit only by a small amount, which
provides buyers and market traders within the UK with more
Economic confidence in terms of expenditure and investment.
High levels of fluctuating oil prices have subsided for the time
being, at around $104 USD per barrel (Fox News, 2013), meaning
low cost carriers such as EasyJet and Ryanair have been able to
push for cheaper flight fares.

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Family profiles are changing in the 21st century, whereby the more
traditional family structure seems to be diminishing with reference
to increases in gay marriages, divorced parents, and single parent
guardians. Divorced people are likely to have more disposable
income to travel, as are male gay marriages where both parties
work full time.
Furthermore, the increased ageing and retired population has its
own segment in the short haul market altogether. With other forms
of transportation proven more difficult to use for this segment,
Social there is a massive opportunity for airline companies to bring in
more revenue, especially from the population of retired people who
do not work and receive a pension (Flight Global, 2011).
Students in the modern day era have more opportunities to travel
with education offered abroad at a higher standard, or simply to
provide a means of a new experience. Young people aged 16 – 24
have higher disposable income due to either the wealth of
guardians, or better paid jobs for people in this age group (The
Economist, 2011). Modern social status indicates they are more
likely to spend their money on luxury goods and travelling.
The focus of business people (in terms of travelling) centres on
reliability and frequency, in which they may travel to and from a
single destination in the same day.
By using the Internet as a distribution network, EasyJet and
Ryanair reduce the cost of labour by not having to operate travel
agencies (BBC, 2013). Furthermore, with customers being
encouraged to check in online prior to a flight, it can also increase
revenue (if the customer forgets). Nevertheless, it offers the
customer a direct forum to compare prices with competitors to find
Technological the best fare rate.
In the business sector, and by means of the Internet, emails, video-
conferencing, global company forums, and tele-conferencing are
all forms of substitutes to travelling. Even though business
travellers may opt to use these technologies as opposed to airline
flights, with a shift in the economy and the potential for future low
cost long haul flights, this sector is still very financially attractive.
The EU passed legislation aimed at reducing the problem area
within the industry where flights are overbooked, in which
passengers may not arrive for a scheduled flight (mainly business
travellers who are fully flexible). In the low cost market this is
even more of a problem as flights are so cheap for business
customers, and seats are consequently taken away from leisure
travellers who look to travel on a specific time and date only a
Legal couple of times a year.
Airport slots concerning the scheduled arrival and departure of
flights is another legal concern for both airports and airline carriers
(Shaw, 2007). Slots are provided based on utilisation by airline
companies at a rate of at least 80% for the season, otherwise the
following year they may be passed on to other interested parties
(Hsu and Wen, 2001).

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Climate control and global warming issues in the 21st century put
much more pressure on the airline industry than any other in the
travel market, due to such high emissions of carbon dioxide and
other harmful substances across the globe (CAA, 2006).
Nowadays, both EasyJet and Ryanair amongst other short haul
Environmental operating companies use much lighter aircrafts so that their carbon
footprint is reduced.
There is always a risk that if the environment deteriorates to a
certain point, international governments may intervene to reduce
air traffic. However, loss of revenue for said governments as a
result of this may prove too costly in terms of enforcing any strict
immediate rules.

4.2 Porter’s Five Forces Analysis

Porter (1979) argues that a firm must gain a better understanding of the market in

which they operate in (or wish to join), in terms of gauging a sense of industry

competition. The nature and degree of said competition hinders on Porter’s five

forces model, as depicted in figure 11 below.

THREAT OF NEW
ENTRANTS:

Moderate

BARGAINING POWER OF COMPETITIVE RIVALRY BARGAINING POWER OF

BUYERS: (JOCKEYING AMONSGT SUPPLIERS:
CURRENT CONTESTANTS):
High High
High

THREAT OF
SUBSTITUTES:

High

Figure 11: Porter’s five forces of competitive advantage (Porter, 2008)

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4.2.1 Bargaining Power of Buyers

Porter (1979) suggests that buyer power is significant in being able to force down

prices, demand a higher quality product or service and play competitors against each

other to find the best value. As a concentrated group purchasing large volumes of

tickets each year, EasyJet and Ryanair must ensure they retain as much of the buying

population as possible, through offering low cost flight fares.

The cost of switching travel providers is low due to so many operating firms within

the short haul market and the use of online retailing allows buyers to compare the best

prices themselves (Francis et al, 2006). Price and convenience are becoming the two

most sought after factors for customers purchasing a flight, which is why EasyJet try

to pursue a higher quality of service than Ryanair to encourage buyer loyalty.

4.2.2 Bargaining Power of Suppliers

In the airline industry the two main suppliers for airline carriers are aircraft

manufacturers and airports. Both EasyJet and Ryanair’s propensity to be bargained

by airports mainly depends on the number and usage share of each airport they

operate in, and whether they are primary or secondary airports (Shaw, 2007). For

example at Gatwick Airport, EasyJet now hold around a 45% share of all flights that

arrive and depart on a daily basis, whereas Ryanair only hold 5% (Allan Young, Head

of Authorities). Congested airports that they operate in will charge higher prices, of

which EasyJet are likely to pursue in order to attract business travellers.

Ryanair on the other hand provide flights to more destinations across Europe in order

to attract leisure passengers seeking ultra-low cost services (Tamk, 2008). The power

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of aircraft manufacturers is high as both respective companies run services using a

large fleet of one particular jet type.

4.2.3 Threat of New Entrants

In the airline industry the threat of new entrants is considered moderate. In the

European market the barriers to entry are relatively low as a result of deregulation of

the airline industry. Most forms of entry in the modern day era may come from larger

corporations such as British Airways and Virgin as they have the financial resources

to expand into the short haul market, as start-up costs for new companies are

extremely high (Doganis, 2009).

One of the main barriers to entry for firms to consider is economies of scale, in terms

of forcing the aspirant to come in on a large scale or to accept a cost disadvantage

(Porter, 1979). For firms such as British Airways and Virgin, they already have

access to distribution channels and can differentiate from existing firms, as they have

their own customer base in terms of retaining loyalty in a different market segment.

