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Europe's no-frills airline
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July 8, 1998: 5:31 p.m. ET
EasyJet's low-cost, sales-only approach is taking off in Europe
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NEW YORK (CNNfn) - In 1978, the U.S. opened its skies to no-frills air carriers when it deregulated the industry. Two decades later Europe has followed suit -- and this summer, the continent is caught in a major airfare war.
One of the first low-cost carriers to take advantage of Europe's deregulation is EasyJet. Founded, owned and run by Greek entrepreneur Stelios Haji-Ioannou, EasyJet has successfully cornered a niche market.
"What we've done is take the mystique out of flying. We made it accessible to a lot more people," he said.
Haji-Ioannou launched EasyJet in November 1995 after Europe decided to liberalize its skies. Modeling the carrier after Southwest Airlines, Haji-Ioannou persuaded his father Loucas, a Greek shipping tycoon who owns one of the world's largest tanker fleets, to supply the initial funding of $8 million. The investment eventually rose to more than $60 million.
"Deep down I was trying to prove myself in an industry that has nothing to do with my father," Haji-Ioannou said. "My father reached the top of his profession being a very large ship owner. I decided to conquer another summit, another pinnacle."
Haji-Ioannou decided to pick London's Luton Airport as EasyJet's base. Though smaller than Heathrow, Luton is cheaper and less congested, he said, giving his planes a quicker turnaround time.
Once the site was secured, he began to lease planes, pilots, engineers and operations. Initial flights from Luton to Glasgow and Luton to Edinburgh cost as little as $50 one-way.
To be successful, Haji-Ioannou knew he had to be different, so the EasyJets were painted in brash orange and the airline's telephone number was painted in bold letters on the side.
"Taxi drivers do it all the time," he said. "They have a telephone number on the side of their car. So the idea here is to get on this airplane, you have to call this number."
No meals are served on board and EasyJet calls itself the first carrier where you have to pay for coffee. But James Rothnie, an EasyJet marketer, says the airline's biggest standout may be EasyJet's sales-only approach -- no travel agents are involved..
The no-frills formula quickly caught on with passengers. Although Haji-Ioannou admits to running losses in EasyJet's first year of operations, he claims he made one pound of profit per passenger in 1997. That's roughly 1.5 million pounds, or $2.5 million.
Chris Avery, an analyst with Parabis, says Haji-Ioannou's profits are not undeserved. "He's got the formula right," he said. "He's entering the market at the right time in terms of European liberalization and during a strong economy and he's entering with the right concept."
Encouraged by EasyJet's early success, Haji-Ioannou began a more rapid expansion, buying aircraft and employing cabin crew with money once again provided by his father.
He bought a 40 percent stake in the Swiss carrier TEA and recently announced a deal to buy 12 new Boeing 737s, with an option for another 12.
EasyJet has also expanded its routes. It now serves 12 destinations, including Geneva, Barcelona, Palma de Mallorca and Athens.
However, Haji-Ioannou plans to keep the operating costs at a minimum. At the company's reservations center, known as 'Easyland', rows of salespeople work solely on commission -- earning $1.30 per booked seat.
There is no paper ticketing, which would require expensive computers. Rather, seating is on a first come first serve basis. Reusable plastic boarding cards are taken back when passengers board.
EasyJet is far from Britain's sole low-fare airline, though. It competes regularly with Ryanair, Debonair and Virgin Express. And in May, airline industry behemoth British Airways launched its own no-frills carrier called 'Go.'
Although Go executives say the low cost market is big enough for all, Haji-Ioannou claims British Airways is cross-subsidizing Go to kill off the competition. Haji-Ioannou sued, and a high court judge ruled EasyJet has an arguable case. A full trial will take place later this year.
Haji-Ioannou said he's pressing the case on principle, but Parabis' Avery says there could be other reasons a well.
"A lot of the suits brought by small airlines against large airlines are as much about free publicity as they are genuinely about winning the case," he said. "It certainly promotes the airlines image, the David vs. Goliath image. It's all helpful stuff."
--by staff writer Eckart Sager
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EasyJet
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