Comparison between Low-cost & Traditional Airlines- Case Study of British Airways and EasyJet
Overview of British Airways and EasyJet
British Airways is one the oldest airlines in the world which offers services worldwide and throughout the year to ensure customers have an option to choose between the airlines and select best for themselves. It is the primary and one of the largest airlines of the UK which serves over 600 airports with best locations and connectivity at the best times possible (Fedosova, 2018). It is well known for its flagship customer base who enjoy the contemporary service style along with benefits of choosing one of the subsidiaries holiday planners- British Airways Holidays. The company is headquartered in the UK with Heathrow airport as the main base and is also a member of IATA and AEA. British Airways has been a successful airline brand since the launch which is evident in their worldwide standing however low-cost airlines such as EasyJet have become a new norm in the industry where customers prefer to pay less for a short haul trip. Many carriers like Ryanair, EasyJet, Southwest have earned a big market share within the last decade and they are significantly doing better than some of the bigger airline brands like KLM, Lufthansa, Swiss Airways etc. EasyJet has earned a name for itself within the UK and has also been crowned as one of Europe's leading low-cost airlines. It is headquartered in London and Luton Airport is its home base. EasyJet is mostly flying to Western & Northern Europe due to the significant customer demand and the richer economies. It is matching the number with British Airways as it also flies to over 600 routes across more than 35 countries (easyJet, 2019). It has a fleet base of 327 planes as compared to British Airways fleet of 277. EasyJet reported an annual growth of 6-8% in passenger volumes since 2010 (easyJet, 2019).
Aviation industry is one of the biggest industries in the world. Nearly every country in the world has an airline or a runway which adds up to the global economy. It was valued at USD 169.72 billion in 2020 and is expected to reach USD 337 billion by 2030 registering a CAGR of 7.10% on average (Decision Foresight, 2022). Although Aviation includes everything which flies for example military aircrafts, governmental aircrafts etc. The commercial airline industry alone was valued at USD 128.21 billion in 2020 and is expected to reach USD 200 billion by 2030 (Himanshu &Sonia, 2022). This includes aircrafts which are used to transport people and cargo around the world. Based on the market value, it is safe to assume that the commercial aviation industry is over 50% of the total aviation industry.
Figure 1. Bar graph representing Revenue Share % by type for 2021
For Commercial Aviation alone, Europe and North America were always the dominating markets however Asia Pacific has taken over and is expected to reach USD 70+ Billion by 2030 (Mordor, 2021). This is primarily because of the strong demand from China which has one of the largest domestic air passenger traffic and is expected to surpass North America with a rate of 4.4% increase year over year by 2040. Moreover, India is also a contributing factor to the growth of the Commercial Aviation industry in Asia Pacific. In March 2022, Indian Aviation Department has accepted the proposal and instructed to construct 21 greenfield airports in the country which will encourage Domestic travel as well as International travel (Mordor, 2021)
Figure 2. Growth Rate in the Aviation Market
This industry is served by some well-known aircraft manufacturers with a medium concentration in the market representing a fair competition between Airbus, Boeing, Lockheed Martin etc.
Figure 3. List of competitors and market concentration levels in aircraft manufacturing industry
In terms of key commercial airlines, CNBC and Skytrax reported Qatar Airways as the leading airline for 2022. Other names which appeared in the list are Singapore Airlines (Rank 2), Emirates (Rank 3) and Air France (Rank 8). British Airways was able to make the list in Top 15 however EasyJet only managed to reach in Top 55 airlines across the world (Fernandez, 2022; Skytrax, 2022). For the low-cost carrier (LCC) business, they have seen a massive growth in the last three decades. The LCC model provided less than 10% of all short haul flights in 1994 however this number has grown to 40% in 2020 (Boeing, 2021). It is forecasted that the LCC model will take over 60-70% by 2040 which will make it one of the most attractive sectors within commercial aviation. The LCC model has been most successful in areas
like North America, Europe, Southeast Asia. Latin America has recently seen a spike in the demand for low- cost domestic flights post-Covid which makes it one of the lucrative developing markets for new and existing players.
Although the industry has been massively growing throughout the world, there is a growing competition between the airlines which has resulted in few setbacks for the traditional airline brands such as KLM, Lufthansa etc. Two most common issues across this are Deregulation and Cost Strategy.