For smaller companies entering the market, the direct head-to-head branding and

marketing implications are hard to overcome (Ferreira, 2007).

4.2.4 Threat of Substitutes

Porter (1979) suggests that the more attractive the price performance trade-off offered

by substitute services, the firmer the lid placed on the industry’s profit potential.

There is only one major substitute within the travel market across Europe, which is

rail transportation (Shaw, 2007).

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With the psychological constrictions placed on flying by certain customers, rail

passengers not only see this as a viable substitute, but also believe the services offered

by carriers such as EuroStar are of a much higher quality than low cost airlines. From

an environmental point of view it is also important to establish that rail travel is a

“truly attractive greener alternative to flying” (EuroStar Agents, 2011).

In terms of the business sector, a more indirect substitute to flying is concerned with

the Internet, and in particular the use of video conferencing and email technologies to

save on the cost of travelling. This however only applies to a segmented area of the

short haul travel market (Francis et al, 2006).

4.2.5 Competitive Rivalry

Competition in the airline industry is fierce, and both EasyJet and Ryanair have to use

tactics such as product differentiation, product introduction, and partake in an

advertising slugfest (Porter, 1986). For companies in the industry, improving their

operating costs is a great driver behind being able to reduce prices and offer more

attractive incentives for customers (Shaw, 2007). For EasyJet and Ryanair, the main

forms of competition within the industry come from other no-frills carriers, legacy

(full cost) services and charter airlines.

Growth of the airline industry is slow due to numerous competitors within the same

market segment and low cost airlines are finding it increasingly hard to push out

competition (Shaw, 2007). Both EasyJet and Ryanair used to be able to establish a

level of cost leadership by offering no-frills travel to offset the higher oil prices

around the time of the credit crunch in 2008 (Aviation Marketing, 2010). Nowadays

with their brand image and pricing structure already well known within the market for

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air travel, they are finding it more difficult to differentiate, which is why EasyJet in

particular is trying to advertise a higher quality service in pursuit of business

travellers.

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5. Buyer Behaviour in Short Haul Air Travel

It is important for airline companies now to consider the buying behaviour of

customers (Time, 2013); in terms of the decision making process, personal

requirements, and the different market segments that may purchase low cost fares.

5.1 Purchase Decision Process

There are certain stages by which a consumer is able to make a logical decision, and

to find a solution to an initial problem. Figure 12 shows a basic model mapping this

process.

Figure 12: The decision making process (USC Marshall, 2008).

The diagram (figure 12) depicts complications within the purchase decision process,

which can occur depending mainly on whether enough information has been

researched (highlighted by two of the complication pathways). The consumer may

come to the conclusion that the decision they made is the correct one, however in

reality there is sometimes a level of neurological doubt that a better solution was

overlooked (Robert Wilfing, 2012).

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5.2 Personal Drivers

5.2.1 Motivation

When purchasing a service, or in this case a flight, there are four main motivators that

contribute to the buyer’s decision making process:

1. Economic Motivation – Where the primary goal is to find the cheapest

possible alternative.

2. Hedonistic Motivation – Here the consumer wishes to feel pleasure as a result

of the transaction.

3. Relational Motivation – The buyer seeks to establish some sort of relationship

with the client.

4. Functional Motivation – Where the purchase depends on the speed and ease of

transaction. (Rohan Hubli, 2010)

These internal motivations will become apparent mainly in the three stages prior to

the final purchase as highlighted in figure 13.

5.2.2 Level of Interest and Knowledge

Airlines have no direct control over the level of interest shown by consumers in

purchasing one of their flights. By using direct marketing strategies through a range

of mediums, they are at least able to establish themselves as a viable option in the

purchasing process (Flight Global, 2011). In other cases, a lack of knowledge or

interest to research alternative solutions (figure 12) may be beneficial as customers

sometimes seek a quick and simple purchase regardless of price.

Bindu (2013) states that in the short haul market, “price, safety, and convenience” are

what matter most to leisure passengers. Allan Young (Head of Authorities) offers a

different viewpoint representing business travellers, suggesting this particular

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demographic values “reliability and frequency” ahead of “price”. This information

gives a means of target marketing different buyer groups to direct their level of

interest and knowledge base.

5.2.3 Perception and Attitude

The way in which a customer perceives the value of a flight in the low cost market is

mostly concerned with the relationship between the price and destination (Robert

Wilfing, 2012). This may also include the time of year for which they decide to

travel. Figure 13 shows the attitude model of buyers’ purchasing tickets through an

online portal.

Figure 13: The online tickets attitude model (Harcar and Yucelt, 2012).

This shows seven different variables that can be attributed to the online attitude of

consumers purchasing a flight fare. Bindu (2013) argues that 65 – 70% of travel

shoppers are aware of deceitful positioning used by airline carriers to make their

particular price structure stand out.

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5.2.4 Routine or Habit

Risk-avoiding or routine-loyal passengers seek out past experiences and previous

successful transactions when considering making a new purchase (Rohan Hubli,

2010). As EasyJet and Ryanair share airport slots at many UK airports, passenger

loyalty is considered very important in retaining buyers who may only fly once or

twice each year (EasyJet.com, 2013).

With the economy recovering from a downturn in the 2008 – 2010 period, consumers

in the airline industry may now be moving away from the habitual nature of finding

the lowest cost flight regardless of the carrier. Factors such as customer service and

quality of the aircraft may become more prominent to the buyer’s decision making

process (SFU, 2013).

5.3 Market Segmentation

5.3.1 Leisure Passengers

In 2012, it was reported that UK holidaymakers spent a record £12.6 billion GBP

abroad, for the year 2011, which represented a 2% increase on the previous year

(Visa, 2012). This data shows how the availability of low cost airlines can allow

consumers to increase their average holiday spending money each year.

In the UK 75% of trips are made by social classes A, B, and C, with only 11% of

people that do fly (at all) coming from social classes D and E (AEF, 2009). Therefore

regardless of the income gap between consumers, as highlighted in figure 14, people

from each different social class within the UK are pursuing the cheapest means of

reaching their final destination.

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Figure 14: Average number of leisure trips by individual passengers based on

household income (CAA, 2008).

