The remarkable turnaround of easyJet

When Carolyn McCall joined easyjet as chief executive in 2010, the European budget airline was in crisis. Following a breakneck expansion, it was suffering from low morale, a reputation for frequent delays - more than one third of its flights were late - and poor customer service.

There had been a very public spat between Sir Stelios Haji-Ioannou, its larger-than-life founder and largest shareholder, and the board leading to the resignation of McCall’s predecessor, Andrew Harrison, alongside the airline’s chairman, chief financial officer and a number of other managers.

While easyjet was initially established as an outside-in challenge to flag-carrying airlines by opening up the world of air travel to passengers previously priced out, the discount market had gradually become more competitive. Harrison had been appointed to bring more order, rigour and focus on finances. His efforts, recalled Andy Caddy, an executive who in nine years with easyjet worked for three different CEOs, led to easyjet losing sight of its customers.7 It was no longer a plucky start-up pioneering cheap air travel. It was now an airline making good profits from unpleasant customer experiences.

As McCall spent her first few weeks visiting the airline’s main hubs in Milan, Paris, Madrid and Gatwick she found easyjet staff hiding their lanyards for fear of being targeted by irate customers frustrated by delays and cancellations. Staff morale was at rock bottom.

In McCall’s first year, air traffic controller strikes, volcanic ash clouds and snowstorms added close to £100 million in unanticipated operating costs.8 A Sunday Times article showed easyjet had worse on-time performance than Air Zimbabwe. Rival Ryanair made the most of the opportunity, running an ad in the UK national press with an image of Zimbabwean president Robert Mugabe under the headline ‘Here’s easyjet’s New Head of Punctuality.’ As McCall recalled:

My first six months were about as bad in terms of adverse events as any CEO could have ... We had a terrible crew shortage, which led to cancellations during the vital summer months. That was followed by the worst winter weather in 30 years. The next year, we had the worst in 40 years. The summer brought us awful air traffic control strikes in Europe. Then, just after Christmas, oil prices went through the roof and the hedge that we’d done was working against us. So that first year was really, really tough.9

McCall clearly had burningness - extreme pain felt across the business. None of the conventional or accepted inside-out business moves like further cost cutting, promotional offers or new routes would be enough to make a difference. Something more fundamental had to change - McCall was determined to make easyjet see things once again from a passenger perspective. In the air travel industry, customer satisfaction is directly related to punctuality, and it was essential to get on-time performance right before going any further. Indeed, research showed that if the plane was late, passengers would say that the sandwiches didn’t taste as good and the crew were ruder. Punctuality was essential.

For something so serious and so apparently hard-edged and operational, McCall took an unconventional approach. She began by engineering a shift in thinking that started with language. From the beginning, McCall chaired a daily operations meeting in order to understand the causes of poor performance. She asked questions every single day of the operations team, not just about flights but about how many customers were impacted by flight delays and cancellations.

By stopping referring to delayed aircraft or flights and starting to talk about ‘180 delayed customers’ she was changing the discourse. She was helping her management to get into the habit of talking about people, not planes, thinking about families, not logistics.

Early on, McCall also made a habit of speaking to pilots and assisting the cabin crew whenever she flew, generally several times a week. It was not uncommon for passengers to see her making her way through the centre aisle with a plastic bag to gather the rubbish. ‘Because they are so busy on the flight, it’s the easiest way to talk with the crew,’ she said.10

One of McCall’s first acts on arriving from Guardian Media Group in 2010 was to write to pilots to reassure them that although she was looking to change direction, she did not plan to create an ‘Orange Ryanair’11 - a reference to the harsher employment terms of easyjet’s low-cost rival - which previous management had wanted to introduce. She listened to their comments about the crew’s food, rosters and scheduling.

easyjet’s pilots were furious about many things, not least the fact that overzealous managers before McCall’s time had withdrawn free in-flight meals and drinks to save money. Symbolically, as a final straw, instead of being given full-size Mars bars to fuel them in the cockpit, they were given one that was fun-size and they were not happy. So, she reversed it:

When I started, I had so many negative emails from pilots and cabin crew, all saying ‘this is wrong, that is wrong, no one listens to us.’ It was a constant barrage.

She received so many emails in the first six months that she took to addressing her inbox at night. But she also started taking action. She reintroduced free food and drink, insisted on better rostering to provide a more predictable schedule for workers and added more standby staff.

