The business model is simple and successful. But life is anything but simple at EasyJet these days as a long-running dispute between the airline's management and its founder and largest shareholder threatens to overturn a strategy that has delivered steady revenue growth and consistent profitability over nearly a decade as a public company.

When Stelios - now Sir Stelios - Haji-Ioannou founded the airline in 1995, low-cost air travel was not new, but the Stelios take on no-frills flying rapidly came to define the concept: internet sales, ticketless travel, food for sale only, and fast turnaround times to optimise use of its aircraft.

Stelios Haji-Ioannou 
Stelios - now Sir Stelios - Haji-Ioannou founded the airline in 1995


Starting with two leased aircraft, Stelios steered EasyJet to a London Stock Exchange listing in November 2000 that valued the company at £777 million ($1.1 billion). Today, its market capitalisation is about £1.68 billion.

But Stelios is unhappy. His 14 May resignation as a non-executive director shocked the airline and London analysts, who wonder what he hopes to achieve.

Stelios, who with his siblings owns about 38% of the carrier, says his purpose is to "focus on a campaign as shareholder activist against the increase of the size of the aircraft fleet of the company beyond the current level of about 190 aircraft". He is "considering if, and when" to call a general meeting to ask shareholders to "reject the EasyJet management's strategy of relentless growth in aircraft numbers at the expense of any profit margin increase".

How, asks Stelios, "can you buy 200 aircraft with shareholders' money and create no wealth for shareholders?" He has also been pressing EasyJet to reverse its no-dividend policy.

But the growth in question involves an order for 59 Airbus A320-family jets that will take the fleet to about 207 aircraft net of disposals by 2013. As one financial analyst observes, Stelios has "gone nuclear" over an issue, fleet size, on which he and the board are not far apart.

Moreover, the growth trajectory EasyJet has set was agreed by the board, Stelios included, in November 2009. And, the airline's annual fleet review is just a month away. So, while Stelios has been taking shots publicly at EasyJet management since late 2008 when he attached a letter to the results for the year to 30 September saying he was "unable to approve the annual accounts", his timing now is hard to fathom.


Notably, EasyGroup, of which Stelios is chairman, licenses the Easy name to the airline company, and a dispute over brand licensing is approaching court. Pre-trial posturing is one explanation put forward for the resignation.

In addition, EasyJet chief executive Andy Harrison is to be replaced this year by Caroline McCall, who has headed the Guardian Media Group. Stelios may be looking to put heavy pressure on new management before it settles in. He could also exercise his right to be chairman.

Observers are convinced Stelios wants to extract cash from a company that represents a large share of his wealth. But can he do that without destroying the business?

After the resignation, EasyJet chairman Sir Michael Rake told shareholders that share price performance has outstripped European peers. He says "strong underlying performance" means "the board could well be in a position to consider" paying dividends.

Growth is seen as key to the low-cost airline model, and as Royal Bank of Scotland equities analyst Andrew Lobbenberg writes in a note on the dispute: "We do not share Stelios' view that the optimum path for EasyJet is to hold at 190 aircraft. In our view, the low-cost carrier market is a structural growth business and one in which EasyJet and Ryanair have sustainable competitive advantages over peers."

Lobbenberg anticipates "a disruptive few months", adding: "We find it hard to anticipate how this situation will develop[but]we would expect to see the share price sufferThere will be a buying opportunity but we are not ready to call it yet."

That buying opportunity could fall to Stelios. One industry consultant notes: "It's been suggested he wants to take it private."

Another analyst agrees EasyJet cannot simply stop growing: "The airline industry is a serial destroyer of value, with a few exceptions. It remains to be seen which side EasyJet will fall on."


Source: Flight International