Leisure passengers are highly price sensitive, as their holiday time, location and

expenditure each year will depend on income and household circumstances, unlike

that of business travellers who have it paid through company expenses (Francis et al,

2006). Figure 15 shows the percentage of leisure, business, and visiting travellers

from UK airports in the year 2010.

Figure 15: 2010 passenger journey purpose by airport (Airport Watch, 2010).

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The increase in UK residents investing in property abroad has also created a small

segment within the market of people who will book the same flight to the same

destination each year (Canadian Business, 2012). In these circumstances the

passenger will be able to make their own annual comparison in terms of price, which

is why both companies (EasyJet and Ryanair) have to make price increases that are in

line with economic movement and profit targets, but do not lose loyal customers.

5.3.2 Business Passengers

Demand for flying in the business world is usually dependant on the condition of the

economy (Hsu and Wen, 2003) and business travellers may come from large

corporations or be self-employed. Although low cost airlines concentrate most of

their efforts on attracting the value-seeking leisure passengers, they must not neglect

what is a very profitable segment. Figure 16 compares business and leisure travellers.

Customer Seat High Ability to Stop- In- Quick Low

Ranking Available Frequency Cancel Over Flight Check Fare
on Comfort
Demand
Reservation Route In
Very
Important

Important

Do Not
Mind

Less
Important

Not
Important

Two Week Holiday Weekend Holiday Routine Business Emergency Business

Figure 16: Requirements of business/leisure passengers (Doganis, 2009).

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Both emergency and routine business passengers value most of the services (figure

16) as either ‘very important’ or ‘important’, apart from low fares. EasyJet in

particular has made the first real moves for catering for this market segment in the

past five years by improving the quality of service on flights (EasyJet.com, 2013).

They recognise that the frequency at which business users may fly and their lack of

interest in finding the lowest price are two very profitable attributes.

Ryanair does have the resources in terms of European routes and a larger fleet,

however EasyJet have a larger share of UK primary airports, which this particular

segment prefer to use. In terms of available flights Ryanair has much less to offer in

more densely populated business areas.

Corporate business travellers tend to have agreements in place with full cost travel

providers and organise their travel arrangements through agents (Shaw, 2007). This

being said, for short haul flights, many companies have switched their contractual

arrangements since the downturn of the economy in 2008 and are now more likely to

book flights with no-frills carriers and run them through as expenses (BBC, 2013).

5.3.3 Social Demographics

It is important for low cost airlines to consider the social demographics for passengers

of every age (Debbage and Ioannides, 1998). This provides a means of cross

referencing the most popular holiday destinations for different age groups with the

time of year they wish to travel, to ultimately determine a competitive price

(O'Connor, 2001). Figure 17 shows the different age groups of people who travel.

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Figure 17: Age of travellers amongst price sensitive buyers (Martinez-Garcia

and Roya-Vela, 2010).

The chart highlights 3 popular groups of travellers, of which young people below the

age of 24 hold the market share. EasyJet and Ryanair can use the information in their

databases that show passenger travel patterns for the three main age groups. This can

determine the most popular routes for customers of different ages (Smith, 2011), and

in turn deliver a price (also based on seasonality) that would attract the most interest

from said age group.

5.3.4 Migration

The population of countries in Western Europe has grown with the establishment of

the EU and the addition of many now Eastern European states (CAA, 2013).

Economic performance directly affects the attractiveness of Western Europe to

immigrants, and also reduces their own financial means of moving abroad. Therefore

around the time of the economic downturn in 2007/2008, migration levels stagnated

for a short while until rising again towards the end of the decade, as shown in figure

18.

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Figure 18: Immigration rates in the UK, 2005 – 2012 (ONS, 2012).

Low cost providers before the recession were already setting up more routes

connecting Western and Eastern Europe (Seat Maestro, 2013). Migrants from Eastern

parts of Europe appear more sensitive to price than UK residents due to lower income

streams, meaning no-frills carriers are the most attractive option for people wanting to

emigrate.

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6. The Marketing Mix for EasyJet and Ryanair

6.1 Product

Gitman and McDaniel (2008) break the product down into three different areas as

shown in table 4.

Table 4: The sequential breakdown of a product.

The product mix is concerned with all the lines offered by a

company to its different target markets. In the airline industry,
this includes the range of flights available to customers from a
Product Mix carrier throughout the year. For UK passengers, the product
mix will include travel from any UK airport to any European
destination. EasyJet offers flights on 600 routes (EasyJet.com,
2013) and Ryanair offers them on 1600 routes (Ryanair.com,
2013).
The product line is a group of products that forms part of the
overall mix. For the UK airline industry, this may concern
either transportation across many routes from one UK airport, or
Product Line from many UK airports to a single European destination.
EasyJet has a larger share of airport slots in primary airports
(such as Gatwick) whereas Ryanair monopolises secondary ones
in the UK (such as Doncaster). By operating primarily out of
secondary airports, Ryanair is able to save money on the high
costs charged by primary facilities.
Product items represent distinct units (within lines) that are
distinguishable by some sort of attribute (Gitman and McDaniel,
2008). With EasyJet and Ryanair, the product item will
Product Item represent an individual flight, say from Manchester to Madrid.
This flight may run multiple times in one day, as both
companies are trying to pursue faster turnaround times,
especially in seasons of high demand (summer).

6.1.1 Brand

Branding is key to establishing a strong relationship with customers that creates a

lasting impression and distinguishes it from other industry competitors (Pride and

Ferrell, 2011). The name of the brand is important to ensure it is catchy, memorable

and easy to read.

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Some airlines use of industry related topics within their brand name, like EasyJet and

Ryanair, whereas others carry a name over from another business segment, like

Virgin. Low cost airlines do not retain much brand loyalty due to most customers

being price sensitive. Table 5 identifies the brands associated with EasyJet and

Ryanair.

Table 5: The characteristics and brand imagery for EasyJet and Ryanair.

