Easyjet Porters Five Forces Case Study
Key Learning Outcomes
By the end of the case, students should be able to:
- Use Porters five forces model to analyse an industry on the basis of the five competitive forces.
- Analyse the UK airline industry industry and how the five forces have affected Easyjet and rival firms like Ryanair, Norwegian Air, British Airways etc. and the impact on industry structure, attractiveness, and profitability.
- Understand how Easyjet has managed to defend against intense competition from Ryanair, and Norwegian Air and the strategies it uses to create 'blue oceans' that are defensible, helping it capture market share and maintain competitive advantage.
Using Porter's five forces framework, analyze EasyJet's competitive environment.
- See also, Easy Swot Analysis 2018
- See also, Easyjet Pestel Analysis 2018
- See also, EasyJet Value Chain 2018
- See also, Easyjet Vrio Analysis 2018
1.0 INTRODUCTION
In March 1995, businessman Stelios Haji-Loannou founded Easy Jet airlines. The aircraft used during the first year of the company’s operation was leased by British Airways. In 1996, the company bought the first of its own planes (Dortmund-airport, 2020). Over the years, the airline has expanded its operations in Europe.
Using Michael Porter’s five forces analysis framework, this report examines the UK airline industry and EasyJet to understand the major points at which EasyJet is affected by the five forces.
2.0 Porters Five Forces ANALYSIS OF Easyjet 2018
2.1 Bargaining power of buyers
EasyJet customers have a high bargaining power due to the availability of many other airline carriers in the UK. Airline carriers like Norwegian Air, Ryan air, and British Airways, among others, provide similar services giving customers a variety of carriers to choose from and thus high bargaining power. High airline buyer power is what is forcing legacy carriers including British Airways and even Lufthansa, to launch no-frills fares including no checked baggage or inflight meals and reduced legroom in order to compete (Zumbach 2017; Morris 2018).
However, after the launch of its frequent flyer scheme that rewards regular customers, EasyJet has seen extended customer loyalty that has boosted its sales. In addition, EasyJet being a low-cost airline carrier has facilitated its boost in sales as customers like high-class flights associated with low costs. In 2017, EasyJet was UK’s most used airline carrier ferrying over 68 million people with British Airways transporting over 42 million people (Statista 2018).
2.2 Bargaining power of suppliers
Suppliers of airline carriers are mainly airplane manufacturers like Boeing and Airbus, fuel suppliers, and onboard meals suppliers, among others. They have a high bargaining power because the industry is consolidated with a few big, and well-established suppliers that are highly profitable in an industry that requires huge capital investment. Likewise, there are few fuel suppliers in the aviation industry and since fuel is one of the largest operational costs for airlines, fuel companies like Q8 Aviation, exploit EasyJet to get more profits (Bryan 2018).
2.3 Threat of Substitutes
There are many substitutes for airline carriers such as cars, trains, buses, and even ships that transport people from one destination to another. Therefore, this is perceived as a relatively high threat by EasyJet as most people opt for trains or buses, especially for short distances which affects its short-haul flight profits. Substitutes like buses and trains not only offer similar services but are easily accessible and associated with lower costs compared to airline carriers. As more people opt for buses and trains, EasyJet loses customers, which affects its profit margins. Travel substitutes in the UK include Eurostar coaches, National Express, and Get Link, all available options which tend to be cheaper thus making the threat of substitutes for EasyJet airlines considerable.
2.4 Threat of new entry/Barriers to Entry
The threat of entry was considered a high threat by EasyJet mostly because of European Union laws that allow all airlines owned by EU citizens to operate freely within Europe (Boffey 2017). This has increased competition in the UK airline industry and facilitated the entry of other low-cost airline carriers like Norwegian Air. Low-cost airline carriers have forced premium airline carriers like British Airways to reduce their prices to compete in the market (The Economist 2017).
2.5 Competitive rivalry
The UK aviation industry is highly competitive and EasyJet faces intense competition these days from fellow low-cost airline carriers like Norwegian Air, Ryan Air, and WOW as well as national carriers like British Airways, and Air France.
Recently, however, a new trend that’s changing the way airlines operate with a devastating negative effect on the profitability of low-cost carriers is the rise of no-frills services across all market segments. The increased commoditization of airline travel is now seeing major airlines including flagship carriers such as British Airways, KLM, Lufthansa, Air France and Delta have all starting implementing no-frills very cheap flights with options such as no baggage or inflight meals (The Economist 2017; Buckley 2018).
As table 1 (below) shows, the effect on profit margins of both EasyJet and Ryan Air has been negative as both have been experiencing falling profit margins since 2015 with EasyJet seeing the biggest fall in net profit margin.
Table 1: Falling profit margins of EasyJet and Ryan Air 2015-2017
| 2015 | 2016 | 2017 |
Net profit margin (%) | |||
EasyJet | 11.69 | 9.15 | 6.04 |
Ryanair | 23.85 | 19.79 | 20.28 |
Nevertheless, competition also depends on the airline routes with EasyJet dominating short-haul routes, especially in city-to-city routes within Europe (Maneghetti and Perrotta 2017). EasyJet made a move into the long-haul market that allows its customers to book ongoing flights on partner airlines like US carrier West-Jet, hence facing competition from other long-haul airlines like British Airways (Gerrard 2017). However, It is expected to expand its long-haul routes in Berlin and plans to fly over 5.6 million passengers from Berlin this year making it the largest airline in the German capital (Topham 2018).
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Easyjet Porters Five Forces Case Study
Key Learning Outcomes
By the end of the case, students should be able to:
- Use Porters five forces model to analyse an industry on the basis of the five competitive forces.
- Analyse the UK airline industry industry and how the five forces have affected Easyjet and rival firms like Ryanair, Norwegian Air, British Airways etc. and the impact on industry structure, attractiveness, and profitability.
- Understand how Easyjet has managed to defend against intense competition from Ryanair, and Norwegian Air and the strategies it uses to create 'blue oceans' that are defensible, helping it capture market share and maintain competitive advantage.
Using a Porters five forces framework, analyse EasyJet's competitive environment.
- See also, Easy Swot Analysis 2018
- See also, Easyjet Pestel Analysis 2018
- See also, EasyJet Value Chain 2018
- See also, Easyjet Vrio Analysis 2018
1.0 INTRODUCTION
In March 1995, businessman Stelios Haji-Loannou founded Easy Jet airlines. The aircraft used during the first year of the company’s operation was leased by British Airways. In 1996, the company bought the first of its own planes (Dortmund-airport, 2020). Over the years, the airline has expanded its operations in Europe.
Using Michael Porter’s five forces analysis framework, this report examines the UK airline industry and EasyJet to understand the major points at which EasyJet is affected by the five forces.