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
At 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."
However, 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.
Harrison, 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."
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The 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.
So 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."
There 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 catastrophe."
Despite 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.
It 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.
After 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."
Keeping 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.
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"It's a full-on job"
Andrew Harrison, 50, is now in his third year as easyJet chief executive in what is, he confirms, a full-on job. "This is a very intense environment - it's hard to remember life before easyJet," he jokes. "You can't get away from it."
Harrison is a newcomer to the airline business. His previous job saw him successfully integrate two large UK-based motoring-related businesses. He runs easyJet from his unremarkable desk in the middle of the carrier's open plan office. "It's hard work. I'm not motivated by the money. You've got to really care about what you're doing - otherwise you wouldn't take the personal cost that comes with a job like mine."
For relaxation Harrison has taken up flying and has a part-share in a Cirrus light aircraft. But while he likes aviation, he's not getting romantic about it. "As soon as you become an aviation anorak you start to lose money."
"The 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.
"That's 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?"
It 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 reinventing 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.
"Our 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.
"It 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. "The 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."
Running 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."
Frequent 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." Discounted 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.
The 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.
Further 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.
The "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", he says.
Growing 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
The 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 propositionit will run for as far as anyone can see."
In The Public Eye
It seems particularly true that an important trait for the modern day low-cost carrier chief executive is showmanship. Whether to promote a fare sale, tease a competitor or lobby a government, the ability to stand out and stand up for the business is invaluable.
For some this comes naturally: just look at how Southwest's Herb Kelleher, AirAsia's Tony Fernandes and Ryanair's Michael O'Leary grab the headlines with ease.
EasyJet boss Andrew Harrison is candid about what being in the public eye means to him. "It's not one of the most attractive parts of my job," he admits. "It's just something that you have to do. The reason why I came to easyJet is because I thought it would be a challenging and exciting environment. It's different to what I've done before. And the fact that it's a high profile company just comes with the job."
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He hasn't done any special courses to get media savvy. "It's mostly just training on the job," he says. "You learn by doing. I think the key to it is if you believe in what you're saying and you're passionate about it, it comes over well. And that comes over when you're talking to the crew, your wife or the BBC. If you really believe in what you're saying, I think it comes over well. And I don't say things that I don't believe in." Harrison has taken on the profile part of being easyJet's leader in his stride. He is the face of the airline, shielding other members of the management team from the spotlight so they can get on with their jobs. And he is happy to do the dressing up bit to make a point, as he did to complain about hikes in travel taxes in the UK.