I heard CEO Carolyn McCall recently explain the near 100% rise in the share value of her company Easyjet
She was speaking on a round of the broadcast media [Nov 19th 2013]. Her explanation was that the company had retained its budget value for money while enhancing its customer-friendly reputation and attracting business traffic (although she did not use the old term ‘business class’}.
Compare and contrast
EasyJet’s success has been in part due to the problems of the legacy lines which have reduced routes, allowing its rivals to fill the gaps.
The interviewer wanted her to ‘compare and contrast’ with ‘rival’ firm Ryanair. McCall firmly but non-aggressively rejected the implication. She did not see Ryanair as the most direct market competitor. These are the legacy national airlines (British Airways as was; Lufthansa) as they compete on “the routes people like to travel on.”
Easyjet and Ryanair have similarities
Their success has been as low-cost carriers, examples of the peanut airlines. Both have in the last year moved towards scheduled seating, known to be a preference for customers, but earlier considered too expensive to implement. The change offers the prospects of widening their customer base to a market sector attracted to more than claims of rock-bottom prices.
Shareholder pressures at Easyjet
McCall has to deal with a powerful activist shareholder in controversial company founder, company founder Sir Stelios Haji-Ioannou who holds 36.5% of shares and has repeatedly clashed with easyJet’s board over a strategy which he sees as risking shareholder dividends by buying new Airbus planes. “The directors have now accepted that more money has to be returned to the shareholders – if only they would accept that less cash should go to Airbus for more planes.” he was quoted as saying.
For McCall, attention to business efficiency may be sharpened by the influence of Sir Stelios, which is a very business school way of explaining the benefits of shareholder activism.
The change at Ryanair
The change at Ryanair follows recent share price turbulence. Michael O’Leary promises a culture change which will “Stop unnecessarily pissing people off.” O’Leary sought free publicity for years in his mock villain act, glorifying in the culture of low price at all costs with the scramble to board, tough baggage policy, and penalties for customer errors, as corporate profits soared. However, he was finding it hard to escape the old way of thinking, adding “Anything easyJet can do, we can do better and cheaper.”
Doth the lady protest too much?
A recent post in LWD examined the so-called peanut airlines. We suggested that the model pioneered by South West air was not to be found in the then profitable Ryanair. Its attention to customer service was too low on its strategic priorities. Easyjet fits the bill a little more.
McCall is right to attempt to differentiate Easyjet from Ryanair. However, the claim may conceal the point that both airlines are seeking to expand and compete in the same low cost markets.