With the battle of the budgets hotting up, Easyjet is wooing travel buyers with new flexible fares – but Stelios is still not happy, reveals David Churchill
WHEN CAROLYN MCCALL this November unveils her first full set of annual financial results since taking over as Easyjet CEO last year, she is hoping to deliver pre-tax profits of between £240 million and £250m – a record for the 15-year old budget airline.
If so, this will be a vindication of her decision to put new emphasis on wooing business travellers to the no-frills carrier. Although Easyjet’s extensive European network and pricing model has always appealed to many business people on a tight budget, the airline has traditionally not gone out of its way to make life easier for them.
But this year, McCall has introduced a new flexible fare, attractive for those who are forced to rearrange their flight schedules at the last moment, as well as establishing an experienced specialist sales team – known at Easyjet as Business Partners – to target the corporate market.
In addition, the airline has softened its stance on using global distribution systems (GDSs) via agents that sell both business and leisure tickets and is looking at targeting major meetings, incentives, conferences and exhibitions (MICE) events in Europe. Some 90 additional flights, for example, have already been made available from various UK airports to Nice for the prestigious MIPIM property market conference being held in nearby Cannes next March.
The new focus on business travel appears to be paying off for Europe’s fifth biggest airline. In a late-September trading update ahead of this month’s results, McCall said the airline’s performance was “robust across the network, with particular strength on city routes used by business and short-break travellers”.
So good, apparently, is Easyjet’s financial position that the board has authorised payment of the airline’s first-ever dividend – some £190m in total. This will give founder Sir Stelios Haji-Ioannou and his family a £72m windfall from their 38 per cent shareholding, encouraging the board to hope it would stop his continued sniping over the way the airline he created is now run.
Some hope. Stelios’s response to the news was to announce plans to launch a rival airline, called Fastjet
Whether or not Stelios follows through and actually establishes – or is allowed to establish – a rival carrier is still uncertain as Buying Business Travel goes to press. But however distracting the Easyjet board may find its relations with the airline’s founder, the management has little option but to press on with its growth strategy. And this now means paying more attention to business travellers, especially given the strong recovery so far in the UK corporate market.
Yet despite of the higher-profile allocated to attracting the business market, Easyjet’s seeming new-found enthusiasm for corporate travellers is not as novel as it first seems.
The airline had realised by the mid- 2000s that it needed a more effective relationship with business travel agencies who were not keen on using the public internet booking channel Easyjet preferred. In 2005 Easyjet was in advanced negotiations with Business Travel International (BTI), the travel management company (TMC) jointly owned by HRG and BCD, to enable online booking for BTI clients directly via an application programming interface (API). That deal was abandoned in early 2006 when BCD and HRG decided to expand in a different way rather than via the existing BTI network.
Yet the collapse of the BTI deal paved the way in late 2007 for an agreement with Amadeus and Galileo (and subsequently Sabre) to put Easyjet content on their GDSs.
This also helped Easyjet in its efforts to stop online travel agencies from accessing fares from the airline’s website – so-called screen-scraping – and selling the seats on to their own customers, plus commission.
But Easyjet’s no-frills approach imbedded in its DNA meant that it still charged TMCs a fee for what it described as point-of-sale transactions via the GDS. Initially this charge was set at up to £5 a booking, depending on the number of seats booked, although it was reduced in 2008 to £3.30 per seat.
Not all TMCs, however, are willing to pay this GDS fee. “We currently do not book Easyjet fares via the GDS as the process isn’t that straightforward,” says Steve Norris, UK general manager for FCM Travel Solutions. “There are issues, for example, such as Easyjet not being part of a bank settlement plan (BSP) for payments, so you still need to enter credit card details.” FCM, however, does book Easyjet fares online for clients, including the new flexi-fare, and Norris says we “hope to work with Easyjet via the GDS in future”. He quantifies the spend with Easyjet “at around £2.5m a year, which is a sizeable amount but nowhere near the revenue we give to BA.”
The good news for FCM (and other TMCs) is that Easyjet is now considering whether to scrap the GDS fee in order to encourage more bookings via TMCs as well as leisure agents that also have a significant level of activity in business travel.
In many respects, Easyjet’s evolution from a strict no-frills, leisure-focused airline to one of the new generation of so-called hybrid carriers, offering more services and fare flexibility suitable for a business market, was probably inevitable.
Its initial targets may have been the new wave of short-haul and increasingly affluent leisure travellers that emerged in the late 1990s, but its decision to fly mainly to mainstream airports on the Continent (in sharp contrast to Ryanair’s traditional fondness for out-of-the-way airports) clearly also appealed to many savvy travellers on business. Easyjet flies to 40 out of Europe’s 50 largest airports.
“Some of our recent capacity growth has been strengthening routes between Europe’s biggest cities to give business travellers the choice they need,” points out McCall. This now means, for example, a dozen flights a day between London and Amsterdam and eight between Paris and Milan.
Although Easyjet has been locked out of an over-crowded Heathrow, it is the biggest scheduled airline using Gatwick and also a key operator from Stansted and Luton airports as well as other major UK city airports. Given its short-haul focus, this has made it a convenient option for many travellers located outside London who do not need Heathrow’s global connections.
But it is also a pan-European airline: 60 per cent of its 54m annual passengers start their journey from outside the UK, taking advantage of more than 550 routes between 129 airports across the UK and the Continent. So, even without previously offering any premium service for corporate travellers, about 18 per cent of Easyjet’s passengers are already flying on business. On some routes, moreover, the proportion of business travellers is higher: about 40 per cent on flights between London and Glasgow, for example.
