INTERVIEW: EasyJet chief executive Carolyn McCall

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Mention the word EasyJet and most people will think of either a Greek called Stelios or the colour orange. And the airline's larger-than-life founder and its signature colour have both been prominent for chief executive Carolyn McCall during her first 20 months.

Since her appointment in July 2010, McCall has had to deal with both of these subjects amid an ongoing boardroom row and an effort to move on from the "no frills" image for so long associated with the orange brigade's brand. As the airline evolves through its second decade and seeks new growth opportunities, it is inevitably becoming more complex while trying in parallel to keep hold of its strong "value for money" qualities.

carolyn mccall

 © Tom Campbell

The challenge McCall faces is undertaking all this in tandem with sustaining the Luton-based airline's strong growth amid a bleak economic outlook across its core markets, while keeping a sharp focus on costs. But she appears to have managed so far to deal with all that has been thrown at her. This was underlined with EasyJet reporting a healthy 31% rise in pre-tax profit last year to a record £248 million ($388 million), on revenues of £3.45 billion. And revenue has continued to grow strongly during the first quarter of this year.

"The last financial year was very strong, because a lot of different things came together," she says. "We've become operationally among the best in Europe, which I think in summer 2010 no one would have believed."

FLEET INSPIRATION

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EasyJet's fleet expansion passed an important milestone last year when its 200th Airbus narrowbody was delivered - an A320 appropriately painted bright orange. Its all-Airbus fleet now stands at 204 units and the airline holds orders, options and purchase rights for about 100 more.

Although EasyJet has indicated it is likely to launch a tender towards the end of this year for new Airbus, Boeing or Bombardier narrowbodies powered by the new generation turbofans, Carolyn McCall is cautious about details of its long-term fleet development plan: "If I could answer that I'd solve an awful lot of problems overnight. We're doing a very rigorous review of fleet going forward. We start by asking whether we're optimising what we've got before saying we need new aircraft, and where does that leave us between now and 2017, which is really when the first of the new generation [engined aircraft] are available."

Upon her arrival at EasyJet on 5 July 2010, McCall found herself having to quickly deal with an operational crisis and resultant severe criticism for tardy on-time performance (OTP). But remedies were quickly implemented and the airline quotes an "industry leading on-time performance" averaging 79% in 2011.

Despite their bad experiences, its passengers flooded back in 2011 with numbers rising more than 10% to 54.5 million. This makes it the third-largest low-cost airline in the world (behind Southwest and Ryanair) and one of the largest European airlines in passenger terms.

"The operational improvements have allowed us to focus on being much more consistent with our end-to-end customer experience - whether that's 'speedy boarding', dealing with the passengers at the gate or whatever - that's the focus for operations," she says.

McCall attributes the strong revenue rise to taking action around some "common-sense things", such as smarter ways to generate ancillary sales. "If you fly for longer then you are more likely to take a bag and you are less resistant to paying for that. So we changed our baggage pricing and improved our website so the conversion rate is increasing."

However, McCall has had to deal with "baggage" of her own in the time since she joined the airline. Sir Stelios Haji-Ioannou, who set up the airline in 1995 and retains a 37% stake, has continued the long-running row with McCall and her fellow directors, complaining about issues such as the fleet expansion plans and its use of return on capital expenditure (ROCE) as the metric for measuring financial performance.

"I had hoped that I'd have been able to sustain the constructive dialogue and engagement that we had had for the first few months," she says.

Speaking to Airline Business shortly after the EasyJet board meeting where Haji-Ioannou's latest criticisms were aired, McCall was understandably diplomatic about the row but admits deterioration in the relationship has been "disappointing".

"There were always going to be areas that we were going to be questioned about, and that's healthy. But what I really want is a constructive, open dialogue - and I'm not giving up on that."

McCall admits she was surprised at the scale of the operational problems she walked into, although she recalls that when speaking with management prior to starting, "one or two directors had said 'we think we might not have the right crew establishment numbers'".