Finally, there came some encouragement. As McCall recounted:

It was Easter 20л, and I was on the first day of a holiday. I saw an email from a pilot and groaned, but, of course, opened it - you can never really be on holiday in this job.

Instead of the kind of email to which she was now accustomed, McCall was relieved to read a message from a pilot thanking her for his stable roster, which meant he could spend Easter witli his family for the first time in five years.

‘This was the turning point for me,’ said McCall - confiding, however, that the pilot still concluded his email with, ‘PS crew food is still shit.’12

Andy Caddy, the easyjet veteran, remembers McCall in stark contrast to Harrison’s financially focused approach:

From the start she was clearly different. She said easyjet was in the business of delighting customers, making it possible for them to do things that hadn’t been offered before. Customers had become used to the pain of discount airline travel and easyjet has lost its purpose.

She said, ‘we’re going to get back to what we’re good at, doing what’s right for the customer.'3

Given the multiple levels of costs associated with cancellations, the changes she made worked economically too, countering the apparent attractiveness of the initial cost cutting, which reflected an inside-out mentality and that had in practice led to the unintended consequences of costs rising. It worked, easyjet’s average punctuality rate was 51.3% in mid-2010, 79.0% in 2011 and 94.2% in March 2012.14

In parallel, McCall was establishing a new leadership team, easyjet’s operations director lasted only three months of her new regime. She believed he ‘had lost the confidence of the pilots.’15 He was the one executive from whom she took advice before agreeing to join. ‘He told me then the company had lost sight of its own people, and its passengers, and wasn’t working as a team.’16

To grow the company’s focus on customers and champion the leadership philosophy that easyjet was more interested in people than planes, McCall recruited two directors who understood this perspective. She appointed Peter Duffy, previously at Audi, as director of customer, digital and marketing, and Paul Moore who had previously worked at Virgin, as director of communications. This meant McCall went from being the lone outside-in voice on the board to having two others on the team who ‘talked customer.’ James Millett, a senior marketing executive who spent seven years at easyjet, reflected that this acted as a catalyst for other executives to take a customer perspective with accountability being shared across the wider executive leadership team. McCall got the community (the top 40 leaders) together on a monthly basis and facilitated an informal straight-talking sharing of progress. Subsequent critical initiatives like replacing ‘drip pricing’ (the practice of adding an admin charge at the end of a booking) with a headline price you could rely on, allocated seating and a loyalty program, were all cross-functional and cross-team in a spirit that was firmly customer-led.17

She worked with them to ‘reset the agenda for easyjet.’ That started with clarifying easyjet’s purpose, the reason why people who work for the business - ‘get out of bed in the morning.’ As McCall explained:

What we found was we wanted to make travel easy and affordable for all people. That was founded in the core of what easyjet was at the very beginning. For us it had quite a lot of stretch in it, we had always been about affordable flying, but did we really make it easy for our passengers?'8

It’s not a coincidence that McCall sat as a non-exec on Tesco’s board on Sir Terry Leahy’s watch until the retailer sued The Guardian, where Carolyn was CEO, for libel, and she had to resign. She learned some valuable lessons about customers from her time there.

As at Tesco, in the run-up to Christmas, she made her top team go back to the floor, manning check-in desks and tagging luggage. ‘Terry would go back to the tills every year - same sort of business, about value and customers.’19

It was important for the easyjet team to recognise both parts of the purpose - this wasn’t about going from being affordable to being easy, it was adding ease to affordability. ‘We are low cost in everything we do. It’s in our DNA — look at this hangar we work in. But it doesn’t mean you have to be cheap to passengers.’20 In fact, the team took low cost to great lengths, proudly staying in a Premier Inn and celebrating with cans of beer from the neighbouring off-license when they started winning awards.

The purpose mattered for another reason. The team took this challenge of pioneering on behalf of customers to change the world of discount airlines seriously. They really had a chance to make a mark on the industry. To begin with, easyjet’s burningness came from pain - they simply HAD to change, reinvesting in their operation. Now, with a renewed sense of purpose, they added ambition. There was no way on Earth that they could make discount airline travel easy as well as affordable doing only what was conventional. If they were going to succeed, they would have to be bold, and to begin with, most of the people in the organisation would not believe this was going to work.

As described at the start of this chapter, easyjet’s first big Moment of Belief, their first demonstration that they could change the rules of their sector to make it work better for customers and then also for the business, came with the introduction of allocated seating. It didn’t come easily. But it was far from alone as a candidate for reinvention.

