EasyJet Airline Company Limited operates as a no-frills entity in the UK airline industry. The airline started in 1995 under the stewardship of Stelios Haji-Ioannou a Greek magnate and it is headquartered at Luton, London. The firm operates as a subsidiary of EasyGroup conglomerate and it has managed to attain national and international recognition.
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In the UK, the firm ranks as the largest airline company based on its customer base and international and domestic scheduled services. Currently, the firm operates in more than 600 routes distributed across 30 countries. During its introduction phase, the airline leased 2 Boeing 737-200 aircrafts and operated in only 2 routes. The firm has managed to increase its fleet size to 200 aircrafts.
In 2012, EasyJet carried more than 59 million passengers across the world. In Europe, EasyJet ranks as the 2nd largest low-cost carrier (Burns 2). Since its inception, EasyJet’s management team has been committed towards undertaking rapid expansion. One of the strategies that the firm has integrated in its effort to attain its expansion objectives entails entering into merger and acquisition deals.
During its market introduction phase, the airline managed to acquire several of its competitors. In 1998, the firm acquired a 40 per cent shareholding of TEA Basle, a Swiss charter airline. Upon its acquisition, the firm renamed the acquired firm as EasyJet Switzerland, which enabled the firm to operate as a franchise in Switzerland.
In 2002, EasyJet announced its objective to acquire the London Stansted-based Go, which is one of the major hubs for low-cost carriers in the European region at a cost of £ 374 million. This acquisition contributed towards the increment of the firm’s size of its Boeing 737-300 fleet. During the following years, the firm continued with its expansion goal.
For example, in 2002, the firm established a base at Gatwick Airport in Germany and other bases in Spain, Italy, and France. This move significantly contributed towards the firm’s ability to improve its presence in the European region. EasyJet has managed to position itself as one of the most profitable airlines globally with approximate sales revenue of $3.5 billion.
In addition to the airline business, the EasyNetwork has also ventured into the car rentals industry by establishing the Easycar.com in 2000. EasyCar.com operates as a low-cost car hire firm. The firm ranks amongst the leading car rental brokers globally (Powell 2). In the course of its operation, Easycar.com has managed to establish more than 3,500 car hire locations that are distributed in over 60 countries.
Additionally, the firm has managed to develop a fleet of different car models in accordance with customers’ tastes and preferences. When establishing the Easycar.com line of business, Stelios Haji-Ioannou intended to continue with his principle of ensuring that customers attain their value for money. However, the car rental line of business has not been as successful when compared to EasyJet.
This paper intends to conduct a comprehensive analysis of EasyCar.com by analyzing the businesses environment and the competitive analysis. This analysis employs the Porters Five Forces model and the SWOT analysis.
Competition in the car rental industry
The UK car rental sector has continued to remain competitive since the 1990s. The sector is composed of semi-integrated and national markets. Additionally, the car rental market in the European region is replete with national, international, and national companies. The large number of industry players has led to an increment in the intensity of competition.
Additionally, the European rental-car industry is constituted of two main segments, which include the tourism/ leisure segment and the business segment. One of the factors associated with its competitiveness is the large number of customers, hence its profitability potential. In an effort to exploit the prevailing market opportunities, most entrepreneurs have ventured into the sector and this move has led to the increment in competitive pressures faced by firms in the industry.
Some of the core sources of the competitive pressure faced in the industry arises from brand competition, product competition, and generic competition. Brand competition in the industry arises from the existence of other firms that offer similar features, services, and have adopted similar pricing strategy. On the other hand, product competition emanates from the existence of price firms that offer similar products, but their product features and pricing differ (Institute of Transport Management 2).
In the course of its operation, Easycar.com faces intense competition from a number of large firms like Enterprise Rent a Car, Hertz, Avis, and the National Car Rental. These firms ventured into the UK transport industry earlier compared to Easycar. Thus, they have managed to develop sufficient brand recognition.
For example, the National Car Rental operates as the largest car rental firm in the UK and it has managed to develop a fleet of over 40,000 cars in addition to establishing 170 branches. Over the years, the two firms have been recognized by the Institute of Transport Management due to their positive contribution to the sector’s growth (Institute of Transport Management Para. 7).
