UK: Cheap and cheerful.

UK: Cheap and cheerful. - 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.

by Rhymer Rigby.
Last Updated: 31 Aug 2010

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 £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 £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. And, once tickets are gone (and few will weep here), travel agents may also be ditched. To fly easyJet, customers phone the booking number, book a flight, get a reference number, show up at the airport with some form of identification and - assuming that their name is on the computer - jump on a plane. Cutting out tickets, travel agents (and their hefty commissions) and the need to participate in the global booking systems saves in the region of 25% of the cost of a flight.

A second area where savings can to be made, continues Haji-Ioannou, is in the choice of airport. 'Once you've decided you are not interested in connections, you can go and find a forgotten airport like Luton and make it your base. The reason nobody ever comes to Luton is not because it's unattractive and downmarket but because nobody else ever comes here.' EasyJet is the only scheduled - as opposed to charter - carrier which uses Luton and its presence there is unmissable. From Luton station, passengers take the 'easyShuttle' to the airport where the company's vivid orange livery covers every available surface. Compared to Heathrow or Gatwick, Luton is a sleepy, provincial backwater inhabited on the morning in question by a few rather lost-looking Spice Girl lookalikes. But out-of-the-way airports do have their charms: at Heathrow, for instance, competition for landing slots is intense. Explains Haji-Ioannou: 'You land at Heathrow and you cannot take off again for another hour and a half.' At Luton such competition is non-existent, which means easyJet's planes can fly for 11 or 12 hours a day rather than the more normal six or seven. In the light of the questionable safety records of some of America's more 'affordable' airlines, such intensive use might seem a little risky. Britain, however, has some of the world's most stringent safety checks and UK operators take the view that crashes such as last year's Valuejet disaster in Florida would be impossible here.

A third significant saving, as the brochure points out, is that: 'There's no such thing as a free lunch ... so on easyJet we don't give one.' The savings to be made from skipping lunch are greater than might be imagined.

Says Haji-Ioannou: 'People say, "It's not very expensive to give me a sandwich." Believe it or not, it may cost as much as £5 to deliver that sandwich because of the way it's prepared, transported, the space it takes up.'

The airline's passengers inhabit a classless society: no first, no business, just standard. And, because standard seats are smaller, the airline packs 148 passengers to a plane, compared with, say, KLM's 109. Ian Lowden of SH&E, the world's largest independent aviation consultants, confirms this characteristic, 'They are the most extreme example of the low fare concept as exemplified by Ryan Air - they've gone even further as (by selling direct) they've cut out distribution costs.'

The cost-cutting ethos is also evident at the company's headquarters, an unattractive orange blot called - you guessed it - easyLand. There are no monuments to corporate self-importance here. The building itself (some 15,000 square feet) costs nothing: Luton airport gave easyJet the use of it as a sweetener. Of the company's 300 employees, 130 sell seats in the call centre, remunerated on a commission-only basis at a rate of 80p per seat. That may sound a little parsimonious but, says Haji-Ioannou, 'It's a very efficient system and it's not unusual for people to sell over 100 seats a day'.

Dress is casual: I am the only one in the office sporting any sort of neckwear. According to Haji-Ioannou: 'The amazing thing that I have discovered is that if you get rid of your tie it reduces overhead costs.' Nor is this anything to do with the outlay a good tie demands - it is all to do with office culture. 'People tend to be overly concerned with the size of their office and how many secretaries sit outside it - things that do not contribute to the success of a company.' EasyJet was designed to have a flat management structure and, to the visitor, it appears so flat that rising sea levels could well pose problems. Its owner sits at an anonymous desk in the corner of a large open-plan office nearest the loo; the managing director is at the next desk along.

EasyJet is also terribly hot on the paperless office. 'Everything either arrives by computer or is scanned in on arrival,' explains the company's founder. 'It all stays in the memory where it can be retrieved. I think we have one of the leanest and meanest overhead structures you can have in a company.' To this end, the company's first purchase was an economy-sized waste paper basket. 'The other amazing thing about being paperless is that there are no secrets - our company is completely open,' says Haji-Ioannou.

Reactions to easyJet among the industry's larger players have varied. According to Haji-Ioannou, BA's response has been one of snooty indifference; Air France has pulled out of the London-Nice run; and then, of course, there is KLM. The Dutch flag carrier, miffed at easyJet's cut-price Amsterdam flights decided a little predatory pricing was in order: it is now the subject of an EC investigation which could result in a fine of up to 10% of turnover. Although the airline industry has something of a reputation for savaging upstarts, Lowden sees little point in this case: 'I think they pose a threat only at the margins - they're going for people who wouldn't have flown before.' But he concedes that 'historic experience is that a critical mass of lower fares can make routes less attractive to the major players'. For example, Ryan Air's pricing on the London-Dublin route caused BA to pull out.

By the end of the year, the business hopes to have six 737s, a turnover of $100 million (£65 million) and between 1.5 and 2 million passengers annually. This September marks the end of the company's second financial year over which it hopes to have made a small profit. Given the timescale, any profit, however small, is impressive in itself. Meanwhile, the business is looking at Belfast and Oslo as future destinations and considering the possibility of a second hub at Amsterdam.

Inevitably, comparisons have been made with Sir Freddie Laker, a man Haji-Ioannou holds in great esteem: 'Well, he is a legendary figure, so it sounds a bit pompous to compare myself to him. I think where he went wrong was that he tried to do it very early on and flew long haul where the economics are very different.' So easyJet doesn't have its eye on the transatlantic market? 'No, no, no - I met the chairman of Boeing and we have an agreement that if I ever come back to him and ask for a 747 he'll throw me out.'.

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