Brand
Logo

Figure 20: EasyJet Logo Figure 21: Ryanair Logo

EasyJet is a low cost airline Ryanair is an ultra-low cost

Identity that provides safe, affordable airline that is cheap and reliable
travel to the leisure and arriving ahead of schedule on
business markets. most journeys.
The brand stands for a low cost Ryanair offers no-frills flying
Value fare combined with an easy with the lowest prices available
purchasing process. in the short haul market.
Social The customer is made to feel The passenger feels no sense of
Engagement valued yet there are no on elitism and is fully away that
board classes to segregate more is gained from savings than
passengers. service.
EasyJet is based in the UK and Ryanair is based Ireland and has
Consistency people in this area are some offices built in the UK as it
habituated to travel abroad. is a larger National market base.

6.1.2 Package

The package is concerned with the surroundings in which the product is delivered.

For low cost airline companies this would include the choice of aircraft or fleet.

Some would argue that the airport forms part of the 'package' of flying but this

experience is relatively out of the airlines control. EasyJet and Ryanair try to reduce

the number of check-ins available for customers.

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Furthermore, the aircrafts they use (section 3.5.2) are relatively similar single

economy cabins with 6 seat rows and two toilets located at the front and rear. Both

have recently initiated the function of being able to select seats on-board flights prior

to take off, albeit at an extra cost.

6.1.3 Service

On short haul airline characters the level of service spans mainly from airport staff to

flight attendants and pilots. The pilots provide basic information such as landing

time, local weather, altitude and speed. Cabin crew members communicate directly

with passengers and are responsible for hospitality and safety. In previous years it has

become apparent that EasyJet use many more Western trained staff than that of

Ryanair (BBC, 2013).

6.1.4 Product Life Cycle

The product life cycle considers four stages, in which the product will develop from

an introductory phase to a potential decline (Gitman and McDaniel, 2008). Marketing

campaigns are bespoke at each stage and reflect the sales volumes or strategic

direction of a company. Figure 19 shows the different phases of a product’s life

cycle.

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Figure 19: Product life cycle stages and performance curve (Ronda, 2011).

Table 6: The different stages of the product life cycle.

Introduction When the product is launched companies may experience low

levels of profit as they try to establish a position in the market.
Both companies were able to distinguish their product by
effective branding and whereas EasyJet entered the market via a
penetrative pricing strategy, Ryanair took to developing the
market to create lower priced competitive structure. Both
companies invested heavily at this stage in aggressive
advertising, and they also used Internet distribution channels to
save on operational costs such as labour.
Growth This occurs when profits increase. When the customer purchases
the product on a more regular basis, the market situation
changes. EasyJet offers frequent flights from primary UK
airports; however Ryanair offers a larger variety of routes. Both
airlines stimulate growth in other segments of the airline
industry by promoting less popular routes and adding extras for
those travelling abroad (car hire and hotel).
Maturity Maturity – A period when the market experiences an influx of
many competitors creating congestion that leads to suppliers
increasing operating costs. EasyJet differentiates its product by
directing its focus towards business travellers as well as leisure.
Ryanair seeks to add even more routes and cut operational costs
exponentially to lead the market in a new direction. Promotional
strategies stress the value of the service whilst prices correspond
with the flights being 'no-frills'. EasyJet expands its supply side
functions using the global distribution system as a means of
increasing revenue streams.
Decline Decline – If a product (route) is in decline, the respective airline
would see a fall in revenue, sales, and profits, due to changes in
the customers' behaviour, economic stability, or exponential
rises in oil prices, thus making flights no longer 'low cost'.

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In the airline industry, the product life cycles for both EayJet and Ryanair are similar

in how they have grown within the market, but differ in other areas such as when they

were introduced. As there are many competitors fighting for a market share growth is

slowing down, and unless a new market segment is penetrated, company expansion is

more about battling for consumer preference in the market that already exists.

6.2 Place (Distribution)

The place part of the marketing mix concerns where the customer is able to purchase

and receive the product or service (Gitman and McDaniel, 2008). Since the arrival of

low cost carriers and an increase in popularity amongst people to purchase products

via the internet, web page distribution channels have formed the most cost effective

means of selling fares whilst advertising at the same time.

6.2.1 Via the Internet

EasyJet was a market leader in terms of distributing flights and product information

via Internet resources in 1997 (EasyJet.com, 2013). It currently trades 98% of its

available flights through use of a personal website. Ryanair sells a similar percentage

via this medium, if not more. This form of distribution is cheap and gives the

customer the opportunity to choose at their own pace.

Even though this increases buyer power and the propensity of the customer to find the

best price for a certain flight, the costs saved on using travel agencies are exponential

(Doganis, 2009). Furthermore, the perceived value of booking a flight in five minutes

from behind a computer is what appeals to customers, and although they lose out to

one another, as market leaders EasyJet and Ryanair do not have to worry about

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retaining business, which comes naturally with low prices. Figures 22 and 23 show

the basic set up for booking a flight with EasyJet and Ryanair.

Figure 20: EasyJet booking Figure 21: Ryanair booking

(easyJet.com, 2013). (Ryanair.com, 2013).

Both these layouts and the information required at this stage of the sale are very

similar. From this point onwards both companies differ in terms of what they offer

and how they communicate the total price to the consumer. EasyJet offers a more

inclusive structure for the fare, but will ensure the user must add a bag for each

journey at an extra cost if required.

They also offer 'speedy check-in' and 'speedy boarding' options at a further extra cost,

to giving customers (especially business) a sense of ‘priority control’. Another

website function used is to include travel insurance that the customer must physically

take off the order if they do not want it (EasyJet, 2013), which many have skipped

past and end up paying as part of the final cost by mistake.

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Ryanair offer a different approach to presenting the price of flights to the customer.

Although they operate under a similar marketing strategy in 'pre-selecting' certain

add-ons that the customer must take off themselves (like that of EasyJet), they

diversify in how fare options are provided. By not including taxes at a stage when the

user is selecting a flight, prices seem much cheaper (49p GBP per fare in some cases).

This is a pricing strategy in which the cost of flight inclusive of taxes is displayed in

small print, usually underneath the advertised price (Ryanair.com, 2013).

6.2.2 Via Third Party Websites

Third party websites are internet travel agencies such as Expedia and the Travel

Supermarket. These travel agencies retrieve prices and data from a selection of

potential suitors and offer a forum in which the customer can create their own

package holiday (Tamk, 2008).