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In addition to the large industry players, the UK car rental industry has experienced a significant increment in the number of small entrants, which has led to an increment in the degree of industry competitiveness due to the high rate of saturation. A significant proportion of the market share is accounted for by the large enterprises.
In an effort to nurture a strong competitive advantage, most firms in the industry are considering the possibility of incorporating effective operational strategies. One of the strategies that the industry players are considering relate to adoption of a low cost strategy. The low cost strategy is providing firms in the industry an opportunity to attract customers considering the price sensitive nature of customers.
Easycar.com has ensured that it has established its locations in major airports in order to attract customers (Thompson & Martin 54). In addition to adoption of the low cost strategy, firms in the sector are increasingly considering the probability of increasing the size of their fleet in order to increase their competitiveness.
According to Stelios, easycar.com has managed to attain a competitive position in the UK transport sector because it provides customers with an opportunity to hire a car even for a period of 1 hour. This aspect has played a significant role in ensuring maximum utilization of the firm’s fleet.
The short-term rentals enable Easycar to cater for the low demand during the low weekdays. By operating in numerous locations, the firm has been able to deal with the intense competition posed by taxis and other public transport means (Powell 3).
Analysis of the business environment
The business environment is characterized by a high rate of dynamism and change. One of the factors that have contributed to this transformation relates to the high rate of globalization in the contemporary market place. Additionally, businesses in diverse economic sectors also face a major challenge emanating from political and legal changes.
The car rental industry is one of the most important sections of the UK transport sector. The sector accounts for a significant proportion of the UK growth in Gross Domestic Product (GDP). It is estimated that approximately 45 to 50 million cars are rented across the European region.
Due to its significance in the country’s economic growth and development coupled with its lucrative nature, most entrepreneurs in the UK have ventured into the industry, as illustrated by the entry of some firms such as the Enterprise Rent a Car and the National Car Rental (The Institute of Transport Management Para.9).
Prior to entering in any business, it is paramount for an entrepreneur to conduct a comprehensive environmental analysis in order to determine the viability of the business enterprise. This goal is achievable by evaluating the political, legal, economic, social-cultural, and the technological environment.
This assertion emanates from the fact that firms “do not operate in isolation, but are affected by changes in the macro-environment” (Powell 3). In line with this observation, Stelios Haji-Ioannou took into account these aspects prior to venturing in the car rental industry in 1998 and 1999. Below is an analysis of the macro-environmental variables that Stelios Haji-Ioannou took into account
Political and legal environment
The prevailing political environment in a particular country determines the success of the business entity established. One of factors that entrepreneurs consider when establishing a business is the associated country risk. Countries that have a high level of political instability are characterized by a high country risk, which culminates in entrepreneurs shying away from investing in such economies due to the high probability of losing their investment (Henisz 32).
However, the UK government has managed to establish and maintain a high level of political stability over the years. The political stability enjoyed in the country has significantly contributed to the country’s economic growth due to the associated attractiveness. The UK government is also committed at establishing a strong positive relationship with other countries.
This aspect stands out conspicuously in the light of its membership in a number of economic integration groups such as the Euro Zone and the World Trade Organization (WTO). The economic integration that the UK has entered into presents a unique opportunity for entrepreneurs such as Stelios Haji-Ioannou to expand EasyCar.com operations in different economies, hence improving the probability of attaining its profit maximization objective.
One of the factors that make this move possible emanates from the incorporation of trade liberalization policies by member countries, which means that the member countries do not have to incur huge costs in their foreign direct investment strategy. Additionally, the firm can be in a position to import cars from member countries at a minimal cost in order to expand its fleet size, which contributes towards enhancement of its competitive advantage.
Over the years, the UK government has been committed towards ensuring that entrepreneurs are protected from exploitation. Consequently, the government recognizes and enforces intellectual property rights in order to ensure that entrepreneurs do not lose their innovation (Andersen 34). This aspect has contributed significantly to the growth of businesses in the country.
