Primary airports provide easyJet platform for future expansion

easyJet CEO Carolyn McCall & Jordanian Minister of Tourism Dr. Haifa Abu Ghazaleh

Jordanian Minister of Tourism Dr. Haifa Abu Ghazaleh receives a gift from easyJet CEO Carolyn McCall at the launch of services from London Gatwick to Amman in March.

The easyJet vision is to ‘Turn Europe Orange’. It currently operates at 130 airports in 30 countries, offering 560+ routes, and continues to build on its pan-European presence, which currently sees 60% of customers originate outside the UK, while over a third of flights do not touch the UK. A 20th base will open at Lisbon Airport during the 2011 winter season, while another will open at London Southend Airport in April 2012.

Prior to joining easyJet, McCall spent 24 years in publishing with the Guardian Media Group – the final four years in the position of Group Chief Executive. She arrived with a proven track record of successful operational delivery in a fast-changing, consumer facing business, alongside government and lobbying experience. Her first priority was to address operational issues, which last summer saw a high level of cancellations and poor on-time performance. McCall attributes this to the airline not having the right number of crew in the right locations at the right times, coupled with industrial action by air traffic controllers across Europe. “I focused on punctuality and reliability, which are issues linked to customer satisfaction. One of the first things I did was to appoint a new Operations Director – Warwick Brady,” she said.

Resolution of the dispute with easyGroup IP over the terms of the ‘easyJet’ brand licence was another priority. easyGroup is the private investment vehicle of entrepreneur Sir Stelios Haji-Ioannou. It is owner of the ‘easy’ brand and licenses it to all of the ‘easy’ branded businesses, including easyJet, which Stelios founded in 1995 and in which he remains the largest single shareholder (38%). A revised agreement was announced in October 2010, which confirms easyJet’s worldwide rights to the use of its brand on a basis that protects its current commercial activities and provides clarity and certainty over the terms of the licence. The rights will continue for a 50-year term, with a minimum commitment of 10 years in return for an annual royalty payment of 0.25% of easyJet’s revenues. The payment is fixed at £3.9 million (€4.4m) and £4.95 million (€5.6m) for the first two years of the agreement. McCall explained that, importantly, it gives easyJet the operational flexibility and commercial freedom to grow its business. Consequently, in March, the airline joined the Nectar loyalty programme in its first commercial initiative since the new brand licence agreement. It means Nectar points can be exchanged for easyJet flights – every 500 points is worth £2.50 (€2.80). “It offers greater flexibility for our existing customers, as well as opening up opportunities to new Nectar customers. Unlike traditional flight point schemes, it allows customers to choose to get a discount on any flight, any day, across the easyJet network,” explained McCall.

Nectar is the UK’s largest loyalty programme. It was launched in 2002 and now has more than 18 million cardholders. The launch members were Sainsbury’s and BP, and other current members include the AA, Expedia, Ford, Hertz and Vision Express. Cardholders can save up points for rewards with the member companies. Rewards include money off shopping, travel, eating out, and general merchandise.

It was also announced in March that easyJet had formed a partnership with VisitBritain – the UK’s national tourism agency – to jointly market Britain as a tourist destination over the next four years. The deal is worth around £18 million (€20.5m) in cash and marketing in kind, and aims to capitalise on opportunities such as the Queen’s Diamond Jubilee and London Olympic Games in 2012. The four-year campaign aims to deliver four million extra overseas visitors, £2 billion (€2.3bn) more visitor spending in the UK, and 50,000 new jobs across the country.

Focus on business travellers

Primary airports provide easyJet platform for future expansion

London Southend is a good example of a strong collaborative approach between airport and airline. The airport is being redeveloped in a way that suits the easyJet model. It is about to open a new terminal, has extended the runway and is putting in a new rail link with excellent service into central London.

