Will Ryanair cast a shadow over Easyjet’s strong performance?

Easyjet, as well as Ryanair and IAG (owner of British Airways), have actually benefited by the fact that more and more people are travelling abroad from the UK. Gatwick airport, the main hub of Easyjet, reported the busiest August ever in 2014 (the key month for the holiday period) with an increase in passenger numbers of eight per cent.

This is in contrast to what other major European airlines are experiencing, namely Lufthansa and the KLM-Air France group. KLM-Air France reported last month a negative impact of €330m as a result of strike action. Similarly, Lufthansa had to report a seven per cent fall in operating profit in August, mainly driven by revenue problems as a result of strike action.

So, will this positive outlook continue? Reasons to be optimistic for Easyjet are the relatively low cost of fuel, which allows them to operate at a good margin, but also gives them the opportunity to hedge on fuel while it is low. Also, the relatively positive outlook on the economy in the UK is likely to continue to benefit travel, as we have seen so far this year.

However, Easyjet are probably worried about a resurgent Ryanair, who have re-focused on being more customer centric, with the strategy paying off following with a 32 per cent increase in profits for the first half of their financial year. Easyjet is traditionally known as the “nicer” low-cost, with nicer looking planes, less focus on selling products to customers and more business focused with the provision of a Flexi fare. Ryanair are now playing the game, after launching a business proposition (Business Plus) as well as changing the flight experience to be more “caring”.

Easyjet’s strategy to counter-act on that is focusing on loyalty and retention. They already have an easy jet plus scheme that offers customers unlimited allocated seat choice, dedicated Bag Drop and Speedy Boarding, as well as upcoming enhancements like the addition of Fast Track security at major airports in early 2015. The scheme is continuing to grow with 14 per cent increase in the last year. 

On top of that, they have just trialed a frequent flyer loyalty scheme with 15,000 customers in the UK, France and Switzerland with 91 per cent of participants claiming they liked the scheme. This strategy, at the moment, is definitely paying off as they have just announced a 50 per cent increase in retention in the past four years. 

The logic is clear, as Easyjet have a stronger brand, in terms of customer experience, than Ryanair, they have focused on retention to counter-act Ryanair’s strategy focus on being more customer centric. It will be quite interesting to see how these two operators fare in the next year with these two opposing strategies.

Dimitris Hiotis is partner at pricing specialist Simon-Kucher & Partners.

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