Easy Does It All
WHAT DO CRUISE SHIPS, PIZZA, AND SHAVING CREAM HAVE IN COMMON? STELIOS HAJI-IOANNOU IS TRYING TO REINVENT THEM--AND ANY OTHER BUSINESS WHERE, AS HE PUTS IT, "CONSUMERS ARE BEING RIPPED OFF."
(Business 2.0) – It's just after midnight on the French Riviera, and while the rich and famous sip champagne in Cannes at the annual film festival, something unsightly and orange cruises into the harbor and plops down its anchor among the majestic yachts. An enormous "EasyCruise.com" logo runs down the length of the ship, with all the subtlety of a flashing neon sign. This is the maiden voyage of a new concept in budget cruising, the 14th venture of low-cost superbrand EasyGroup. Onshore, the world's elite flock to the expensive hotels and villas, while the 140 passengers on the ship immediately nicknamed QueasyCruise are packed into corridors lined with tiny, windowless, intensely orange cabins starting at $50 a night. And in one of them sits the founder and chairman of U.K.-based EasyGroup, the man known simply as Stelios, content to share the experience with his (loud, drunken) passengers. Well, not totally content. "The windowless cabins," he concedes with a shrug, "were probably a mistake."
The Easy empire was built on experiments in low-cost living like EasyCruise, and life on the inside is a study in value trumping aesthetics. The company is the brainchild of 38-year-old Greek shipping heir Stelios Haji-Ioannou, who popped up on the international radar screen in 1995 when he founded budget airline EasyJet at the tender age of 28--a feat that landed him in the Guinness Book of Records and made his name synonymous with both cheap living and Easy's signature bright-orange corporate color. Unlike the other British superbrand, Virgin, Easy does not evoke sophistication, style, or even service. "Easy is a functional brand; it's about value for the many, not the few," Stelios explains. With a smile that belies his rivalry with the older, wealthier Richard Branson, Virgin's high-profile founder, he adds, "Easy is the opposite of Virgin."
Easy certainly is different--not just from Virgin, but from almost anything that's come before it. Stelios aims to become a kind of global apostle of cheap prices, bringing an affordable taste of the high life to lowbrows everywhere. He is merrily slapping the Easy brand on an almost unlimited array of discount products and services, many of which seem to have little in common. There are Easy movie rentals and an Easy shaving cream. There are Easy Internet cafes and Easy pizzas and an Easy hotel. There's an Easy wristwatch. What knits the vision together, however, is Stelios's unifying theory of discount business: He believes that he can apply the principles of yield management and no-frills service that have worked for his airline to almost any business. "In any industry where consumers are being ripped off, if I can find a way to give them real value, I'm going to do it," he says.
It's an audacious--some would say delusional--notion. But then, nobody thought Stelios had much of a chance with his low-cost debut, the airline. Yet EasyJet's profits in 2004, a brutal year for most of the airline industry, surged 27 percent to $73 million. Last year's revenue topped $1.9 billion, the company has $902 million in cash, and EasyJet's share price is up 55 percent in the past 12 months. The airline is now fourth only to Lufthansa, Air France, and KLM in the number of passengers carried within Europe. And while it's true that 11 of the other 14 Easy companies have yet to turn an annual profit, they're still young--half have existed for less than a year--and many are already shaking up their industries and igniting price wars. All told, given the scope and ambition of what Stelios is attempting, many analysts are impressed, if not slightly amazed, that EasyGroup, the holding company for Stelios's non-airline ventures, lost a total of only $5 million last year.
Still, there's a thin line between cheap and tacky. The greatest danger Stelios faces is that the rapid and at times seemingly random expansion of Easy will not only lower prices but cheapen the brand itself, rendering it undesirable or even meaningless to consumers. Among those who cite this threat is Stelios himself. "Some say I am testing the elasticity of the brand to the breaking point," he says. "It's undeniable that we are entering a phase where either the brand will be diluted--meaning different things to everybody--or it will work."
By work, Stelios means that Easy will create the first lifestyle brand for the masses, turning essentially generic goods and services into an overall experience that is both affordable and fun. Yet in some ways, that day is here. "We are already the biggest low-cost brand in Europe," says Nick Manoudakis, EasyGroup's chief operating officer. "I can't think of anyone who's even trying to compete with us on this kind of scale. And whenever we enter into something new," he adds cheerfully, "we pick the biggest fights."
