The easy empire has built its business on cyber pillars. Karl
Cushing takes a look at the success of this online
phenomenon.
Offer Stelios Haji-Ioannou a slice of humble pie and he's likely to
wolf it down quite happily. After all, this is the man who once
declared that the Internet was "just for geeks", then promptly made
a fortune by using this new channel to enable easyJet, the
no-frills airline he founded, to interact directly with its
customers and reduce costs.
The company, founded in 1995, honed its direct approach by getting
customers to buy flights, instead of just reserving them, over the
telephone. Customers were not used to this approach and the company
deliberately set out to change consumer behaviour, using the
incentive of low prices. It worked.
The problem was that the contact centre-based system was relatively
expensive. So the company set about migrating its customers onto a
lower cost channel, the Internet.
The first Web site, launched in April 1997, "was quite basic - a
toe in the water", says easyJet's Web manager Simon Pritchard, and
carried a phone number that wasn't available elsewhere. It was
around this time that Haji-Ioannou made his "just for geeks"
comment and proclaimed that the Internet couldn't fill his planes.
However, the traffic figures for the site proved encouraging enough
for Haji-Ioannou to change his tune and in April 1998 the company
started selling on the Internet.
Initial take-up was slow and by May 1999 the percentage of sales
carried out over the Internet was still only 15%. Pritchard says
people would use the Web site to find prices and flight times and
then telephone the contact centre to book. People were unsure of
the channel and there were concerns over submitting credit card
details over the Web. So the company set about persuading its
customers to book online, using "a combination of carrot and
stick".
The biggest carrot was cost. The sticks included allowing people to
book flights less than one month in advance only on the Internet
and putting the best deals online. The Internet site is also the
sole focus of the company's public relations drive - it hasn't
advertised a phone number in 18 months. "We've very much gone out
there and said we're doing the Internet because it suits us and it
suits you and explained why," says easyJet's head of e-commerce
Alastair Gilchrist.
The approach has worked. By December 1999 the Internet accounted
for about 50% of sales. That figure is now 93% and in the 12 months
to February 2002 the airline moved eight million people and
conducted £350m worth of business on the Internet. And the company
is not averse to crowing that it is one of that rare breed of
Internet ventures, namely a profit-making one.
As sales rose, easyJet was forced to expand and this is where the
company's Internet strategy really took off. As Gilchrist explains,
the company could not expand its existing contact centre at Luton
Airport as both funds and space were limited. It also wanted to
keep everything under its control and in one place, so outsourcing
was not an option either. There were added concerns about the
scalability, cost and limitations of the contact centre-based
model, so easyJet chose to push more traffic onto the Web.
"It's cheaper, more efficient and it's easier to cope with peaks
and troughs," says Pritchard, and the company can disseminate
real-time information, presented in a "much more logical
way".
Easy ascribes its success to its policy of avoiding gimmicks and
keeping its business model simple and focused. "We haven't been
seduced into some of the new sexy ideas out there that cost a lot
and only appeal to a relatively small number of people," says
Pritchard. So you won't find flash graphics or additional
travel-related content cluttering the site.
The company is loathe to implement technology for technology's sake
and hasn't invested in other channels such as SMS or interactive
TV. "We were very focused," says Gilchrist. "This was an e-commerce
site and we wanted to make it the fastest and easiest way to book a
seat online."
Another reason for its success is that airline tickets are one of
the easiest things to buy online and there's no fulfilment element,
as with a book or a CD-Rom. No ticket is issued to easyJet
customers, they simply print out their ticketing details and
reference codes and take it to the airport and even this isn't
obligatory. And easyJet has benefited from being one of the first
airlines to sell tickets online.
The success of its airline venture led the company's charismatic
founder Haji-Ioannou to found the easyGroup in late 1998, in an
attempt to leverage the brand and further exploit the Internet.
