Flying into turbulence

EasyJet is arguably the name most synonymous with low-cost airlines, but while three years ago there were just seven low-cost carriers battling it out for market share in the short-haul European travel sector, now there are more than 60.

Will a revamped ad strategy be enough to see off the threat of increased competition and difficult trading conditions for easyJet? By Mark Choueke

EasyJet is arguably the name most synonymous with low-cost airlines, but while three years ago there were just seven low-cost carriers battling it out for market share in the short-haul European travel sector, now there are more than 60.

Last week’s results and trading statement for the 11-year-old airline must have therefore made heartening reading for easyJet executives. Despite soaring fuel costs and a late Easter leading to considerable half-year losses of &£40.3m, chief executive Andrew Harrison was able to forecast a 15% increase in full-year profits compared with the &£68m profit reported last year.

Yet, a defiant mood emanates from within the company/ further innovation and expansion is the only way forward if survival and prosperity are to be assured.

This, in part at least, explains easyJet’s last-minute decision earlier this year to scrap its already protracted hunt for a pan-European ad agency and start again (MW January 26). Daring to incur the wrath of the advertising industry – and especially Saatchi & Saatchi and Ogilvy & Mather, the two agencies shortlisted for the &£50m account – the airline was unapologetic. And in a re-evaluation of marketing strategy, easyJet announced it was seeking a roster of European creative hotshops situated in various markets to be led by a principal agency with a view to developing consistent branding. Commercial director Saad Hammad, who joined the company in November, defended the controversial move, insisting that future success depends on “high-impact, low-cost distinctive marketing” which could be flexible and responsive across individual markets.

Hammad’s view will be tested once the pitch comes to a close and agency arrangements are finalised but, despite the huge brand awareness enjoyed by easyJet – complemented by other brands in the easy portfolio – it is clear from the marketing reshuffle which saw Hammad join the company that the management feels an annual marketing budget of &£33m could be put to more effective use.

Efficient and clever marketing will be a crucial factor in any future growth. The liberalisation of Europe’s aviation market in 1995 opened the skies to new low-cost carriers and new consumers, but both the market and the competition continue to grow. British Airways recently launched &£29 fares aimed squarely at the market dominated by Ryanair and easyJet. Other national carriers that have lowered fares in a bid to gain market share in this segment include Air France and Lufthansa.

Though Ryanair and easyJet are careful not to compete directly for too many routes, there exists a healthy rivalry between them. Ryanair’s aggressive approach to media communications mirrors chief executive Michael O’Leary’s outspoken views. A Ryanair spokeswoman told Marketing Week that staff routinely call easyJet “easylate”, mocking easyJet’s poor punctuality. She says: “We ‘bench’ against bigger and stronger airlines than easyJet, so we don’t see it as a rival. This year we will be bigger than Lufthansa.”

With a profit forecast of &£295m, perhaps the Irish airline can afford to be as arrogant as it seemed when unwelcome controversy over security lapses, dirty aircraft and fatigue among pilots and crew was swatted away with a joke apology to other airlines for being better than them.

EasyJet responded by claiming it has better punctuality than 80% of all Heathrow-based airlines and pointed to Ryanair’s hidden compulsory charges that allow it to advertise fares as low as 79p. An easyJet spokesman says: “Ryanair imposes all sorts of charges which it finds difficult to explain away, so its fares are somewhat misleading. As for timings, easyJet flies to major city centre airports all over Europe whereas Ryanair flies passengers to small and inconveniently placed airports, which inevitably increases travel times for consumers.”

For a company such as easyJet, which makes most of its money during the peak holiday season, a month’s worth of male consumer inactivity during the World Cup casts a large shadow over what is a crucial summer of trading. Harrison admitted last week that summer would play a part in end-of-year profits, alongside rising oil prices and the competitive environment.

To that end, the airline is lining up a promotion to encourage women to fly away on mini-breaks while their partners are glued to the television at home.

In addition to a potentially troublesome summer, easyJet also faces possible union action. The Transport & General Workers’ Union is to ballot 1,500 cabin crew about whether to take strike action over pay. EasyJet recently offered a wage increase of 3.5% in the first year of the deal with

a guaranteed bonus of 2%. In the second year there would be a 3% increase with a bonus only if the company reached its financial targets. The airline believes it is generous in offering staff a pay rise of twice the rate of inflation at a time when oil prices are causing all airlines to struggle.

Whatever else happens this year, easyJet must work harder than ever if it is to navigate a successful path through so many obstacles.

Facts and Figures

⢠EasyJet reported a pre-tax loss of &£40.3m for the six months to March 31

⢠Forecasts suggest full-year profits will better last year’s &£68m by about 10 to 15%

⢠Numbers of passengers flying on easyJet have increased by around 20% a year since the company launched in 1995

⢠EasyJet expects to fly about 35 million passengers this year compared with Ryanair’s 42 million

⢠EasyJet’s average fare across all its routes is â¬62 (&£43) compared with Ryanair’s â¬38 (&£26)

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