Magazine article Management Today

Cheap and Cheerful

Magazine article Management Today

Cheap and Cheerful

Article excerpt

With the simple, no frills philosophy that if you reduce the price more people will fly, easyJet, the brash Luton-based upstart, has already unsettled some of the big players.

In-flight magazines are the semolina puddings of the media: bland, sweet and far too insipid to offend. Here, you feel, even Mary Whitehouse couldn't find much to grouse about. It comes as something of a surprise then, when flicking through easyJet's on-board organ, easy Come easy Go, to see the headline, 'We kicked KLM's ass and got an award to prove it'. But then easyJet, the bright orange, brash, cheap Luton-based upstart is anything but typical of the European airline business. And, as the spat with KLM illustrates, its approach has already unsettled some of the bigger players.

EasyJet is the brainchild of Stelios Haji-Ioannou, the son of a Greek shipping magnate known as 'the tanker king'. He came to the UK in 1984 and studied economics at the LSE, followed by a masters degree in business at City University, and then joined his father's shipping firm. But, like many bosses' sons, Haji-Ioannou junior soon decided that he wanted to go it alone. In 1992, he set up a tanker company with $50 million from his father, transporting refined petroleum products, an area of the industry his father wasn't involved in. The company did well enough but then Haji-Ioannou was approached by the Greek franchisee of Virgin Atlantic who was looking for investors for the London-Athens route. He decided against that project but, he says: 'In the process of deciding whether or not I should invest I got the aviation bug and started looking around for a successful strategy to start an airline.'

His search led him to the US, where he was greatly taken with South West Airlines, a no frills operation which he cheerfully admits was the role model for easyJet. 'The concept,' explains Haji-Ioannou, 'is based on the belief that demand for short-haul air transport is price elastic - in simple English, if you reduce the price, more people will fly.' Classical economics is a recurring theme in his conversation. 'Traditional airlines believe,' he adds, 'that air traffic grows in line with the economy and that the only thing you achieve by cutting your prices is to reduce your revenue. We've proven all of that nonsense.' By offering prices around half that which larger competitors charge, he says, easyJet is increasing the size of the market. Guy Kekwick, an analyst at Goldman Sachs, concurs: 'There's a part of the European travel market that has yet to be stimulated - the no frills end where people pay their own way. That's the part they will begin with, but later on they might start encroaching on the European flag carriers.' Thus, says Haji-Ioannou, the question is not 'Should I fly BA or easyJet, it's should I fly to Nice or buy another pair of jeans?' At [pounds]49 for the cheapest one-way ticket to Nice, it's a valid comparison.

Once he had decided to go ahead with a British version of South West, an initial [pounds]5 million from his billionaire father helped Haji-Ioannou to neatly sidestep the thorny question of venture capital. In November 1995, he started flights from Luton to Glasgow and Edinburgh with two leased 737-300s (capacity 148). But, while aiming to undercut the majors is one thing, the mechanics of doing so are quite another. The no frills philosophy underpins easyJet's everyday operations and permeates the entire company. Explains Haji-Ioannou: 'You have to think differently. We decided that we should concentrate on people who go from A to B and back' - in other words, people who are not interested in making connections. 'Every other airline,' he elaborates, 'is rushing around making alliances to give it a global network, but we're saying, "Well, we're a bus company. We want to fly people from A to B and back." Once you've taken this decision there are a lot of savings.'

Indeed there are. If an airline wants to go it alone, tickets can be dispensed with as they exist to facilitate passenger exchange between carriers. …

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