PRICING, SUPPY AND DEMAND

Easyjet Essay

Hanoi, January 12, 2011

From: Trinh Phuong Thao

To: Miss Thuy and Miss Dung Hue, Integrated Business lecturers

Subject: Easyjet Essay

Table of content

Introduction………………………………………………………………………………………..2

Role of pricing…………………………………………………………………………………….3

Easyjet fare fluctuation…………………………………………………………………………..5

Easyjet and British Airways pricing strategies……………………………………………………7

Conclusion……………………………………………………………………………………….10

Recommendation………………………………………………………………………………...11

Reference………………………………………………………………………………………...12

1

INTRODUCTION

In the airline industry around the world has appeared low cost carriers as major players

who have created huge changes in the original service and pricing strategy. Easyjet is one of the

most successful low cost short-haul ones in England as well as European.

Along with the development of airline industry and the increase of air traveling demand,

low cost flights become more and more common attracting much effort to research pricing

strategies in this field in order to reach improvement opportunities. There are some different

methods about the way carriers hold their flights. Studying this issue can help managers

understand clearly how the prices of low cost airlines in fact could be opposed with normal ones,

so they can adjust their oriented goal to achieve good performance.

On the other hand, this essay provides a chance to challenge the role of pricing within

four Ps of marketing mix and see its actual level of importance in the business environment.

Therefore, it will bring marketing theory into reality, which shows the necessity to be flexible

applying theory into changing business situation.

Generally, this essay gives out the mode operation of two airline companies heading to

different priorities when they offer their products. It will study and represent the result of the

comparison between a low cost carrier and a normal one.

2

ROLE OF PRICING

Price which is one of four Ps of the marketing mix talks about the value placed on

something that is exchanged. The work of calculating the price for a product is called pricing

which can influence directly business performance. These are several aspects making pricing

important.

To begin, let’s look at how price is different from other marketing mix factors to

understand the unique role of it. While decisions and performing processes related to product,

place and promotion take a long period of time to carry out or to make changes, price is much

more flexible. Marketers can quickly decide to adjust a product price in order to respond to either

consumers’ demand or competitors’ action. This nature of pricing helps organizations adapt

effectively to market changes. Specially, in the time that a business is on the verge of collapse, a

wise strategy on pricing can prop it up when this work can keep goods flowing out and cash

flowing in. Like this, price is the most adjustable element of all marketing decisions.

Besides, contrary to cost drivers like the rest Ps, price generates revenues which influence

how much a business can earn. While revenues are decided by the quantity of good sold, price is

the factor that affects this figure. In other words, price puts a strong impact on customers’

decisions involving their evaluation and impression of the product. If pricing is not done

appropriately, organization’s benefit will be damaged. When the price is set too high, consumers

can turn away making all the work it has done wasted. Conversely, too low price not only results

in the loss of additional profit when customers are willing to pay more but also creates an

impression that the product quality is not good. Pricing then is a distinctive process for the

reason that its outcome provides the foundation of both recovering costs and making profit.

In addition, pricing and organization objective are connected closely. Pricing is affected

by corporate strategy and then needs to be considered both in the view of satisfying customers’

demand and in the view of reflecting business aspiration. Because price can be a communicator

to customers, the impact of pricing can make company target become more or less attainable.

Towards company image, an unsuitable price can lower its position in the market. Therefore, the

price has to be worked out with careful research and analysis to avoid the situation that

consumers misunderstand organization characteristics.

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Furthermore, there is no weapon that can rival and respond to competitors’ actions better

than price. The use of this weapon, however, is also very dangerous when it can drive a price war

that contains a possibility of losing organization market share. Hence, it is necessary to

understand company’s position, examine cautiously market situation and prepare for

competitors’ responses before trying to attract customers with product price. It produces

evidence that pricing requires much effort to do or it can lead the organization to a big mistake.

Last but not least, changing a price or setting new price is a difficult work. To increase

sales or profit, price may be adjusted according to product life cycle, scarcity in the market, time

period and social situation. Affected by these factors, demand is different and altering price can

give businesses more chances to have profit. But changing too much may damage organization

stability under consumers’ point of view, so marketers should not overuse it. Moreover, when a

new product enters the market, pricing is very important because it can decide whether or not the

product can attract customer and create good attitude towards buying it.

