Ryan Air and Easy Jet are considered innovative and successful low-cost airlines. This week, [July 28th 2015] commentators were quick to point to the excellent financial results and growth figures from Ryan Air, and to compare them with the relatively modest progress made by Easy Jet over the same period
I heard CEO Carolyn McCall recently explain the near 100% rise in the share value of her company Easyjet
She was speaking on a round of the broadcast media [Nov 19th 2013]. Her explanation was that the company had retained its budget value for money while enhancing its customer-friendly reputation and attracting business traffic (although she did not use the old term ‘business class’}.
Compare and contrast
EasyJet’s success has been in part due to the problems of the legacy lines which have reduced routes, allowing its rivals to fill the gaps.
The interviewer wanted her to ‘compare and contrast’ with ‘rival’ firm Ryanair. McCall firmly but non-aggressively rejected the implication. She did not see Ryanair as the most direct market competitor. These are the legacy national airlines (British Airways as was; Lufthansa) as they compete on “the routes people like to travel on.”
Easyjet and Ryanair have similarities
Their success has been as low-cost carriers, examples of the peanut airlines. Both have in the last year moved towards scheduled seating, known to be a preference for customers, but earlier considered too expensive to implement. The change offers the prospects of widening their customer base to a market sector attracted to more than claims of rock-bottom prices.
Shareholder pressures at Easyjet
McCall has to deal with a powerful activist shareholder in controversial company founder, company founder Sir Stelios Haji-Ioannou who holds 36.5% of shares and has repeatedly clashed with easyJet’s board over a strategy which he sees as risking shareholder dividends by buying new Airbus planes. “The directors have now accepted that more money has to be returned to the shareholders – if only they would accept that less cash should go to Airbus for more planes.” he was quoted as saying.
For McCall, attention to business efficiency may be sharpened by the influence of Sir Stelios, which is a very business school way of explaining the benefits of shareholder activism.
The change at Ryanair
The change at Ryanair follows recent share price turbulence. Michael O’Leary promises a culture change which will “Stop unnecessarily pissing people off.” O’Leary sought free publicity for years in his mock villain act, glorifying in the culture of low price at all costs with the scramble to board, tough baggage policy, and penalties for customer errors, as corporate profits soared. However, he was finding it hard to escape the old way of thinking, adding “Anything easyJet can do, we can do better and cheaper.”
Doth the lady protest too much?
A recent post in LWD examined the so-called peanut airlines. We suggested that the model pioneered by South West air was not to be found in the then profitable Ryanair. Its attention to customer service was too low on its strategic priorities. Easyjet fits the bill a little more.
McCall is right to attempt to differentiate Easyjet from Ryanair. However, the claim may conceal the point that both airlines are seeking to expand and compete in the same low cost markets.
Airlines around the world are competing fiercely for business. Creativity, robust business models and effective leadership will be required to survive
Unsurprisingly, airlines have become one of the favourite sources of business school cases. The American Southwest airlines has been studied for its innovative “no frills/customer care” approach. LWD has looked at Emirates for its complex business model (is it more a vehicle for fulfilling Dubai’s development aspiration?). We have also commented on the often egregious leadership styles exhibited by airline CEOs, such as Willy Walsh of British Airlines.
Why Southwest is a dangerous case to study
I have listened to many student presentations lauding Southwest over the flailing giants of the industry which in comparison show financial vulnerability. One point that is rarely mentioned is that Southwest, a fine example of strategic leadership, is also a relatively simple business to study. [Compare its number of destinations, fleet size, freight business and scheduled passenger distances for example with Delta or even British Airways. However, the case helps Professors make the kind of glib generalization I offered for it above]. Southwest has pioneered the so-called peanut airlines which have replaced meals by peanut snacks. Even within the peanut lines the business models must not be assumed to be identical. Ryanair sees Southwest as its inspiration, but has approached customer satisfaction in a completely different way.
Dilemmas for old and new airlines
The old airlines struggle with older fleets. With a strong business model this may eventually turn out well. The newer airlines have the advantages of the technological advances in the new generations of plane. They also have the disadvantages of untested glitches that beset new models.
Just an opinion
This weekend, I read of the problems encountered by passengers on a British Airlines flight attempting to travel on the Boeing 747 to London from Riyadh, Saudi Arabia [7 August 2013]. After a forced return to Riyadh, believed to a problem with the wing flaps, the plane set off and turned back again.
On my last British Airways flight in July, from Heathrow to Manchester, the plane sat on the runway for nearly two hours. The first announcement said that the safety checks had not been carried out overnight. The second announcement said that a toilet needed fixing, the third announcement that a piece of equipment was being brought to fix a wing flap.
Personal opinions make poor business analyses. I do not suggest from these two episodes that British Airlines is a bad or dangerous airline. I still like its service, and of course its safety record and will continue to use its services. The anecdotes indicate the increasing operational pressures that accompany extremely competitive businesses. I hold a similar view over BP and the factors contributing to the Deepwater Horizon disaster.
Stop Press: BA and the leaders we deserve
A curious little story from Sri Lanka of a British Airlines fight and a political leader who tried to get out while the plane was in motion. OK, so I was attracted by the title of the piece “The Leaders We Deserve”.