The most infamous of those fights began in 1998, when British Airways launched a budget airline called Go to compete with EasyJet. Not only was Stelios on Go's inaugural flight, but he and nine of his executives put on bright-orange jumpsuits and handed out free EasyJet tickets to all of the passengers. "The BA people didn't know what to do, so they just watched us," Stelios recalls with a satisfied smile. "We looked like clowns," recalls James Rothnie, EasyGroup's corporate communications chief. Halfway into the Rome-bound flight, Stelios was conducting interviews onboard with a bemused British press. The stunt moved the media to begin portraying little EasyJet as an intrepid challenger to the giant BA, invaluable publicity for Stelios. More important, Go struggled from the outset to compete with the hustling EasyJet and surrendered in 2002, when Stelios bought it and doubled the size of EasyJet in one stroke.
The blend of scrappiness and hucksterism captured in that episode has become a defining Stelios characteristic, but there was little in the man's early days that hinted that he had it in him. Stelios is a scion of a vastly wealthy, notably discreet Greek shipping family. His father was known as the "Tanker King." At the age of 21, Stelios joined the family business, but an older brother was tapped as the successor to his father. Staked by family money, Stelios created his own shipping line, called Stelmar, when he was 25. (He sold it in January to New York-based Overseas Shipholding Group for $1.4 billion.)
Though Stelmar flourished, Stelios says he remained unsatisfied. "I've always been more interested in proving myself than in being handed things," he says. He's somewhat elusive about just how he hit on the idea of a no-frills airline and how he evolved into a global crusader for cheap deals. Motivated partly by a rogue populist bent with a dollop of vanity, Stelios says he's simple to figure out: "I want people to like me." He was also inspired by Virgin's Branson; as a student at the London School of Economics, Stelios marveled at the buzz and good press the maverick CEO generated with his irrepressible, boss-as-pitchman approach to superbranding. In any event, at 28, Stelios founded EasyJet and set off into a world far removed from the one he'd known as a shipping aristocrat.
Stelios's publicity stunts--in addition to the Go flight gambit, he has pounded the pavement with an EasyCinema.com sandwich board and dressed as a giant can of shaving cream--are simply sideshows. Behind the cheesy marketing, Stelios and his team are dead-serious wielders of the airline industry's most powerful profit tool, yield management. Essentially, yield management is a computing-intensive system for anticipating demand and maximizing pricing and seat occupancy to get the most revenue out of every flight. And then there's the cost side of the profit equation. From the get-go, EasyJet built its business on the Internet: It books 95 percent of its tickets over the Web. It never issues paper tickets, and runs an almost paperless office to boot. EasyJet has also never served a free in-flight meal, which is one reason its jet turnaround times average about 30 minutes, among the best in the business. Many of these techniques have become industry standards, and Stelios didn't invent most of them; Southwest Airlines and others did. But EasyJet's refinement of them has helped give it healthy profit margins in an industry that expects to suffer its fourth straight year of heavy losses.
Applying the almost scientific rigor of airline yield management to other businesses, however, has proven tricky--and, in the hands of Stelios, it starts in a most unscientific manner. Stelios disdains market research and trend analysis; he follows his gut. Often he'll ask Robby Bourlas, EasyGroup's commercial director and an MIT Business School grad, to vet his ideas for new businesses. But he doesn't always listen to what Bourlas concludes. "I make a written recommendation, but if Stelios really believes in his idea, he just does it," Bourlas says. For instance, not long ago Stelios had an idea for a cheap, flaming-orange Easy watch. Bourlas's analysis indicated that cheap watches, orange or any other color, had slim business potential. Stelios launched a watch business anyway. "Stelios doesn't live in projections," Bourlas says.
Moreover, the Easy team is still learning how best to adapt yield-management techniques to new ventures. In 1999, Stelios launched EasyInternetcafé, whose gigantic outposts stretched from Paris to the United States and included the world's largest Web cafe, in Times Square. But the Easy team badly misgauged the appeal of big, impersonal cafes. The Times Square outlet alone had 800 terminals, and no amount of yield-management sorcery could keep them occupied. The venture lost an estimated $150 million from 2000 to 2003. In a pattern that Stelios has followed with all of his subsequent launches, instead of getting out he simply acknowledged the problem and brought in a turnaround expert--in this case, Internet veteran Matthew Lee. "We found that people won't go out of their way to use the Internet anymore," Bourlas says. So Lee set up partnerships enabling Easy to put about 20 terminals each in dozens of Burger King, McDonald's, and Subway outlets all over western Europe; last year the Internet cafe business made a modest profit, and it is now expanding into eastern Europe.