In summary, pricing can bring to organizations both opportunity and threat, which of

them is base on the judiciousness of decisions marketers make. Therefore, this process should be

done step by step carefully.

4

EASYJET FARE FLUCTUATION

After consulting carefully flight fares of Easyjet company, the result shows that there are

various fares not only for different flights that have the same route but also for the same flight

with the same class. Through investigating these differences and even the factors that can drive

this situation comes the conclusion that the fares of flights can be diversified according to three

aspects. One is about location and two are related to time preparation.

Location here means the place that flight will take off. The difference of departure spot

can lead to the difference of the amount of money customers have to pay. For flights on January

4th at 7 am, if customers went from Luton to Amsterdam, fare was £ 78.99 but if customer went

from Amsterdam to Luton, fare was € 104.99 which is equal to £ 87.68. Other flights have the

same condition showing that fares are affected by local authorities’ policy and different carriers’

charge.

The second aspect making up the variation of fare is the time that the flight leaves in a

day. Below is an example of time schedule of the flights from Luton to Amsterdam on Tuesday,

January 4th, 2010.

Ordinal Fare

Time

Departure (Luton time) Arrival (Amsterdam time)

1 78.99 7:00 9:10

2 58.99 15:00 17:10

3 58.99 18:15 20:25

As can be seen from the chart, the flight at 7 o’clock was more expensive than the others.

It took an additional of £ 20 in comparison with the flights which left at 15 pm and 18:15 pm. It

is because there are higher demands for early morning flight on weekday when customers have

business trips. By contrast, on Friday flight fare on late afternoon can require more money than

other flights on the same day for the reason that there are many people who go on short holidays

on the weekend.

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Finally, the most importance aspect that influences the price of an Easyjet flight is the

different period between the day customers order ticket and the departure day. The chart below

reveals the changes in fare of a return flight from Luton to Amsterdam through time.

Easyjet price flutuation (Return flight: Luton - Amsterdam)

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

1 day 1 week 1 month 3 months time booking advance

GBP

Cheapest price

The most expensiveprice

The fares here are calculated by summing up the outbound and inbound flights. The chart

shows that though the highest fare could fluctuate but the lowest one only had downward trend.

It means the further time customers booked advance was, the less money they had to spend. This

was because when the departure day came, demand for that flight increased and the fare became

more expensive.

6

EASYJET AND BRITISH AIRWAYS PRICING STRATEGIES

British Airways is an traditional airline in England. In order to compare its pricing

strategy with the one of low cost airline Easyjet, let’s take a look at the graph below that shows

two carriers’ cheapest return tickets on the same day. There is a small difference that the route of

British Airways flights is from London City Airport for the reason that this carrier do not have

flights in Luton.

Difference between Easyjet and British Airways prices

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

1 day 1 week 1 month 3 months

time booking advance

GBP

Easyjet

British Airways

British Airways fares were much higher than the ones of Easyjet. Booking one day

advance, Easyjet fare was equal to two-third of British Airways fare. While Easyjet lowered its

fare much when the time booking advance lengthened, British Airways also did that but with less

decrease. If customers order their ticket three months before their trips, Easyjet offered them the

fare that was less than 50% of British Airways fare.

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The difference was base on the pricing strategy that each carrier used. Easyjet had only

one class that was offered with the same fare but the fare was depended on the day customers

buy tickets. By contrast, British Airways did not change their fare over time. It provided a wide

range of classes which had different services and the ticket price was decided on which class

customers chose. However, the fare of British Airways on the graph was also higher at the time

near departure day. Because the lowest fare which was limited was sold more quickly, the day

before the flight did not tend to have any cheap ticket left. Hence, though using two opposed

strategies, one rule was the same – customers were more likely to be able to buy a lower fare by

booking early.

However, there was a strong difference between Easyjet and British Airways. It was the

disparity between the cheapest and the most expensive fares. The table below will state it more

clearly.