Economic environment – a country’s rate of economic growth is a critical indicator of the robustness of its business environment. During the 1990s, the UK experienced a high rate of economic growth due to the government’s commitment towards attaining a high rate of economic growth. Secondly, the country’s economic growth contributed to a significant growth in the consumers’ purchasing power.
Over the past few decades, consumers have undergone a significant transformation in their consumption patterns. Firstly, the technological innovation with regard to Information Communication Technology (ICT) experienced in the UK during this period allowed consumers to shift towards the Internet as a key source for product and service information.
In line with this trend, the entrepreneur decided to market the car rental business over the Internet, which played a fundamental role in the entrepreneur’s effort to crate sufficient market publicity. Another aspect that consumers are integrating in their consumption relates to environmental damage (Myers & Kent 4). The high rate of climate change has forced consumers to become more conscious with regard to minimizing emission of carbon dioxide and other greenhouse gases in the atmosphere.
Such gases are associated with the global warming menace in the contemporary world. Consequently, when hiring cars, consumers prefer cars that are environmental friendly. This trend was a major consideration taken into account by the entrepreneur when establishing the car rental business.
The prevailing technological innovations in the car industry during the 1990s provided Easycar.com with an opportunity to ensure that it develops a fleet of cars within which green technology has been integrated. Consequently, the firm was in a position to ensure that it meets its customer’s needs.
Additionally, the explosive growth in the Internet technology at the beginning of the new century presented a unique opportunity for Easycar.com to conduct online marketing. The Internet growth also presented an opportunity for Easycar.com to increase its sales revenue by ensuring that customers are in a position to make reservations using the Internet portals.
Porter’s five forces
Threat of entry
The threat of entry in the UK car rental industry is relatively low due to the high cost required in order to establish the business successfully. For example, having a large fleet of cars is one of the factors that investors in the sector have to consider in order to attain a high competitive advantage.
The high cost associated with establishing the car rental business acts as one of the major entry barriers. In the course of establishing the Easycar.com, Stelios Haji-Ioannou had managed to accumulate a substantial amount of investment capital. Consequently, he was in a position to penetrate the UK market successfully.
Threat of substitute
Over the past two decades, the UK car rental industry has continued to face a major challenge emanating from the existence of numerous substitutes. One of the reasons that explain the increment in the number of substitutes relates to technological innovation.
The innovation of collaboration software, virtual teams, and video conferencing has negatively affected car hire firms in the UK, which emanates from the fact that most businesses do not have to hire cars, for example to transport their employees to attend meetings. On the contrary, individuals can follow the proceedings of a particular meeting online via video conferencing technology.
Institutions are increasingly considering video conferencing as an alternative method of communicating to their employees both locally and internationally due to its cost effectiveness. Additionally, the threat of substitute is also skyrocketing courtesy of the large number of car leasing and rental firms in the UK.
Other alternatives available to customers in the UK emanate from the public transportation services such as taxis, trains, and bus shuttle services. Over the past few decades, public transport in the UK using these means has been very effective.
Such firms have contributed towards the low switching cost in the UK car rental industry. The emergence of low cost airlines in the UK during the 1990s also offered an attractive alternative to consumers considering their cost and convenience.
Suppliers bargaining power
Developing a comprehensive understanding of the suppliers’ bargaining power is paramount in establishing a business (Mayer 72). This assertion emanates from the fact that it informs the entrepreneur when setting various operational strategies such as pricing, quality, reliability, and ensuring timely delivery of products and services.
Given the large number of industry players in the UK transport sector, the car rental industry is characterized by a relatively low supplier power. The industry players cannot be in a position to control the market price due to the large number of substitutes available hence the low switching cost.
Buyer bargaining power
Due to the large number of competitors in the UK rental car sector, consumers have managed to develop a relatively high bargaining power. However, the buyer bargaining power in the industry varies depending on customer characteristics. For example, institutional customers have a low bargaining power compared to individual customers.
Consequently, institutional customers or business customers are not price sensitive. The buyer power in the industry also increases for most corporate consumers are conversant with the pricing structure of firms in the car rental industry. Additionally, their ability to purchase in large quantities has provided an opportunity for customers to have a high bargaining power.
