LOW COST Airlines - Ready for Takeoff in India

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Authors: Sanjib Dutta
Senior Faculty Member
ICMR (IBS Center for Management Research).

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Easy Jet

easyJet's operational policies were based on keeping costs to a minimum to allow the airline to offer the lowest fares possible. The airline's operational model focused on moving people from point A to point B in the best and cheapest possible way, stripping out all unnecessary costs. Towards this end, it adopted a number of practices that helped curb wasteful expenses and provided the best possible service within the limits prescribed by cost.

easyJet's success can be credited to two strategic imperatives. The first was "sweating the assets", that is making sure the planes were as full as possible and flying as much as possible. The second was a sophisticated yield management system which could set an infinite number of fares for a given flight, based on the demand and supply position for that flight. The prices for the seats fluctuated depending on the demand for them at a particular time. The airline followed a strategy of cost focus by adopting the following operational policies:

easyJet identified that food served on flights constituted a major proportion of the expenditure per passenger. Most airlines served food regardless of the distance or duration of the journey. Customer feedback revealed that passengers did not want meals on short haul flights. They preferred to pay less for the flight and have a choice of purchasing light snacks or food as per their choice on the flight. easyJet therefore, identified that huge savings could be made by not serving meals and consequently, did away with the practice of serving food.

A Instead of serving food, easyJet offered passengers the choice of purchasing drinks or snacks from an on-flight kiosk (called easyKiosk). This helped the airline cut out unnecessary expenditure on food. The benefits of savings were transferred to passengers in the form of lower fares. Another advantage of charging for food on flights was that it brought in additional revenue. Not serving food did not detract from the quality of service, as easyJet mostly flew short distances of a few hours duration, and passengers did not need major refreshments on these short journeys.

easyJet did not rely on travel agents for bookings and tried to eliminate middlemen altogether (it once even painted the motto "Cut out the middleman" on one of its planes). Instead, it encouraged direct booking of tickets by passengers. All ticket sales were done over the Internet or over the telephone by the company's ticketing staff, round the clock. A majority (over 90 percent) of the ticket bookings were done over the Internet. Payments were made through credit card and all payments were final (no refunds were given in case of cancellation). Direct booking allowed easyJet to eliminate the commissions payable to middlemen, which made the tickets that much cheaper. Internet booking also helped eliminate ticketing agents and additional workers, thus cutting down the wage bill. To encourage booking over the Internet, the airline offered a discount of £5 on every return ticket booked on the web site.

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