Easy to launch but hard to keep afloat

Only two easyGroup companies are profitable, raising doubts over the flexibility of the no-frills format. Do its latest additions make the grade?

Stelios Haji-Ioannou’s easyGroup businesses have enjoyed growing popularity for several years but there is concern that the company’s latest expansion plans are making it stretch too far.

The group is planning to launch cinema and hostels businesses, called easyCinema and easyDorm. But one former senior employee says: “My recommendation to Stelios would be to sort out what you’ve got at the moment.

“The airline is doing well but easyRentacar and easyInternetCafé require a lot of attention. The easyMoney proposition is not strong and there’s no clear path forward.”

EasyGroup director of group corporate affairs James Rothnie says the company is working on the cost of setting up the businesses. It’s a challenge, as the company tries to achieve a cost base half that of its rivals.

It’s also bold in the present economic climate, although Rothnie says: “Our businesses are designed to be recession-proof because we’re at the no-frills end of the market.”

The company is already in discussions with existing cinema groups about buying or leasing cinemas. It is also talking to hotel groups but has yet to decide whether it will go into hostels or set up one-, twoor three-star hotels.

Rothnie believes cinemas could be made cheaper by taking bookings over the Internet, thereby reducing box office running costs. He proposes an easyJet-style pricing system with cheaper seats obtained by booking far in advance.

But David Pope, leisure analyst at Brewin Dolphin, says Stelios will have a fight on his hands to change the structure of the industry.

He says: “Variable pricing may not work because when a film comes out all the money made in the first week goes to the film studio, so studios have a lot of control. They also want it off the screens quite quickly so they can get the film to video. But if Stelios can find a way to get people into the cinema during the day, he’s on to a winner.”

Another money-spinning proposal is to screen sporting events in the cinema, an idea which is supported in principle by Michael Bucks, head of business affairs at sports rights company Octagon CSI. He says: “It would have trouble competing with the likes of BSkyB’s home service, but there are people who would rather go to the cinema than the pub to watch events.”

One way forward, he suggests, could be to target niche or ethnic markets by showing sports that are not available on other media.

The idea of easyDorm is given a cautious welcome by another analyst. “If you can get the real estate I believe it could work,” he says. “But the price would have to be so low that you would have to be sure you get the volumes to make it pay.”

Seed funding for these new ventures – traditionally &£5m – would come from Haji-Ioannou’s personal fortune. “He’s not short of a bob or two,” says Rothnie, “but he doesn’t know how much he’s worth.”

Haji-Ioannou’s wealth has come in handy recently. Last month he had to bail out easyInternetCafé by injecting &£15m into the flagging business. Comparisons can be made with Sir Richard Branson, who vowed never to let any of his businesses go bankrupt and famously invested &£150m in Our Price to save it.

But Rothnie draws a distinction. “Stelios is tough enough to let a turkey become a turkey, but he believes in the cafés.”

The easyGroup’s only profit makers are easyJet and Stelmar. Results released this week show easyJet made a pre-tax profit of &£40.1m in 2001 (this compares with &£22.1m for 2000). The hike can be attributed to the rise in demand for cheap flights as consumers and businesses cut back.

Rothnie claims easyJet tops a Civil Aviation Authority reliability table for budget airlines. But the CAA says it does not produce a league table and can’t endorse the claim. It is another part of the easyGroup publicity machine, which has had the company waging PR wars against Barclaycard and AOL. AOL has lodged a complaint with the Advertising Standards Authority over easyInternetCafé’s “tear up your AOL account” ads.

The group expects easyRentacar – due to be rebranded easyCar – and easyInternetCafé to break even by October 2002, at which point flotation on the stock exchange is planned.

EasyRentacar ran into trouble last year when it decided to waive accident insurance but required customers to pay for any damage to the cars. The backlash resulted in a change of policy and Rothnie says the business is back on track.

Easydotcom, the Internet e-mail service, is “a branding exercise” according to Rothnie. And easyValue, the fledgling products search engine, hopes to make its name by finding the cheapest flights across airlines and travel agents. The plan is to make it subscription based once it builds a following.

EasyMoney is Stelio’s latest venture and his first into the credit card market. The range of cards is managed by Accucard with a banking licence through London Scottish Bank, which traditionally specialises in customers with credit problems.

Although easyMoney says it prides itself on being transparent with pricing, customers don’t know the APR (annual percentage rate) charge of the range of cards unless they apply for one. “It’s something we’re trying to figure out,” admits Rothnie.

EasyGroup is inevitably trying to grow, but its plans to float projects which are still finding their feet means these are busy times already for the group. Haji-Ioannou will have to prove he is a nifty juggler as well as a canny entrepreneur and showman to ensure his new and existing businesses succeed side by side.


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