easythis, easythat, easyfloat

At least, that's how Stelios Haji-Ioannou (that's Stelios to you) would like to see the stock market debut of easyjet, the cut-price airline he has shouldered into the big time. But will it be that simple?
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The Independent Online

It is Friday evening and Stelios Haji-Ioannou, founder of the low-cost airline easyJet, is hurrying to catch the 7pm flight from Luton to Nice so that he can spend the weekend in Monaco. He has a home there and one in Athens, but the house in London has been sold for tax reasons. Stelios, as he is universally known, has spent the afternoon holed up next to the airport in easyJet's head offices which are painted a garish orange, like everything else to do with the airline. In preparation for next month's easyJet flotation, its directors have been working on a brand licence agreement between the airline and his easyGroup of companies.

It is Friday evening and Stelios Haji-Ioannou, founder of the low-cost airline easyJet, is hurrying to catch the 7pm flight from Luton to Nice so that he can spend the weekend in Monaco. He has a home there and one in Athens, but the house in London has been sold for tax reasons. Stelios, as he is universally known, has spent the afternoon holed up next to the airport in easyJet's head offices which are painted a garish orange, like everything else to do with the airline. In preparation for next month's easyJet flotation, its directors have been working on a brand licence agreement between the airline and his easyGroup of companies.

It is, says Stelios, a bit like a code of conduct except this one has legal teeth. "For instance, the agreement stipulates that I cannot start another airline, but, by the same token, if easyJet decided to paint the fleet blue I could make them paint over it again in orange."

The agreement is among the thousand and one documents easyJet's officers must sign off before it makes its stock market debut. How does Stelios feel about adjusting to the disciplines of running a publicly-quoted company, with all the disclosure requirements and scrutiny by analysts and shareholders a listing brings? After all, Sir Richard Branson, a man with whom 33-year-old Stelios has often been compared, tried it briefly, found he hated it and took his Virgin empire private again.

"The Branson analogy always comes up," he says. "But there is a big difference. What we are floating is a tightly-run airline, not the entire business. I will still have plenty of scope to take risks and exercise my entrepreneurial flair. The idea is to incubate a business, get an established management to run it, bring the company to maturity then raise outside money to help it grow."

The latest business idea incubating in the hothouse of the Stelios mind is called easyMoney, a new company which will offer consumer loans over the internet. But before that, there are other easyGroup businesses to be brought to market. The next in line will be easyEverything, the world's biggest chain of internet cafés, which Stelios reckons will be ready to float as early as autumn next year.

"What I want to achieve is to have a family of companies linked by a common brand but each developing its own identity. What I do is design a company then let other people run it. My prime contribution is in the marketing."

The immediate marketing challenge is to sell easyJet to investors, not the easiest task when the stock market is so volatile, the airline sector is so out of favour and aviation fuel prices are so high. Chris Tarry, aviation analyst at Commerzbank, says: "If I were acting for easyJet I would advise them to be very cautious about floating in current conditions. The sector is unloved now and although investors should ideally have an airline in their portfolio, not many seem to want one."

Stelios is unruffled. "The market is volatile for dot.coms, and the airlines which are out of favour are the flag carriers such as British Airways. We have positioned ourselves as a different kind of airline, and the two carriers we have most in common with, Ryan Air and Southwest Airlines, are having a good run."

The one thing easyJet and its advisers, UBS Warburg and Donaldson Lufkin Jenrette, have decided against, is a retail offering of shares. Stelios says he does not want to take the risk of the offer being so popular that easyJet is forced to do what lastminute.com did and scale back allocations savagely, or copy Carphone Warehouse and choke off demand by forcing small investors to hang onto their shares. "We have decided to keep it simple, so we do not screw it up," he says.

As for rising jet fuel prices, easyJet will take them on the chin and adjust its cost base and business planning accordingly. The airline does not hedge forward at all on the basis that hedging lulls airlines into a false sense of security. When the hedge runs out the security blanket is abruptly snatched away.

How then will the big hitters in the City take to Stelios and easyJet when the institutional roadshows start early next month? EasyJet has been a remarkable growth story. Launched just five years ago with only two aircraft and two routes - Luton to Glasgow and Edinburgh - it will carry 5.5 million passengers this year on a network of 28 routes spanning 18 European cities. In its first year of operation, the airline lost £5m. For the year just ended, it is thought to have made profits of £20m, despite surging fuel prices and the weakness of sterling against the dollar. Stelios might be the public face of easyJet but the man at the controls is Ray Webster, an unassuming New Zealander who joined as managing director from Air New Zealand five months after launch.

Mr Webster's name is on easyJet's air operator's certificate and Mr Webster devised the yield management system that forms the basis of the easyJet operation. The theory behind the system is simple - the earlier you book the less you pay. This enables easyJet to fill a proportion of its seats quickly with backpackers for whom the cost of a ticket is critical. But as the departure date gets nearer and the price rises, it creates a natural market for business travellers who tend to book late and are prepared to pay more. Occasionally the model breaks down and easyJet fails to anticipate demand accurately. "Stelios hates to see so many flights fully booked early because it means we have probably under-priced the seats," says an insider.