Easyjet British Airways

Booking time

1 day advance 3 months advance

1 day advance 3 months advance

Cheapest pricePrice 105.98 50.98 157 120

Difference 51.90% 23.57%

Most expensive

price

Price 135.98 55.98 207 132

Difference 58.83% 36.23%

With Easyjet, the fare could be lowered by more than half if customers booked three

months advance. This was the way Easyjet attracting customers when they had chances to obtain

so cheap ticket benefiting their financial situations. Besides, British Airways tickets which was

varied by classes did not fluctuated this much. In other words, the discrimination among this

high cost airline did not exceed 40%, which ensured the quality of services even when customers

chose the lowest class.

Then the biggest distinction between low cost carriers and high cost ones was the service.

In order to evaluate these airlines, it was worth asking whether or not Easyjet provided services

like British Airways. The answer was yes but with an additional fee, which could make the low

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fare become much more expensive. The clearest evidence was about check-in luggage. Including

in flight fare of British Airlines was one piece of checked baggage which was up to 23 kg and

two pieces of permitted hand baggage. On the contrary, the fare of Easyjet just covered a

handbag but not a check-in one. Traveling with a heavy luggage requires more money invested.

Booking time

Easyjet British Airways (luggage included -

23kg)TotalLuggage included

(23kg)

1 day advance

Cheapest 105.98 165.98 157

Most expensive

135.98 195.98 207

1 week advance

Cheapest 65.98 125.98 131

Most expensive

66.98 126.98 157

1 month advance

Cheapest 55.98 115.98 120

Most expensive

79.98 139.98 147

3 months advance

Cheapest 50.98 110.98 120

Most expensive

55.98 115.98 132

In the case customer book advance for checked baggage at Easyjet, they will receive £ 18

saving, which means they need to pay £ 18 for a check-in luggage that weighs 20 kg and £ 14

more for each additional kilogram. Generally, to bring a checked bag that was 23 kg like the

allowance of British Airways, Easyjet customers had to pay £ 60, a big amount of money in

comparison with total flight fare. Like this, cost for traveling with Easyjet is equivalent to going

with British Airways.

However, for people who is on a tight budget and do not need to carry much belongings

traveling, Easyjet is still a very good choice with the fare which is much lower than high cost

airlines.

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CONCLUSION

Pricing is an important process in the marketing mix that can influence business profit

and development. There are some strategies for pricing that is applied by organizations which do

not target the same market segment. Among them are two carriers, one follows more traditional

method of pricing in airline industry and one tries a newer mode.

With different pricing strategy, Easyjet and British Airways aim at different customers.

While Easyjet tries to create the cheapest fares with the lowest costs, British Airways focuses

more on quality of services on flights. Each method has its own advantages and disadvantages

which can suit customers in various situations.

RECOMMENDATION

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There is no perfect pricing strategy which businesses should follow completely.

Depending on the market segment and customers each company want to approach as well as

strengths and weaknesses of the company, it should investigate to find out the strategy that is the

most suitable.

As can be showed from this essay that for both high and low cost carriers set their fares

base on the length of period before the departure day, so it is suggested that the sooner customers

order their ticket, the cheaper fare they can own. Therefore, planning your trip advance brings

much financial benefit.

Before choosing Easyjet or British Airways for you flight, something should be

considered - which luggage is included in your trip and how heavy it is. Bringing baggage that

weighs too much may require more money. In short, the fee for additional luggage should be

plus on flight fare to know the total amount of money each carrier offers.

REFERENCE

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1. Frances Brassington and Stephen Pettitt, Essentials of Marketing Second Edition, Chapter

7 ‘Price’

2. KnowThis.com, Importance of Price, Retrieved from

http://www.knowthis.com/principles-of-marketing-tutorials/pricing-decisions/

importance-of-price/

3. Oded Koenigsberg, Eitan Muller and Naufel J. Vilcassim (October 2007), Easyjet Pricing

Strategy: Should Low-Fare Airlines Offer Last-Minutes Deals?

4. Keith J Mason, Pricing Strategies of Low Cost Airlines

5. Simon Smith, The Strategies and Effects of Low-Cost Airlines

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