Few industries are as dependent on the price of oil as aerospace. Within the industry, this applies even more to low-cost carriers such as easyJet, where the pressure to keep airfares cheap becomes more difficult when energy costs eat into margins. A slower global economy, meaning fewer people are spending money to travel on holidays, does not help much either. Nonetheless, Mike Campbell, easyJet’s director for Europe, is not overly concerned.

“There’s always something challenging going on in aerospace,” he says. Mr Campbell points to easyJet's experience a few years ago when there was a more drastic spike in the oil price, but the firm still managed to see its revenues grow. He credits this to a strong network and an interest from the business travel market in cutting costs.

Future opportunity

Yet the current situation, he acknowledges, is different and he thinks it is going to take several more months to be able to truly understand the environment in which easyJet is operating in. He says: “We think we’ll see one or two airlines talk about grounding a significant number of their aircrafts and reducing their presence around the marketplace. That changes the whole dynamic [of the industry] and we think it gives companies like us an opportunity. We have a strong balance sheet and network, and we can offer something to business travellers.”

As for the European market itself, he is keen to point out that not every country’s economy is struggling at the moment. Still, it seems easyJet's primary focus will be in the UK, Switzerland, France, Italy and Spain. Mr Campbell says: “It’s probably those five countries that we’re putting our main investment into. And in the next 12 months we’ll see a sales force presence in each of those countries.” This push will include deals with third parties, such as travel agents and corporations looking for deals on their business travel costs.

Growth markets

He is more coy on the specifics of new routes and new bases, but he does suggest that these types of investment will happen predominantly outside the UK. Mr Campbell is keen, however, to emphasise that the UK remains a hugely important market for easyJet.

But routes are increasing. EasyJet’s interactive map on its website has changed dramatically since the company's inception, with new routes popping up all over eastern Europe and now the Middle East and northern Africa. While these regions have boomed over the past decade, they are decidedly more complicated now, though not without potential.

Mr Campbell says: “North Africa has clearly been affected by all of the things going on. But there has still been a lot of traffic, and it has been a very attractive destination for us. A lot of capacity went into [the region], particularly into Morocco when it joined the Open Skies Agreement.”

The agreement is essentially a policy that liberalises the regulations on international air travel. For it to come into effect, a bilateral air transport agreement has to be reached by the related countries. Sometimes these agreements can be reached among more than two countries.

In the agreements, there are no restrictions on international route rights, fares are determined by market forces and all carriers are given a level playing field on which to compete. Morocco, for example, is the second most popular leisure destination among French holidaymakers, making this agreement of particular interest to low-cost carriers. 

Struggling economies

In regards to eastern Europe, the picture is also complicated, but for different reasons. Mr Campbell readily accepts that economies in this region are struggling. The outbound market in eastern Europe, he says, remains strong, but the inbound market has suffered.

“[Eastern Europe] is not as strong [a destination] as it was, it’s not as new. When you look at the easyJet market and where we are, our significant presence is around business and some leisure. So [with] the likes of north Africa, there’s definitely a leisure advantage. But the investments we will be making will be primarily in places where you’ve got significant pockets of the population with relatively high disposable amounts of income. So, if you look at our investments, they are in the UK, France, Italy, Switzerland and Spain.

Beyond Europe, the Middle East and north Africa, it appears unlikely that low-cost carriers such as easyJet are willing to travel much further. For years there has been chatter about discount airlines potentially offering flights to North America and Asia, but Mr Campbell dismisses this as unrealistic for their business model and points to other experiments with this type of business that have failed.

He says: “For easyJet, no. The problem with Silverjet [which ceased operations in 2008], which flew to the US, was a significant rise in the oil price affected its cash position. It was a low-cost business proposition, and it struggled to navigate its way through the oil price spike. I think that will always be the challenge for any start-up low-cost operator.

“But there are a range of factors, [such as] the type of aircraft and the ability to get high levels of utilisation because of the constraints of flight time limitations for aircrews, so there are a whole range of issues that are very different in a long-haul environment from a short-haul environment.

"For us it’s about high utilisation, efficiency, optimisation. It’s those things that drive the costs [lower]. It’s not that we’re cheap, it’s that we’re efficient. It’s hard to be efficient with long-haul flights.”