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"Supply and demand" this phrase was firstly used in 19th century in the year 1767 by James Denham Steuart in his book "Inquiry" which's all Political Economy (Thomas, 1992). Since then the theory remains unchanged as its meaning in economics is a good relationship between a seller and a buyer in a particular market. The need and & supply of a particular product is always happens to appear in a market due to different reasons. There are two different categories of product in relation to the price (Höök et. al., 2009).
The first category is of inelastic products whose price doesn't change with respect to the supply and demand, medicinal products are a good example of it, as they are essential & a main element in life saving. The second category of products, whose price changes due to the supply and demand, is referred as elastic products; domestic items can be referring as elastic, as people adopt them due to cheapness in price without being hesitated (Zittel, 2001). Supply and demand is now become a core topic in all the management studies because its has impacted an everlasting impression on World economics in the last few years. The supply and demand in oil industry in last 5 years has also been greatly impacted due to some factors.
Major Factors Affecting World Oil Market
1. World Economy Prediction in 2008
The year 2008 is the year of economies growth since India & China, the two economy giants were growing at a rate of 8.4% and 10% respectively, according to the prediction of International Monetary Funds (IMF) (Speight, 2008) . As the three big powers China, India and ASEAN countries will be increasing their economies rapidly with a constant pace, therefore the implementation of the monetary policy made difficult due to increment in the mortgage crises, inflation pressure and some other factors. Therefore since 2007 interest rates had been cut in order to maintain the balance and to provide better employment facilities.
The economy growth in other major parts of World map predicted by IMF was U.S. economy will increase by 1.9%, Euro Zone with 2.1%, Japan's deflated economy with 1.7% as the ASEAN countries and China being a neighbour will help its economy grow through imports (Robelius, 2007). The factor however affected the oil prices globally as the economies grow the more will be the demand due to higher standards the more will be the need of supply, which is difficult to grow at such speedy pace (Marketavenue, 2008).
2. Increment in World Demand for Oil
The demand of oil is been increasing slowly since 1800's but it became exaggerated in 2003 which affects the oil prices in the whole region as well its production at world level. This is due to the up growing World economies as well the population level. Demand increases but the production and supplies couldn't able to meet the criteria. The rapid increment of demand resulted in the inflation of oil & since from 2003 the oil prices get sky high & still in running pace because the natural as well as extracting resources were limited. Price per barrel from 1998 to 2002 averaged at $23/barrel, and then increased to $31 in 2003. In October, 2004 it reached its peak of $53.28/barrel which deflated in April, 2005 to $50 which peaked again in March to $54 (IEA, 2003; EIA, 2005). Than on the prices were getting higher and now it's more than $100/barrel. Figures mentioned beneath & a price charts depicted the demand, production, consumption & price variation of oil (Marketavenue, 2008).
3.Future Improvements in World Oil Supply & Global Reserves
Organization of Petroleum exporting countries (OPEC) keep in view the demand planned to invest in crude oil about 120 billion before 2010 & to expand its production as well. They planned to increase its production capacity from 31.7 million barrels to 36.9 million barrels, increment of 16% during 2005 to 2010. Refining capacity is also been planned to increase to 17.7 from 12.3 million barrels from 2006 to 2011, an increment of 50%. Following chart shows the reserve/production ratios globally for the last three decades.
It's clear that World reserved more in 2003 than 1993 and 1983, totalled in 1.147 trillion , 1.023 trillion and 723 billion respectivey. This shows a 12% increase from 1983 to 1993 and than a 36% increase in next decade (BP Statistical Review of World Energy, 2004). The oil prices affected due to the less reserves been reserved by U.S. and North America from 1993 to 2003 (Luhnow, 2007). However U.S. reserves increased from 30.2 to 30.7 billion barrels but it's not sufficient to meet the demand therefore U.S. imported over 9.6 billion barrels of crude oil in which OPEC provided 4.5 million & KSA supplied 1.7 million of about 18 % of about 47% & 18% respectively of its total imports (EIA, 2004). This has resulted a global inflation in the oil prices as the last few decades witnessed the identities countries came into being which are still in growth process & the population level has also been grown with the increase in standards of living (Palsson et. Al., 2003).
4. Nuclear Issue of Iran and Dollar's Depreciation
Iran is the second largest oil as well gas producing countries, having reserves of 18.9 tons and 28.1 trillion holding 11.4% and 15.5% of total world's reserves respectively. In world ranking its name is on second place after Saudi Arabia for oil and Russia for gas. Presently Iran is the second largest oil producing country in OPEC's list with daily exports of 2.5 million barrels and annual exports of about 120 million barrels; in fact it exports 60% of its total production. Nuclear issue of Iran exerts heavy pressure on oil markets. As long as this issue take the more will be the tension create in the market and similarly oil prices remained inflated (Oil Daily, 2004).