McCall joined EasyJet from outside the industry, having previously headed up Guardian Media Group where she earned a reputation for a pragmatic approach to running the business. For EasyJet staff, this became apparent from get-go. The operational crisis meant she had to "get stuck in straight away" when she started.

"I'm a real believer in getting out - my first day was Luton in the morning, and I got on to a plane to Madrid in the afternoon. I did first wave in Madrid and then went to Milan where I did first wave the next day, and then flew back to Gatwick and had an afternoon there.

"As soon as you're out there you see what's happening. You speak to people - the crew come up and chat - and you know whether the standby levels are correct or not."

With her hands-on approach, McCall and the management team quickly established a way forward, central to which was bolstering standby-crew provisioning and better oversight of operations.

"There wasn't any OTP focus and no way of really finding out what was going on. You'd hear about it in the ether or get a weekly or monthly report, by which time it was too late.

"It was as a result of that first week that I said we need a daily ops meeting."

This philosophy continues, which McCall says she participates in every day along with chief operations officer Warwick Brady: "Wherever I am in the network, I know what's happening. It gives everybody a very clear focus in ops," she says.

Another oversight gap McCall plugged was around trading. "They were holding commercial boards and revenue meetings, but as a CEO you need to have good visibility of the really important levers - one of which is revenue - so you can examine how you're trading each week and the projections. So we now have a trading meeting every week."

EasyJet has not been shy in acquiring rivals, buying Go from British Airways in 2002 and GB Airways in 2008, but further take-overs are "not really on the agenda", says McCall. She admits the airline did examine - "but not very seriously" - a possible acquisition of British Midland International from Lufthansa: "Heathrow is a very expensive and congested airport and it doesn't fit our business model."

McCall believes there are still considerable opportunities for further organic growth. Significantly more than half of EasyJet's passengers are from outside the UK, and mainland Europe "offers us considerable future opportunities", says McCall. "That's not to say there aren't in the UK too."

The success of the airline's "turn Europe orange" campaign is reflected in the fact that more than half of its 24 bases are now outside the UK, with the latest two having opened in Toulouse and Nice in March.

MEDIA MOGUL

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It would be fair to say there were a few raised eyebrows among the aviation establishment when Carolyn McCall was appointed chief executive of EasyJet in July 2010, succeeding Andy Harrison. She joined from the helm of Guardian Media Group at a time of major upheaval for the airline, as its own home-grown operational issues were exacerbated by a summer of air traffic disruption coming on the back of the earlier ash-cloud airspace closure. And joining from a non-airline background, she had no aviation experience to fall back on.

"I never worry about what people say until I've actually had a go," she says. "With an airline there are other things that you have to think about that are not commercial or operational management, so I kind of understood some people's surprise at my appointment. As part of my due diligence into the job I found out what needed to be done was thinking about the positioning of the airline, the customers and the people, and fixing the operation. I think people forget how 'operational' the media business is. There are a lot of similarities in terms of management of either the operation or the commercial side of the business - revenue is revenue."

McCall says good inventory management is central to running businesses in both industries. "In the media business you have one day to sell what you've got, whether its air time or space, and you have to maximise the yield. And it's exactly the same as a seat on an airline - you can't sell that seat twice on that day. So I found the commercial side very easy to grasp when I got here."

"After the UK, France has the most number of bases of all our markets - five: Paris Orly and Charles de Gaulle, Lyon, Toulouse and Nice. EasyJet is the country's only low-cost airline of any note, but we need to get more people over 35 appraising and reappraising us - that is an opportunity for us."

But this success in mainland Europe and strive for more business is why EasyJet has fine-tuned its image. When she talks about EasyJet's vision, McCall says she believes that its staff drive to making the passengers' flying experience "easy and affordable" will enable it to become "Europe's preferred airline". And it is no oversight that the phrase "low-cost" is missing from that declaration.