The computer software easyJet uses will detect if a flight is getting too full too quickly and will adjust prices automatically or flash a warning on-screen at headquarters. The result is that easyJet flies with more of its seats filled than most other airlines, the average load factor this year being 84 per cent. Seats unsold on day of departure remain empty. EasyJet will not fill them at bargain prices because of its "price promise" to customers - if any passenger could have bought their ticket later for a lower price, easyJet refunds the difference.

If Stelios has his way, the meteoric rise of easyJet over the past five years will be matched by equally spectacular growth over the next five. By 2004, the size of the fleet will have more than doubled to 44 aircraft, with options to buy a further 30. This weekend Stelios is flying to Seattle to collect the first of the 17 Boeing 737-700s easyJet has on order. The fleet expansion plan has caused some jitters in the City. One analyst says: "There are two big questions. How will these aircraft be financed and what on earth is easyJet going to do with them all?" To some, easyJet's highly ambitious plans bring back uncomfortable memories of Harry Goodman's Air Europe, which crashed into receivership a decade ago, barely a year after unveiling one of the biggest aircraft orders in aviation history.

EasyJet's answer is that the financing of its fleet will be met partly from the proceeds of the flotation. The offer of 25 per cent of the airline is expected to raise up to £150m and value easyJet at £600m. Stelios and his family will retain 65 per cent of the shares and management and staff will own the remaining 10 per cent.

And easyJet intends to increase frequencies on the routes it already serves rather than expand headlong into new services. Many big airlines run what are known as "hub and spoke" operations, with short-haul traffic fed into one large airport from a lot of smaller airports, often at a loss, then routed onto long-haul, high-density routes, hopefully at a profit. EasyJet operates what Stelios calls a "cobweb". The objective is to join each point of the web with as many other points as often as possible. The template, he says, is Southwest Airlines, the doyen of low-cost carriers, which operates 39 services a day on its Houston to Dallas/Fort Worth route. "If everything goes well then one day we will be flying from Luton to Glasgow 30 times a day," he says.

EasyJet and London Luton airport are joined at the hip. Some 65 per cent of easyJet's passengers fly through Luton and 65 per cent of Luton's traffic comes from easyJet. But for the past year the partners have been locked in an increasingly acrimonious dispute.

The airport, now operated by Barclays Bank, wants to increase the landing charge per easyJet passenger from £1.80 at present to something close to £7.50. Stelios has accused Barclays of abusing its position and has failed to persuade the Civil Aviation Authority to start regulating Luton's charges. A truce has been called whilst the share offer goes ahead.

Barclays had hoped the impending flotation would force easyJet to strike a deal. But Stelios says: "We were not willing to be dragged into negotiations with a gun against our heads which is what Barclays was hoping for."

The easyJet prospectus has been written and the offer will be priced on the assumption that easyJet will be paying the full tariff at Luton next year. That way, if it can negotiate a better deal, there can only be an upside for its shareholders. But once the float is out of the way, hostilities will resume.

"It would not be realistic to try to uproot the company from Luton but what we are trying to do is make it more immune by growing our operations out of Liverpool and Geneva and by establishing a base at Amsterdam," says Stelios.

It is a difficult balancing act deciding when and, if so, how quickly easyJet should reduce its dependence on Luton. Today, only four in 10 of its passengers flying from Luton come from the local catchment area. Plenty of people travel from south Wales to get on an easyJet aircraft.

The airline also has natural advantages over its competitors, even those also in the low-cost end of the business, which make it easier to transport its operations. For instance, easyJet transacts more of its business on the internet than any other UK airline and by next spring the aim is for almost 100 per cent of its seats to be sold online. Mr Webster reckons easyJet makes savings of 30 per cent compared with airlines who sell conventionally through travel agents and teams of telesales staff.

Each time a new route is launched, easyJet only has to write its internet program in a new language, not hire staff fluent in the language to sell the tickets.

Set against all that, easyJet has spent a lot of time, effort and money establishing itself at Luton. And it has the slots which enable it to operate its schedules to maximum effect.

Mr Webster is wary of confusing customers who have grown used to easyJet as a Luton-based airline. But for Stelios, the argument with Barclays has become personal. EasyJet is already operating a handful of flights from Gatwick and Stansted and Stelios says: "Don't discount the possibility of us developing a third UK hub - it could be Cardiff or Newcastle or Glasgow. Next time there is a Barclays-style problem we want to make sure it affects as small a part of the business as possible."

But the priority is the flotation and putting the final pieces of the jigsaw in place to begin life as a publicly quoted company. The board, top-heavy with easyJet executives and long-time associates of Stelios, is being reformed.

EasyJet has appointed two new independent directors, one of whom is the former Telewest chief executive Tony Ilsley, and it is looking for a third.

When the roadshows begin here and on the other side of the Atlantic, the founder and chairman of easyJet will be in his element, talking about his two favourite things - Stelios Haji-Ioannou and the easy approach to life. It is hard to know if the City is quite ready.

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