Individual customers such as vacationers also have a relatively higher bargaining power due to their price sensitive nature. Considering the diversity with regard to customer groups, entrepreneurs in the rental car industry face the challenge of ensuring that they meet the customers’ needs in order to attain their profit maximization objective (Thompson & Martin 54).
Degree of rivalry
The large number of industry players in the UK car rental industry has contributed towards the increment in the degree of rivalry. Therefore, to counter the rivalry, firms in the industry are increasingly undertaking rapid expansion by establishing new operations and increasing the size of their fleet.
Experience that enabled Stelios Haji-Ioannou to establish the car rental business
Over the years, Stelios Haji-Ioannou had been successful in establishing businesses in different economic sectors such as transport as illustrated by his skills and knowledge in setting up the EasyJet airline. Firstly, the entrepreneur appreciates the importance of conducting effective marketing communication in order to ensure that the product penetrates the target market.
Consequently, he possesses sufficient knowledge with regard to integration of traditional and emerging marketing communication tools. His acumen with regard to Integrated Marketing Communication facilitated in undertaking the online advertising strategy successfully.
Additionally, the entrepreneur is cognizant of the importance of undertaking a comprehensive market research in the process of setting up a business. Prior to establishing any business, the entrepreneur conducts a detailed consumer and competitor market research. The objective of conducting research is to allow the entrepreneur to attain effectiveness in formulating business and corporate level strategies.
What were the advantages and disadvantages of the Easycar concept versus traditional hire car companies such as Hertz, Avis or Budget?
Upon venturing the car rental industry, Easycar.com based its desire to develop a strong competitive advantage on the low cost leadership strategy. On the other hand, companies such as Avis, Budget, and Hertz have adopted the focus strategy. This strategy entails identifying a specific consumer group or market niche, which the entrepreneur seeks to exploit.
In their focus strategy, Hertz and Avis have identified business travelers as their target customer group (Ogilivie 97). The low cost strategy seeks to create an advantage on every element that can lead to the attainment of cost advantage (Ogilivie 97). Firms can accrue a number of advantages by adopting the low cost strategy.
Firstly, a firm can exploit the high profitability that is associated with the strong relationship that prevails between the low cost strategy and market share. Secondly, the firm can develop a high level of customer loyalty hence a low switching cost. Consequently, the probability of the firm sustaining its high profitability trend increases.
Thirdly, the ability of a low cost firm attaining strong market presence increases its ability to limit the occurrence of price wars especially from competing firms. Adopting the low cost strategy also plays a significant role in firms’ effort to limit new entrants as necessitated by the price-cutting power of such firms. Therefore, one can assert that low cost firms create substantial barriers to entry.
However, to achieve this goal, the low cost strategy has to undergo effective implementation. In addition to the above advantages, firms that adopt the low cost strategy are in a position to sustain possible price increments that might be passed on by their suppliers. Thus, they are capable of absorbing price increases effectively (Mayer 37).
Despite the aforementioned advantages, there are a number of disadvantages associated with adoption of low-cost strategies. One of the major disadvantages that Easycar may face in the course of its operation relates to the capital-intensive activities and asset commitment.
In an effort to attain an effective low cost leadership strategy, a firm is required to allocate a substantial amount of resources to inflexible assets in addition to instituting distribution technologies. Some of the technologies that the firm is required to invest in are costly thus making the switching cost to escalate. Consequently, they can become obsolete.
Secondly, the low cost strategy is prone to easy imitation by competitors. Thus, the associated cost advantages are short-lived, which means that the firm can lose its competitiveness. Additionally, adopting low cost strategy may hinder a firm from achieving new developments that might contribute towards the attainment of a high competitive advantage.
In the course of its operation, Easycar is motivated by one mission, which entails ensuring that it offers its customers with value for their money. The firm’s commitment towards attaining its mission statement stands out clearly in the light of its adoption of the low cost strategy, which enables the firm to offer transportation services at a relatively low price compared to its competitors. Therefore, one can assert that the firm’s mission statement effectively describes the firm’s operations.