Current state of the aviation industry is completely different from the state which it was back in 1978. During the 1970s, most of the airlines were seen as a public utility which meant that the Civil Aeronautics Board (CAB) decided the routes for each and every airline along with keeping a close eye on the prices offered on those routes (Avjobs, Inc, 2015). However, since the early 2000s; this sector became private which means now the market is driven by the customer who is in charge of deciding the level and price they want to pay for the service. Although this helped in improving the service and made fares more competitive, it also opened the door for newcomers who were majorly supporting low-cost carrier business. Nowadays, nearly 85% of the airline passengers have an open choice of selecting one airline out of three which they want to fly with while back in 1978, they only had one choice. This did help to bring the fares down however it also helped the low cost carriers to grow at an exponential rate and make traditional airlines lose market share.
Southwest Airlines, EasyJet and Ryanair are few of the biggest airlines across North America and Europe who have seen a massive growth in the past two decades. Their LCC model has changed the whole commercial aviation industry in North America and Europe. Their cost based strategy is to offer low fares by only operating at smaller airports or the airports which charges less fees; fly a single type of aircraft type which enables them to use same crew, save on training and maintenance; increase the aircraft utilization by making sure every seat is filled; keeping overheads low by hiring junior staff and only offering economy seats to allow more seats on an airplane as compared to a traditional airline which offers 2-3 different seating classes. These strategies on average helped LCCs reduce their cost by 30-40% which in turn benefits customers by receiving low fares for the same routes as compared to the fares from traditional airlines. Within LCC, there are two different kinds of models currently in operation. First is the secondary airport model widely used by Ryanair as they only fly to airports where traditional airlines generally do not go. Second is the existing leisure and business market model where EasyJet is the leader. EasyJet looks at markets which haven’t been explored by other airlines and taps into them to increase their market share. Both the models are highly competitive and have hurt traditional airlines on a greater scale.
Strategy Analysis of British Airways and EasyJet
Aviation industry is highly dependent on their strategy of fleet and route in order to make sure that they have enough planes available to fly to the most attractive and lucrative destinations. Preferences along with economic and political factors can influence the operations of airlines which in turn can affect their overall competitive advantage.
British Airways aims to be the leading airline carrier in the world, and it does reflect in their strategy. Few of the areas where they focus in their corporate strategy are financial performance, targets for each department, available fleet and order management, global and domestic alliance strategy and lastly tactical investments into projects for better market predictions (British Airways, 2020). Fleet planning is extremely crucial for British Airways as they understand that preferences of customers highly depend on which plane at which route and at what time. They currently operate a fleet of 277 planes which was 264 in 2016. They offer both jumbo jets from Airbus and Boeing such as Airbus A380 as well as Boeing 747. They aim to continuously modernize their fleet by recent additions such as Boeing 787 Dreamliner versions and Airbus A320s. In order to stand out of the crowd and make an impact, British Airways are one of the first airlines who have been working on sustainable fuel for the future which will minimize their environmental impact and deliver improved margin services to all types of customers. Innovation and customer loyalty are two of the biggest areas of focus for them and are embedded at each and every stage of their corporate strategy.
EasyJet is one the leading low cost airline carriers serving destinations throughout Europe. As part of their unique strategy, EasyJet chooses to fly to major airports which is very unlikely for the low cost airlines such as Ryanair which only flies to secondary airports. Company chose to do this in order to attract the same customer base as KLM, Lufthansa and other major carriers have. They fly to over 100 different routes with a regular frequent flight in a day and also serve destinations where other airlines haven’t reached yet. Unlike British Airways, EasyJet only has one fleet type which is Airbus A320 family and currently operates 327 of them (EasyJet, 2022). This allows them to have a better control over training, engineering, maintenance and fuel which in turn helps them to stay competitive in the market. Similar to British Airways, EasyJet aims to stay innovative and aligned with market demand hence why they had placed a bulk order with Airbus for their new fuel efficient A320 neo series to be delivered by 2023- 2024 (Benquet, 2018). EasyJet’s primary focus is customers and has earned a competitive edge through their digital platform which some of the other airlines have been struggling to maintain. This along with finding new ways of making travel cheaper, targeted marketing campaigns and having a passion for customer safety has helped this airline earn its name and value within the customers.
