Jeremy Warner's Outlook: Where now for easyJet as chief executive Ray Webster hits the ejector button?

The City will be in two minds as to whether the return of Stelios as a non-executive director amounts to a reasonable trade-off
Click to follow
The Independent Online

In some respects easyJet is as much the creation of Ray Webster, its chief executive, as the man with whom it is still identified, Stelios Haji-Ioannou. Stelios had the idea and found the money, but it was Mr Webster who designed the software behind the airline's demand management booking system, and over the years he's done much of the donkey work in building easyJet from tiny beginnings into one of Europe's largest airlines.

The founder was forced to grab the parachute and head for the exit nearly three years ago now, feigning the pressure of work from his other low-cost business ventures. Stelios has always fancied himself more of a founder of companies, a kind of business impresario, than a runner of them.

Now the co-pilot is going as well. After nearly a year of recovery in the share price, is it time for investors to hit the ejector button too? That's generally the correct response once the driving forces behind a company's big growth phase decide to depart, yet in this case there's reason to believe it may be the wrong one. Mr Webster is going for genuinely personal reasons. He's well respected both in the City and by Stelios, who is still the company's largest shareholder, and he was under no pressure to leave early. Yet the unexpected death of both your parents in short order somewhat concentrates the mind and, a native Kiwi by origin, Mr Webster judges the timing right for a new man (or woman) at the joystick.

The City will be in two minds as to whether the return of Stelios as a non-executive director amounts to a reasonable trade off. In his last year at easyJet, Stelios infuriated institutional investors by attempting to change the articles of association to give the controlling shareholder (ie himself) the right to appoint the chairman and two non-executive directors in perpetuity. As a consequence, he left under a bit of a corporate governance cloud. For quite a while, he also sold down his shareholding. This helped finance his other business ventures, but the overhang didn't do much for the easyJet share price.

Still, he knows the business better than any and, as a big shareholder, he's every incentive to make the company work. Whether the new chief executive is going to feel entirely comfortable with the founder constantly sitting there on his shoulder is another matter.

From high fuel costs and overcapacity to the threat of development aid taxes and likely eventual inclusion in climate change emission controls, the challenges for the airline industry just keep mounting. Yet there's still huge growth potential for the low-cost operators in Europe, where no-frills market share has yet to reach anything close to US levels. For the time being the founding fathers of the European low-cost industry, easyJet and Ryanair, still have the market largely to themselves.

When China starts exporting inflation

Where lies the biggest threat to Britain's economic prosperity? The consumer slowdown? Runaway public spending? Wage inflation? The housing market? As in life, the risks abound, but on talking to a number of industrialists about these matters in recent weeks I'm now convinced the main one lies with China and the Far East.

This might seem like another statement of the obvious. Sir Digby Jones, the director general of the CBI, has been banging on about the Chinese eating our breakfast, lunch and dinner for years now, and no doubt he's got a point. Yet the more potent threat from the Far East may be a more complicated one.

In a number of respects China has been extremely good for the developed economies over the past five years. By producing an ever expanding quantity of cheap goods, it has helped keep prices low. This deflationary effect has allowed central bankers to maintain low interest rates, which in turn has allowed consumer demand to remain high.

The fact that this has further weakened Britain's manufacturing base has in many quarters come to be seen as a boon. What's the point in producing goods if capacity is being constantly increased by the Chinese? Much better to produce services, where prices are still rising. This so called change in the terms of trade - cheaper import prices but more expensively priced services and intellectual property rights, both of which can be exported - has worked well for Britain, which seems supremely well adapted to a post-industrial Europe, where the Far East acts as factory for our more value-added service based economy.

But what happens when the price of goods starts to rise again? This is a more imminent threat than generally appreciated, and not just because of the rising cost of raw materials. At some stage this year, the Chinese will bow to international pressure and revalue the renminbi. This in itself is likely to make Chinese export prices quite a bit more expensive. What's more, Chinese industry must at some stage start to make a return. At present, large parts of it don't. Some Chinese goods are sold at below the cost of the raw materials. That's plainly not sustainable.

For the developed West, the danger is that growing reliance on the Far East for our goods makes us highly vulnerable to any inflationary pressure that might be exported from these regions. Loss of our manufacturing base in the meantime is also quite likely to make us less innovative, particularly in the development and use of new raw materials. Most innovation tends to come from physically making things, not sitting around trying to dream it up and then persuading others to make our inventions for us. More than five years of Far Eastern inspired price deflation has generated a "you've never had it so good" surge in purchasing power for us here in Britain; the long-term cost has yet to be reckoned.

Tesco-style pay at the Post Office

Memo from the chairman of Royal Mail

To: Alan Johnson, Department of Trade and Industry

Subject: Adam Crozier's pay

Dear Secretary of State,

You will have noticed from the newspapers over the last couple of days that our chief executive appears to have earned an inordinate amount of money last year. The press are reporting a figure of £3m, which is the same as Sir Terry Leahy got at Tesco. The figure's not far off the mark. You can read the gory details for yourself when we publish our annual results this morning.

I know it sounds an awful lot for a public servant. It is certainly an impressive figure compared with the £130,347 that Cabinet ministers earn. But you will remember it was you (or rather your predecessor) who set the rules when we hired him. What was it Patricia said she was in favour of? "High levels of reward for high levels of success."

I'll admit that £3m is pretty high. But just look at what he's achieved. Adam may not be in quite the same league as Sir Terry, but as they might have said at his former employer, the Football Association: "The boy's done good." When he arrived, this place was losing £1.5m a day. Now it's making £1.5m. OK, so there are 30,000 fewer workers and the second delivery has disappeared but you're supposed to be in favour of improved productivity aren't you? At least that's what it said on the tin last week.

As a former postman, I'm sure you'll understand me when I say that we want the whole of the workforce to share in that success. They'll be getting an extra £1,000 in their pay packets any day soon. But I want them to own the shares as well. We'll pay you for them. So if you could see your way to letting us borrow, let's say £2bn, we could be up and running.

There's still the small matter of the pension deficit to deal with. It's £4.5bn on an FRS17 basis, which means that if we were a publicly quoted company we would probably be bust. That's Adam's next challenge, but then that's what you pay him for isn't it, all £3m of it.

Yours sincerely,

Allan Leighton