James Rothnie, the group's director of corporate affairs, says,
"The Internet is the synergy of the easyGroup. It's a great tool
for cutting out the middleman as it puts the customer directly in
touch with the supplier and if you can outsource some of the work
to the customer it reduces some of your costs."
The first group venture, a chain of Internet cafés called
easyEverything - since renamed easyInternetCafé - was launched in
summer 1999.
"Conventional wisdom said that Internet cafés were obsolete as
everyone was already online but we disagreed," says Rothnie. "We
decided there was a latent demand out there and we've succeeded by
applying supermarket economics to this cottage industry." He says
that economies of scale and yield management are two of the group's
strengths and it was certain it could make a go of it.
The cafés are visited by two million people a month globally and
busy outlets such as the Tottenham Court Road branch in London have
about 5,000 visitors a day, says Rothnie. However, he admits that
"it's not a profitable company".
He says the company made a big mistake in adhering to the dotcom
maxim of "growth before profit" and it expanded too quickly,
opening too many branches in the same city and offering too many
niche services such as printing facilities and the ability to order
coffee when around 80% of users just want to use e-mail. "We were
slowly adding complexity and we saw our costs spiralling out of
control," he says. Subsequent attempts to put up prices "chased
people away" so instead the company refocused on "the fundamental
principles of our brand" and cutting costs.
The next venture, easyRentaCar - thus named to avoid confusion over
the fact it was renting, not selling, cars and since changed to
easyCar - was set up as an Internet-only enterprise in spring 2000.
The company claims it was the first online-only car rental service.
Although it has since set up a phone line, like easyJet it tries to
deter callers by charging 60p a minute and only allowing customers
to book more than a month in advance - any nearer the time and they
have to book online.
It soon became clear that the nature of this business was going to
be more complex than with easyJet as "at easyCar you're actually
giving them a £16,000 car and hoping they bring it back undented,"
explains Rothnie.
This created problems and there were several stories in the press
about customers returning cars and then finding that they had been
billed for alleged damages to the cars months later. Rothnie
acknowledges this fact. "We weren't tight enough on our procedures
when cars were returned," he says.
Next up was easyValue, an online cost comparison tool. Launched in
November 2000, Rothnie says it is the group's only pure dotcom
enterprise. The original idea was to base the business model on
advertising revenue and charging suppliers commission but that
didn't prove possible. The goal now is to make it a
subscription-based service. That'll happen "in due course - once
there are enough users and the site is robust enough", he says. In
the meantime it is growing the site by adding categories such as
flights.
EasyMoney, which Rothnie describes as a "dynamically personalised
credit card", had a soft launch in November 2001 and will be
marketed properly soon. Users can adapt the card to suit their
needs by altering the settings online. Rothnie says the real target
market is commercial lending, however, as "that's where the money
is," he says.
The initial aim is to build up slowly and acquire customers
steadily. It won't try to make a big splash and offer subsidised
high rates to attract customers. He says the company has a more
efficient cost structure than its rivals so it can offer better
rates. This is a cornerstone of easyGroup policy, says Rothnie. It
will only enter a market if it feels its cost structure will be
half that of its competitors.
The group also runs a free e-mail service, easy.com, and plans to
launch more ventures soon. An online cinema ticket booking site,
easyCinema, and a room booking service aimed at the youth hostel
market, easyDorm, are currently at the feasibility stage. If
easyCar, which now has 17 sites in the UK, France, Spain, the
Netherlands and Switzerland, breaks even and easyInternetCafé
becomes a "cashflow positive business" this year, Rothnie says the
group will launch another venture later this year. To speed this
process it is looking at franchising out some of its Internet cafés
and forming "gravity clusters" in key European cities with the
remainder.
Rothnie says the "easy" model's real strength is reducing costs
without compromising hardware. "We just remove all the frills and
concentrate on the core competence of the business," he says.
And the company never ducks out of a fight. "Remember we started
out in the airline industry. We never shy away from competition,"
he says.
Expect more easy wins in the not too distant future.