Key Influences on the Early and Rapid Internationalization in the Airline Industry. A Case Study on easyJet E-Book

Johannes Michl

• Herausgeber: GRIN Publishing
• Sprache: Englisch

Veröffentlichungsjahr: 2016

Beschreibung

Master's Thesis from the year 2016 in the subject Business economics - Miscellaneous, grade: 1,0, , course: International Management, language: English, abstract: This dissertation analyses the key influences on the emergence of Born Global Firms (BGFs) in the airline industry. Thus, it helps to contribute to the general knowledge on the topic known to date and to be an inspiration for future studies in this area. At the centre of attention is the question what key influences favoured the early and rapid internationalization in the case of the low cost airline easyJet. In order to answer this question the appropriate methodology of a single case study content analysis approach was chosen. Hence reference is made to various documents and archival records such as books, company documents, company websites, journal articles, newspaper articles, official statistical data and other Internet sources. The time period under consideration is from the foundation of the firm to the first internationalization steps. The results show that the market conditions of the low state protection in the home country, the strong opportunistic behaviour of easyJet when selecting the host country, the high internationality and extensive use of technology in the airline industry has promoted the early and rapid internationalization of eayJet. Further the findings recommend that majority of easyJet’s resources had a positive influence on early and rapid internationalization. The most important key influences could be identified in the Human Resources. Thus the founder of easyJet is a young, confident, international experienced man who possesses a positive mind-set, an international vision and a high risk-tolerance. Missing industry knowledge of the founder is compensated through the extension of the senior management. Thus, we can conclude that the decisive aspect of whether or not to internationalize lies with the attitudes of senior management. In many cases it requires a “paradigm shift” in order to move toward the BGF model.

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Abstract

This dissertation analyses the key influences on the emergence of Born Global Firms (BGFs) in the airline industry. Thus, it helps to contribute to the general knowledge on the topic known to date and to be an inspiration for future studies in this area. At the centre of attention is the question what key influences favoured the early and rapid internationalization in the case of the low cost airline easyJet. In order to answer this question the appropriate methodology of a single case study content analysis approach was chosen. Hence reference is made to various documents and archival records such as books, company documents, company websites, journal articles, newspaper articles, official statistical data and other Internet sources. The time period under consideration is from the foundation of the firm to the first internationalization steps. The results show that the market conditions of the low state protection in the home country, the strong opportunistic behaviour of easyJet when selecting the host country, the high internationality and extensive use of technology in the airline industry has promoted the early and rapid internationalization of eayJet. Further the findings recommend that majority of easyJet’s resources had a positive influence on early and rapid internationalization. The most important key influences could be identified in the Human Resources. Thus the founder of easyJet is a young, confident, international experienced man who possesses a positive mind-set, an international vision and a high risk-tolerance. Missing industry knowledge of the founder is compensated through the extension of the senior management. Thus, we can conclude that the decisive aspect of whether or not to internationalize lies with the attitudes of senior management. In many cases it requires a “paradigm shift” in order to move toward the BGF model.

Key Words: Born Global Firms, Internationalization strategies, early internationalization, rapid internationalization, airline industry

List of Figures

Figure 1: Types of International New Ventures. Reprinted from (Oviatt & McDougall, 1994), 09/09/15

Figure 2: Key influences for the early and rapid internationalization. Adapted from (Wessely, 2010), 03/10/15

Figure 3: Key influences and success factors of BGFs. Adapted from (Wessely, 2010), 03/10/15

Figure 4: Systematisation of air traffic. Adapted from (Conrady et al., 2013), 06/10/15

Figure 5: Market share development in Europe various business models. Adapted from (Geller et al., 2013), 13/10/15, retrieved from http://economics-files.pomona.edu

Figure 6: Percentage of easyJet bookings online. Reprinted from (UBS Transport Conference, 2005), 16/01/16

Figure 7: Number of easyJet aircrafts over time. Adapted from several annual reports of easyJet

Figure 8: Number of passengers in millions over time. Adapted from several annual reports of easyJet

Figure 9: Market share of low-cost carriers in Europe by number of departures in a week in 01/2014. Adapted from (DLR Low Cost Monitor, 2014), 12/10/15

Figure 10: Passengers transported in the UK. Adapted from (Rutherford, 2011), 26/01/16

Figure 11: Total population Netherlands 1995 – 2000. Adapted from (“World Bank - World Development Indicators,” 2016), 26/01/16, retrieved from http://databank.worldbank.org

Figure 12: EasyJet’s revenue 1996 – 2000. Adapted from several annual reports of easyJet, Adapted from (Barlow, 2000), 18/01/16

Figure 13: Passengers transported in Germany 1995 – 2000. Adapted from (“Eurostats,” 2016), 31/01/16, retrieved from http://ec.europa.eu

Figure 14: Timeline of the first easyJet internationalization steps. Adapted from (Sull, 1999), 18/01/16

Figure 15: The career of Stelios 1967 – 1995. Adapted from (Calder, 2006; EasyJet PLC, 2000; L. Jones, 2005; Sull, 1999)

