EasyJet boss Andrew Harrison is adamant that the European
carrier will stick to its principles of delivering a low-cost and convenient
product through thick and thin, writes ATI
sister publication Airline Business.
the moment there’s no point beginning a conversation with an airline boss on
any subject other than an enquiry about the impact of the soaring price of
fuel. The reply from Andrew Harrison, the chief executive of UK-based low-cost
carrier EasyJet, is characteristically simple, almost
blunt: “It will kill some airlines, but it won’t kill this one.”
as in every airline boardroom around the globe, the pain is being felt at EasyJet’s unique Hangar 89 headquarters, which is a
maintenance hangar at Luton Airport north of London
converted to house one of Europe’s fastest
growing carriers. In fact the interview with Harrison
was postponed until after management issued a profit warning in mid-March
because of the rising price of fuel.
who has been upset by zealous journalists keen to break stories about the
impact of fuel prices on EasyJet’s performance in the
past, is guarded but frank on the subject. “The facts are fairly simple. From a
consumer demand perspective our business is strong. People are flying and
they’re choosing to fly EasyJet. Equally, the
problem, as I said, is oil.”
recent spike caused EasyJet to warn that if fuel
prices remain at levels of over $1,000 per tonne, up from the $840 price when
it gave its last performance outlook in early February, the airline would incur
an extra cost of £45 million ($89 million) in the second half of its financial
year to September. So, from predicting a pre-tax profit of some £230 million
for this year, a 20% hike over its 2007 effort, profits could dip to £185
million. To help alleviate the pain EasyJet has
hedged 40% of its fuel needs for the summer at $750 per tonne, in line with its
broad hedging policy – which Harrison terms
“smoothing” out the price spikes.
do the latest fuel hikes sound louder warning bells than ever before for the
health of players living on the edge? “Fuel prices are up 45% compared with a
year ago, and that’s big news,” says Harrison.
“And one of two things will happen. Either competitive prices will rise to
absorb the fuel increases or a number of airlines will cut back capacity and go
bust, which means that fares will then rise. The laws of the jungle will apply
in force. They’re very simple laws. The weak will get weaker and the strong
will get stronger.”
is no hint of arrogance in Harrison’s analysis
of EasyJet’s situation, just a strong belief in how
it is carrying out its mission. “It’s all relatively straightforward in the
sense that EasyJet is a fundamentally strong business
and it’s going to be one of the winners in Europe’s
short-haul market. We have about 6% of the market now. We aim to roughly double
it over the next five years. We have a great brand and we have great people.
This means we have a huge competitive advantage. The market for aviation has
grown at round about 5% per annum in recent years and I don’t think there’s any
reason to believe it will stop growing at that rate, barring a major
the bad news on fuel, Harrison stresses that EasyJet is well placed and that forward bookings remain
strong for this summer. After 13 years in business, EasyJet
has soared to become one of the world’s largest and
most profitable low-cost players (see our low-cost carrier ranking on page 56).
From its humble beginnings at Luton in 1995, led by Greek entrepreneur Stelios Haji-Ioannou, the carrier
now has a strong orange footprint across Europe,
serving some 103 airports and 391 routes with 157 narrowbody
Airbus A319s and Boeing 737-700s.
is now a mature carrier, but one firmly committed to its low-cost roots as it
continues with its fast growth trajectory. Harrison’s
task when he arrived in late 2005 was to bring his experience managing a
consumer-facing business to the airline. Under the sound stewardship of
previous chief executive Ray Webster, who had steered the carrier almost from
the start, EasyJet had grown from a business where
everybody knew everybody to one with several thousand staff and bases spread
right across Europe.
a decade in business it needed a different kind of leader to manage that growth
profitably while sustaining the “can-do” corporate culture that EasyJet has become well known for. Harrison’s
job is to lead EasyJet from adolescence into
adulthood. “One of the challenges is to keep it simple – complexity means
cost,” says Harrison. “Our philosophy is to do
one thing and be the best at it – short-haul European flying.”
Harrison has brought his corporate experience to bear in
the outwardly simple technique of expressing the airline’s mission in a phrase.
This is “low cost with care and convenience”. This has always been the EasyJet way, he says, but adds that “as the company gets
bigger, it becomes more important to distil it. Low cost with care and
convenience is a phrase that we chose to characterise what we already do. We’ve
got five values in the company, which are: safety, our number one priority with
no compromises; teamwork, we get there faster together; pioneering, that is
about finding new and better ways of doing things – breaking the mould if you
like. That’s crucial to EasyJet; integrity, which is
we say what we mean and we do it; and passionate, which is passionate about
being the best we can be. So we’ve got five values there – they are there with
a reminder as to what makes the company successful.”
EasyJet in line with these values as it expands at
pace, with the delivery of two aircraft every month, is a big challenge. “I
have been the chief executive of large service companies and I’ve also run
companies that have gone through really radical change,” says Harrison.
For him the way in which the company manages the cultural changes inherent in
fast growth is critical. “In the old days, it was done purely by personality.
There are some EasyJet pilots here who still remember
Stelios giving them a lift home.” This is not
practical with its 6,000-strong workforce, and there are risks.
critical thing is to get the advantages of being a large company, with things
like purchasing scale and financial stability, but still making it feel like a
small company. And you’ve got to avoid all the problems of a large company –
slow decision making, industrial relations problems and management forgetting
that actually their business is based all around the customer. All these things
can happen in large companies. So they are the problems that we have to avoid.
