Easy come, easy go?

Stelios Haji-Ioannou struck gold with his Easy Group, but has he set his sights too high with his plan to float easyJet? Investors’ scrutiny of the bottom line may not suit his visionary business style, and flotation precedents set by similar-

Stelios Haji-Ioannou, the bulky, five-feet 11-inch Greek entrepreneur behind Easy Group, is this week preparing for the greatest expansion of his business interests so far.

The publication this week of the prospectus for the 25 per cent flotation of the easyJet airline – at a share price between 250p and 350p, valuing it at &£190m if the price is 300p – represents a major turning point for the son of the Greek shipping magnate with a fondness for appearing in his own advertisements.

The flotation is intended to fund the purchase by 2004 of another 31 Boeing 737 jets for easyJet, which would almost quadruple its fleet to 44.

At the same time, easyRentacar is in talks with Mercedes to receive another 9,000 Mercedes A-class cars to build up its fleet to 30,000 in three years.

The Mercs – which famously failed the “moose test” (they could overturn if they swerve round moose-sized objects and had to be redesigned) – will be eventually returned to their manufacturer, which will then sell them as second-hand. Until then, they will be rented out – from &£9 a day – to eager drivers.

Haji-Ioannou says he will spend “over $1bn (&£600m)” to purchase the jets from Boeing and is looking to City investors to help pay for them. Hence the flotation – which kicks off on November 15.

The history of entrepreneurs taking their brands on to the stock market has not always been a happy one. Sir Richard Branson’s Virgin didn’t last long as a listed company before he took it back into (his own) private hands. Bernard Matthews, who founded the turkey empire and, like Haji-Ioannou, appeared in his own ads, is this week looking to take the business private and sell-out. Gerald Ratner, Alan Sugar, Sophie Mirman… the list goes on.

Haji-Ioannou, who has a classic business background – he studied at the London School of Economics, then earned a Masters at City University Business School – claims the flotation will be the first of many. It is a giant leap in a strategy – building an overarching Easy brand that can extend across consumer sectors, where existing business models can be reworked to suit the Easy ethic. The other Easy businesses will be floated to provide expansion capital and motivate staff through the use of share options.

EasyEverything Internet cafés will be floated “next year or the year after”, he says, and the Easy name is being extended to an Internet site, called easyValue, which searches for the lowest price goods and into personal finance, through easyMoney. EasyHotels are also on the agenda.

Five-year plan

Haji-Ioannou explains his five-year plan: “I believe the Easy brand can be stretched to another three or four companies easily. If I fast-forward five years, I would say I will have seven or eight easy businesses, half of which will be in the public arena.

“That’s an ambitious task I know – I don’t know of any other businessmen who have been chairman of four or five public businesses at the same time.”

For marketers, Haji-Ioannou is a flag-waver for branding – an example of how the use of simple branding devices and business school techniques can redefine markets.

So far, the businesses have been heavily subsidised by his wealthy family – his father gave him &£20m to start easyJet – so the success of this and subsequent flotations will be a measure of whether such simple brand propositions can last or, on the contrary, they are another shortlived and unworkable experiment.

There are tough questions to be answered about the easyJet flotations, and no shortage of rivals to pose them. One says Haji-Ioannou’s figures are “vague” and it is unclear how the airline will service debts of up to &£40m a year on the more than &£600m needed to buy the new planes.

Easy, says Haji-Ioannou. “What most people forget is that the cost of an aircraft is not what you pay for it, it is how you use it. EasyJet is probably the best in the world at using aircraft more hours in the day than anyone else. We put more seats in planes. We will put in 149, the maximum for 737s, and we sell 80 per cent of seats. So the cost per seat doesn’t have to be too high.”

Balancing the books

But is this too easy? Consultant Eli Abeles of ABS Consultancy, who advises a rival budget airline, says: “I don’t understand the financing. He’s got to take a lot of debt to buy the planes and has got to pay the debt by charging more for tickets.

“He’s facing competition from others. He’s got to develop new routes. He talks glibly of putting up frequency. He’s got a very successful business, but how is he going to triple it in three years? It’s an enormous rate of increase.”

Add to this the downturn in stock market fortunes with the slump in technology stocks, a weak airline sector, uncertainty about fuel prices, the dispute with Luton Airport-owner Barclays Bank about fees, and questions over the euro’s future stability, and it is clear there are risks attached to the flotation.

Haji-Ioannou claims he has these bases covered. An economic downturn would help easyJet, he claims, as business people would trade down to cheaper airlines. Fuel prices account for just 12 to 14 per cent of costs. And even rivals admit, if prices were forced up, easyJet would still be generally cheaper than the competition.

EasyJet’s figures for the year to September show the airline made &£22m profit on a turnover of &£263m from 5.6 million single trips – that’s about &£4 profit per passenger on &£47 paid per seat. But this slim profit margin would be wiped out if the Luton landing charges were to increase by &£5 per passenger.

Others raise the prospect of a repeat of the disaster that befell ebullient airline entrepreneur Harry Goodman in March 1992. He expanded his Air Europe airline, flying charters to holiday destinations, too fast, and then – faced with an economic downturn and the Gulf War – was unable to pay back the debt he raised to expand his fleet.