Figure 16: Price strategy low-cost airlines. Adapted from (O’Cuilleanain et al., 2004), 19/01/16

Figure 17: Ryanair Passenger Growth in Millions. Adapted from (“History of Ryanair,” 2015), 08/01/16, retrieved from http://corporate.ryanair.com/about-us/history-of-ryanair/

List of Tables

Tab. 1: Research on the key influences on early and rapid internationalizatio

Tab. 2: Research on the key influences on the early and rapid internationalization (continuation)

Tab. 3: EasyJet’s fleet matrix in 2015

Tab. 4: Low-cost carriers in Europe by number of departures in a week in January 2014

Tab. 5: Secondary data used in the case study

Tab. 6: Sequence of low-cost airlines’ entry into new destinations

Tab. 7: European airports traffic statistics

Tab. 8:  Market key influences on the early and rapid internationalization of easyJet

Tab. 9: Comparison of low-cost airlines (February 1998)

Tab. 10: EasyJet shareholders (November 2000)

Tab. 11:  Resource key influences on the early and rapid internationalization of easyJet

Tab. 12: Ryanair’s punctuality

List of Abbreviations

Table of Contents

Abstract

List of Figures

List of Tables

List of Abbreviations

1 INTRODUCTION

1.1 Research question

1.2 Objectives

1.3 Structure of the dissertation

2 LITERATURE REVIEW ON INTERNATIONALIZATION

2.1 International business theories: an overview

2.1.1 Transaction cost theory

2.1.2 OLI theory

2.1.3 UPPSALA model

2.1.4 Multi stage theory

2.1.5 The lessons from dragon and regional multinationals

2.2 Born Global Firms

2.2.1 Born Global Firms and its characteristics

2.2.2 Internationalization behaviour of Born Global Firms

2.2.3 Summary

2.3 Key influences on early and rapid internationalization– a conceptual model

2.3.1 Foundation of the conceptual model

2.3.2 Conceptual model

2.3.3 Key influences on the early and rapid internationalization

2.3.4 Summary

3 THE EUROPEAN AVIATION AND THE EASYJET AIRLINE

3.1 European Aviation

3.1.1 Systematisation of air traffic

3.1.2 Deregulation of the air traffic

3.1.3 Market definition

3.1.4 Facts and figures

3.2 The easyJet airline

3.2.1 History

3.2.2 Business strategy

3.2.3 Fleet

3.2.4 Passengers

3.2.5 Competition

4 METHODOLOGY

4.1 The case study approach

4.2 Selection of the case study

4.3 Case study procedure

4.4 Data collection

4.5 Data analysis

5 ANALYSIS OF THE KEY INFLUENCES ON EASYJET’S EARLY AND RAPID INTERNATIONALIZATION

5.1 Market conditions

5.1.1 Market conditions in the United Kingdom

5.1.2 Host country conditions in the Netherlands

5.1.3 Industry-specific conditions

5.1.4 Summary

5.2 Resources

5.2.1 Organizational resources

5.2.2 Social resources

5.2.3 Human resources

5.2.4 Physical resources

5.2.5 Technological resources

5.2.6 Financial resources

5.2.7 Summary

6 CONCLUSION

References

Appendix A – Main competitor Ryanair

1 INTRODUCTION

“It was 7 a.m., it was a wet, miserable, lousy day in Luton, and equally cold and miserable in Glasgow. I discovered very quickly that this was not going to be glamorous” – Stelios Haji-Ioannou, founder of easyJet,(Calder, 2006)

This is how the young Greek-Cypriot easyJet founder recalls the day of the first easyJet flight from London to Glasgow on November 10, 1995. In the years after the company was founded, easyJet grew extensively into international markets. Already one year after its launch, easyJet started to offer routes to the Netherlands, France and Spain. Today, easyJet has become the second biggest low-cost airline in Europe, boasting a net revenue of around £ 4.686 million in 2015 (EasyJet annual report, 2015).

The internationalization of enterprises is nowadays one of the main tasks of management teams, who seek continuous growth for their companies. If a firm does not want its products and services to bind them to local markets, expanding into foreign countries is often unavoidable.

Traditionally, the internationalization of enterprises is explained with the aid of the very influential process theory approach.  This theory examines the internationalization behavior of the firms.  It is therefore assumed that enterprises enter into foreign markets gradually.  In other words, firms try first to establish a comfortable position in their home markets before they venture into foreign markets.  This procedure of gradual expansion can be attributed to the fact that firms view foreign expansion as a high-risk strategy.  Consequently, the theory assumes a very risk-averse behavior of firms and slow internationalization.

This conservative concept of gradual expansion, which used to be the most widespread and influential, is however increasingly being questioned. The rapid development in information, production and communication technology and changing market conditions due to globalization has further accelerated the process of internationalization (Holtbrügge & Enßlinger, 2004). For example, in the 1970s, it took a newly founded company more than twenty years to conduct its first international activity (Luostarinen & Gabrielsson, 2002). In contrast, you can increasingly observe companies since the 1980s, which engage in international operations almost from day one. This often includes not only exports, but also challenging internationalization strategies such as foreign branches or transnational business cooperation. The internationalization process thus differs significantly from traditional businesses in the past. This dramatic acceleration of the internationalization process makes it necessary to develop new internationalization theories to explain this phenomenon.