Third party websites are often used by business and corporate travellers, which is why

EasyJet (in pursuit of this segment) formed an alliance with FindandBook to display

selected flights from the company on their website. The overall cost of flights

advertised on these websites by low cost carriers is usually higher than buying direct.

However, by offering incentive packages and discounts on certain bookings, these

companies are still able to turn a profit within the market (Knorr and Zigova, 2004).

6.2.3 Via a Global Distribution System (GDS)

EasyJet have been a part of the GDS since 2007 (EasyJet.com,2013) whilst Ryanair

are yet to join. GDS is an international system that provides information related to air

travel in terms of ticket reservations, flight times, and ticket delivery (Doganis, 2009).

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This forum communicates to tour firms, travel agencies and tourism boards

worldwide via a computerized system. The only reason EasyJet took so long to join is

because GDS lowered their price charges based on industry demand for the system

and this leads experts to believe it will not be long before Ryanair follows suit.

6.2.4 Via Telephone

For low cost airlines use of telephone media makes up a very small percentage of

airline bookings for low cost airlines. The majority of telephone usage for EasyJet

and Ryanair comes from complaints, enquiries or changing the details of a pre-booked

flight (CAA, 2008).

6.3 Promotion

Gitman and McDaniel (2008) state that promotion is “a means by which you

communicate the benefits of your offering to the target customer and uniquely qualify

it to meet their needs”. This can be achieved through advertising, sales, and alliances.

6.3.1 Advertising

EasyJet and Ryanair’s main form of communication with the consumer is through

advertising. They both invest heavily in this promotional tool and draw attention to

their many products through web media, television, public advertisement (billboards),

and personal contact via email (Tamk, 2008). Any imagery used for advertising

should be consistent with the company's brand and image (Pride and Ferrell, 2011).

There are three methods of advertising: competitive, pioneering, and reinforcement.

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 Competitive – This is especially relevant to EasyJet and Ryanair as they are

market leaders in the short haul industry. One campaign introduced by

EasyJet in 2010 highlighted that Ryanair only operated to secondary airports,

and would advertise them as recognised city destinations, such as "Barcelona

= Girona, Paris = Beauvais, Milan = Bergamo, Venice = Treviso" (The

Independent, 2010). Another campaign initiated by EasyJet operated under the

title “We charge you less” (figure 22).

Figure 22: EasyJet’s banned business advert (Campaign, 2011).

This attempt to enter the business sector was contested by Ryanair as they

believed based on average flight prices EasyJet's statement was in fact not

valid (Campaign, 2011). The advertisement campaign was subsequently

banned by the Advertising Standards Authority (ASA).

 Pioneering – This form of advertising is used at the introductory phase of the

product's life cycle, or if the company is entering a new segment (Shaw,

2007). The campaign highlighted in figure 22 shows EasyJet attempting to

adopt this strategy.

 Reinforcement – EasyJet and Ryanair both use reinforcement advertising

when a flight is booked by a customer simply via the confirmation email sent

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to the passenger. Here the buyer is reminded by the company that the choice

they made was the right one, and that the fare and convenience is unrivalled.

Channel 4 recently aired a documentary highlighting “secrets of the cockpit”

in 2013, which highlighted the lax approach of Ryanair pilots operating

flights. This has a negative effect on customers.

6.3.2 Sales

Promotion through the use of sales creates various incentives for a consumer that

occur as a result of a purchase, or that can be included in a purchase (Shaw, 2007).

By discounting prices for less popular seasons in the year (November – March),

EasyJet and Ryanair are able to boost sales via use of vouchers and limited time

offers.

Discounted prices can be introduced as a reaction to a competitor move within the

market or as a leadership strategy to gain interest of a smaller market that wishes to

travel at a particular time in the year. These discounts can also be adopted if there is a

surplus of seats of a flight and the departure date is a short time away from the point

of reduction (BBC, 2013). EasyJet currently has a credit card system in place to

reward customers for their loyalty, which would be a good idea for Ryanair flyers so

long as the subscription was free and the benefits either matched or surpassed that of

the competition.

6.3.3Alliances

Due to the low cost nature of both airlines and the lack of investment in

environmentally friendly solutions to short haul travel, finding an alliance that would

increase the demand for flights would be a tough ask. With advances in technology

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their might be scope in the future for either firm to carry out a joint venture that held

some kind of environmental integrity (Airline Leader, 2012). This would inevitably

boost their customer base within the industry, however in the current economic

climate; profit rules above all other considerations.

6.4 Price

Price in the airline industry helps to flatten demand fluctuation and gain a competitive

advantage over other industry leaders (Flight Global, 2011). For the customer, the

price they pay includes direct and indirect costs as well as opportunity costs (Gitman

and McDaniel, 2008).

6.4.1 Objectives of Low Cost Airline Pricing Models

There are four main objectives low cost airlines try to pursue in their pricing

strategies:

 Competitive Objectives (Financial) – These are mainly related to profit and

revenue of the company.

 Corporate Objectives – Corporate objectives refer to the overall scope of the

business in terms of products, services, and geography. In EasyJet’s case this

could also account for pursuing a different market demographic (business

passengers).

 Marketing Objectives – Companies that meet and exceed their financial

objectives are able to expand within the market arena. In the case of the

airline industry this includes increasing the size of the operating fleet as well

as the number of destinations and routes to which they travel (Shaw, 2007).

 Political Objectives – For airline carriers, political objectives may be

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concerned with environmental laws and government regulations that have to

be met year on year (CAA, 2008).

6.4.2Pricing Strategies

Demand based and cost based strategies are used by airline carriers to determine the

most appropriate range to set.

6.4.2.1 Demand Based Pricing Strategies

EasyJet and Ryanair both utilise demand patterns to set a price that matches the needs

and intensity of the market segment for which it operates in. Figure 23 shows the

exponential increase in passengers opting to fly by low cost airlines up until 2008.

Figure 23: Evolution of demand for air travel in Europe (Mauro, 2012).

