Stelios Makes Growth Look Easy

Stelios Haji-Ioannou, known throughout Europe by his first name, provides cheap travel for the masses. His formula for business success? It's easy — as in easyJet, easyCar, even easyCinema. Just slash costs, maximize publicity, and "sweat the assets."

Here's an easy one: How cheap is Stelios Haji-Ioannou, the jet-setting son of a Greek shipping tycoon, who's worth roughly three-quarters of a billion dollars? He's so cheap that when he started a London-based air carrier modeled after Southwest Airlines, he decided not to offer free soft drinks or peanuts. Instead, flight attendants on easyJet sell snacks and beverages to passengers from their carts. He's so cheap that when he started an auto-rental business called easyCar, he decided to charge drivers the equivalent of an extra $15 if they brought the car back dirty. He's so cheap that when you use a computer at one of his easyInternetCafés, you see a message just after you log off that says, "Please take your rubbish with you — your mother doesn't work here." It's signed, "Stelios."

Stelios — the 35-year-old entrepreneur is known throughout Europe by his first name — has become a curious kind of business folk hero, an energetic almost billionaire whose neon-orange Easy brand represents value for the masses. He's a sort of bargain-basement version of marketing showman Sir Richard Branson.

But like Branson, Stelios means serious business. His front-and-center cheapness is part of a strategy that enables his companies to use their assets more efficiently than the competition and deliver steep discounts to customers. About 80% of the drivers who rent cars from easyCar return them clean to avoid the $15 penalty, which lets easyCar turn the vehicles around more quickly. The decision to charge for coffee on easyJet flights generates two sources of additional revenue: one from the brew itself and the second from the fact that easyJet can eliminate one lavatory from its planes thanks to lower demand for them, making room for a few extra seats.

Stelios may have spent his privileged youth behind the wheel of a light-blue Porsche and at the helm of a 110-foot yacht, but he understands the value of a pound. "The world's biggest companies, such as Wal-Mart and McDonald's, got that way because they sell low-cost products," he says. "The cheaper you can make something, the more people there are who can afford it."

EasyJet Takes Off
Stelios's appreciation of business strategies powered by low prices led him to examine the legendary success of Southwest Airlines and, in 1995, to start an airline of his own that he thought could one-up the Southwest model in the European market. Based at the underused Luton Airport north of London, easyJet began operations with two leased Boeing 737s, flying from London to Glasgow and Edinburgh. EasyJet avoided travel-agent commissions by taking reservations only by phone. (EasyJet's phone number was painted on the side of the planes; Internet ticketing began in 1998.) Ads invited passengers to "fly to Scotland for the price of a pair of jeans" — about $45 each way.

Part of easyJet's takeoff reflected Stelios's Bransonesque knack for attracting free publicity. When British Airways launched a clone of easyJet in 1998, called Go, Stelios and nine colleagues bought tickets on Go's inaugural flight to Rome. Wearing bright-orange jumpsuits, they sat in the back of the plane, giving interviews to journalists and handing out free tickets for easyJet flights. When Greek travel agents took the airline to court for its strict policy of selling direct to customers (today, 92% of easyJet's reservations are taken over the Internet), Stelios promised to give a free ticket to anyone who showed up outside the courthouse to cheer him on, thereby ensuring a camera-ready spectacle. In another notable publicity move, Stelios allowed ITV, a London-based television network, to create a reality show called Airline that focuses on the drama inherent in keeping easyJet aloft.

Today, easyJet is Europe's biggest low-fare carrier, flying 15 million people a year. Earlier this year, easyJet completed an acquisition of its arch rival, Go. The merger gives the combined company a total of 63 planes flying out of three different London-area airports to more than 30 cities throughout Europe. The airline's pretax profit nearly doubled from $34 million to $62 million between 2000 and 2001, and Stelios brags that easyJet's load factor (the percentage of total available seats sold each month) now routinely tops that of Southwest. During the summer, as full-fare U.S. airlines were either considering or filing for bankruptcy protection, easyJet's load factor peaked at 87%, while Southwest's was drifting down toward the low 70s.

Stelios credits a great deal of easyJet's success to two strategic imperatives. One is what he calls "sweating the assets" — making sure that his planes are as full as possible and that they are flying as much as possible. "If you have a very expensive fixed asset," he says, "you need to make it work for you." It's not unusual for an easyJet plane to make eight or nine hops around Europe in a day, beginning before dawn and ending around midnight.

The second imperative, which helps Stelios sweat the assets, is sophisticated yield management — a software-driven pricing system that can set an almost infinite number of fares for a given flight. "There are some very wide fluctuations, based on the demand for the seat," Stelios explains. "There are no pricing rules other than that it's cheaper if you buy early." That $45 London-Nice round-trip, when purchased at the last minute, could cost up to $450. "Who is the more valuable customer for easyJet?" Stelios asks. "You need all of them to fill a plane, from the vacationer who wants the $45 ticket to the businessman willing to pay $450. They're all equally valuable to us."

Beyond Airlines: the Easy Formula
Stelios's formula for growth has been gaining altitude steadily at easyJet. So after assembling an experienced management team at the airline, he has reduced his operational role in order to test his strategies in other industries. (In fact, he recently announced that he would leave easyJet's board on November 26 to focus full-time on his other ventures.)

Working out of a former piano factory in Camden Town, a north London neighborhood, Stelios and 100 employees supervise easyGroup's portfolio of companies and develop new business ideas. Already up and running are easyCar, with 20 locations around Europe, and easyInternetCafé, with 23 Internet cafés, including one in New York's Times Square. (EasyCar marked its first profitable quarter this past summer.) In the works are easyCinema, a chain of movie theaters, and easyDorm, a collection of hostels for budget-conscious travelers.