By the early 1990’s, scholars had become aware of the new trend of early and rapid internationalization.  Michael W. Rennie (1993) was one of the first to study and write about this new business model and contributed to the creation of the term “Born Globals” which many more researchers and scholars enhanced upon.  To date, the majority of studies have focused on the high-tech industries such as Information Technology (IT) where the highest number of Born Global Firms (BGFs) can be found.

This dissertation aims at examining the airline industry, which has not yet been the focus in most studies on BGFs and therefore differentiates this dissertation from former analysis. This thesis will shed light on the rapid and early internationalization of one BGF. It will focus on a single case study, the low-cost airline easyJet. EasyJet is a perfect case because the UK-based airline is one of the most successful low-cost carriers in Europe and has an outstanding internationalization speed.

1.1 Research question

 The topic of early and rapid internationalization still raises many unanswered questions. Ever since this issue has come into the focus of scholars it has been accompanied with never-ending discussions about possible key influences that favour the emergence of BGFs. It is in fact very difficult to consistently identify the same key influences across several branches. Therefore, this work will put its focus on the UK low-cost airline easyJet. Thus, in conjunction with the early and rapid internationalization of BGFs and the easyJet airline, the following research question arises: What key influences favoured the rapid and early internationalization of the low-cost airline easyJet?

1.2 Objectives

The goal of this research paper can be divided into one general objective and four subordinate specific objectives. The general objective of this dissertation is to critically analyse what key influences were responsible for the rapid and early internationalization in the case of easyJet. Thus, the analysis of the growth patterns of BGFs is at the centre of attention in this study.

To achieve the research goal, the following specific objectives can be derived from the general objective:

Describe the first internationalization steps of easyJet.

Identify the most common external key influences on the early and rapid internationalization of BGFs in the literature.

Identify the most common internal key influences on the early and rapid internationalization of BGFs in the literature.

Detailed investigation using a conceptual model to assess the key influences on the early and rapid internationalization of easyJet.

1.3 Structure of the dissertation

This dissertation is divided into six chapters. After the introduction, the basic literature on internationalization is discussed in chapter two. This paper therefore offers an overview of international business theories. The current state of academic knowledge regarding BGFs is discussed in more detail and a conceptual model is introduced that deals with key influences of early and rapid internationalization. The categorization of key influences is based on the conceptual model of Wessely (2010), which differentiates between market-related and resource-related key influences.

In terms of the case study’s context, the European aviation industry and the airline easyJet is analysed in chapter three, which will shed light on the environment in which the low-cost airline operate. The section about European aviation shows a theoretical distinction between different modes of air transport and the profound impact of the deregulation on the aviation industry is put forward. Additionally the aviation market as well as facts and figures is presented, before providing a brief overview of the company.

Chapter four discusses important aspects of the method used in this paper. The general case study approach is explained, before the criteria are introduced, which were used to select the case. In addition, this chapter explains the step-by-step procedure of a case study as well as illustrating how relevant data was collected and analysed.

Chapter five attempts to specifically answer the research question, thus key influences are examined carefully in regards to market conditions and resources. A large number of different sources and methods were used in order to answer the research question as accurately as possible.

2 LITERATURE REVIEW ON INTERNATIONALIZATION

With the increased globalization of the economy, research on internationalization has become more important in academic literature. This chapter describes the theoretical foundations for a better understanding of the main part of this work. In addition previous works from various researchers in the field of internationalization strategies should be appreciated and compared. First, in Section 2.1, a brief overview of the main theories in the field of international business theories is given. This is followed by a more extensive literature discussion of the main theme BGFs in section 2.2. The section 2.3 introduces the conceptual model for the case study on easyJet.

2.1 International business theories: an overview

This section deals with the theoretical models of the internationalization of firms. It intends to show, according to these theories, how companies develop various strategies to be active in international markets. This review also presents a more recent investigation about regional multinationals and dragon multinationals. These concepts are introduced with the intension to help the reader to better understand the later on following case study on easyJet.

2.1.1 Transaction cost theory

The British economist Ronald Harry Coase (1937) first investigated the transaction cost theory. Coase (1937) has dealt with the following question: “Why has in the free market formed economic organizations with internal work-sharing structures?” With this question, the author refers to a fundamental theory of Adam Smith (1776), who argued that in many areas a division of labour is necessary to efficiently achieve goals. Since the basic considerations of Coase (1937) a great number of internationally known researchers have dealt with the subject of the transaction costs theory (e.g. Brouthers, 2013; Coase, 1937; Ghoshal & Moran, 1996; Hennart, 2010; Martins, Serra, Leite, Ferreira, & Li, 2010; North, 1990; Picot, 1982; Williamson, 1979, 1989).