The data shows a rise from 5% to 32% of passengers choosing to travel by low cost

airline around Europe, and in 2013 this figure will be closer to 50%. All the costs in

demand based pricing are acknowledged by the customer in their willingness to agree

to all expenses. This may include taxes, suitcases, insurance, faster check in and

boarding, and nowadays the option to select a seat on the flight.

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This reflects the change in strategic direction of EasyJet to accommodate business

passengers who are used to being assigned a particular seat, and Ryanair have

moderately followed suit to maintain an interest (albeit small) in the market segments

of their main UK rival. Corporate travellers were used to paying higher prices (BBC,

2013). EasyJet were able to increase their market share in the business segment

relatively quickly, as the only concern was to ensure their service was ‘business

ready’.

EasyJet and Ryanair use promotional pricing techniques such as temporary fare

reductions. These are offered when seasonal demand is declining or when a particular

flight does not generate the same level of consumer interest as it might have the

previous year. Many low cost airline carriers use odd-even pricing across all of their

fare options (e.g £29.99 GBP as opposed to £30 GBP).

6.4.2.2 Cost Based Pricing Strategies

Due to high fleet utilisation, higher fleet density, quick turnaround times, and a higher

frequency of flights, EasyJet and Ryanair can generate higher profits by investing in

more resources. Both companies use a standard aircraft across their entire fleet,

meaning the expenses of training engineers and cabin crew are much lower, as is the

demand for equipment and industry professionals (BBC, 2013).

EasyJet and Ryanair are also able to reduce their ground fees, such as check in

workers, as they do not operate many desks in the airports they operate in. This

applies to Ryanair especially who operate in more secondary airports meaning in

some cases they will only have one open desk for the entirety of the day

(Ryanair.com, 2013). Furthermore by operating in secondary airports Ryanair pays

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less in terms of available slots, allowing them to operate a much larger fleet than

EasyJet (1600 aircrafts compared to 600).

There are some costs that are exogenous to airline carriers, which they must forecast

or have some sort of mitigation in place in case of occurrence (Doganis, 2009).

Firstly, aircraft fuel (JetA1) and its relation to the fluctuating price of oil must be

accounted for to ensure the final price of fares remains competitive. Figure 24 shows

the forecasted trend in oil prices for the coming years (up until 2025), predicted in the

year 2010.

Figure 24: Prediction for the next oil price shock (Oil Price, 2010).

The trend in figure 24 shows a potential rise in oil prices towards the end of 2013. It

is important that EasyJet and Ryanair, who buy their fuel 6 to 12 months in advance

(Richard Moody, Airport Maintenance), plan their prices accordingly. Judging by the

shape of the graph, even when the price of oil drops after a high peak, the lowest price

it falls two is predicted to rise around every 3-4 years. This is another factor that

airlines must take into account in setting a base range of pricing. The other main

charges outside the control of EasyJet and Ryanair are the environmental charges they

must pay based on CO2 emissions (Eaton, 2001).

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6.4.3Yield Management System

This system allows companies to offset the fluctuating demand patterns of passengers

that set annual trends. Such examples of this include the heightened number of

leisure passengers who seek summer breaks due to family commitments (children)

and more attractive weather between June and August. Another example is business

passengers who are likely to travel in the morning and evening of the same day.

The system takes into account inventory controls in relation to the asset of flying to a

destination (Shaw, 2007). This strategy applies pricing accordingly to generate profit.

Figure 25 shows the inputs and outputs of a yield management system in the form of a

loop.

Figure 25: Yield management system (Trianz, 2009).

No-frills airlines have a simpler yield management system than that of traditional

carriers. In low cost systems:

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 There is only one single travel class (economy).

 Fares for similar routes do not vary significantly based on time, unless there is

a seasonal influence on the price.

 The fares are point-to-point single fare routes, meaning no connecting flights

are available and return flights can be selected only if required (Dognais,

2009).

 Figure 3 highlights the 10 week rule, which shows that prices get more

expensive the closer the customer books them in relation to the departure date

of the flight. In some cases last minute flights might be cheaper (1 week prior)

to fill any surplus of available seats on a flight.

 Non-refundable tickets are used and changes to tickets can be done at the cost

of an extra charge for both EasyJet and Ryanair.

 The transaction for the flight is usually completed well before the flight is

scheduled to depart as the purchasing process is carried out online.

6.4.4Fare Comparison – EasyJet and Ryanair

Figure 26 shows the differences in the average prices of flights to ten of the most

popular UK destinations from London Airports, including Barcelona, Paris and Milan

for the year 2011. The data shows the prices for both EasyJet and Ryanair comparing

the average cost per passenger for the flight and real cost for including sub charges

(return flights to these destinations). The figure also gives the comparative prices for

two major players in the short haul industry (mentioned in section 3.3), Air Berlin and

Norwegian.

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Figure26: An average comparison of European fares (Yahoo Finance, 2012).

EasyJet holds the cheapest average fare in the market for these mainstream routes, and

highlights the massive (166.3%) increase Ryanair places on its sub charges to give a

final price to the customer. This being said, the results may not prove EasyJet to be

the overall cheapest market provider, as they operate out of mainly primary airports

like the ones used in this study. Ryanair on the other hand operate from secondary

ones (mainly), which may explain the higher charges placed on the original flight

price.

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7. Competitive Analysis – EasyJet and Ryanair

7.1 SWOT Analysis

Tables 7 and 8 shows the strengths, weaknesses, opportunities and threats associated

with EasyJet and Ryanair.

Table 7: SWOT analysis for EasyJet.

