Easyjet Porter Five Forces Analysis

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Jet-fuel suppliers also have strong bargaining power as they provide a fundamental input (fuel) for the airline industry. In the last few years airline companies have invested heavily on fuel efficient airplanes in order to mitigate the impact of fuel prices on operating costs.

Pilots and crew members also have strong bargaining power. For example, highly qualified and experienced pilots are not generally available and they are expensive to recruit and retain. In conclusion many European airports and air-traffic controls are local monopolies. As a result, we conclude that generally the bargaining power of suppliers is strong.

- Rivalry

Easyjet is currently the fifth largest European airline by number of passengers carried and second largest European low-cost airline behind the market leader Ryanair. Competition can be divided in two segments: (i) competition with other low-cost airlines, and (ii) competition with full service airlines.

Competition with other low-cost airlines is strong given the large number of players (Ryanair, Norwegian, Germanwings, Vueling, etc..) and the product differentiation is low. Pressure on pricing is strong given customers look for the cheapest option, do not have switching cost and pricing information is fully available in the market.

Competition with the traditional airlines is moderate as they target a different client segment, however they constitute a threat as they could create subsidiaries or implement aggressive pricing strategies to compete with low-cost airlines.

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We conclude the most important sources of profit pressure in the industry are suppliers and competitors. We believe low-cost airline industry is not a very attractive industry to be in since the profit margin are under constant threat from not only the factors described above but also from outside shocks such as terrorist attacks, outbreak of illnesses, natural disasters and rises in oil prices.

In order to mitigate the profitability pressures, Easyjet should focus on improving product quality and on customer loyalty by introducing an attractive frequent flyer program offering benefits such as free booking changes and reward flights. These initiatives will increase customers’ opportunity cost to switch to a competitor product and alleviate pressure on profit margins.

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