For an airline that at the time was just 15 years old, ‘quite a lot of things had become sacred cows. There were quite a lot of things that had not been reviewed or reassessed,’ said McCall.21

The idea that budget airline passengers could have an assigned seat was considered radical. It was a symbolically crucial step forward for the whole easyjet team and for the business in the eyes of customers too.

Like many Moments of Belief we’ve described in this book, it was a business initiative that was bold, expensive, unarguably good for customers and yet risky for the business, with costs definite and now, benefits probable at best and in the future if at all.

In fact, while allocated seating was taking shape, the team was working on what became another Moment of Belief. For this, easyjet tackled ‘Gotcha Pricing.’

‘Gotcha Pricing’ was a description of the way discount airlines had come to make money. They advertised a very low rate for a flight but made it almost impossible for customers to actually buy a ticket for that price. Instead customers ran into add-ons of various kinds. Some were reasonably transparent like paying extra for luggage. But many were not. Passengers would effectively be fined if they forgot to print out a boarding card. People would be automatically opted into add-ons like travel insurance that they had to opt out of again manually, and they would be charged extra for paying by any means at all other than the airline’s own brand credit card. Perhaps the worst example was being allowed to add a second bag but without the weight limit changing, something that was counterintuitive and that would lead to people’s luggage being overweight and charged for at the airport at eye-watering rates.

The easyjet team wanted to do something about it, but acting on their own would have been commercial suicide. So they decided to go about it with a bit more cunning, looking to change the way the whole sector operated. They began to build a relationship with the Office of Fair Trading (OFT), but when they first lobbied for a regulation change, they weren’t trusted - even the OFT assumed there must be a catch. It took 18 months, but when it came, it was applied to the market as a whole - to competitors, not just to easyjet.

This meant lost revenue for all, but what easyjet then set out to do was to find opportunities for customers to pay more but this time by buying services they valued and for them to be offered as genuine choices. Allocated seats meant a choice could be offered to upgrade to the best ones. Luggage rules were made generous and fair, but luggage going in the hold was still paid for. On board, the food and beverage offer was upgraded to become genuinely appealing featuring premium brands - Segafredo coffee, Clipper teas, Hendricks gin, Fever Tree mixers.

All this meant easyjet had price transparency - the price customers paid at the end was the price they expected, and it would match the advertised price more easily and more often. They were providing additional customer value alongside additional revenue, happily.

After burningness, the first element of the inside-out to outside-in journey, these two formative Moments of Belief (the second stage) were followed by an accelerating flow of improvements and innovations (a flow of Moments of Belief, the third stage) all adding value for easyjet customers. They included a smart app that featured a real-time view of where a plane was in the sky so customers could understand any delays transparently. The app featured mobile boarding cards, easy to achieve for global airlines, tough in reality for easyjet with its multiple small European airports. ‘The app was leading the low-cost industry, it felt like a quality product for consumers and saw us competing on a different tangent to competitors,’ said Duffy.22

Each customer innovation took easyjet further from its inside-out rivals who seemed to go to war with their passengers as soon as they entered their website and continued the battle until they disembarked at their destination. Now belief was growing that every time easyjet was brave enough to act on what customers wanted and smart enough to find an innovative solution that could be commercially sustainable, the business got better. According to Duffy:

What Carolyn did brilliantly was relate the success of the airline to the success of the customer strategy. It came through again and again in all internal and external communication. Then the Operational team created a Customer Charter. It was self-generated because customers are owned by everyone - it had become democratised.25

In time, this took easyjet to the fourth stage of the outside-in journey, becoming more systematic in the ways the business was being customer- led, using data and processes to understand even better what mattered to customers and how this differed between them, then acting on the insight to fill gaps or take opportunities to create value in new and better ways.