The strategic logic of easyCar closely resembles that of easyJet. Its vehicles (Mercedes and Fords) cost more as demand increases, and the pricing encourages renters to return the cars early if they only need them for a quick trip rather than keeping them for a full day, so that the cars can be rerented to other people. Customers who want to book by phone instead of via the Internet, pay extra for the privilege. At the Internet cafés, per-hour access prices fluctuate based on how many of the café's computers are occupied. "If you don't like the price, you can come back later, when you'll get a better deal," Stelios explains.

The goal with the cafés, as with easyJet, is to use variable pricing to maximize the number of "bums in seats," making the most of the fixed assets — in this case, bandwidth and computers. "When you don't sell an hour of computer time, it's like an empty airline seat. You don't get it back," says Paul Currie, the easyInternetCafé executive in charge of franchising the cafés.

The new businesses will follow the Easy formula too. Tickets to a Tuesday-morning show at easyCinema, when booked in advance, could be as cheap as 30 cents. A last-minute seat to the first Friday-night opening of a blockbuster might cost as much as $15 or $20. Stelios, a big fan of using technology to automate routine tasks, sees no reason to employ people to sell or tear tickets. The current plan is to allow moviegoers to print bar-coded tickets at home or to buy them from a machine in the lobby. The bar codes would be scanned by a turnstile, which would provide admittance to the theater.

It's Not Always So Easy
The Easy empire has not been assembled without a few snags, both personal and strategic. Early in his professional life, Stelios learned a hard lesson about safety. In 1991, when he was just 22 and serving as the CEO of his father's shipping business, an aging oil tanker called Haven blew up off the coast of Genoa, Italy. The explosion killed five crew members and dumped nearly 50,000 tons of oil into the Mediterranean. Stelios was accused of poor maintenance and charged with manslaughter (the charges have since been dismissed three times). But the accident "had a tremendous impact on him from a personal point of view," says John Quelch, an easyJet board member who teaches at Harvard Business School.

For example, easyJet has made a point of buying only new Boeings. "What impressed me from the time of the first board meeting," says Quelch, "was that airline safety is always the first item on every board agenda. Every meeting begins with a review of all reportable incidents, even things as small as a light going on in a cockpit that turned out to be a problem with the bulb."

Stelios acknowledges that his formula hasn't worked well with a line of credit cards called (naturally) easyMoney. Free email didn't turn into the advertising windfall he'd hoped for, and customers willing to pay subscription fees for an online comparison-shopping service called easyValue didn't materialize. "They were worth trying," he says. "Rather than shutting them down, we keep them ticking along with very few resources to keep the brand out there."

Stelios is also candid about the restructuring required to keep easyInternetCafé alive. After an ambitious (and rocky) start, Stelios got rid of easyInternetCafé's original management team and began paring back the cafés' operating costs. The first café, near Victoria Station in London, had a staff of 40, and many of the first generation of cafés, built during the dotcom boom, have 500 or more computers. The new template for a café has vending machines that spit out access passes as though they were Tube tickets, fewer computers, and only four full-time staffers. But even though expansion plans were put on hold last year, only one café, in Antwerp, Belgium, was closed. And the company has recently begun courting prospective franchisees, moving away from a 100%-owned-and-operated model.

On days when Stelios is working from the Camden office (he also spends a third of his time in Athens and a third on the road), he convenes a series of 10-minute meetings with the teams working on easyCar, easyInternetCafé, and easyCinema, the next company to launch.

He serves up questions with the speed and nimbleness of an Olympic table-tennis player. What was the peak PC usage last week in the new Kings Walk Internet café in London? What's the status of the new location for easyCar in Amsterdam, and how many cars can we fit there? A new wireless technology that would allow frequent car renters to gain access to cars without relying on an attendant is discussed briefly. Two of the three meetings actually come in under the 10-minute time limit.

After the last session disbands, it's closing in on 6 PM. Stelios buys a can of Diet Coke before returning to his desk to pound out a few more responses to emails. In the can, there is a missed opportunity: The soda costs 50 pence, regardless of the time of day, the number of cans left in the machine, or the temperature outside. Stelios remarks that he's sad that the Coca-Cola Co. backed away from a much-publicized plan to experiment with yield managing in its vending machines.

"I was so disappointed," he says, smiling. "Think of the possibilities!"

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The Value of Free Publicity
How do you get a new airline off the ground with a startup budget of just $7.5 million? Stelios Haji-Ioannou relied on lots of free publicity. Here are a few of the media-friendly events that Stelios engineered to promote easyJet and, later, easyCar.

When British Airways started Go, an easyJet competitor, Stelios boarded Go's first flight wearing a bright-orange jumpsuit and handed out free easyJet tickets to his fellow passengers.

Later, convinced that British Airways was trying to drive easyJet out of business by undercutting its fares at a loss, he sponsored a contest on the easyJet Web site: Guess Go's annual losses, and win a free flight on easyJet.

In 1999, after the now-bankrupt SwissAir tried to bar easyJet from flying the Geneva-Barcelona route, easyJet found and exploited a loophole: The airline declared itself a tour operator, set up a tent in a Spanish national park that few passengers would actually use, and, by offering a "vacation package," managed to continue flying the route.

Meanwhile, when Hertz Rental Car lodged a complaint about easyCar's advertising in the Netherlands (especially a newspaper ad intended to encourage price comparisons that read, "The best reason to use easyCar.com can be found at hertz.nl"), Stelios and a cadre of easyCar employees put on the orange jumpsuits again and demonstrated in front of a Hertz location in Amsterdam with Dutch signs that read, "What is Hertz afraid of?"

Scott Kirsner (kirsner@att.net) is a Fast Company contributing editor. Visit easyGroup on the Web (www.easygroup.co.uk).

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