MARKETING METRICS OF EASY JET IN UK

QUESTION

The lecturer suggests me to select Airline Company (such as Singapore Airline).

This is not a team assignment. Individuals will choose a listed company, where the annual report and other details of their strategy (e.g. online marketing strategy) is readily available. Students will then compile 10 metrics from marketing metrics (Farris et al) for their individual company.

For the chose company, please provide

a) A table of the chosen metrics, showing your calculations

b) A detailed analysis per metric with respect to the effectiveness of the company’s overall strategy and a well-supported discussion of why the particular metric was chosen

c) A detailed conclusion section to support your opinion of whether the company is effective at implementing their strategy or not

Suggested format:

Introduction/Background (10%) – topic

Metric Analysis (30%) – Explanation of each metric trend v/s competitors (select 2 competitors), Explanation of current performance

Conclusion (40%) – What do you conclude and how? Compare with statement from the company & competitors

Recommendation (10%) – Advice for the company

Lecturer suggests 11 metrics:

1. Marketing share
2. Unit market share
3. Revenue market share
4. Relative market share
5. Gross profit margin
6. Average price per unit
7. Net profit
8. Return no sales
9. Return on investment
10. Return on asset
11. Debt ratio

SOLUTION

Introduction:

Marketing metrics are the parameters that help an organization to gauge the performance of its marketing efforts. There are various metrics that can be used for this purpose such as market share, response rate, advertising expenditure, return on investment etc. Marketing metrics are helpful for the marketing personnel to measure their success and plan for the future marketing endeavors. Generally, every industry has some specific trends towards its marketing metrics. These trends can be utilized to analyze the success or failure of the strategy of any firm in that industry qualitatively as well as quantitatively. I have chosen easyJet Plc (United Kingdom) from airline industry to demonstrate the importance and effects of marketing metrics. It is among the market leaders with respect to passenger carried in United Kingdom.

Metric Analysis:

For comparing the success of easyJet Airlines on the basis of marketing metrics, I am using the data from British airline industry only. As the latest annual report available is for 2011 (on easyJet Plc website), I will be using the value from the same for the purpose of calculating marketing metrics.

easyJet is the one of the major airline of United Kingdom’sairline industry and the largest airline of UK in terms of passenger carried. It started its operations in 1995 and last year (2011) the revenue for the airline company was around ₤ 3.45 Billions. Its main competitor British Airways had a merger with Swedish Airline Iberia and formed International Airlines Group. IAG constitutes revenue from the United Kingdom’s airline industry as well as Swedish airline industry. Therefore I have used British Airways and IAG interchangeably for comparison according to the marketing metric being analyzed. Some of the metrics are compared with Irish Airlines Ryanair also because it is a low cost service provider as easyJet. Some of the marketing metrics for the company are calculated and analyzed as under:

1. Marketing share/ Revenue Market Share: easyJet Plc the top airline company of United Kingdom as per the passengers carried. Still it lags behind in revenue from British Airways that is on the top spot as per revenue generated.Calculating the marketing share for the company can be tricky as the there is not a single definite parameter for considering the market. Various parameters such as international flights, geographic penetration, revenue from domestic flights, total revenue or passengers carried can be considered for calculating the marketing share. I have decided on the revenue because it is the single most important aspect for the firm to carry on business.easyJet Plc has earned ₤ 3452 Million during the financial year 2011. This makes the marketing share of the company to be 18.75 % of the airline industry total ₤ 18.4 Billion. This metrics demonstrate the potential market available for the company.British Airways holds the largest market share of 62.50 % due to its revenue of ₤ 11.48 Billions during 2011.
2. Unit market share: The units for the airline industry are the passengers carried by the industry. Therefore unit market share is an important factor to measure the performance of brand image of the firm. It indicates what portion of potential users uses the services provided by the company. easyJet Plc is having the highest unit market share of 42.25% as it carried 54.5 Million passengers out of the total passengers of 129 Million who used the services of airline industry during the year. The top revenue earner British Airways had the unit market share of around 25% (2011). The reason for the same is that British Airways has the highest number of international flights in United Kingdom’s airline industry.
3. Relative market share: I have chosen this marketing metric as it indicates the relative market sharing by the company with respect to largest competitor. British Airways is leading the market with 62.50 % market share by revenue. easyJet Plc has relative market share of 30.00 %; which indicates that the company is earning around one third than its largest competitors. For British Airways this metric is 3.33 indicating its dominance in market based on revenue generation. In this particular scenario, these values demonstrate the large gap of revenue between the two competitors. But easyJet entered very late (1995) in the airline industry; therefore even the smaller metric indicates the successful operations of the firm.
4. Gross profit margin: I have chosen this metric because it is the best measurement of organization’s operational efficiency. It indicates how much profit is earned by the organization with its operations. easyJet Plc earned revenue of ₤ 3452 Millions with its operations and concurred the expenses of ₤ 2984 Millions. This brought the gross profit margin of the firm to 13.56 %. This metric indicates an excellent operational efficiency against the competitor IAG. The competitor International Airlines Group (formed after a merger of British Airways and Iberia in 2011)earned angross profit of ₤ 1794 Millions with the total revenue of ₤ 16339 Millions making its gross profit marginas10.98 %.
5. Average price per unit: This metric is importance as it provides information about the pricing of the service/ product of the organization. For airlines industry, cost per seat can be constituted as average price per unit. easyJet Plc has claimed this to be ₤ 51.30, which is way less than the competitor IAG. The reason for the same is higher market share in domestic flight. Airline tickets for international flights are way costlier than the domestic flights. The main cost for the flights is fuel cost that is directly related to the distance of the journey. Therefore the lower average price per unit for the firm is justified.
6. Net profit: Net profit is an important aspect of marketing and finance. It indicates the viability of business in the coming years and available funds for various purposes as expansion, investment and dividend.  easyJet Plc earned a profit after tax (Net profit) of ₤ 225 Million during the year 2011. This is 86% higher than the net profit reported for previous year demonstrating a financially successful year. Its main competitor IAG reported a profit after tax of ₤ 555 Millions, which is not on higher side considering the total revenue of the organization. Net profit is used to find return on equity and capital. Therefore net profit should be commensurable to the equity/ capital employed by the investors.
7. Returnon sales:Return on sales is the ratio of operating profit to the net revenue. I have decided on this marketing metric because it indicates what part of revenue constitutes as the operating profit for the organization. Higher values of the return on sales indicate lesser financial risk because operating profit is utilized further to pay interest and taxes. easyJet Plc earned a operating profit of ₤ 272 Millions on its revenue of ₤ 3452 Millions. So the return on sales for the firm is 7.88%. This indicates a healthy return because its competitor IAG earned operating profit of ₤ 407 Million on its revenue of ₤ 16339 Millions, making the return on sales a mere 2.50%. For airline industry, operating profit is very low compared to gross profit due to very high value of depreciation. Despite the fact, its competitor in low cost service, Ryanair recorded a 13.45% return on sales in 2011.
8. Return on investment: Return on investment or rate of return is one of the most frequently used parameter to measure the financial performance of any company. It provides the information about the return on the capital employed. easyJet Plc recorded a 12.7% return on capital employed which is equivalent to low cost competitor Ryanair. IAG reported 9.76 % return on investment (IAG earned net profit of ₤ 555 Millions for total capital of ₤ 5686 Millions). This metric also demonstrates the success of financial and marketing strategies of easyJet. This metric also encourages investors and helps in increasing the value of the shares of the firm.
9. Return on asset: I have taken this metric for analysis because it indicates how much earnings are available from each unit of company’s asset. This metric also demonstrates the management ability of the firm to utilize the assets for the best possible usage. It is calculated as the ratio of net profit (after interest and taxes) to the total assets of the organization. easyJet Plc has 5.04% return on asset because of its net profit of ₤ 225 Millions with a total asset values at ₤ 4469 Millions. Its main competitor IAG earned a profit of ₤ 555 Million after taxes with the assets of ₤ 19759 Millions, creating a return of 2.81%. Its other competitor in low cost services, Ryanair recorded 4.36% ROA. This comparison provides the evidence of management and operations effectiveness of easyJet Plc compared to IAG.
10. Debt ratio: I have chosen debt ratio as marketing metric as it indicates the liquidity risk associated with the firm’s operations. easyJet Plc has a debt ratio of 0.62, which is on the lower side and indicates the financial stability of the firm. Lower debt ratio also indicates that firm has enough borrowing power for expansion of its operations. Its main competitor IAG also has a debt ratio of 0.71 and Ryanair has debt ratio of 0.66 indicating a trend in the airline industry. Before merger, British Airways had a debt ratio of 0.80 (2010).

