EasyJet's drive for growth 'is misguided'

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Sir Stelios Haji-Ioannou gave evidence at the High Court yesterday against easyJet, the airline he founded in the 1990s, accusing it of breaching branding rights over the use of the "Easy" name and of making poor management decisions.

The Greek-born magnate claimed that the no-frills carrier had broken a contract signed in 2000, when the airline was first floated on the stock market. The agreement states that the airline cannot derive less than 75 per cent of its revenue from its core business of flying.

Sir Stelios argues that easyJet's new charges for checking in baggage, which raised £238m last year, are an ancillary business but the airline insists that baggage fees are as integral to its main business as fares.

The trial is the latest stage in the feud between Sir Stelios, who remains chairman of the separate Easy Group and holds a 38 per cent in easyJet, and the airline's board – led by its chief executive Andy Harrison.

Sir Stelios is furious that easyJet has never paid a dividend in 10 years as a listed company, and at what he claims is the board's misguided expansion plan. "I believe only 24 companies in the FTSE 350 have historically not paid a dividend," he told the court in a witness statement. "Instead, easyJet has used its retained earnings to purchase more aircraft.

"I cannot be sure what the reason is for easyJet's management inexplicable optimism that the company should continue to push for fleet growth in spite of poor economic returns and market changes. What I do know is what the results of this strategy have been and what it is likely to lead to."

Sir Stelios's stake in easyJet would entitle him to chair the board and appoint directors, but he has refused the job in order to challenge the management. "I am more effective operating outside the board," he told yesterday's hearing. "Now that I have finished giving evidence today, I am free to work on the other issues, and from tomorrow I will continue to press for a decision on the dividend."

EasyJet rejects Sir Stelios's arguments. In a letter to shareholders last month, the chairman, Sir Michael Rake, said the airline's share price had risen by 34 per cent since listing and this was "a superior performance to its European airline peers".

More vaguely, Sir Michael promised to "keep the issue of returns to shareholders under review", adding: "Given the strong underlying performance of the company this year, I believe the board could well be in a position to consider the matter of some sort of return within a reasonable timeframe."

EasyJet has, however, been buoyed by comments made in court by the judge, Mr Justice Henderson. The airline pointed out that on Monday the judge said: "The core activity always included, surely, not only the transport of passengers, but also transport of such bags as they wished to take with them. Whether you charge for that separately or not, is that not part of the irreducible core activity?"

The levying of a baggage charge was "almost inseparable from the concept of travelling", he added.

Jane Mutimear, a lawyer at Bird & Bird, which is representing Sir Stelios, said: "We are surprised the company is circulating extracts from the transcript from the first day of an ongoing trial. We have no comment to make."

A spokeswoman for Sir Stelios conceded that the terms of the contract might not be appropriate for a modern budget airline, but stressed that the agreement was clear: baggage charges were an ancillary business.