easyJet profits soar as new loyalty scheme resonates and digital initiatives take hold

Profile picture for user ddpreez By Derek du Preez November 17, 2014
Summary:
The European no-frills airline has reported a 21.5% rise in annual pre-tax profits and CEO Carolyn McCall is on the charm offensive to get customers coming back.

Easyjet in flight
Two of Europe's largest no-frills airlines have had a bit of a bumper year – in part due to improved economic conditions in certain regions, but also thanks to investments in digital and customer loyalty. Who would have thought investing in a modern service and being nice to your customers would lead to extra revenues? Drastic stuff.

Earlier this month diginomica outlined how Ryanair's CEO Michael O'Leary has finally conceded that this strategy might just be the best approach to building a successful airline, after it saw its full year profits soar 32%. The budget airline has said that it is not only experimenting with being nice to its customers, but it is undergoing a full digital transformation as it plays catch up with main rival easyJet.

O'Leary explained the thinking behind the strategy in February:

This process started almost a year ago. So there’s a major investment going on behind the scenes here in radically revamping the way we interact with customers.

For too many years, we’ve relied on the fact that we have a huge price advantage over everybody else, and therefore, it doesn’t matter how bad our website is, people will simply stick on us all-day long.

Now we have 81 million people who will stick on it all day long, but over the next year or two, we intend to go after that floating 10 or 20 million of passengers who actually are willing to pay a premium to avoid a less-than-optimal website.

We’re going to continue to invest heavily in our IT platform, in our digital marketing, in the way we improve the website, and make it easier for our customers to get the lowest fares so that we can get them on and off the website quickly, which creates more opportunity for other customers to come on the website and secure the lowest fares as well.

However, easyJet has been investing in its digital strategy for a couple of years now and appears to be reaping the benefits, given its results out today. easyJet CEO Carolynn McCall announced that the airline had seen a 21.5% jump in annual profits, up to £581 million for the 12 months to the end of September.

McCall pointed to investments in digital and IT as helping to drive out costs and also announced plans to focus on data mining, personalisation and a new loyalty programme that will hopefully charm customers into returning to the budget airline over its competitors.

carolynn Mccall
easyJet CEO, Carolynn McCall

easyJet outlined its digital strategy back in 2012, where it said that it had three main priorities – driving revenue, extending reach and cutting costs. A presentation found on the easyJet website describes how it planned to drive revenue through personalisation strategies, such as dynamic pricing and personalised online check-in, which at the time had already increased conversion rates by 10%, and web optimisation through the use of upsell design strategies.

Extending reach has primarily been achieved through popular mobile apps, which have now been downloaded more than ten million times, and a US website. And cutting costs has been focused on introducing new tools that reduce customer contact, such as a flight tracker, online bookings management and mobile boarding passes.

In today's results, easyJet highlighted that total revenue per seat increased by 1.2% and was “driven by a number of digital and revenue management initiatives”. The company reports also highlight how investments in IT and digital have reduced overhead costs in relation to cost per seat, excluding fuel, by 2.3%.

easyJet took the opportunity to highlight some of its more innovative tech trials, which have included the use of Apple's iBeacon technology and a new feature on the mobile app that lets passengers scan in their passport information, saving on time. The easyJet report states:

easyJet continues to make travel easy and affordable for its customers by driving innovation through its digital strategy. The Company’s award-winning app has now been downloaded by over ten million people and the use of mobile boarding passes continues to grow.

During the year easyJet launched a series of innovations including becoming the first European carrier to allow planes to be tracked in real time on a map of Europe on the flight information page and a trial of iBeacons at London Luton, London Gatwick and Paris Charles de Gaulle. These strategically placed beacons trigger helpful notifications to passengers’ mobiles during critical points of the airport journey.

Other initiatives launched in the year included a ‘lowest fare finder’ on easyJet.com and Hebrew and Chinese language web sites.

Commenting on the results, CEO McCall took the chance to take a dig at easyJet's competitors – labelling them as “legacy”. She said:

easyJet has continued to execute its strategy, delivering another strong performance and enabling easyJet to deliver record profits for the fourth year in a row. We are also proposing to increase the proportion of our profits after tax paid in dividends from one third to 40%, reflecting our confidence in the future of easyJet.

Our performance demonstrates our continued focus on cost and progress against every strategic revenue priority. Our people are fully aligned behind our strategy and this gives us strong momentum to continue delivering.

easyJet has opened up clear blue sky between us and our competitors – both legacy and low cost - with our unique and winning combination of the best route network connecting Europe’s primary airports, with great value fares and friendly service.

I would like to thank all of our people who have worked so hard to deliver sustainable growth and returns for our shareholders.

Screen Shot 2014-11-18 at 13.42.42

Finally, easyJet announced that it has increased the proportion of bookings made by existing customers to 57%, up from 50% in 2010 – and it claims that it now understands how loyalty can both support revenue growth and cost control, given that it is more cost effective to retain existing customers, than to find new ones.

To this end, easyJet has launched a trial of a frequent flyer loyalty scheme to reward its most regular passengers. Similar schemes have been very successful for traditional airlines and retailers alike. The trial, which has been running for the past three months and involves more than 15,000 passengers in the UK, France and Switzerland, has been well received by the group – with 91% of those taking part stating that it is appealing to them.

Benefits of the scheme to passengers include increased flexibility on bookings, a price guarantee and a dedicated phone number. However, whilst easyJet will no doubt be focused on retaining customers through the loyalty programme, as we have seen with the retail giants, it will also likely be using the data to boost revenues – customer data is the new currency. EasyJet understands this and highlighted in its results presentation that one of the main strategies it wants to execute through 2015 is “data mining”.

My take

The airline industry is a tough one – so much is dictated by fuel costs and there are plenty of challenges with not only dealing with and finding the capital to invest in your own legacy systems, but there is also the challenge of having to rely on other people's systems too.

However, whilst many would still contest that easyJet is now 'customer friendly' and has still has some way to go in moving away from its 'no frills' past, it is making the right noises and its investments seem to not only be resonating with customers, but translating into profits.

The race is on now to see which airline comes out on top – my money would be on easyJet given that it has been making investments for the past couple of years in digital. First mover advantage and all that. However, Ryanair isn't going down without a fight and with markets recovering, it will be the holiday goers and business travellers that have the final say.