Published: 11 Oct 2010
Last Updated: 19 Aug 2013
It's been a good morning for easyJet: the UK budget airline saw its shares jump 5% after settling its long-running brand dispute with founder Sir Stelios Haji-Ioannou. The scrap - over the amount of money easyJet was allowed to make from 'non-core' activities - has been costly, time-consuming and a bit embarrassing for easyJet. So news that the two sides have agreed a royalty deal - albeit one that will cost the airline millions of pounds a year - is definitely positive. Although unfortunately, its row with Stelios is by no means over yet...
So why on earth hasn't easyJet sorted this out earlier? And why is Sir Stelios suing the airline that made his reputation, and with which he's always been strongly identified? Well, there was a licence agreement in place: when easyJet floated in 2000, it agreed to pay Stelios's easyGroup a token £1 a year for the right to use the brand. But Stelios argued that the airline breached an agreement to make no more than 25% of its revenues from 'non-core' activities - which to his mind included all non-ticket flight charges (like extra baggage costs) and, more significantly, the kind of partnerships that brought it into competition with other areas of the easyEmpire.
But the two sides appear to have hammered out a compromise deal: easyJet will henceforth be free to fill its boots from 'ancillary activities', including white label and co-branding deals with third parties. This even covers areas where it might come into competition with other easyGroup businesses - with the exception of office rental, cruises and buses, where it's expressly forbidden to operate. In return, it will pay Stelios's easyGroup 0.25% of its annual revenues as a royalty, which will amount to at least £3.9m and £4.95m in years one and two. So Stelios will have a few million reasons to feel better about the whole thing.
That's the good news. But the bad news, as new CEO Carolyn McCall admitted today, is that this is only part of Stelios's beef with easyJet: the ongoing row over strategy (he wants easyJet to stop buying more planes and pay a dividend instead) remains very much unresolved. Interestingly, as part of today's deal, Stelios has given up the right to appoint himself chairman or to have an easyGroup representative on the easyJet board – which should give the board a bit more room for manoeuvre. But since Stelios remains the airline's largest shareholder, McCall and co will know very well that he can still kick up an almighty stink if he disagrees with them, whether he's on the board or not...
So why on earth hasn't easyJet sorted this out earlier? And why is Sir Stelios suing the airline that made his reputation, and with which he's always been strongly identified? Well, there was a licence agreement in place: when easyJet floated in 2000, it agreed to pay Stelios's easyGroup a token £1 a year for the right to use the brand. But Stelios argued that the airline breached an agreement to make no more than 25% of its revenues from 'non-core' activities - which to his mind included all non-ticket flight charges (like extra baggage costs) and, more significantly, the kind of partnerships that brought it into competition with other areas of the easyEmpire.
But the two sides appear to have hammered out a compromise deal: easyJet will henceforth be free to fill its boots from 'ancillary activities', including white label and co-branding deals with third parties. This even covers areas where it might come into competition with other easyGroup businesses - with the exception of office rental, cruises and buses, where it's expressly forbidden to operate. In return, it will pay Stelios's easyGroup 0.25% of its annual revenues as a royalty, which will amount to at least £3.9m and £4.95m in years one and two. So Stelios will have a few million reasons to feel better about the whole thing.
That's the good news. But the bad news, as new CEO Carolyn McCall admitted today, is that this is only part of Stelios's beef with easyJet: the ongoing row over strategy (he wants easyJet to stop buying more planes and pay a dividend instead) remains very much unresolved. Interestingly, as part of today's deal, Stelios has given up the right to appoint himself chairman or to have an easyGroup representative on the easyJet board – which should give the board a bit more room for manoeuvre. But since Stelios remains the airline's largest shareholder, McCall and co will know very well that he can still kick up an almighty stink if he disagrees with them, whether he's on the board or not...