Conclusion:

All the marketing metrics indicates strategic effectiveness and operational efficiency of easyJet Plc compared to its competitor IAG, Ryanair or British Airways. These parameters also demonstrate the success firm achieved in short span of time. Some of the conclusions that can be inferred from the analysis are given below.

p easyJet has performed excellently considering it started its operations in 1995 only. It has expanded its operations with acquisitions and low cost services. Its main competitor is British Airways, which merged with Swedish firm Iberia to form International Airlines Group. This is the high time for the firm to revisit its strategy to tackle the synergies created by the merger.

p easyJet Plc is the market leader with respect to carrying passengers in United Kingdom. It successfully increased its network of flights with more than 11% increase in the seat flown for the year. This figure proves the effectiveness of the marketing efforts and the strategy of “Focus on Customer”.

p easyJet has performed good with enhancing its revenue and recording growth of 16.11% in revenue. But still it has a small share of total market revenue. Its competitor IAG has a huge chunk of revenue from the United Kingdom’s airline industry.

p The cost per seat has increased during the year, which was caused due to higher fuel costs. Otherwise with its strategies of “Operational Excellence” and “Safe and Sustainable”, firm was able to reduce its cost per seat by 1.3%.

p The success of “Financial Discipline” of the firm is evident from the lower debt ratio and better margins that causes sustainability and reduced risks for the firm. These figures point at the outcome of cost control, yield management and strength of easyJet’s network.

p The returns provided by easyJet Plc are impressive and demonstrate the operational efficiency and strategic management. Firm recorded double earning per share compared to last year (2010). The higher returns along with the dividend announced have helped the company to regain its previous share price in security market (http://uk.finance.yahoo.com).

Recommendations:

easyJet Plc is a successful company in the airline industry of United Kingdom. But there is a vast opportunity available as indicated by the lower revenue market share. The firm can utilize the following recommendations to tap the potential and increase its share of revenue in the industry.

v International presence: easyJet should increase its international flights to penetrate the vast market potential available. easyJet does not have its presence in the international flights towards USA, which is a huge market. Company can expand its services and fleet size for the penetration in this market. For the success of this expansion it has readily available borrowing power (low debt ratio) and brand image (highest passengers carried).

v Strategic focus: It should continue its focus on current strategies of “Operational Excellence”, “Focus on customer” and “Financial Discipline”. These are the pillars for the success of the firm. The cost cutting efforts and low cost services combined can be used for marketing the image of the firm during expansion. The firm should also start premium services for niche segment of long-haul customers.

v Competitor evaluation: Main British competitor of easyJet was British Airways, which merged with Swedish airlines’ company Iberia to form IAG. This merger helped British Airways to improve its declining revenue and to achieve cost efficiency. easyJet should focus on its marketing efforts to tackle with the synergies created by the merger. Besides, it should also increase its marketing and advertising efforts to tackle the competition in low cost services by Irish firm Ryanair.

Reference List:

• British Airways. (2010). 2009/10 Annual Report and Accounts [online]. Available at: <http://www.britishairways.com/cms/global/microsites/ba_reports0910/index.html> (Accessed on 21 April 2012).
• Fabozzi Frank J. and Peterson Pamela P. (2003). Financial Management and Analysis (2^nd ed.). New Jersey: John Wiley & Sons.
• Financial Review. (n.d.). easyJet Plc [online]. Available from <http://2011annualreport.easyjet.com/performance-risk/financial-review.aspx>(Accessed on 21 April 2012).
• International Airlines Group. (2012). Annual Report and Accounts 2011 [online]. Available at: <http://www.iairgroup.com/phoenix.zhtml?c=240949&p=irol-irhome> (Accessed on 21 April 2012).
• Ryanair Ltd. (2012). Annual Report 2011 Final [online]. Available at: <http://www.ryanair.com/doc/investor/2011/Annual_Report_2011_Final.pdf> (Accessed on 21 April 2012).
• Welcome to British Air Transport Association. (n.d.). British Air Transport Association [online]. Available at: <http://www.bata.uk.com/> (Accessed on 21 April 2012).

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