Comparison of EasyNetwork overall strategy with its competitors
EasyNetwork Group of companies has managed to establish businesses in different economic sectors. Additionally, the firm has ventured into the international market through integration of various strategies such as the formation of mergers and acquisition. For example, one of the reasons for the rapid expansion of EasyJet airlines relates to its commitment, skills, and expertise with regard to the formation of mergers and acquisitions.
Upon identifying and acquiring a particular firm, EasyNetwork Group ensures that effective integration is conducted in order to avoid failure of the new entity. The entity’s overall strategy stands out conspicuously in the light of its growth strategy.
The growth strategy adopted by the firm best explains why the firm has undergone aggressive expansion (Nieuwenhuizen 55). On the other hand, most of the firm’s competitors have adopted the product development strategy, which entails improving or changing the present products in order to meet the customers’ needs.
Reasons for EasyJet airline success
Despite establishing a number of firms, EasyJet Airline Corporation has been one of the most successful businesses established by the EasyJet group of companies. The firm’s success hinges on a number of reasons. One of the factors that have contributed to the firm’s success relates to adoption of the differentiation strategy.
During the 1990s, EasyJet adopted the premium pricing strategy by offering unique services to its customers. In an effort to attract a large number of customers, the firm incorporated the low cost strategy. This strategy has enabled the firm to minimize overhead costs successfully in addition to instituting a strong reign on costs.
One of the ways through which the airline ensures the sustenance of its low cost strategy is by maximizing its utility utilization; for example, by instituting short turnaround duration of its airline. EasyJet airline has also incorporated an effective branding strategy, which has significantly contributed towards the firm’s development of sufficient market recognition.
EasyJet’s success is also associated with its effectiveness in undertaking marketing activities. For example, the firm has been in a position to develop relatively strong market awareness through incorporation of online marketing such as advertising and making reservations over the internet. On the other hand, other businesses established by EasyNetwork have not been as successful as EasyJet due to lack of proper implementation of operation strategies.
Comparison of Easycar and EasyJet business model in relation to customer needs
After the successful introduction of EasyJet as a low cost carrier, Easy business ventured into the car rental industry by incorporating parallel business principles. Consequently, the two businesses have adopted a similar business model, which entails a low cost model. The model had been successful in the airline business and Easy intended to replicate its effects within the car rental business.
The car rental business was very successful upon its inception. By 2002, Easycar had managed to establish a fleet of approximately 6000 cars, which operated in 41 locations across Europe. Similarly, the adoption of the low cost business model has successfully contributed towards the firm being successful both locally and internationally.
The business model adopted by EasyJet and Easycar effectively relates to customer needs. For example, the model has enabled consumers to attain a high level of satisfaction by incurring a relatively low cost compared to other firms. Considering the customers’ price sensitive nature, the low cost model has provided customers with an opportunity to receive discount.
For example, customers who book for car rental services from Easy in advance are entitled to pay a relative low price. Therefore, the adoption of the model has successfully enabled Easy to ensure that customers attain value for their money, which is one of the considerations that consumers take into account in their purchasing patterns.
Analysis of whether Easy network is effectively positioned to deal with the present financial difficulties in Europe
The 2007 global financial crisis adversely affected most economies. In an effort to stimulate their country’s economic growth, most governments incorporated stimulus packages that were directed towards diverse economic sectors. However, prior to attaining full recovery, the UK experienced the Euro debt crisis in 2011; unfortunately, the crisis had a significant effect on the consumers’ purchasing power.
Firstly, the degree of uncertainty amongst consumers has increased significantly. Thus, consumers are mainly concerned with saving in order to caution themselves against job losses that would lead to loss of income (Duthel 2). This aspect presents a major challenge to firms in different economic sectors.
For example, the car rental industry would be adversely affected through reduction of customers with regard to the leisure or travel market segment. However, Easy Network has effectively positioned itself in the market to deal with the financial difficulties being experienced in Europe.
Adoption of the low cost strategy will enable the firm to maintain its customer base despite the contemporary hostile economic environment. This assertion arises from the fact that consumers will consider the pricing strategies adopted by Easy Network businesses as fair compared to that of its competitors.
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