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Analysis: A rival to easyJet – is Stelios serious?

Ian Taylor, executive editor, TWgroupThe latest twist in the Stelios-easyJet drama must have surprised even the industry’s old lags. Who would believe Sir Stelios Haji-Ioannou could seriously consider launching a rival to the carrier in which he and his family own 38% of the shares?

Of course, people can behave in strange ways when they fall out – and to describe relations between Sir Stelios and those in charge at easyJet as acrimonious would be like describing Christmas as a holiday. The current state of their relationship makes American Airlines and Travelport appear best pals.

Yet how much substance is there to the latest development? Europe’s leading business newspaper reported easyJet’s announcement that its founder was planning a new airline “sent shockwaves through the aviation world”. Really?

Broadsheet newspapers gave over whole pages to the story. Yet at this stage Stelios’s new carrier Fastjet appears to have little more substance than a web address and a single page informing the world: “Fastjet.com . . . by Stelios. Coming soon!”

As a teaser it’s not bad – Stelios always did have an eye for publicity, however you view the orange boiler suits – and as a spoiler of easyJet’s own spoiler of the British Airways ‘To Fly. To serve’ campaign it must be maddening. But as a threat to Europe’s second-biggest carrier, with its fleet of more than 180 aircraft and turnover close to £3 billion, it is hard to take seriously.

The history of Sir Stelios’s business ventures post-easyJet has not been mightily impressive. He has found it hard to repeat the easyJet trick which, if we are honest, benefited – as did Ryanair – from a coming together of highly beneficial factors.

One was the internet which allowed the low-cost carriers to drive a coach and horses through existing distribution models. Another was the long economic boom in the UK through the 1990s (easyJet was founded in 1995) and following decade which fuelled the growth in flying.

A third, once the low-cost phenomenon was underway, was the cheap availability of new aircraft on generous terms following the downturn in air traffic in the US, and therefore in aircraft orders, after September 2001.

However, the most important factor was the deregulation of aviation, which allowed the new carriers not only to enter the market and compete on routes but to wage economic war on the existing carriers by slashing costs in every area, not least wages.

Governments and regulators established a new aviation ‘market’ with precisely this intention and the early entrants in the UK benefited most. The UK was the market that deregulated first and furthest and boomed the most. (Germany, a substantially larger travel market, was troubled by the costs and consequences of the country’s reunification and a slower economy at this time.)

None of these factors now exist in Europe and the market is saturated. So, at the risk of getting egg on my face, I doubt Fastjet will fly. Analyst Andrew Lobbenberg of easyJet broker RBS was bang on when he said: “We see this as an escalation of Stelios’s negotiations with easyJet.”

It doesn’t make for an easy life for the carrier’s chief executive Carolyn McCall, however. If her recruitment was supposed to draw a line under the battle with Stelios, it must be deemed a failure. By all accounts, McCall spends much of her time dealing with the man and the problems he raises.

It is only last week that easyJet announced a £190 million dividend payout to shareholders – £71 million of it to the Haji-Ioannous – largely as a result of pressure from Stelios. That produced a single concession – the big man dropped a demand for an extraordinary general meeting to force non-executive director Rigas Doganis off the airline’s board, before resuming his campaign.

Far from jousting with a knight, McCall must feel she is locked in a death struggle with The Terminator. He just keeps coming, blasting away, refusing to lie down, his body reconstituting each time he is laid to rest.

It’s hard to see how the drama will be resolved save by money. But it’s fun for spectators along the way.

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