Market Structure and Economic Factors Affecting Easyjet's Business Operations in the UK

This report discusses the market structure in which Easyjet operates in the UK, specifically focusing on the oligopoly market. It also analyzes the economic factors that affect Easyjet's business, such as interest rates, inflation rates, taxes, and government policies. Furthermore, it examines the impact of Brexit on Easyjet's operations and the challenges posed by the COVID-19 pandemic. The report provides insights into the market dynamics and challenges faced by Easyjet in the UK.

REPORT

TABLE OF CONTENTS
MAIN BODY...................................................................................................................................1
1. Market structure in UK within which Easyjet operates...........................................................1
2. Economic factors within UK that affects the business of Easyjet...........................................2
3. Impact of Brexit on the business operations of Easyjet...........................................................4
4. Impact of COVID 19 over business of company.....................................................................5
REFERENCES................................................................................................................................7

MAIN BODY
1. Market structure in UK within which Easyjet operates
The market structure in any country signifies the level of competition, differentiation and
categorization of the firms in the market where the buy and sell the products and services. It
comprises of the external environment with which the operations of the business are affected. It
can be majorly of four types which includes perfect competition, monopolistic competition,
oligopoly and monopoly having different characteristics and impacts on the business.
The market structure in which the airline industry operates in UK is the oligopoly market
structure. Easyjet an airline company in UK is conducting its business operations within the
oligopolistic market structure (Siegert and Ulbricht, 2020). All its policies are designed to meet
the competition that it faces in the market and captures the market share by developing unique
selling point in the industry. Through this it achieves customer satisfaction and is able to
maximize its profits.
In the airline industry in UK there are few big players in the market who have assumed
all the market share of the industry. The competition in the market is high as there is
interdependency among all the firms in the air transport business (Koopmans and Lieshout,
2016). The market is handled by few big companies who have ensured that high barriers to the
entry of new companies are established. Since new companies are not able to enter the market so
the proportion of the market stays distributed among these airline businesses. In order to assume
more control in the market price wars are the way to capture the market. If the price is low it
shall attract more visitors to the company, on the contrary with high prices are to cater the
specific niche market. The prices are high in oligopoly as compared to the perfect competition in
the market.
Easyjet was established at the time of deregulation of the European airline industry when
they sought to take the benefit of the imperfect competition and gain dominance in the market.
Easyjet generates competitive edge among its competitors and gain the market share by
establishing the low cost carriers with no-frills to differentiate its product from that of the
competitors (Lawton, 2017). Since there is interdependency in the market, so as they offer the
short-haul and medium haul flights at low fares then the travellers prefer them over the other
high priced flights. In that case they are able to maximize their market share as well as generate
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entry barriers for the new entrants who shall not be capable in offering such low cost in the initial
times of its establishment.
In such market place the competition can also be met be the formation of the cartels
among some big airline industry to follow specific policies and cannot decrease the rates below
that bar which is established. Back in the 1980's, the European commission established the “open
skies legislation” which liberalized the air travel for the European community and challenges the
cartel of the flag bearers of British airlines.
Easyjet operates in the oligopoly market structure and has established low cost model as the
strategy to meet the market competition in the UK airline industry.
2. Economic factors within UK that affects the business of Easyjet
The economic factors can be defined as the elements that affect the economy as a whole
and the functioning of the businesses that operates in such economy. They can be divided in two
parts one is the macro and the other is micro factors. The macro-economic factors that affect the
business can be rate of interest, tax rates, government policies, rate of unemployment and the
legislative laws (Stalnaker, Usman and Taylor, 2016). If the rate of interest is increased than in
that case the business shall be badly affected as it will cause higher cost of borrowing for the
company. Similarly, all the other factors also impact the business operations and associated
profitability of the company.
Easyjet offering the low cost carriers operates in the airline industry of UK and is
exposed to such economic environment. Its economic environment is highly volatile in which
some factors act as opportunity while the other poses threat to the company. There are factors in
the economy which acts as revenue drivers for the company, thereby increasing its profits and
future growth prospects. On the other hand some factors are cost drivers which leads to higher
cost of performing business. The company formulates its various strategies and plans in
accordance with the changing market conditions. Some major factors can be highlighted that are
affecting the business of Easyjet and its competitiveness in the market:- Interest rates- This factor proves to be significant in terms of airline industry where
leverage ratio is high (Mahtani and Garg, 2018). If the rate of interest increases then
Easyjet faces high expected cost of distress which forms substantial part of the income
statement of the business.