But airline marketing expert Mike Larkin of consultants Catalyst says it is different this time. “It is a different issue with easyJet – Air Europe did not really stand for anything, but Stelios has created a brand people want to buy into, and he can move that across different markets. It’s got great prospects.”

Tim Jeans, marketing director of Ryanair – the highly rated Irish discount operator whose strong stock market performance easyJet will be keen to shadow, says: “He’s done well in creating brand awareness and extending the brand. But whether it is a sustainable business proposition is open to question.

“He has announced the first significant profit in five years of business. I am not saying it has done anything other than performed well in the past year, but investors are looking for a track record, and the record on profitability is patchy.

Price pressures

“Luton could be a problem. The minute you say you are putting &£5 on the price, it’s the start of a slippery slope. The key thing is locking away every cost, and making sure the price goes down. A &£4 profit margin is not bad, but Ryanair margins are over 20 per cent – will investors go for a company with 11 per cent margins or people with 23 per cent margin?”

Jeans says these extra margins are achieved because Ryanair uses secondary airports rather than easyJet’s primary and more expensive locations. But this is all part of the easyJet positioning of low prices and quality – necessarily a lower margin business.

Praise has even come from his greatest rivals. He recently won the Marketing Week Entrepreneur of the Year Award, and the judging panel was swayed by the arguments of none other than David Magliano, marketing director of arch-rival Go.

Magliano says: “There are three core truths to the Easy brand. There is a visual consistency of branding that does not appeal to everyone, but you have to respect the consistency of orange. These businesses are improvements over the traditional model in their own ways, they have re-engineered the process. Cutting out the middle man enables Easy to introduce a new level of service.

“And although the brand image is cheap and cheerful, the perception is of the best quality. EasyJet uses brand new planes, easyEverything has the latest flat screens and fastest bandwidth.

“He’s shown how to rapidly expand a brand and do it in a way that respects brand elasticity.”

Haji-Ioannou says he enjoys setting up businesses, then standing back and letting other, more qualified, executives run them. But those who have worked for him say he finds it difficult to take a back seat. “He’s fantastically charismatic, but he can drive you bananas. He can be quite stubborn, it takes a lot to change his mind…Everything has to go past him at some stage; he is not the greatest delegator. But even Stelios can’t be in more than one place at a time,” says one ex-colleague.

It remains to be seen whether Haji-Ioannou’s vision of five publicly listed companies under the Easy brand is realistic, and if he will be able to step back from his creations.

How does Haji-Ioannou select which businesses are suitable for the Easy treatment? Virgin “sticks its name on anything then hopes,” according to one observer. But Haji-Ioannou says: “I use a business school term – sustainable competitive advantage. A business must have the potential for significant re-engineering of its business processes – they must be able to be genetically engineered to produce lower costs.”

Some wonder about the thinking behind easyValue, which will offer guidance on best buys over the Internet. Haji-Ioannou built the Easy brand by cutting out the middleman, and now he is intending to become middleman himself. Can easyValue offer anything new over the Net brands, which already offer the same kind of service? In any case, easyValue does not seem to lend itself to the re-engineering that Haji-Ioannou speaks of. It’s the same with finance – where a price war is erupting – and hotels – where there is a burgeoning budget sector. It is hard to see how he can reinvent these business models.

Virgin similarities

The Easy brand has been compared to Virgin, though observers say Branson’s brand values are much more complex; they are about entertainment and excitement, whereas Easy is simply about value. While Branson has worked through “feel” for the brand, Haji-Ioannou has his business training. Haji-Ioannou’s own wry comment on the comparison: “I work too hard, I will never take up ballooning, I’m scared of heights.”

He rarely discusses his private life – it never appears in the pages of Hello!, nor is he the subject of tabloid tittle-tattle. He is unmarried, and spends his spare time at his villa in Manaco – when not working 17 hours a day, six days a week, in a shed in Luton.

“I’ve got boats,” he admits, “every son of a Greek shipowner has a boat. But I focus on business issues. I enjoy what I do.” With the stock market flotations on the horizon, it is hard to imagine it will all be quite such fun.

Marketers love the Easy brand because it proves that simplicity and branding have a place in the market. They are willing it to succeed, but the harsh realities of the City may spell a different fate. The real financial value of the Easy brand will be tested for all to see. People will be watching it very closely.

The Easy Group

– easyJet – 1,400 employees, 18 Boeing 737s flying 28 routes across Europe

– easyRentacar – plans 30,000 vehicles – Mercedes or other models within three years. It has ten outlets, with another opening soon in Liverpool. It plans 30 sites by the end of next year.

– easyEverything – chain of Internet cafes. There are ten across Europe at present, with plans for 22 next year and 60 after that. It is opening an 800-seater in New York, and has struck a deal with Microsoft to rent out its software.

– easyValue – Launches by the end of the year, giving guidance on lowest Internet prices on a range of goods and services. It will also compare airline prices, putting easyJet against rivals.

New ventures planned include easyFinance and easyHotels.


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