"In the UK you get away with being seen as 'cheap and tacky', and fun, because this is where low-cost was established [in Europe]. In other markets - in France, in Germany, in Italy - that does not work," she says. "In some markets in Europe, 'low-cost' just means 'bad experience' or 'you don't care, you'll strand me.'"

Despite this subtle shift from the brand's original no-frills theme, coupled with the associated moves to grow business traffic and ancillary revenue initiatives such as the allocated seating trial, McCall is resolute that EasyJet is no less orange. "For me, what orange stands for is spirit, passion, innovation, cheeky, fun and always the challenger. That's just what this airline is proud of."

She says that EasyJet never wants to be seen as sophisticated and "never loses sight of the fact that 82% of our passengers are travelling on leisure".

But switching that around means almost a fifth of the airline's passengers are travelling on business, a sector of the market EasyJet is targeting for its greater yield potential and so must ensure it continues to grow in proportion to its overall traffic increases.

Over time, the airline had managed to secure 16-17% of its passengers from the business sector without really trying, but is sharpening its focus to grow this revenue stream.

"One of the key planks of our strategy is to grow RPS [revenue per seat] in a market where the trend is for a decline in RPS. An important way to do that is to get more business travellers," says McCall.

One million more passengers used EasyJet for business in 2011, and the segment now accounts for 18% of total, but the airline knows it must adapt its offerings if this is to be maintained or even grow.

"In the past, EasyJet had talked a lot about the business traveller, but had actually put nothing in place to make more business travellers reappraise EasyJet," she says. "We were not on the GDSs in a meaningful way and we hadn't got any direct links with corporates or have anyone going out to talk to them about coming to us."

The target is to achieve £100 million incremental margin from business passengers over five years, and work is already well under way to get there. A contract was signed with Amadeus in November to develop the existing relationship by improving the exposure of the airline's content to travel management companies (TMCs) and boost its share of the corporate travel business. The airline has forged links with several TMCs, including American Express Global Business Travel, and is bolstering its sales teams.

"We were half in/half out, and we took the view that if you're going to do it, do it properly. But nothing we've done is not self-financing, in that we make the money on the extra yield, not on volume."

In tandem with this development of the business model to secure higher-yielding passengers, McCall and her management team are working to drive down the airline's unit costs under its "EasyJet Lean" programme. "There are multiple streams of work with project owners and they are accountable for driving that, all the time," says McCall. "This doesn't have an end, it is for continuous improvement. Our objective in a high inflation environment is to always beat inflation."

It may have already broken some of low-cost golden rules, but the desire to "keep things simple" has so far kept codeshares, interlines and loyalty schemes off the agenda. McCall does not discount any of these in the longer term if they can deliver a significant benefit without introducing cost and complexity. "If someone came to us with a great idea of doing something smart that gave our customers a reward for loyalty, we would consider that," she says.

The airline is evaluating the re-engined narrowbodies and the Bombardier CSeries and, with the likelihood of sustained high oil prices, their promised 15%-plus greater efficiency is a major appeal.

"High fuel is painful for everybody but the strong get stronger and the weak get weaker - see what's happened to Spanair and Malev," says McCall.

"The other thing that we're all going to have to get used to is a lower-growth Europe. The world has changed and that is perhaps harder for the legacy airlines because they're already not making money in Europe.

"For us it is about being very, very clear about where we are going in terms of market. Five years ago you could just grow, grow, grow and put markers in the sand, and it didn't matter if it didn't work. Now there is a real discipline required."

McCall says the markets served must be constantly scrutinised to evaluate if assets could be better deployed elsewhere. "But we can relocate [capacity] and make our returns, because there is still so much opportunity."

So despite the make-over, under McCall's stewardship EasyJet remains faithful to its original values as it heads towards its third decade. "We compete hard and we're not frightened of competition," she says. "And we know where we have to win."

"We've become operationally among the best in Europe, which in summer 2010 no one would have believed"