I don’t worry about legacy airlines becoming like us. That will never happen.
What we have to avoid is that we don’t become like them.
what the values are for, because the values remind us all as to what really
matters. And the customer proposition, you can summarise it; low cost, care and
convenience. And you think, well actually, why do we do anything unless it’s
delivering low cost, care and convenience?”
is a simple mantra but one Harrison returns to
time and time again, because in his view it gives EasyJet
such a simple vision to follow. That vision includes partially re-inventing
what a low-cost carrier is these days. “I think the phrase ‘low cost’ is not
the best one to use. The way I describe it is it’s about efficiency. EasyJet is highly efficient based on a substantial
investment in new aircraft, high utilisation, modern working practices and the
use of the internet, and that remains the heart of the business.
customer propositions, the way we describe it, is low cost with care and
convenience. Low cost, we’ve done. Convenience means we fly mainly to primary
airports. That means we compete mainly with flag carriers. That means we have
to offer a good and consistent overall service, in a low cost way. And we’ve
put a lot of effort into the culture of the company. Our philosophy is that by
making EasyJet a happy place to work the crew will
smile at the passengers and they’ll fly with us again. On the whole, happy crew
means happy passengers.
really is about combining those three things: the low cost, the care and the
convenience, and having care and convenience without compromising low costs.
And in my view it costs no more money to treat people well than it does to
treat them badly.”
Harrison rejects the notion that the low-cost model
necessarily has to blur, as it seems to be doing for many carriers that are
moving into services and products they initially avoided. Having a clear set of
values makes decision-making a simple one across the carrier.
principle is the low-cost model, we fly you from A to B, on time and safely.
Beyond that it is the user pays principle. For example, if you want a cup of
coffee, you pay for it. Carrying hold luggage is expensive, especially with
-rising fuel costs, so we added hold baggage charges. We added Speedy Boarding
because some customers value getting on the aircraft early. That’s a simple
thing that doesn’t compromise the basic philosophy, which is free seating,
because that speeds up turnaround time. So we offer customers a choice. I don’t
think any of that changes the basic principles at all. The principles behind
low cost are the same now as they were 10 years ago.”
down the list of possible features an airline could offer produces a string of
“no” replies from the EasyJet boss. For example, what
about an enhanced economy or business class, as some US low-fare and other players
offer? “There will never be two classes at EasyJet,”
he states. “Why fiddle with it?” he asks. “The basic EasyJet
model is very powerful, very successful.” The same goes for the possibility of
offering mobile phone use in flight. “We’ve had detailed discussions about
mobiles, but we’re not planning to do it. It’s a combination of there not being
enough money in it and we think it would be an adverse -passenger -experience.”
flyer programmes also get the “no” treatment “because our philosophy is, people
fly with us because it’s a good price every time. The way to create loyalty, I
think, is to offer a good experience, rather than kind of bribe people through
some sort of discount.”
too is the idea of interlining or codesharing with
other carriers. “Complication equals cost,” says Harrison,
returning to an earlier theme. The airline does have approaches about it
though, he confirms. “We get a few, but they’re very short conversations.
That’s the good thing about having clear business principles. Customers are
more than smart enough to go on to the internet and do it themselves. And they
do. Look at our Gatwick operation where we know that a high proportion of
people are using Virgin. So people make a connection, they don’t need to have codesharing for them to do it.” Measuring how many
travellers do actually make a -connection is hard but it could be as many as
one in five on some flights, he adds.
single area where EasyJet has gone beyond the
traditional view of low-cost carriers is in distribution, where it recently
signed deals with Amadeus and Travelport. The move,
which has only just started, is designed to boost the proportion of its sales
to business travellers from 20% to 25% within three years. However, the way it
is using corporate travel agents and the global distribution systems is very
much on its own terms and follows its cherished “user
pays” principle. Each booking via a travel agent incurs at least a €7.50 ($11)
fee per sector.
simplicity for EasyJet will come around 2012 when the
last Boeing 737 will exit the airline, leaving it with an all Airbus
A320-family fleet. Its 120-strong order for A319s, plus another 80 options,
means it has access to narrowbodies bought in an
incredibly cheap deal with Airbus in 2002 right up until 2014. It will not
deviate from operating a standard narrowbody, with
the suggestion of adding a 100-seater like the Embraer
190 or a 70-seat turboprop like the Bombardier Q400 dismissed by Harrison. As
the balance sheet has strengthened it is also reducing its reliance on leasing,
with 60% of its aircraft leased today compared with 75% a few years ago. Going
forward more jets will be financed from EasyJet’s
cash reserves reducing the leased portion of aircraft even further.
“keep it simple” message is also true for any who believe EasyJet
might one day take its brand outside Europe.
Long-haul -flying is ruled out by Harrison, as
is the -possible franchising of EasyJet’s brand. It
was -approached by a Saudi Arabian start-up a -couple of years ago and reviewed
the idea, but decided not to proceed “on the basis that it’s not our business”,
the business via acquisitions is generally not the strategy either, unless of
course a golden opportunity comes along. That was the case with the acquisition
in -October of Gatwick-based GB Airways, which made it the largest slot holder
at the airport in one go.
consistent message from Harrison is don’t
expect too much drift from EasyJet when it comes to
sticking to its vision and basic low-cost principles. He is convinced that the EasyJet way will have legs for years to come, through thick
and thin times: “It’s a great proposition…it will run for as far as anyone can
This article was first published in the May issue
of Airline Business magazine.