Analyse the internal and external environment of EasyJet using SWOT & PESTLE

•  See  British Airways Pestle and Swot 2017.
• See Virgin Atlantic Pestle and Swot 2017.

1.0 Introduction 

EasyJet is a British airline carrier that operates on a low cost model, based at London Luton airport. It is the largest airline carrier in the UK by passenger numbers carried. In 2016, it carried more than 73 million passengers, making it the second biggest airline carrier in Europe by passenger numbers carried, behind Ryanair (Annual Report 2016). Latest revenues for the year ending 30 September 2016 were £4,669 million on operating profits of £495 million (Annual Report 2016).

2.0 EasyJet Pestle Analysis 2016-2017(opportunities and threats)

In 2016, over 8,349 EasyJet flights were either cancelled, or delayed over three hours or diverted due to severe disruption by external macro factors such as strikes, severe weather, terrorist attacks, and other airport issues. The total impact of these external events on profit was estimated at £150million (Annual Report 2016). PESTLE is used in strategy to analyse the macro environment and identify how external events in the political, economic, social, technological, environmental and legal environments might impact individual organisations within an industry. Managers use the PESTLE tool as an aid when studying key drivers of change in the external environment. These key drivers of change constitute opportunities and threats for firms and PESTLE helps identify them overcome. However, PESTLE is only a starting point since other frameworks such as SWOT and Porters Five Forces have to be used in conjunction to help firms like EasyJet utilise internal core competencies (strengths) so as to take advantage of opportunities while neutralising threats in its industry.

2.1 Political environment

In 2016, many airlines including EasyJet operated in a challenging political environment, characterised by major terrorist attacks in key destination markets such as Paris, Nice, Brussels and Turkey on top of Brexit. In June 2016, Britain voted to leave the EU, a move predicted to cause both political and economic upheaval and uncertainty for not only firms but also the UK economy, at least in the short term. Unsurprisingly, Brexit has already sparked political turmoil across the UK with Scottish Prime Minister Nicola Sturgeon calling for a second Scottish independence referendum to protect Scottish interests in the EU (Douglas and Gross 2016). The potential political implications to leave the EU are many for British based airlines, not least the loss of major intra-European routes which can only be operated by airlines with a significant base in the EU. If Britain were to actually leave the EU, it would mean EasyJet and other British based airlines would have to either move their headquarters to EU countries or sell shares to EU nationals and become majority EU-owned  in order to retain the right to fly between cities like Rome and Berlin (Rodionova 2017). This regulation is of critical concern to EasyJet, whose primary business model is based on access to routes across the EU.

On a more positive note, the UK‘s government’s decision last year (in 2016) to approve a third runway at Heathrow was welcome news for EasyJet and other airlines. While the airline doesn’t currently operate from there since Heathrow is currently the world’s most expensive hub airport, many airlines are aware that expansion will create new and affordable extra capacity at Heathrow which will also reduce the cost of operating to or from there (Johnson 2016). This is why EasyJet has always firmly supported Heathrow runaway expansion and said it would start flying from the capital's largest airport once the government chooses to increase its capacity (Schaps 2015).

2.2 Economic environment

The uncertainty following Brexit had an economic impact on many airlines operating in the UK including EasyJet. According to the Annual Report (2016), due to the Pound Sterling’s depreciation, EasyJet’s revenues generated in overseas currencies benefited, but overall, the impact of exchange was negative on the company’s financial results with a loss of £112million in foreign exchange (Annual Report 2016). The best Brexit outcome would obviously be business as usual but with much remaining to negotiate over and the possibility of Britain being made an example of, fears of a negative impact on British firms are not baseless (Johnson 2016).

On a more positive note, EasyJet on the other hand benefitted from low fuel prices and interest rates, economic factors that helped promote growth in market capacity and competition (Annual report 2016). 

2.3 Social Environment

The peak summer season in 2016 was operationally difficult for many airline carriers, largely due to social factors outside of their control particularly, air traffic controller (ATC) strikes in France. A number of ATC union strikes hit France in 2016 due to social unrest over a series of disputed labour reforms from the Socialist government, causing EasyJet and many other carriers to cancel many flights to and over France (The Guardian 2017). A further five-day strike by French air traffic controllers (ATCs) occurred in March 2017 with EasyJet experiencing the worst impact out of all airlines due to cancellations and delays given the fact 60 per cent of its flights normally touch French airspace (Calder 2017). EasyJet and other airlines such as British Airways have already petitioned the EU and the French government to develop an action plan to minimize the impact of ATC strikes on passengers (The Guardian 2017).

2.4 Technological environment

The airline industry is currently undergoing digital disruption after years of relative stability following 911. The digital revolution has been ushered in by the internet and the larger role it plays in how consumers travel (Bloomberg 2017). More importantly, digital technologies are materially changing the cost structure of the industry, enabling new low cost entrants such as WOW Air, to use digital technology to disrupt legacy carriers such as EasyJet and Ryanair. WOW Air for instance is exploiting digital technology such as internet-only booking systems that don’t require physical check-in infrastructure as well as new technologically advanced fuel efficient fleets to outcompete EasyJet and Ryanair by offering customers very cheap domestic and international flights (Elliott 2016).

Nevertheless, EasyJet’s leadership position in Europe is founded on a low cost strategy and despite a tough competitive environment and disruptive digital technology, the company continues to invest in data and digital technologies that help maintain the cost advantage.