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 Inflation rates- It is also a factor that impacts the profitability of Easyjet by increasing its
prices and decreasing its customers. The prices increases, in turn decreasing the
purchasing power of its customers. The airfares are higher in inflation and so the
travellers are less in correspondence to that. Taxes- The tax rates also levy considerably high impact on the businesses. Easyjet can
progress more if the burden of tax is less. But if the tax rates increase, then high
imposition of tax burden decreases the profitability of the company. Foreign exchange rate- The rate of exchange plays crucial role in determining the
profitability of Easyjet. In the case where the exchange rate is high the quantity
demanded of the air tickets shall also increase simultaneously as the travellers shall
assume benefit of the high interest rate (Zhang, Wan and Yang, 2019). On the contrary if
the value of the currency depreciates the tourists shall be prone to savings. Government policies- The government policies like price ceiling of the various products
can be threat to the company. If Easyjet is using some quality products then in that case
they have to increase their fares but such ceiling do not permit them to do so. Apart from
that Brexit policy also lead to fall in the share prices of Easyjet posing threat to its future
growth. Unemployment rates- The macro-economic factor measuring the rates of unemployment
is also a crucial determinant of the profitability of the airline business. The increased
rates of unemployment leads to a negative impact on the consumer spendings and thereby
revenues of Easyjet. If the graph of income is low in a country, then the luxury goods
industries shall borne the impact. Wage rates- The wage rate policy change like the one in case of deregulation of
employment and negotiation in the wage rate. Such policies can affect the business of the
airlines. Fuel rates- Fuel rates are also essential element in the world economy, where airline
industry stays the highly effected by the movement in the fuel prices. Since the airline
and fuel are complimentary goods, the increase in the price of one shall decrease the
demand of the other. If the fuel prices increase then simultaneously the demand of the
Easyjet airlines shall decrease.
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 Changes in demand and supply forces- The change in the demand is the most prominent
factors that have affected Easyjet in the airline industry. The demand changes with the
change in the disposable income of the customers. If the income of the potential
customers is high in that case they shall be booking air tickets but in case they have less
to spend, cheaper modes of transport shall be preferred (Tsui and et.al., 2018). Legislative laws- There are number of statutory bodies that govern the aviation industry
in UK and the laws that are framed by them shall be duly impacting the business. The
safety and security laws imposed by the transportation department are all to be monitored
and efficiently fulfilled which is a big challenge for Easyjet. Global events- The global events taking place round the world also severely impacts the
business of airlines. Currently with the spread of pandemic, Easyjet has incurred huge
loss because of lock down and the travelling restrictions that were imposed. The terrorist
attacks are also one such causes which leads to decline in the business of airline industry.
 GDP rates- The gross domestic product of UK and the performance of aviation industry
are directly related to one another and so one is determined by the other factor. If the
performance of Easyjet is good then the overall GDP of the country shall be positively
affected and vice versa.
3. Impact of Brexit on the business operations of Easyjet
The Brexit policy specifies that United Kingdom shall withdraw from the European
Union agreement. As the name suggest British exit, it shall provide freedom to live and work to
UK. The Brexit deal shall prescribe with the new rules which are to be followed while
conducting the trade (Hall, 2020).
Easyjet is highly affected by the Brexit policy and the business operations have suffered
leading to low profitability of the business. One of the major reasons of this impact is that
majority of the company is owned by the European Union nationals. If the separation takes place
without any deal then it shall pose huge loss to Easyjet. As soon as the rumours of employing the
no-deal Brexit took place in the market, the shares of the company badly fell impacting its future
growth prospects.
Another reason is that now in order to visit the European Union parts, the Britishers shall
require visa to be issued. These travelling barriers can be an important reason for severe drop-
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down in its customers. Visa is an additional charge which shall lower down the purchasing
power of the potential customers of airlines.
Before the Brexit policy there were no trade barriers that were established between UK
and EU so there used to be frequent business visits and meetings for which business class tickets
were booked. But since the applicability of Brexit policy, such business or professional trips
shall not be taking place. And this is somewhere loss in the market share of Easyjet.
The human resource of the company in terms of its employees and its customers shall
also be impacted by this policy (Kyriazis and Economou, 2017). Its employees who are the
nationals of European Union shall have to leave the company. The new recruitment as well as
managing the talent among them is a costly affair for the company, further putting down its
profitability. The customer base shall also vary after the implementation of the policy and so
accordingly marketing efforts have to be made distressing the cost of the company.
The supply chain of the company shall also be distorted as now the new trade agreement
between the UK and EU is not free and customs shall be applicable on the exchange of goods
and services. This shall levy additional burden on the company duly decreasing its profitability.
