AS ANDY Harrison left Hangar 89, the garish orange office block that doubles as easyJet's headquarters on the outskirts of Luton airport, he knew it was going to be a turbulent week. The chief executive of Europe's fourth-largest airline had just signed off accounts that showed a deep dive into the red. Losses over the winter had more than doubled to £129 million, 160 per cent worse than last year.
By Wednesday morning he had prepared his line for the City briefing. A combination of high fuel costs and exchange rates had decimated profits but he was encouraged that the airline had managed "to grow revenues during a recession".
Insisting that
the recent departures of chairman Sir Colin Chandler, finance director Jeff Carr and two other senior executives were in no way linked to any disagreement with the airline's owner, he outlined his vision for getting easyJet back into the black.
"There are very few airlines that are expecting to make a profit this year," he told analysts, before stressing: "This is not an airline in crisis."
By Wednesday evening the airline may not have been in crisis but it was once again embroiled in one of the most public boardroom spats the City has seen in recent years. In one corner sits Sir Stelios Haji-Ioannou, the gregarious Greek Cypriot who founded the airline and is still its biggest shareholder. Facing him is his board of directors. The long-simmering boardroom dispute comes down to how easyJet can grow. Despite the global aviation slowdown, the low-cost carrier expects to add 91 aircraft to its fleet over the next 18 months, with further purchase rights over 88 Airbuses. Sir Stelios argues that adding capacity in a downturn is a flawed strategy. He has urged the company, in which his family has a 40 per cent stake, to rethink its plans. He wants easyJet to renegotiate its contract with Airbus, even though it is likely to incur financial penalties for doing so.
Under the contract, easyJet already has rights to defer deliveries of some of the new planes, but Sir Stelios is badgering the board to win further concessions from Airbus. Harrison has other ideas. He argues that the group's long-term plan to increase its number of planes to more than 190 by September 2011 from an expected 180 this year remains in place. "There were no deferral decisions made in the last quarter," Harrison told the City on Wednesday.
Later that day, having digested the City's reaction to Harrison's interim results, Sir Stelios played his hand. In a carefully worded statement a spokesman said: "Stelios remains of the view that easyJet's current financial performance and the outlook for the European economy requires a significantly more conservative approach to the biggest single issue facing the company, namely the Airbus order for an additional 91 aircraft. The company currently plans to buy too many new aircraft from Airbus too soon, and the passenger numbers are not keeping up with the aircraft numbers. Stelios continues to advocate that the company should continue to postpone certain deliveries. In simple terms, easyJet has too many aircraft."
A row that first erupted last autumn when Sir Stelios refused to sign off the company accounts because of Harrison's growth strategy was back in the public domain.
"In this case I think Stelios is probably right," said one aviation analyst. "EasyJet has lost money because of high fuel prices and unfavourable exchange rates. But in this climate it seems right to be cautious."
How budget airlines play a recession is open to debate. On the one hand it makes sense to expand in a downturn. They can grab market share while the industry suffers. Downturns can also be good for budget airlines as passengers trade down from higher-fare, traditional airlines. But if they expand too quickly there is a danger they can trip up. Analysts say the problem for easyJet is catching customers as they trade down.
"EasyJet hasn't been able to capitalise on business travellers trading down from major carriers such as British Airways," said one analyst. "It could be that they have the wrong route structure which is far too angled towards leisure travellers."
Sir Stelios created easyJet in 1995 when, inspired by the success that budget carriers such as Southwest Airlines had enjoyed in America, he turned up at Luton airport and announced he was starting an airline with one route from there to Glasgow. At the time analysts wrote off EasyJet, arguing that Europe wasn't suitable for budget airlines. But the company grew massively and floated on the London stock market in 2000.
Given easyJet's success, Sir Stelios is happy to dig his heels in. In November he dropped a bombshell, telling the company he would invoke the terms of an agreement he struck when he floated it in 2000. He also took control of his sister Clelia's shares, raising his personal voting rights from 15.6 per cent to 26.9 per cent. This gave him the power to push through the appointment to the easyJet board of two new directors from his holding company, easyGroup. If easyJet didn't agree, he warned, he would exercise his other right under the agreement, and make himself chairman, pushing out the incumbent, Sir Colin Chandler. In the end, Chandler resigned in April. Just weeks later he was joined by finance director Jeff Carr, who left to go to FirstGroup.
It is still unclear how the conflict will be resolved. Analysts expect full-year profits of £52m compared with £123m and the outlook for the aviation industry is anybody's guess. But amid all the uncertainty, analysts say, one thing is clear: Sir Stelios ought to refrain from rowing with the board in public. As one analyst said: "This should take place behind closed doors."