The leading positions that easyJet has built at primary airports, such as London Gatwick, gives it the platform for future expansion in Europe. Over the past five years, easyJet has grown from being a UK-centric airline to one that has developed a significant presence in mainland Europe, with valuable positions at slot-constrained airports. easyJet is number one at London Gatwick, Milan Malpensa and Geneva, and number two in Paris. The figures speak for themselves: 84% of easyJet’s routes involve at least one slot-constrained airport. “We are focused on the breadth and depth of the network and have a leading presence on Europe’s top 100 routes. Leading positions drive yields as we offer time sensitive customers a quality schedule,” said McCall.

Primary airports provide easyJet platform for future expansion

McCall: “We are focused on the breadth and depth of the network and have a leading presence on Europe’s top 100 routes. Leading positions drive yields as we offer time sensitive customers a quality schedule.”

The strength of easyJet’s business model is centred on offering low fares to convenient airports. Its success is reflected in a 2010 performance that delivered a robust financial result against a difficult economic backdrop. Pre-tax profit grew by £99.3 million (€113.4m) to £154 million (€175m) driven by strong revenue performance – total revenue grew by +11.5% to £2.97 billion (€3.4bn). The airline is focused on increasing total revenue per seat, which in 2010 was £53.07 (€60.61) – an increase of +3.3%, which is attributed to the strength of the route network, good route management and growth in ancillary revenues. “The trend in the industry is that revenue per seat is going down – we want to be against that trend. The key way of growing revenue per seat and getting more yield is from business passengers, and our product is relevant to those passengers,” commented McCall. “The new Flexi fare gives passengers unlimited flexibility to change their booking, within a four-week window, up to two hours before departure. Flexi fare also gives automatic speedy boarding and a checked-in hold bag, catering to the needs of business travellers. 18% of easyJet’s passengers are currently travelling on business and we’d like to grow that to 23% over time.”

She explained that France is a compelling investment opportunity. Comparing summer 2011 with summer 2010, easyJet’s biggest increase in weekly flights is in France (+133 flights). Meanwhile, the UK, which is still easyJet’s biggest country market by far, increased less (+94 flights). “In France, LCC market penetration is still relatively low at 24%. easyJet is the second biggest carrier there with three bases, including the two Paris airports and Lyon. It is still an immature market for low-cost carriers and we are in a really good position.”

McCall also believes the new Berlin Brandenburg Airport Willy Brandt will present opportunities for easyJet.

Cooperation and partnership

Primary airports provide easyJet platform for future expansion

McCall: “We’re a point-to-point carrier specialising in quick turnarounds. We don’t want to overcomplicate that with too many long routes. We are not planning to look at long-haul. There is a lot more room to grow organically from where we currently operate.”

McCall is of the opinion that airports need to reflect changes in the airline market, specifically the rise of point-to-point low fares airlines. “Too many airports still focus on addressing old business models. Passengers value simple and efficient infrastructure and good, quick service,” she said. “The road ahead needs to be one of cooperation and partnership. We work very closely with airports on enhancing the passenger experience. I am ensuring that every part of easyJet is aligned behind improving the passenger experience.”

The airline places a strong emphasis on service on the ground, with McCall reporting virtually no complaints regarding its onboard service and very positive feedback on the cabin crew. “The vast majority of complaints are related to service on the ground – queuing, communication issues and baggage issues, for example. We communicate with passengers via mobile and it is critical we get a ground agent to work with customers as we would work with them.”

London Southend Airport is a good example of a strong collaborative approach between airport and airline. The airport is being redeveloped in a way that suits the easyJet model. It is about to open a new terminal, has extended the runway and is putting in a new rail link with excellent service into central London. easyJet will base three A319s at London Southend from April 2012, operating 70 weekly flights to eight destinations – Alicante, Amsterdam, Barcelona, Belfast International, Faro, Ibiza, Malaga and Palma de Mallorca. These are expected to deliver 800,000 annual passengers.

“Southend designed the terminal around us and the customer experience is fantastic,” said McCall. “We will move three aircraft from Stansted to Southend, as the catchment areas overlap. A lot of crew from Stansted will also relocate to Southend. Economically it will be good for us, as the cost per passenger is lower. Interestingly, London Southend is also the closest airport (that easyJet can use) to the London Olympics site. That is not the reason for opening a base there – we would have done that anyway. But we will use the fact to promote our first Southend services.”