Another troublesome early venture was EasyCar.com, launched in 2000. It turned out that in car rental, taking reservations strictly over the Internet had some drawbacks. "We were giving cars to people we had not checked out," Manoudakis says. "I can't tell you how many cars we lost--people stole them, crashed them, used them for drug deals." In 2003, Stelios brought in Avis veteran Steve Maltby, who secured licensing deals with Avis and Alamo. "Now we leave the car business to them and license out our name and offer low-cost bookings through our website," Maltby says. "We have cut the risk and kept the lucrative part of the deal." Prices are cheap--roughly $25 a day--and frills nonexistent. Now the EasyCar brand is in 1,500 locations worldwide, and the unit expects to break even this year.
Other businesses seem to have taken more easily to the yield-management model. In 2003, Stelios launched EasyCinema.com, a discount operator of a single movie house in Milton Keynes, a suburban town one hour north of London. Most theaters fill only about 20 percent of their seats. Stelios and his team figured they could get that figure up to 50 percent by cutting ticket prices in half, and then apply typical Easy cost cutting to make the play profitable. Customers book over the Internet, paying less the further in advance they buy. They print their own tickets on their own computers. At first Stelios wanted BYOP--bring your own popcorn--but now the theater offers popcorn, sodas, and some candies. Easy says it's approaching the 50 percent attendance target, and Stelios hopes to roll out a chain of Easy movie houses in coming years. Indeed, in late June, Easy entered talks to buy the famous Empire Cinema in London's Leicester Square. Analysts say such a deal could be a huge boost to Easy's cinema ambitions--and improve visibility for a new DVD rental business Stelios recently launched under the EasyCinema name.
Of course, the no-frills focus can present problems for certain products. Pizza, for example. "People don't associate pizza with no-frills," says Sandra Parkinson, a former Pizza Hut executive hired to oversee the rollout of EasyPizza.com. She defends the Easy pie: "It's quite good, and we have toppings and side dishes." But this is one business where Easy will have to downplay the cheap image. "People imagine a bland product," Parkinson concedes. "One woman even asked me if our pizzas had cheese."
EasyPizza was launched in December and is still largely experimental. It has only one pizza production facility--with one oven--in Milton Keynes. Its pizzas are for delivery only. On a recent Wednesday, a piping hot, cheese-laden EasyPizza is being delivered to a residence. Business has been heavy today, mostly due to a huge order placed earlier by a nearby office. On the home delivery run, a man answers the door, remarks, "Right on time," and accepts his steaming pizza. The delivery guy doesn't get a tip, not because few people tip in England but because no one tips when they've already paid. In keeping with the Easy approach, orders are taken over the Web, and EasyPizza accepts credit and debit cards.
That's just the beginning of how the EasyPizza concept differs from, say, Domino's. There are no phones at the EasyPizza facility. If you insist on calling, you are routed to a call center in India and charged 20 cents per minute. There is one walk-in freezer with pizzas of two sizes and 10 varieties--no substitutions--along with buffalo wings and potato skins. The single oven cooks all the food from frozen to ready to serve in eight minutes. The oven can pop out about 100 pizzas an hour. A single employee runs the pizza-making operation. Seven delivery boys drive their own cars.
Stelios sees pizza delivery as a surprisingly good target for Easy's yield-management magic. "Expensive pizza ovens sit there all day and are only used 20 percent of the time," he says, "so we reward people for ordering early and at off-peak times. People assume pizza is an impulse purchase, but nobody ever bothered to find out." Stelios says his pizza oven is now cooking at up to 50 percent more capacity than is standard for the business.
Characteristically, the pizza venture is evolving on the fly. Initially, Stelios wanted to offer only one size of pizza, with no toppings. Just cheese. "I told him he was crazy," Parkinson says. In July the company opened a pizza kiosk in the lobby of EasyCinema. Moviegoers can order pizzas as they come in and pick them up as they leave the theater.
