EasyJet: The ongoing saga of Sir Stelios

3rd October 2011

For the past few weeks, airline analysts have been debating whether Stelios' threat to launch a new airline was realistic or not.

Some felt he was merely seeking to strengthen his hand in the continuing spat with his old firm, of which he still owns 38 per cent.

Last month, Stelios indicated his intention to launch Fastjet in a letter to easyJet chairman Sir Michael Rake. He also suggested that the airline had broken an agreement not to brief against him, therefore releasing Stelios from an agreement not to launch a rival carrier for five years.

Stelios has at least created a website at www.fastjet.com.

But so far, this remains the only evidence of any preparations.

Before this morning's announcement, many experts had struggled to understand Haji-Ioannou's motives, certainly when looked at from a purely financial standpoint. Having campaigned for years for easyJet to pay out a dividend, the airline finally did so in the last few weeks, meaning that Stelios and his family should be receiving £72m. Another ‘peace deal' agreed last October should have seen easyGroup, Stelios' holding company for a number of other ventures receive around a further £65m over 10 years.

Experts have been cynical about whether any new airline could get off the ground. The Observer reports on what is pretty much a standard industry view, quoting analyst Gert Zonneveld of Panmure Gordon. "If Stelios is genuinely to set up an airline that is a mirror to easyJet you have to ask why he is doing it? easyJet and Ryanair have been around for 15 years and have spent that time wisely, developing the best routes and slots. It would take at least 10 years to get the slots. Just because Stelios says he wants to set up an airline wouldn't overly concern me, if I was an easyJet shareholder."

Not all commentators believe that easyJet's management can relax, however. This weekend's Telegraph reports on a very embarrassing dinner that easyJet management held with civil aviation analysts in a top end restaurant in Clerkenwell, in London last week. The dinner took place on the evening easyJet made the shock stock market announcement of Stelios' plans.

At the weekend, the Telegraph managed to speak to Stelios for the first time since the news broke. The entrepreneur was adamant that easyJet have briefed against him on at least three occasions recently thus, he says, breaching non-compete agreements preventing a new launch.

 "I believe the comfort letter was breached on at least three occasions. I had repeatedly put them on notice to stop these briefings," he says.

The paper says Stelios is also angry that chairman Sir Michael Rake and the board chose to announce the news of his plans for a new airline without warning him. "Clearly they are already acting as if the letter is terminated, which suits me fine."

The Telegraph also suggested that Stelios' real beef with easyJet remains its high level of capital expenditure, i.e. the £706m order for 15 Airbuses and the possibility the airline will carry on spending.

Further quotes bear that out. Stelios told the paper: "As a shareholder in easyJet, my concern is if these guys [the current management] carry on spending £1 billion every two years in capex with Airbus and the [company's] earnings continue to go down. The company in five years' time will perform like BMI. The A320 that they're spending a fortune on is an 'end of line product' and will become economically obsolete when all three aircraft manufacturers come up with the new engines in four years." 

The Telegraph says it is therefore convinced things will end up in the courts.

Before this morning's news, other experts had poured cold water on the prospects of a new airline getting airborne.

The Observer checked with several bodies and groups that would have to be consulted about the set up of a new carrier. The Civil Aviation Authority has not received a
n application for an operating certificate, no aircraft leasing firms have been contacted nor has there been a trademark application.

And arguably others have actually been faster of the mark. The name FastJet has already grabbed the attention of ‘trademark squatters' as the Guardian reported on Saturday.

UK intellectual property lawyers Keltie filed a trademark application for the new name covering "transport services [and] airline services". The request was lodged with the Office for Harmonisation for the Internal Market (OHIM), which deals with trademark applications for the EU and a company called Fast Jet was registered with Companies House.

Last week, Marketing Week asked the ‘is he serious?' question and suggested that it is a lot more difficult to launch a low cost airline now than when Stelios did it the first time round.

"Originally the barriers to entry were relatively low – just lease a couple of ageing aircraft and find some landing slots at less desirable airfields. Then sell tickets cheaper than a pair of jeans. This is what Sir Stelios did to launch easyJet.

Leave a Reply

Your email address will not be published. Required fields are marked *