Depreciation of dollar due to less economy growth, trade deficits in U.S. & a big recession also affected the oil prices as this depreciation contracts the income of main oil exporting countries, which lead to the high price of oil due to some oil producing organizations such as OPEC (Marketavenue, 2008).
5. Affect due to Population Growth and Agricultural effects
The increment of population over the last few decades has become rapid since 1990. A prediction shows that World population in 2030 will almost be a double of 1980 (American Census Bureau) and an author prediction that in 2030 the oil production will similar to be of 1980. The growing standards of living cause more oil consumption which causes inflation due limited resources.
The modern agriculture techniques also proved that the usage of gas and oil resources have now become an internal part of it. Ammonia production which is a main component for fertilizers is the largest consumer of fossil fuel. Such sort of agricultural necessary items caused inflation in oil prices as well (Pickens,).
Importance of Peak Oil Theory in Future Supply and Demand
The point at which the extraction of oil globally reached its maximum level and than started to decline, it is based on the combined oil well fields and individual oil well production observations. Usually the rate of oil in an oil field grows to its peak and then decline until the field get empty. According to Hubert peak theory the reserves of U.S.'s oil would peak between 1965 and 1970, his model now called Hubbert peak theory. This theory some how proved itself as the inflation in oil prices started since the last few decade (Laherre, 2005; Wood, 2003). According to an optimistic approach the deadline of peak oil will begin in 2020 or later, therefore major investments should be done before this crisis. This can be done by making changes in the highly oil consuming countries' lifestyle.
Oil is one the main element of World balance but from few years there's been a disturbance seen in the demand & supply of the oil due to various factors (Nehring 1978). This is the beginning of the real oil crisis which has been predicted so many years before by some theories keeping in view the growth of World economies, the standards of living, geo political situations and fertilizers production. This rapid increment of demand over the last few years is unable to manage the supply and the factors which affect this supply and demand caused inflation in the oil prices. However the concept of 'Peak Oil' has predicted the real oil crisis era which can be control by opting various measures.
Easy Jet Analysis
"Come on, let's fly" is EasyJet Co's slogan which is clearly showing that it is so economical so That flying through it is as easy as a pie. EasyJet is been founded in 1995 by Stelios Haji Ioannou on the base that this airline will provide low fair rates to its customers. Its has its headquarter at London Luton Airport, operating with domestic as well as International scheduled services having around 500 routes between 118 European, West Asian & North African airports.
It contains more passengers than any other airline in U.K. Co (Annual Report, 2009). It is listed on London Stock Exchange & a component of FTSE 250 index (FTSE). It has been rapidly growing sine 1995 having a franchise airline named as EasyJet Switzerland. It has around 180 aircrafts mostly Airbus A319 having 20 bases all over Europe. It carried 45.2 million passengers in 2009 and is second most low fair costing airline after Ryanair (Macalister, 2005).
Stelios Haji Ioannou started the airline with two Boeing 737-200 aircrafts which were on lease with only two operating routes London Luton to Glasgow & Edinburg. Its first wholly owned aircraft was bought in April 1996 through which it began its International flights to Amsterdam. EasyJet was been operated by GB Airways afterwards Air Foyle till October 1997 because it hadn't received its Air Operators Certificate. As at early times travelling through airplanes was just a dream but EasyJet made this dream come true for many people as it is based on low cost charging (EasyJet Homepage).
Finance & Marketing
Definition of finance explained by Bunnock and some analysts are "Provision of Money when & where required". EasyJet has been listed to London Stock Exchange on 5th November 2000. However in October 2004 a group having Icelanair & Sterling airlines, named as FL purchased its 8.4% of shares which with the span of time till 2005 this percentage increased to 16.9% (Flgroup, 2007). In April 2006 it had faced a takeover risk as FL making a profit of €140 million by selling its stake of € 325 million which resulted in the change of its CEO Ray Webster & his place had been taken over by Andrew Harriosn former CEO of RAC plc (BBC, 2002). Last decade showed positive financial position of EasyJet as it is growing so rapidly in an efficient way that even without inflating rates the number of passengers has grown tremendously. Below given chart enlightened its financial performance with more elaborations.
