Easyjet Porter Five Forces Analysis

Choose a company. Preferably one that all the group members know or at least some of you have experience working with or working at. Analyse competition (broadly defined) in its industry. More specifically, within one or two double-spaced pages (maximum) please make sure you broadly address the following points:

• Carefully and systematically analyse competition in the industry. Do so on the basis the industry’s structural features as they are captured through the 5-Forces framework.

• What do you conclude are the most important sources of profit pressures for the focal company?

• What do you conclude about the industry overall? Is this an attractive industry to be in? Why? Why not?

• Is there anything the company might/could do to mitigate these pressures?

An industry analysis will describe the structure of relationships among key actors in the industry, will describe key structural determinants that should determine bargaining power, and then derive conclusions. It is useful to analyse each individual force independently before summarising your overall view on the industry. Remember too that the unit of analysis in an industry analysis is indeed the industry--not the firm.

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Easyjet is a British airline company operating in the low-cost airline industry. Based in Luton airport (UK), the company operates domestic and international flight services on over 700 routes in 32 countries in Europe, North Africa and West Asia.

1. Threat of Entry

The threat of new entrants is low due to the barriers associated with entering into the European airline sector. The main obstacle is represented by the industry high fixed costs. New entrants would require large capital investment to finance planes, physical facilities, equipment, marketing activities and maintenance, even though the impact of this is mitigated by availability of leasing options and external finance from banks and aircraft manufacturers. In addition, the industry cost structure creates large economies of scale, favouring established players, which can spread their cost on a large number of established clients. Another important barrier to the entry is the access to channels of distribution. New entrants would find difficult to access the industry since there are limitations of airport slots, which are leased to airlines on a long term contracts.

1. Threat of Substitutes

The main substitute products to airline travel include car, coach, sea and rail transport. Also, some business customers may prefer not to travel to attend business meetings that can be accomplished via video conferencing. As distance increases, air travel has almost no effective alternatives given its much faster speed of travel. The only exception is high speed train connections, which however tend to be more expensive than low-cost airline tickets. As a result, we conclude there are no significant threats from substitute products since the buyer’s propensity to choose a substitute product is limited.

1. Buyer Power

Individual passengers have a low bargaining power in the airline industry since customers usually are not concentrated and buy only in small quantities. However, customers enjoy low prices since competition in the industry is strong, switching cost from one provider to the other are non-existent given the lack of brand loyalty and pricing information is fully available in the market.

1. Supplier Power

Easyjet main supplier is the aircraft producer Airbus, which enjoys a strong bargaining power. Indeed the aircraft construction industry is concentrated as there are only two aircraft constructors (Airbus and Boeing) and Easyjet switching cost from one supplier to the other are high considering cost required to retrain flight crew.