So why should travel buyers (and individual business travellers) choose Easyjet? The flexi-fare, introduced earlier this year, was aimed at meeting traditional business traveller concerns over the key issue about the ability to change bookings at short-notice. The fare allows unlimited changes up to two hours of the scheduled departure time and within a four-week window – one week before and three weeks after – of the booked travel date. A number of extra charges levied at regular fare-payers are included in the flexi-fare, such as priority boarding and one checked-in item of luggage.
There is also no online booking fee, which “saves” the buyer £8 a ticket, although the application of this fee for regular fares is currently under investigation by the Office of Fair Trading and could be scrapped.
Is it worth it? There is certainly more flexibility than with a standard fare, but it only costs £35 extra to change a regular booking if needed; many of those travelling on Easyjet’s short-haul flights on business will not need to check-in hold luggage; and those road warriors that finish their meeting ahead of time can already turn up at the airport and board an earlier flight if seats are available, at no extra cost.
Easyjet is also giving flexi-fare ticket holders whose flight arrival is delayed by more than 15 minutes, the offer of a free leisure ticket for anywhere on its network (one-way only) in compensation, but this only applies on delayed flights until the end of November, while the “free” flight must be taken before the end of March, 2012. This offer, however, has a hidden agenda: in the summer of 2010 the airline suffered severe operational problems, especially at Gatwick, which meant that only 53.3 per cent of its flights took off within 15 minutes of the scheduled departure time, while 59.3 per cent were late arriving. Now that the problem is being dealt with (some 77 per cent of flights that departed between May and August this year were within 15 minutes of the scheduled time, with 82.6 per cent of arrivals on time), Easyjet thinks it is time to press home the point with its frequent flyers.
But do travel buyers really want flexi-fare’s flexibility? Perhaps not, says Carlson Wagonlit Travel’s Nigel Turner, the TMC’s director of programme management. He suggests the new flexi-fare “may have missed the market” because many travel buyers discovered during the recession and afterwards that unrestricted fares are an unnecessary option, especially in the short-haul market, to more costly unrestricted tickets. “At the budget end of the market it is a question of whether it is worth paying more for this flexibility,” he says.
ALL WRAPPED UP
There is also an issue with buyers about the higher priced-flexi-fare’s bundling-up of additional charges, according to Tony Berry, HRG’s director for industry and fare distribution. “Travel buyers like the transparency of unbundled fares that a low-cost carrier provides, enabling them to decide on what is and what not worth paying for,” he says.
Small and medium-sized enterprises (SMEs) on a tight budget are likely to be less interested in speedy boarding or access to a third-party airport lounge than the basic flight price. The common assumption is that larger corporate buyers may be more willing to allow such extras, yet the feedback from TMCs is that such buyers are often as price-sensitive as SMEs when booking low-cost carriers.
Moreover, the yield-based booking model Easyjet and other low-cost carriers use generally offer the lowest prices the earlier a booking is made, according to HRG’s Berry. This, he suggests, “does not suit business travellers who often only book in the ‘window’ of between seven and three days ahead of a flight”.
While these are issues that McCall and her new team of Business Partners have to sort out, she and the board have more immediate worries from the ongoing “Stelios situation”. But formalising the Easyjet appeal to travel buyers and independent business travellers will probably have far more significance in the longer term for all involved in the airline’s future.
THE EASYJET BUSINESS PARTNERS WITH CORPORATES IN THEIR SIGHTS
CLAIRE HAIGH: After a 10-year spell with Virgin Atlantic as head of key accounts, Haigh joined Easyjet in April as head of sales. “We believe there are a lot of business travel savings out there that are not currently being realised,” she says.
JAMES MARCHANT: Joined after five years with Virgin Atlantic and will focus on sales to the public sector.
ADRIAN KEATING: A corporate travel specialist with more than 10 years’ experience at British Airways and Etihad.
PAUL DAVIS: More than 20 years in the travel industry, latterly with Sabre Travel Network where he was responsible for premier accounts.
THREE YEARS AGO Easyjet founder Sir Stelios Haji-Ioannou threw his weight behind the long-running campaign to return the Elgin Marbles in the British Museum to Athens, taking out full page newspaper ads to support his view. This quixotic gesture came when Stelios seemed rather becalmed in his business ventures, all based on the “Easy” theme he had created with the budget airline in the mid-1990s, but harder to duplicate with the same degree of success in other areas, ranging from cruise ships to no-frills hotels.
So it perhaps came as no surprise that Stelios turned his attention to what he still regarded as his baby, the airline itself. Although he had withdrawn from active involvement in Easyjet when he resigned as chairman in 2002, he had retained a keen interest in its development – not least because he and his family still owned 38 per cent of the company, which had floated on the stock market in 2000.
But proud parent Stelios was unhappy with the expansion plans under CEO Andy Harrison, who had joined in 2005 when Stelios also returned to the board as a non-executive director (although he quit again last year). Stelios argued that spending US$4 billion on new aircraft during a time of financial turbulence and recession was mistaken. He thought some of the cash available should be returned to shareholders, especially as Easyjet had never paid a dividend.
Harrison decided last year he had had enough, decamping to Whitbread to take over as the hotelier’s CEO. The Easyjet board replaced him with Carolyn McCall, who had spent most of her career at Guardian Media Group before ending up as CEO. McCall, 50, was said to have won the job, in spite of her lack of aviation experience, because of her marketing skills.
Stelios, however, did not give up his attacks on the board’s strategy, forcing deputy chairman Sir David Michels (the ex-Hilton UK CEO) to retire earlier than planned in late August. The board subsequently went even further in seeking to placate Stelios by announcing a maiden dividend worth £72m to Stelios and his family. His response? Fastjet.