Future Growth of the Industry
As seen previously, the commercial aviation industry is expected to reach USD 200 Billion by 2030. This means that the industry will grow at an average of 3% CAGR although the 2022 forecast might represent different numbers due to Covid. Covid-19 halted the whole aviation industry in 2020 and some parts of 2021 which meant most of the aircraft manufacturers are running behind scheduled deliveries for airlines. On the other hand, airlines like Lufthansa, Qatar Airways who had abandoned jumbo jet Airbus A380-800 due to the cost of running it, revisited their plans earlier this year and have decided to bring those planes back as per the heavy customer demand (Street, 2022). Some of the airlines reported that 2022 has been one of the busiest years for them in relation to customer demand. In Europe, summer was particularly a difficult period as this was the first summer where people can travel again after Covid. Hence airports like Schiphol, Heathrow, Frankfurt were overwhelmed and had to cancel thousands of flights both from traditional as well as low cost carrier airlines (Yeginsu, 2022). This shows that there is a massive demand for the commercial aviation industry and airlines have been profitable who can understand their customer base and offer unique services. It is extremely important for airlines who have cash in the bank to keep innovating and looking at fuel efficient options such as Airbus A320 Neo to keep fuel cost down. Fuel costs in airlines weigh around 20- 30% of the total expenses hence the airlines who have money, they can keep up with it but many low cost airlines have been forced out of the industry for these reasons. In addition to this, new regulations and unionization which exists in this industry are two big factors of instability. Strikes within airline staff and airport workers are quite common within the industry in regard to working conditions and pay. This does create an overall impact on the airlines and industry however there are few bright sides too. Airline industry has one of the largest cooperation strategy frameworks where airlines have partnered up with certain associations as well as financial institutions to attract customers. Major alliances like Star Alliance, Sky Team and One World have collectively over 75 airlines under their belt. Although, LCC model doesn’t exist within these alliances, it is still a big benefit for traditional airlines. Developing markets like Asia and Latin America are two of the most lucrative areas from LCCs where there is going to be heavy competition for market share. Other markets such as the Middle East have recently put themselves on the map after showcasing one of the biggest FIFA World Cup which recently happened in Qatar. It is expected that the passenger numbers will double by 2030 and quadruple by 2040 in the Middle East due to the popularity of Dubai, new tourist attractions like Doha and futuristic projects like Neom in Saudi Arabia. These markets are currently run by Emirates, Etihad Airways, Qatar Airways, Fly Dubai etc but does have a room for European Low-Cost airlines to grow and establish their footprint.
Airline industry is one of those industries which has both benefits and drawbacks at major scale. Benefits being that industry is growing and is expected to reach USD 2000 Billion by 2030 however the drawbacks are the rise in competition, sustainability issues, change in fuel prices and geo-political effects. Economic recession and worldwide pandemics like SARS and Covid do affect industry at a large scale. Hence why a dynamic yet offensive strategy is required in order to stay competitive, innovative and profitable. British Airways and EasyJet, although part of different models, are two airlines which are doing well around the world. British Airways has been able to maintain their market share and continue to grow with their contemporary service offerings while EasyJet, an LCC, is able to offer customers the same destination as offered by other traditional airlines at a much cheaper price. Their strategy around being digital forefront and making sure “safety first” is embedded in their culture, they have been able to earn a good chunk of market share from other low cost airline providers such as Ryanair. British Airways on the other hand are investing in projects which can help them gain leverage over competitors and innovate for the future. While both airlines are in a strong financial position, it is important for them to keep up with the trends in order to maintain their position as the industry is prone to many external risks. Future of Commercial Industry is bright as the industry has evolved from being controlled by the government to now being a part of alliances which support each other. This will benefit the industry as a whole and will make sure airlines stay competitive while offering the best services and fares to customers. There are many emerging markets like Latin America, Middle East, Southeast Asia which might see a huge growth in upcoming years so it’s a matter of time to see which airline will be able to establish themselves and win market share.
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Author: Aditya Saraf, student LIGS University
Approved by: Dr. Minh Nguyen, lecturer LIGS University