STRENGTHS WEAKNESSES

- One of the largest low cost carriers in Europe - Weak pricing strategy in relation to
- Recognisable branding that is lasting offsetting the cost of fuel
- Aggressive marketing campaigners - Brand name belongs to parent company – the
- Focus differentiation program EasyGroup
- Uses of primary city airports - Dependence on IT service as opposed to
- Operates a standard aircraft across an entire face-to-face sales
fleet - Average customer service
- Good organisational and distribution - Earnings mostly dependant on seasonal
structure to reduce labour costs change
- Most operations outsourced - Cost base not as low as Ryanair
- Low cost carriers in Europe not likely the - Lack of leadership (2010 onwards – Stelios)
victim of potential terror threat

OPPORTUNITIES THREATS

- Availability to increase workforce with - Terrorism, psychological fear of flying

higher unemployment rates - Technological communication for business
- Forecasted growth of Leisure customers with travellers
improving economy - Fluctuating oil prices that are unpredictable
- Increased number of business travellers using - Increased competition in market
low cost airlines - Environmental regulations
- Expansion of EU increases the size of the - Increase in taxing on emissions (and VAT)
market - Emerging alliances
- Strong brand places pressure on any potential - Increase in airport prices and charges
new entrants - Labour unrest
- Allocated seats - Increased complexity in market dynamics
- Further cost cutting
- Stelios – has resources to improve company

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Table 8: SWOT analysis for Ryanair.

STRENGTHS WEAKNESSES

- The largest ultra-low cost carrier in Europe - Dependence on IT service as opposed to

- Aggressive marketing campaigners face-to-face sales
- Cost leadership program - Low quality customer service
- Uses of secondary airports (cheaper) - Earnings mostly dependant on seasonal
- Operates a standard aircraft across an entire change
fleet - Secondary airports lose major city travellers
- Good organisational and distribution - Brand and media perception
structure to reduce labour costs - Leadership style – Michael O’Leary
- Highly efficient - EU sensitivity
- Network
- Management focus
- Financial performance

OPPORTUNITIES THREATS

- Availability to increase workforce with - Terrorism, psychological fear of flying

higher unemployment rates - Fluctuating oil prices that are unpredictable
- Market share gains (leader) - Increased competition in market
- Forecasted growth of Leisure customers with - Loss of competitor capacity discipline
improving economy - Environmental regulations
- Better deal with Stansted (primary hub) - Currency movements
- Expansion of EU increases the size of the - Increase in taxing on emissions (and VAT)
market - Emerging alliances
- Strong brand places pressure on any potential - Loss of management focus
new entrants - Labour unrest
- Further cost cutting - Increased complexity in market dynamics
- Economic outlook

Most of the threats to both companies are standard across most airline carriers, with

the main areas to focus on being improving weaknesses and taking advantage of

opportunities. EasyJet is already one step ahead in terms of accommodating for

business travellers, therefore Ryanair can take advantage of low switching costs to

acquire any leisure traveller who would rather find the lowest possible fare.

Nevertheless, this depends on the company operating within a tactical geographic

network of secondary airports of which most consumers can reach easily; therefore

the opportunity cost of a cheaper flight is evident.

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7.2 IFE/EFE Analysis

The IFE/EFE model identifies the critical success factors to EasyJet and Ryanair both

internally and externally.

Table 9: IFE analysis for EasyJet.

KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED

SCORE
Airline industry image 0.08 4 0.32
Environmentally conscious 0.05 2 0.10
Value for money 0.18 3 0.54
Strong leadership 0.03 1 0.03
Welcoming staff 0.12 3 0.36
Frequent flight options 0.14 3 0.42
Good range of routes 0.12 3 0.36
Convenience - airport locations 0.14 3 0.42
Loyalty rewards 0.02 2 0.04
Quality of service 0.12 3 0.36
TOTAL 1.00 2.95

Table 10: IFE analysis for Ryanair.

KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED

SCORE
Airline industry image 0.08 3 0.24
Environmentally conscious 0.05 2 0.10
Value for money 0.18 4 0.72
Strong leadership 0.03 3 0.09
Welcoming staff 0.12 2 0.24
Frequent flight options 0.14 4 0.56
Good range of routes 0.12 4 0.48
Convenience - airport locations 0.14 3 0.42
Loyalty rewards 0.02 2 0.04
Quality of service 0.12 2 0.24
TOTAL 1.00 3.13

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Table 11: EFE analysis for the short haul airline market.

KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED

SCORE
Change in market share 0.13 4 0.52
Change in expendable income 0.12 3 0.36
Airline diversification 0.10 2 0.20
Expanding market 0.11 3 0.33
Cost of fuel 0.13 2 0.26
Population size 0.11 4 0.44
Customer culture shift 0.10 3 0.30
Increase in rail users 0.02 4 0.08
Environmental policies 0.08 2 0.16
Growth in technology 0.10 3 0.30
TOTAL 1.00 2.95

The data in tables 8 and 9 show that EasyJet and Ryanair are still strong players in the

short haul market based on the internal (IFE) analysis, scoring 2.95 and 3.13

respectively, out of 4. Ryanair’s dominance here could be due to customers seeking

out value, and depending on how EasyJet operates within the business sector of the

travel market in the next 5-10 years, these figures could subsequently change.

The results from the external (EFE) analysis carried out shows that the short haul

airline industry is still an attractive market arena. With a score of 2.95 out of 4, this

suggests that the market is very profitable, and there are still avenues of business that

both EasyJet and Ryanair could yet exploit. This being said for smaller competitors

trying to enter the market due to its evident profit potential, entry would be difficult

due to high entry costs.

7.3 Analysis of Main Competitive Strategies

EasyJet – In recent years, EasyJet has strived to move away from the single low cost

market for leisure passengers, and has instead penetrated a market usually dominated

by traditional airline carriers. This has led to a diversification of the market in the

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short haul industry. Via focussed differentiation, the company has been able to

identify an area within a larger market in which to establish a new pricing structure

that has proven attractive to a different demographic, the business passenger

(Doganis, 2009). It is important to point out that EasyJet has not neglected its leisure

passengers, but has instead tried to improve quality and service based on a niche in

the market that has come about due to the 2008 credit crunch.

Ryanair – In EasyJet’s perceived absence from the leisure market, Ryanair have been

able to establish themselves as cost leaders in the short haul market, setting industry

low prices that other European carriers are yet to compete with. The company has

developed the market forming an unrivalled ‘ultra-low’ cost segment. Operating on

almost 3 times as many routes as EasyJet, Ryanair is acting fast and is constantly

increasing its share of the short all market, with no regard to any particular social

demographic group (Shaw, 2007). They believe leadership on such low pricing will

drive a sense of loyalty into customers regardless of the standard of service they offer

compared to carriers such as EasyJet

7.4 Analysis of Corporate Strategies

EasyJet and Ryanair have grown through involvement in various acquisitions.