EasyPizza hasn't made any profits--but it's making waves. On average, customers pay about 35 percent less for their delivered pizzas than they would at Domino's or Pizza Hut. Others in the food world have taken notice. Parkinson says Yo Sushi, a popular U.K.-based Japanese food chain, recently asked if Easy had a patent on its pizza system. (It doesn't.) Potential franchisees are knocking at the door, mainly London sandwich shops that want to make use of their kitchens overnight. When asked why Easy didn't just open in London in the first place, Stelios smiles impishly. "Milton Keynes is the U.K. headquarters of Domino's," he says. Any reaction from Domino's to the deliberate tweak? "So far they have not acted threatened," Stelios says, "only genuinely intrigued by our model, because once again we're the first ones to try something completely different."
Often, however, competitors do feel threatened by Easy's incursions. Stelios starts price wars almost everywhere he goes, and that has earned him plenty of detractors across many industries. "His assumption that he can take any idea and just slap his brand on it is somewhat arrogant," says Paolo Pescatore, a wireless analyst with research firm IDC. Easy's mobile-phone venture, launched in March, illustrates the typical pattern. It sells SIM cards that can be put into existing handsets and then charges for service. Its debut prices were as much as 40 percent below prevailing norms, and rival Carphone Warehouse countered with deep discounts of its own. Orange, a heavyweight in the United Kingdom, sued Easy--for using orange, the same color that Orange uses in its ads. The move puzzled many analysts, and some suggest that Orange may in part just be trying to return some of the provocation that Stelios has caused it and other competitors. "Orange has about 15 million customers in the U.K.," Pescatore says. "EasyMobile will probably never have that many, so why is Orange spending millions fighting this?" Pique, he suggests, may be part of the answer. (Orange declined to comment.)
Stelios relishes these skirmishes. He believes they enhance a valuable PR image of him as the multimillionaire with the populist touch, fighting the scourge of high prices. But that image will go only so far in advancing the ambition of a global empire of cheap brands. Indeed, some observers say Stelios is simply spinning too many plates, and they predict that some, perhaps many, of his new ventures will fail. Others, however, suggest that some of the new businesses could wind up as huge winners. An EasyHotel, launched in June as the first of what Stelios says will be many, plans to offer rooms in central London for as little as $18 a night. True, the rooms are tiny and windowless. But they're a third less than what other budget chains, like Travelodge, charge. "A lot of budget travelers don't care about things like windows," says Martin Cowen, editor of E-tid.com, a U.K.-based travel-industry news service. "Every hotel in the world is exactly the same once you fall asleep."
The cruise line likewise shows great promise, some analysts say. They're impressed that Stelios got his first ship from a bankrupt cruise operator for less than $20 million. Big-name cruise operators spend more than 20 times that for their ships. Bookings for EasyCruise's summer season have been far stronger than many analysts expected, and Stelios just announced a winter schedule for the ship in the Caribbean, a summer 2006 cruise in the Greek islands, and a winter 2006 amble in the Arabian Gulf. "He wouldn't do that if the numbers he's seeing didn't back it up," Cowen says.
Stelios himself acknowledges that some of his ventures may not work. If so, he'll find others. For instance, his team thinks the giant U.S. market might be Easy pickings. In the long run, Stelios hopes to take EasyGroup public; he sees that as the real road to an enduring brand empire. "If you actually take the ownership of the brand and put it in a public company, and create around it checks and balances and controls, it might live for a long time," he says.
In the meantime, he works tirelessly at keeping the Easy name front and center--which, given the extent to which he has become the face of the brand, entails a lot of public endorsing of the Easy way. At rush hour on a recent evening, Stelios approaches the long snaking line at the EasyJet counter in London's Gatwick Airport. A staff member spots him and says, "Stelios! Let me take care of you right away." Stelios holds up his hand and smiles. "I'd rather wait in line like everyone else," he says. Other passengers begin to notice him, and a few ask to have their pictures taken with him.
It would be easy to question how deep this millionaire-of-the-people act runs, but Stelios certainly seems sincere, and he has no doubt it's good business. "It shows that I don't think I'm above the customer, and that I want the service to be good because I use it too," he says. Besides, his hero-turned-rival, Virgin's Branson, and other fabled entrepreneurs like Donald Trump have made it big by "living the brand." The difference is that when they do it, it means promoting a trendy lifestyle or glitzy opulence. For Stelios, it means flying without a meal, or cruising a rolling sea in a windowless cabin. The Easy way, it turns out, is just a little harder.
SIXTEEN EASY PIECES
Stelios's discount airline has fared well despite brutal industry conditions ... ... and now he's transplanting its no-frills model to a mind-boggling array of businesses.