2.5 The Legal environment

EasyJet was fined up to £10,671 by a London County Court judge for breach of contract in a compensation claim brought by a passenger Zevy Shine who was denied boarding back in 2013 without a choice of a refund or re-routing and compensation. After a lengthy wait for compensation and reimbursement of costs, the passenger took the airline to court and won, in a landmark victory for passengers but a defeat for Easyjet – and other airlines – that regularly fail to have enough support for passengers at check-in and consequently make them miss flights without offering a choice of a refund or re-routing and compensation (Charlton 2016).

2.6 Environmental Factors

Like rivals British Airways EasyJet faced sustained operational disruption in June last year (2016) due to adverse weather conditions, in particular thunderstorms in South East England, which led to flight delays or cancellations. Such external environmental factors like adverse weather, air traffic strikes, caused severe travel chaos for EasyJet after more than 3,268 cancellations in 2016 alone and adversely affect passenger satisfaction resulting in loss of revenue and additional costs (Annual Report 2016).

Figure 1: EasyJet pestle analysis 2016-2017

4.0 Easyjet Swot Analysis 2016-2017

A SWOT provides a reality check on EasyJet’s internal and external situations and performance (see figure 2).

4.1 Strengths

• EasyJet has an unparalled network in Europe, carrying more than 73 million passengers, making it the second biggest airline carrier in Europe by passenger numbers carried, behind Ryanair (Annual Report 2016).

• Well-known brand-No.1 brand in the UK as well as holding No.1 and 2 positions in Switzerland and France respectively where it has tapped into affluent markets and populations with a high propensity to travel for both business and leisure.

• As competitors continue struggling with high cost bases or inadequate financial resources, EasyJet’s low cost model is enabling to capture market share as legacy carriers cut back mainline capacity or transfer it to low cost subsidiaries.

• Strong balance sheet facilitating low cost model.

• Driving revenue growth.

• Disciplined use of capital.

4.2 Weaknesses

• EasyJet has a minimal global presence. The Airline heavily concentrates on the European short-haul market primarily in Western and Northern Europe and has not taken advantage of other emerging markets in Eastern and Central Europe or Asia.

• Due to Brexit, EasyJet remains vulnerable to EU regulations that require airlines operating along major intra-European routes to either be EU based or become majority EU-owned in order to retain the right to fly between EU cities since it is (Rodionova 2017). EasyJet is currently UK based at Luton airport and its shares are 51% UK-owned leaving it vulnerable to this regulation.

4.3 Opportunities

• Government approved third run away at Heathrow is great opportunity for EasyJet and other airlines. The proposed expansion will create new and affordable extra capacity at Heathrow. It will also reduce the cost of operating to or from Heathrow which is currently the world's most expensive hub airport (Johnson 2016). While EasyJet doesn’t currently operate from Heathrow, it has firmly supported Heathrow runaway expansion stating it would start flying from the capital's largest airport once the government chooses to increase its capacity (Schaps 2015).

• 2016 was characterized by low fuel prices and interest rates, and if such favourable economic factors continue throughout 2017, it will help promote growth in market capacity, benefiting EasyJet and other airlines.

4.4 Threats

• Brexit uncertainty is bad for many airlines including EasyJet especially if EU trade regulations that for a long-time benefited Britain, are withdrawn.

• Digital disruption continues to pose a risk..

• Adverse weather conditions in the UK such as thunderstorms and extreme winter conditions are only becoming more frequent, not less, leading to more future scenarios of cancellations and delays for EasyJet and other airlines.

Figure 2: Easyjet Swot Analysis 2016-2017

3.0 Easyjet BCG Matrix 2017-2018

3.1 Easyjet Stars

France market has proved to be the company’s star generating high amounts of cash due to the high market shares. With lots of investments to increase its presence in France, the airline has been able to grow its market shares to approximately 30% offering more domestic and international connections than most French airlines. France is Easy Jet’s second biggest market for direct flights and short haul destinations (Aeroport de Bordeaux 2018).

Switzerland is also a star with Easy Jet having a strong position in both Geneva and Basel with 40% and 57% market shares respectively (Easy Jet 2017).

3.2 Easyjet Cash cows

The airline’s cash cow is the UK market where it has strong presence in all of the busiest airports with a 47% share in short haul at Gatwick and 43% at Luton.

Easy Jet’s UK market capacity of approximately 545k is the highest in comparison with others. The UK market generates more cash for the company than it consumes making it a cash cow. Easy Jet should use these profits to invest and grow its question marks.

3.3 Easyjet Question marks (problem children)

Netherlands and Portugal are the airline’s question marks with high growth rates due to the company’s investments in them but with low market shares. Netherlands with 52k market capacity and Portugal 51k. The company should invest more in them in order to raise their potential of becoming the next stars (The Blue Swan Daily 2018).

3.4 Easyjet Dogs

Denmark and Austria are the airline’s dogs because of their low growth and market shares and low cash generation. Easy Jet’s market capacity in Denmark is 20k and Austria 25k, the lowest market capacity among other countries.

5.0 Easyjet Five Forces Analysis

Five Forces analysis of EasyJet

Conclusion

2016 was a challenging year for many airline carriers including EasyJet dealing with major issues such as uncertainty due to Brexit, terrorist attacks in major destinations and flight disruptions due to industrial disputes as well as adverse weather. Nevertheless, the company sought to mitigate where possible the impact of these challenges through actions such as closing down 38 routes that did not meet expected return criteria while adding more than 106 new routes to its network in Germany, Italy and Netherlands. Low fuel prices and interest rates also helped sustain high capacity helping promote growth in market capacity. Going forward, EasyJet has core competencies and strengths that can enable it withstand short-term macro environmental shocks. It is profitable with a leading market position in the UK, Switzerland, and Italy while growing other markets such as France, Germany and Netherlands.

References

References available upon request.

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