Examples of this include EasyJet’s takeover of Go airlines (Easyjet.com/2013), and

Ryanair’s takeover of Aer Lingus (Ryanair, 2013). To expand into new markets there

may be scope for either firm to consider a strategic alliance with carriers that operate

outside the EU. Competition is a major influence on future corporate strategies and

the short haul airline market in both the UK and Europe has grown to a point where

expansion may be necessary to generate further profit (Francis et al, 2006).

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8. Future Prospects for the UK Short Haul Market

Expansion of EasyJet and Ryanair depends on factors external to both companies,

such as future enlargement of the EU, rising demand for air travel due to the UK

economy growing, and the potential for both companies to increase their fleet size.

Other prospects for the future of the industry include:

 Forming an alliance with traditional carriers such as British Airways or Virgin

could see either company offer connecting routes for long distance flights

(Glasgow to London for example). Furthermore, Like Air Norwegian (section

3.3.2), either firm could expand into the long haul market themselves and offer

it at a low cost price.

 For either carrier to pursue the long haul market or provide connecting flights,

they would have to operate a 'dual fleet' at least. This would mean investment

and expansion to buy or lease air crafts capable of travelling long haul or

connecting routes.

 The option of purchasing an airport outright would allow either company to

save on costs by means of organising flight departure times, frequencies, and

the experience by which passengers would travel (Tamk, 2008). One main

issue with this concern whether the location and size of the airport was

appropriate in terms of attracting enough customers to generate a profit.

 EasyJet and Ryanair both distribute a large majority of their flights over the

Internet. If there was a 'cookie tracker' in place to monitor activity on either

company's website, this would help to interpret buyer behaviour when booking

a flight.

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9. Discussion

EasyJet and Ryanair are successful low cost airline companies that experienced

exponential growth over the course of the past twenty years. They hold a significant

share of the short haul airline market in Europe, of which both companies operate

under a simple business model that provides low fare prices in comparison to

traditional and charter airline competition.

External forces such as globalisation, migration, an increasing European population

and enlargement of the EU developed the market to a point where no-frills air travel

became high in demand. Customers opted for ‘cheaper’ alternatives to traditional

carriers and became highly price sensitive, sacrificing the ‘flying experience’ in

favour of convenient, reliable and frequent services.

Since the economic downturn in 2008, the increased number and variety of airline

carriers gave power back to the customer. Offering a growing range of routes and

destinations at a lower price, no-frills carriers dominated the short haul market and

expanded the population of people who had never travelled abroad before.

EasyJet recorded an increase of 13% in profit (after tax) for the year 2012, whilst

Ryanair experienced a 25% improvement for the same period. With the economy

currently moving towards periods of forecasted growth, the strategies of both

companies are now being pursued more aggressively, in light of the airline market

reaching a stage of maturity.

EasyJet has taken steps towards targeting the business segment of the travel market,

by improving the quality of service provided on flights and the flying experience as a

whole. Although they have maintained low prices for fares, by becoming a member

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of the Global Distribution system, they have already expanded their market reach to

accommodate for the business customer. Nevertheless, this brings with it higher

charges for commission, of which some of the costs are passed on to the customer.

The amount to which is transferred to the final price of a fare will depend on how

profitable this segment continues to be.

Ryanair on the other hand have made it clear that their vision is to provide the lowest

possible fares on the market. Marketing themselves as the only ‘ultra-low’ cost airline

carrier, they have established a brand that depends entirely on providing the most

competitive prices in the market. By adopting a mercenary approach to cutting

operating costs and providing a very basic service to the customer, they now hold the

largest share of the short haul market in Europe.

In order for both airlines to achieve these targets, their selection of operating airports

is important. EasyJet identifies primary airports as their main hubs, whilst Ryanair

operates out of more secondary facilities. The strategies both airlines continue to

pursue reflects their choice of airport, as EasyJet will have to pay higher fees to

accommodate for the business passengers (who prefer to use primary locations).

Ryanair can reduce their costs and provide more routes for customers (1600 compared

to EasyJet – 600) by using secondary airports, consequently allowing them to charge

cheaper fares to customers.

As both companies have a large fleet or aircrafts, their utilisation rates must be high in

order to offset growing operating costs, some of which are out of their control (oil

prices). With the economy recovering, EasyJet’s profit potential will hinder on

whether business travellers opt to switch back to traditional airlines, whilst Ryanair’s

is dependent on customers potentially seeking a higher quality service.

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10. Conclusion

Based on the analysis of EasyJet and Ryanair, and the evaluation of external factors

that affect both company's strategic movement and options for the future, the author

concluded that:

 Low cost no-frills airlines have stimulated the growth of air traffic and

increased the number of people who now have the financial capability to fly.

 In the short haul market, external factors such as competition, regulatory

framework, government intervention, consumer demand, and the development

of technology all affect the pricing decisions made by low cost carriers.

 Exogenous circumstances such as the threat of terrorism, fluctuating oil prices,

and global economic welfare affect the value perceived of a flight, and the

price placed on it by airline companies.

 A detailed approach should be adopted in formulating a price structure that

maintains viable profit margins and varies with seasonal changes in demand,

to ultimately stimulate annual growth.

 EasyJet is a successful airline that has grew exponentially in the past twenty

years. It maintains a competitive advantage through low costs and a

developing level of customer service that is constantly improving in pursuit of

other market segments.

 Ryanair is also a successful airline that has demonstrated rapid growth within

the short haul sector. By claiming to be a stand out 'ultra-low' cost airline, it

has created a pricing strategy that uses mercenary cost reduction techniques to

gain a competitive advantage.

 The rapid growth of the short haul market was a result of unrivalled prices and

increased competition at a time when the global economy was in recession.

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 A shift in passenger behaviour has meant that business travellers have also

joined the leisure market in looking for low cost fares and compromising on

the 'corporate' experience. EasyJet has already made it obvious how they aim

to accommodate for the business customer.

 As market leaders, both companies have to constantly assess the movement of

those around them and not miss any opportunities gain a stronger competitive

position, when in the short haul market or any other.

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