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Managing yield in the airline industry

This case is about easyGroup’s efforts to diversify. The company established itself as a low-cost, no-frills carrier that focused on managing yield in the airline industry. In some ways, easyJet was the Southwest Airlines of Europe: the first successful low-cost carrier. easyGroup has tried to transfer this business model to both the rental car and internet cafi?? businesses. In this case, it is considering entry into the UK movie theatre industry. This case offers students the opportunity to apply the diversification concepts in chapter 9.

Particularly, it allows students to assess what it means to have a coherent diversification strategy. Secondarily, it also exposes students to Stelios Haji-Ioannou, a successful serial entrepreneur and to an international business context. Study Questions 1. Why was easyGroup successful with easyJet? 2. What is your assessment of easyGroup’s diversification strategy? Do you expect easyGroup to be successful in internet cafes and rental cars? Why or why not? 3. Should easyGroup enter the cinema business? If so, how?

Teaching Plan 1. Discussion of easyGroup’s history and early diversification efforts (15-20 minutes) 2. Discussion of the easy formula as a core competence (20-30 minutes) 3. Should easyGroup go into cinemas? (15-20 minutes) 4. Recommendations and conclusion (10-15 minutes) easyGroup’s Core Business and Early Diversification Efforts Why was easyJet successful? As Exhibit 8 shows easyJet eliminated some of the costs borne by its more traditional competitors. It eliminated ticketing costs and travel agent commissions.

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This was made possible through its use of direct sales in general and the Internet specifically. easyJet also eliminated in-flight catering and the business class crew. Like Southwest, easyJet also focused on high aircraft utilization and aggressive yield management using a formula described on page 3-44. The formula was designed to allow easyJet to charge higher prices for flights that were in greater demand by examining bookings on a day-by-day basis. To what extent did easyInternetCafe extend the easyJet model? easyInternetcafe was based on yield management.

Unlike easyJet, which was based on Southwest Airlines, easyGroup was more of a pioneer in Internet cafes. This is reflected in the evolution of the cafi?? concept through at least three generations – from the very large stores in the beginning with assistance to the smaller no-frills stores, to something more like a kiosk concept. Cafes differed dramatically from airlines in how flexible and re-deployable the assets are. Thus, while an airline can shift planes away from bad routes and toward goods ones, a cafi?? is stuck with the location that it has either leased or bought.

There are other differences between the businesses, specifically in how the yield model works. Internet use is a low-cost item compared to an airline ticket. Thus, consumers are likely not as price sensitive. Tourists likely make their consumption decision differently as well. With an airline ticket, there is usually considerable planning and comparison involved in choosing a flight. In contrast, a tourist is likely to drop into the first available or most convenient Internet cafi?? without searching for the best deal. What do you think of the easyCar concept?

Will it make money for easyGroup? easyCar looks much more like easyJet than easyInternetcafe. It uses Internet booking along with the yield management and dynamic pricing. The use of one model of Mercedes was similar to the airlines use of Boeing 737s. easyCar has also done some innovative things designed to both cut costs and increase utilization. Having customers provide their own fuel and clean their own cars were good ways to both cut costs and increase utilization. The alliance with car park owners was another innovative way to keep costs low.

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