This meant easyjet started to see that there were more segmented customer needs. For example, offering additional options for luggage instead of just having above and below 20 kg. It recognised the weekend traveller as having distinct needs from a longer holidaymaker. This led to the creation of a 32 kg super-premium offer, increasing the 20 kg limit to 23 kg, offering a lower 15 kg level, and offering a paid-for service to drop hand luggage off at check-in to be reunited with the passenger on boarding the plane. Duffy likens this systematic innovation to the way the soap powder brands in the 1970s grew to have a more segmented offer, supplementing powders to launch liquid products, tablets, combinations of soap powder and fabric softener and so on. ‘Combining our data with being systematic meant we could see new areas of value for our customers that we could also turn into value for the airline in smart ways.’24

This even led to insights that surprised Duffy himself. On a trip with his wife, they were over the weight limit with their luggage and at the end of the holiday he complained that she hadn’t worn half of what she’d brought. ‘But I like choices,’ she said, and the light bulb went on - choice was worth paying for beyond the functional need of packing enough clothing.2S

The central element of this fourth systematic outside-in step was about gathering and using data from easyjet’s digital services and then also from a loyalty scheme, the easyjet Flight Club. Loyalty offers are tricky with the discount model. The airlines don’t have the currency of empty seats to use as the main reward because every seat is part of the dynamic pricing approach. But easyjet realised there were other options - that flexibility was also valued and that this was something it could offer its best customers, allowing late changes without penalty or access to priority boarding without booking or paying for it in advance. Duffy explained:

Research told us that while customers knew we offered value for money, they were looking for recognition. If it was the 20th time you’d jumped on that plane you wanted it to mean something. Our regular travellers were second homeowners or worked away from home. We offered them flexibility so they could change dates and that was very popular. It was about recognising our most valuable customers in a way that was appropriate.26

These changes opened up new segments to easyjet, which now started to appeal to Europe’s legions of business travellers, people who already knew the airline from their leisure trips. With business hats on, they are a more lucrative segment. McCall estimated that easyjet’s average business traveller pays 10 to 15% more than someone flying for pleasure. ‘That’s definitely worth having,’ she said.27

With these significant changes to easyjet’s belief system and business model came some striking results. In March 2013, following nearly three years of McCall’s leadership, the no-frills airline flew into the FTSE100 valued at more than £4 billion. Passenger numbers had jumped by 43% to 65 million a year, of which more than 12 million were business travellers, up from 8 million in 2010.28

McCall presided over a remarkable turnaround, the share price moving from £4 to £19 between 2010 and 2015, revenue from £3 billion to £5 billion and net profit from £121 million to £548 million. And this was all achieved in the spirit of a growing belief that being customer-led meant the business worked better, not worse. In her words: ‘We have taken customer service to a new level and - I say this with no hubris - we have redefined what customer service is for the low-fares market.’25

Indeed, easyjet’s customer-led approach revolutionised the entire nofrills airline industry, with even Ryanair CEO Michael O’Leary deciding it was time for his airline to start ‘being nice to people’ in 2016.30

While insisting easyjet was ‘probably five years ahead’ of its competitor, McCall applauded the changes made by the Irish airline. ‘We’ve changed the way they behave with customers,’ she said. ‘It’s actually better for the sector, there are benefits to them emulating what we’ve done for customers.’31

And like many of the other outside-in companies we’ve profiled, this wasn’t an easy journey for easyjet. As Duffy admitted:

It’s hard changing the way things are done ... It’s hard, hard work and takes a lot of energy. And the hardest thing is just staying with it. You have to be pragmatic about knowing this is the right way to behave.32

easyjet’s turnaround was characterised by the four stages this chapter has at its heart as it transformed from an inside-out to an outside-in organisation. The burningness and pain when the airline was compared unfavourably with Air Zimbabwe, which became ambition as a sense of purpose grew, successfully introducing allocated seating as a first Moment of Belief followed by a sequence of customer-led successes that gathered momentum, growing shared belief around what the airline was and how it operated, leading eventually to a systematic and more data-led way of creating value for customers.

Next, we’ll explore these four stages in more detail as an organisation moves from an inside-out belief system to an outside-in one. Through an analysis of DBS Bank, we’ll show the critical role of burningness and how it can be used productively to give a leadership team the conviction to take a risky decision. This leads to a first Moment of Belief - a business initiative that is bold, expensive, definitely good for customers yet risky for the business and, crucially, that is seen to work for customers and in time for the business too.

The story of AO.com, the online white goods retailer, reveals the second and third stages - how a first Moment of Belief followed by a subsequent flow of Moments of Belief can create a growing shared conviction that outside-in ways of working lead to the growth of an exceptional customer- led business.

Finally, Deliveroo, the restaurant food delivery service, shows the fourth stage as outside-in activities become systematic, making it easier for people across the business to make all sorts of aspects work for customers in new and better ways.

 
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