Initial marketing strategy which was opted by EasyJet was to make the flying through so easy and this had been done by the exclusion of travel agent in between of EasyJet and the customer in order to relax the customers by saving them from the commission which would a travel agent owe from them. It had firstly been advertised by a telephone number painted with orange on its fleets. However at first EasyJet's owner Stelios Haji Ioannou didn't believe in e-commerce but later on his perception get changed and now it's fleets painted in orange with the name of its official website. In the Airline TV series during 1997 & 2007 filmed by LWT, is one the most fruitful aspect in its marketing as because of this EasyJet became a household name, although the series not wholly depicted its positive aspects yet been a most useful source in its growth.
Acquiring and Development
Since 1995 EasyJet's been growing so rapidly. Number of acquiring had been taken place. Less cost charging is the key aspect of its growth. 40% shares of TEA Basle a Swiss Charter airline had been bought by EasyJet in March, 1998 for a consideration of 3 million Swiss francs. Its headquarters than relocated to Geneva which was its first base outside U.K. than on 16 May 2002 there had been an announcement made by EasyJet showing its intentions to buy rival airline named Go, London Stansted based, for £ 374 million and from here managed three new bases Bristol Airport, East Midlands Airport & London Stansted Airport. This deal also doubled its fleets Boeing 737-300 aircrafts. EasyJet opened its base at London Gatwick Airport in 2001 & during 2003 and 2007 it had made a prestigious image by opening its bases in Germany, France, Italy and Spain. Later on in October, 2007 it had announced to buy the whole share capital of GB Airways from Bland Group which helped it to expand its operations at Gatwick Airport as well as establishing a base at Manchester Airport (EasyJet Homepage).
Locations & Innovations
London-Gatwick, Milan Malpensa and London-Luton are EasyJet's three largest bases in fact from Gatwick it operates nearly about 40 fleets having around 80 routes. EasyJet focuses on the primary airports which are often more closer to the destination as an example Paris Charles De Gaulle Airport which is at a distance of 25km from Paris. EasyJet have a large number of primary airports therefore avoid secondary airports causing good impacts on its financial position. EasyJet also announced in 2007 that they going to build more fuel efficient aircraft using carbon fibre composite material. This aircraft will be available to fly in 2015. It's one of the finest innovation any airline company can ever have.
Collection of planes
EasyJet is one of the largest A319 operator aircrafts. Its strengthened aircrafts strategy & ordering multitude of aircrafts showed its rapid and profitable development.
As similar to Ryanair, it also opted the business model from Southwest airlines. Cost cutting measures have been adopted by both the airlines like not selling the connecting flights, no complementary foods on flights, high aircraft utilization, quick turnaround times, charging for extra baggage and food & keeping operating costs low. One highlighted difference between these two & SouthWest airline business model is the age of its fleets. These two have fleets with an age of 3.6 years while SouthWest's fleet age is of 14.1 years. To the most extent these both airlines possesses a common strategy but a difference occur in a way that EasyJet prefers primary airports while Ryanair with more cost cutting prefers secondary airports as well. For example EasyJet flies to Paris Charles de Gaulle Airport and Paris only, the primary airports in Paris while Ryanair flies further to Beauvais-Tillé Airport, a 75 minute bus journey from Paris. EasyJet also attracts customers by its services offered to transfer to an earlier flight without paying any compensation (EasyJet Homepage).
Opportunities & Threats
Globalization is now on its peak & the corporate World is becoming more and more organized day by day. At stone ages when travelling was considered to be tiring task & trading was one of the hardest thing now in this modern age travel from one destination to another even internationally has became an integral part of corporate sector. The advancement of technology & chances of being hired is increasing day by day, people will admire and avail the most economic journeys which is the base of EasyJet's production. As it has positive gesture on customer's minds, it will enjoy the upcoming opportunities due to World globalization.
However it's also been surrounded by some threats too. Firstly the World is going through oil crisis and peak oil period is no longer far sight so if globally correct measures haven't taken towards this issue its base can be disturbed affecting its goodwill, as the fuel become expensive than how the maintenance of low cost charges can be applicable. Secondly due to the terrorist impact on customer's minds especially after 9/11 can be a threat not only because of the terrorist perception but also because of the tight security and body scanners through which customers has to pass if they need to travel by air, which is not bearable to many.
EasyJet Co. Ltd is one of the finest and biggest airline companies of Europe basically a British airline based fully on the structure of Europe's famous & largest airlines The SouthWest & RyanAir. Function of its formation is to provide low cost travelling its customers. It controls its cost by charging for extra baggage and food stuff, priority boarding, by not providing complementary foods & quick turn around times. However its owner didn't prefer e-commerce support for the business first but changed his views after analyzing the globalization through internet. Due to its wonderful services and low operating charges it seeks for various opportunities of expansion but the geo political conditions and crisis of oil can cause its business model some threats as well.