Ray Webster: The low-cost guru who is battling to survive the fares war

Ray Webster, the chief executive of easyJet, is not the first businessman to be disillusioned with the City and he will surely not be the last. But right now the boss of Britain's biggest budget airline seems more exasperated than most.

This week easyJet turned in a better-than-expected set of first-half results but added that "unprofitable and unrealistic pricing" by some of its competitors had made it cautious about its full-year prospects. Easyjet's shares promptly fell by a quarter, accompanied by a flood of obituaries for the low-cost airline sector.

"The volatility of the last few days has not really been helpful internally," says Mr Webster, a soft-spoken Kiwi who has lived in Hampstead since he relocated to the UK in the mid-1990s. "The staff feel they have done a great job over the last six months and then to get a mark-down from the teacher, so to speak, is not all that useful in getting people focused and energised and keeping morale high."

Still, it could have been worse. Ryanair's shares fell 31 per cent in January when it wrong-footed the market. "Overall I was surprised at the reaction" says Mr Webster. "We felt we had a good first half; we met our expectations so we certainly weren't anticipating the reaction the market gave back to us. One can only assume their expectations were much higher than ours."

So, is the no-frills airline model in danger of going bust? "A lot of our low-cost imitators won't survive," says Mr Webster bluntly. "There are 55 airlines across Europe now who believe they can be low-cost carriers. That is completely unsustainable.

"In the US, something like 60 carriers went bust in the first five years after the market was deregulated. Exactly the same thing is going to happen here."

This weekend he is on a mission to reassure the world that easyJet will not be one of the casualties as he embarks on an investor roadshow taking in the UK, Europe and the US. He reckons that only two low-cost carriers - perhaps three at a push - will survive long-term in Europe.

One will be easyJet and another will be Ryanair, a business that he admires despite the incessant verbal abuse that he gets from its chief executive, Michael O'Leary.

"Our style is to keep our heads down and do what's best for the business," says Mr Webster. "Every time Michael runs an advertisement with our name in it, he is promoting easyJet. We are not going to get into that again. We learnt our lesson when we tried to hammer BA. We will never run a campaign with another airline's name in it."

The banter aside, Mr Webster also recognises that the two low-cost airlines have a mutual self-interest in not going head to head. "Ryanair and easyJet will find a way of co-existing. The important thing to recognise is that both of us are disciplined by the capital markets. If we ignore that and start depleting shareholders' funds we will get some pretty clear signals from investors," he says.

One of those is a certain Stelios Haji-Ioannou, the founder of easyJet, who, together with his brother and sister, still owns 42 per cent of the shares. To the outside world, Stelios remains the public face of easyJet even though he no longer has any direct involvement in the airline, having relinquished the chairmanship two years ago.

But Mr Webster has always been the brains behind the operation. It is his patented customer-yield management system, which he brought with him from Air New Zealand eight years ago, which makes easyJet tick. It is a complicated animal but it works on the basic principle that the later you book the more you pay.

Right now, passengers seem to be getting great deals, no matter how late they book. "In the short term it is good news for consumers," admits Mr Webster. "But it will self-correct. Fares are clearly going to be keenly priced, particularly when there is oversupply in the market. But a lot of this capacity will just disappear because the carriers which are operating it can't sustain themselves. Prices will undoubtedly increase once the size of the market gets back in balance with demand."

Mr Webster is the first to acknowledge the debt that easyJet owes Stelios. "He was a great catalyst for getting consumers to understand what low-cost air travel was all about and to trust the brand. The great thing about Stelios is he knew he had to get out or the future would be compromised. No business can survive long term if it depends upon a single individual for its long-term success."

Since Stelios bade farewell, easyJet certainly has moved on, with two mould-breaking deals. First it bought its low-cost rival Go. Then it stunned the industry again by placing a $5bn aircraft order with Airbus even though its fleet was made up exclusively of Boeing jets at the time. Rule number one in the world of no-frills is never operate more than one aircraft type if you want to keep costs under control.

Mr Webster sees a clear link between the two deals. "The Airbus order would not have happened without the Go acquisition. Partly, it gave us the scale to do the deal but it enabled us to break up the cosy little duopoly between Airbus and Boeing."

Airbus, he explains, had only just signed an exclusive deal with Go. When it saw the airline being taken over by a carrier that flew only Boeing aircraft, it panicked. "I can't discuss the exact change in price we were offered, but it was spectacular," says Mr Webster.

Pricing power with aircraft manufacturers is one of the things which helps Mr Webster drive costs ever lower. Next on his list is the airport operator BAA which he clearly believes is still suffering from the cost-plus mentality which says gold-plate everything and then pass the bill to the customer, whatever it costs.

But it does not stop there. Whereas the Ryanair boss Michael O'Leary famously bans highlighter pens from the office, Mr Webster bans photocopiers, which he thinks is a more compelling example of cost-cutting.

"If you rely on technology to run the business then you don't need pieces of paper," Mr Webster says. "The problem with paper is that if you want lots of people to be involved you need lots of bits of paper.

"The great thing about technology is that 500 people can read the same piece of information simultaneously, three or four seconds after it was sent. It's not about the cost of paper. It's about unleashing the management potential by ensuring people have access to information as quickly as possible."

What about unleashing his own management potential elsewhere, at some stage, perhaps by having a crack at resurrecting one of the big flag-carriers?

"I did that for 27 years at Air New Zealand," says Mr Webster. "I'm not really keen to go back there. I'm in the process of rebuilding my house but that is the last time I'm going to rebuild anything. Building something new from scratch is always much more fun."