The old agreements sorted on the agreed prices shall also be revised which is an issue for
the company. As the new deals might be costlier than the previous ones.
Easyjet is facing double-trouble, one is because of the Brexit policy and the other is
Covid-19 breakdown (Badiani, 2019). This is leading to serious consequences for the company
in terms of its share prices, business operations and in turn recession in the overall economy of
UK.
4. Impact of COVID 19 over business of company
The current situation of pandemic has created a great impact over the operations of whole
world and in aviation industry as well. The impact was high over the aviation industry as the
there was shutdown of economy for a certain frame of time. In the similar context, EasyJet also
faced many of the negative impact because of COVID on operations of business. the major
impact which was created because of pandemic is decrease in operations of EasyJet. Due to
current pandemic international flights were stopped and this resulted in stoppage in the
operations of company. this has resulted in heavy losses to the company which they have
suffered for first time due to pandemic (COVID 19- leads to first easyjet loss in 25 years- but
digital customer experience is top priority, 2021).
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In addition to this another crucial impact which pandemic has created over business of
EasyJet is cutting off the employees from company. this was pertaining to the fact that because
of lockdown many of the employees were stuck in their places and were not able to go to
company. Along with this in order to manage operations and cost of company, they have to
reduce their workforce and decreased the employees to third of the total people (Maneenop and
Kotcharin, 2020). Overall in the aviation industry there was a high employee turnover and this
increase unemployment within UK. This also demotivated the employees of company and they
were not happy with operations of business.
Furthermore, the as due to government regulation on lockdown the flights were banned and
because of this number of consumers travelling was also reduced. Along with this even after the
lockdown was removed then also there was high decrease in number of people travelling in
airlines. This might be because of the reason that people have a fear if they will travel then they
might get infected and because of this consumer not travel much. Hence, this will result in
increase in cost of company for attracting and stimulating consumer to travel (Belhadi and et.al.,
2021). For this company will have to incur cost over effective marketing with more emphasis on
proper use of sanitisation, social distancing in flights and other safety measures relating to
COVID 19. In addition to this EasyJet also has to increase investment in the safety aspect at
airports and within flights. For the luggage carrier also EasyJet has to make some measures
relating to the proper sanitisation.
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REFERENCES
Books and Journals
Koopmans, C. and Lieshout, R., 2016. Airline cost changes: To what extent are they passed
through to the passenger?. Journal of Air Transport Management. 53. pp.1-11.
Lawton, T. C., 2017. Cleared for take-off: Structure and strategy in the low fare airline business.
Routledge.
Siegert, C. and Ulbricht, R., 2020. Dynamic oligopoly pricing: Evidence from the airline
industry. International Journal of Industrial Organization. 71. p.102639.
Stalnaker, T., Usman, K. and Taylor, A., 2016. Airline economic analysis. Oliver Wyman, pp.1-
68.
Mahtani, U. S. and Garg, C. P., 2018. An analysis of key factors of financial distress in airline
companies in India using fuzzy AHP framework. Transportation Research Part A:
Policy and Practice. 117. pp.87-102.
Zhang, A., Wan, Y. and Yang, H., 2019. Impacts of high-speed rail on airlines, airports and
regional economies: A survey of recent research. Transport Policy. 81. pp.A1-A19.
Tsui, W. H. K. and et.al., 2018. New Zealand business tourism: exploring the impact of
economic policy uncertainties. Tourism Economics. 24(4). pp.386-417.
Hall, D., 2020. Brexit and Tourism: Process, Impacts and Non-policy. Channel View
Publications.
Kyriazis, Ν. A. and Economou, E. M., 2017. The Relation of Brexit with the UK’s QE Decisions
and its Impact on the Eurozone. Journal of Central Banking Theory and Practice. 6(1).
pp.5-14.
Badiani, R., 2019. Outlook on UK-EU Brexit negotiations and possible economic
risks. International Economics and Economic Policy. 16(1). pp.5-16.
Maneenop, S. and Kotcharin, S., 2020. The impacts of COVID-19 on the global airline industry:
An event study approach. Journal of air transport management, 89, p.101920.
Belhadi, A., and et.al., 2021. Manufacturing and service supply chain resilience to the COVID-
19 outbreak: Lessons learned from the automobile and airline industries. Technological
Forecasting and Social Change, 163, p.120447.
Online
COVID 19- leads to first easyjet loss in 25 years- but digital customer experience is top priority .
2021. [Online]. Available through: < https://diginomica.com/covid-19-leads-first-easyjet-
loss-25-years-digital-customer-experience-top-priority>
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