CaseStudy

EASYJET

EasyJetisalow-costEuropeanairlinethatdefinetheirpurposeas'seamlesslyconnectingEuropewiththewarmestwelcomeinthesky' .Thecompanywasfoundedin1995bySteliosHaji-Ioannou,withjusttwoleasedaircraft. EasyJetarenowtheseventhlargestairlineinthe world, with 342 aircraft, 14,000 employees and 48 million customersacross35countriesand156airports. However,withavolatileexternalenvironmentheavilyimpactedbythe globalpandemic,forthefirsttimein25yearsEasyJetrecordedanannuallossof1.27bn(beforetax)in2020,asrevenuesmorethanhalved.Whilstrecoverydoesseemtobeunderway in 2021, they are still set to make a loss of around 1bn at the end of their financial yearandcontinuetooperateat60%of2019levels. Thisisthesecondyearinarow that thecompany'slosseshaveexceeded1bn.

EasyJetislistedontheLondonStockExchangeandisaconstituentoftheFTSE250 Index.TheirlargestshareholderistheHaji-Ioannoufamilywhoowna15.26%stake. Whilst EasyJetclaimstohaveastrongcapitalbaseandcreditratings,theirsharesaretradingat halftheirpre-pandemiclevels. AnalystssuggestthatEasyJethavemorethanenough liquiditytosurviveiftherearefurtherperiodsofextendedtravelrestrictions,witharecent1.2bnrightsissueand294mofrevolvingcreditthatwillhelptostrengthentheirbalancesheet. EasyJet's ChiefExceutive,MichaelLundgren,claimsthatthiswillallowtheairlineto takeadvantageofstrategicinvestmentandgrowthopportunitiesduringrecovery.

Arightsissueincreasestheoverallnumberofsharesinacompany.Thismeansthateachremaining share has a smaller claim on the underlyingbusiness,itsprofitsandistechnicallyworthless.TheequityraisecouldthereforedilutethesharesoffounderSirStelios,whois unlikelytoparticipate. Thiswouldlessenhisinfluenceoverthecompanyandcouldbeof benefittothegroup'smanagement,particularlyafterhispreviousunsuccessfulattempttoremove the Chief Executive. However,criticsclaimthattherightsissueevidencesthestrainthattheexternalenvironmenthasplacedonthegroup'sfinances. IfEasyJetwantto strengthentheirsharevalue,theywillneedtoclearlycommunicateastrategyforthepost-pandemicworld.

EasyJetareknownfortheirlow-costbusinessmodel,usingcostadvantages,operational efficiencyandleadingpositionsinprimaryairportstodeliverlowfares. This is with the aim tomaketraveleasy,enjoyableandaffordableforbothbusinessandpleasure. However,theyhaverecentlyintroducedamoreexpensiveservicetocapturebusinessfromnationalflag carriers and diversified into the EasyJetholidayofferings.EasyJetpridethemselveson theirleadingpositionatslot-constrainedairportswithhighcustomerdemand,afocuson long-termstrategicpartnerships,serviceprovisionandcustomervalue. Theyhavealso broughttechnologyanddatatotheforefrontoftheirstrategy,promptedbytheaimtobecome the world's most data-driven airline with predictive insighttoinformdifferentialseat pricingandotherinitiatives. However,theairlineindustryisextremelycompetitiveand EasyJet'scostsarestillrelativelyhigh,challengingtheirabilitytooffertheirusuallow-cost dealsonparwithcompetitors.

Theairlineindustryhasbeenhugely impacted by a volatile external environment. The globalpandemic resulted intwo national lockdownsandgloballyenforcedtravel restrictions,resulting in staggeringdebtlevels,insolvenciesandalargerroleforgovernment. EasyJet'sbusiness is traditionallyfocusedontheUK,whererestrictionshavebeenmuchtighterthan continentalEuropeandanewsystemforinternationaltravelintroducedbygovernment.There hasalso beenasharp increase infuelpricesthatthreatenthe industry'sslowrecovery even further.EasyJetareinagoodplacecomparedtocompetitorsduetohedgingasignificantproportionoftheirfuelandlockinginpricesof370permetrictonnefor55%of their expected fuel requirements for 2022. However,theincreasingcostswillundoubtedlypressuretheirabilitytoremainprofitable. Thereisanoptiontopassonrisingcoststo passengersbyraisingticketprices,butwithinconsistentpassengerdemandandreduced disposableincome,itislikelythatEasyJetwillneedtostimulatethemarketthoughlow fares,aspertheiroriginalbusinessmodel.

Theairlineindustryisextremelycompetitivewithhighbarrierstomarketentry. Recently therehavebeenaggressivemovesfromcompetitors,viewingthecurrentinstabilityasanopportunity to expand. EasyJet are aware that theirsharepricesanduncomfortablepositionbetweenbudgetairlinesandmoreexpensivelegacycarrierscouldmakethemvulnerable totakeover.Themostrecentexampleofthisisatakeoverapproach by Wizz Air. The offer wasswiftlyrejectedbyEasyJet'sChiefExecutiveduetoagrossundervaluationofthe company.Ryanair'sCEO,Michael O'Leary, believes that EasyJet will need to merge or be takenoutbyothercarriersastheairlineindustryconsolidatesfollowingthepandemic.However, EasyJetstillclaimthattheyhavean unparalleledfoundation uponwhichtoemergestronglyfromthecrisis,referencing their unmatched short haul network and trustedbrand.

EasyJethasdevelopedastrongbrandreputationandcontinuetofocusonstakeholderrelations, recognising the importanceoftheirtalentedemployeesandsupplierrelationships,amongstotherkeystakeholders. Ontheircompanywebsite,theyclaimtocreateaninclusive environment that attracts the right peopleandinspireseveryonetolearnandgrow.That being said, EasyJet faced criticisms for the 1400 job losses occurring in 2020,withtheNational Officer for Civil Aviation claiming thatthemulti-million-poundgovernmentloanthatthey took in 2020 should have been used to defend UK jobs. This move could be dangerous forEasyJetandemployeemorale,particularlyifrecoverygoeswellandthereisnolonger asupplyofpilotsandcabincrewwaitingtoreturn.

Lookingforward,recoveryoftheairlineindustryisinevitableovertimeandEasyJetclaimtomaintain a strong position in the European market. The management team remainoptimisticthattheyhaveastrongfoundationtorecoverfollowing the successful rights issueandsurgeincustomerdemandforthefinalquarterof2021. However,theirsuccesswithinthis industry will depend on the ability to strengthen share value, overcome takeover threats,maintaincostefficienciesandaffirmtheirbusinessmodelthroughtheprovisionoflow-cost fares.

AnswerALLQuestions

Question1

Identify the keystakeholdersofEasyJetandtheirstrategicinfluenceintwosteps:

a) MapthekeystakeholdersofEasyJetintermsoftheirpowerandinterestusingan appropriateframework.

[10marks]

b) Explain the positioning of each stakeholder and thestrategicimplicationsforEasyJet.

[15marks]

Question2

Usinganappropriateframework,analysetheorganisationalcultureofEasyJetanditsrole intheirstrategicdevelopment.

[25marks]

Question3

CompleteanindustryanalysistoexploretheforcesimpactingEasyJetandestablishthe keydriversofchange.

[25marks]

Question4

Assessthestrategicresources and capabilities of the case study firm in two steps:

a)ConductanauditoftheresourcesandcapabilitiesofEasyJet.

[10marks]

b) UsetheVRIOframeworkinordertoanalysetheseresourcesandcapabilities.

[15marks]