Primary airports provide easyJet platform for future expansion

easyJet’s 200-strong fleet includes 25 Airbus A320s, which has enabled it both to extend its network to longer range destinations such as Israel, Egypt and Turkey and to fly a higher number of passengers at highly slot congested airports. The airline took delivery of its 200th Airbus in May.

While easyJet will be shifting aircraft to London Southend, that does not necessarily mean it will be reducing capacity at London Stansted. Deepening the frequency of its existing routes is central to its strategy for organic growth.

Taxation suppresses demand

easyJet fiercely opposes Air Passenger Duty (APD), which McCall says suppresses demand. She is forthright in describing taxes on aviation, such as those in the UK, Germany and Austria, as “horrendous”. “We support the EU Emissions Trading Scheme (ETS) as more effective. We’re increasing efficiency and reducing emissions. We’re committed to sustainability and our strategy is to grow efficiently and profitably,” commented McCall. “The long-term impact of volatile oil prices is that air fares will rise. We are facing the triple whammy of high oil prices, the EU ETS coming in 2012, and APD in the UK. APD is ridiculous – I don’t see why the government is adding an environmental tax and APD, which is also supposed to be for the environment.”

In May, easyJet published an independent report by Frontier Economics on the UK Government’s proposed changes to APD, which would see the aviation tax rise from £12 (€13.7) to up to £16 (€18.3) per person for flights up to 2,000 miles and reduce the rates and number of tax bands on long-haul services. The report claims that the proposals would reduce UK passenger numbers by three million per year, increase CO2 emissions by up to 360,000 tonnes per year, reduce tourist spending in the UK by £475 million (€542m) per year, reduce UK GDP by £2.6 billion (€3bn) per year, and lead to the loss of up to 77,000 jobs. “This independent report shows that the Government’s proposals on APD would be bad for the environment and the economy. APD has already risen by +140% since 2007 on short-haul flights,” said McCall. “This report provides convincing evidence that the Government should not impose further increases in APD on short-haul flights and should rethink its policy on aviation taxation. easyJet is in favour of a move to a per plane tax. Four out of five British passengers would be better off under such a tax and, more importantly, it would encourage the industry to fly more efficiently.”

Key facts & figures

Number of Weekly Flights: 8,600
Number of Routes: 569
Number of Airports Served: 128
Number of Bases: 20
Number of Staff: 8,391
Fleet information: 2 B737-700s, 25 A320s and 166 A319s Average fleet age – 3.9 years
3 big growth markets in the last year: France, Italy and Switzerland
Revenues 2009/2010: £2,973.1 million
Profit before tax: £154 million

Potential for organic growth

easyJet’s 200-strong fleet includes 25 Airbus A320s, which has enabled it both to extend its network to longer range destinations such as Israel, Egypt and Turkey and to fly a higher number of passengers at highly slot congested airports. In March, the airline launched services from London Gatwick to Amman in Jordan. At five hours the route is easyJet’s longest and McCall says the airline has no plans to fly further. “We’re a point-to-point carrier specialising in quick turnarounds. We don’t want to overcomplicate that with too many long routes. We are not planning to look at long-haul. There is a lot more room to grow organically from where we currently operate. Egypt also works well for us; UK-Egypt traffic is holding up very well.” On the subject of the LCC/network carrier relationship, McCall explained that it is not on the easyJet agenda to pursue any code sharing or feeding arrangements similar to those between Air France-KLM and GOL, or Lufthansa and JetBlue. “Given that our entire world view is that we want it to be simple and uncomplicated, it would have to be materially beneficial to easyJet for us to do it,” she commented.

easyJet will adopt a conservative approach over the next 18 months, keeping its fleet size flat because of a combination of high oil prices and consumer confidence remaining fragile. So, while the economic outlook in Europe remains uncertain, easyJet appears well positioned for future success, with a strong balance sheet and a robust European route network. “My long-term vision is for easyJet to be Europe’s preferred short-haul airline and we are on the way there. We have the most number of routes on the most valuable city pairs and I intend to build on that. We are on our way and there is a lot of potential for organic growth,” concluded McCall.

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