Airlines face survival of the fittest

EyeForTravel Travel Distribution Summit special: EasyJet founder Stelios Haji-Ioannou has predicted further consolidation in the no-frills sector and said airlines will continue to compete on price over customer service.

Stelios was the headline speaker at EyeForTravel’s Travel Distribution Summit this week. He started by discussing the importance of the internet to the travel industry. He said: “The internet is a paradigm shift in our lifetime that is right up there with electricity and telephony in terms of how it has changed our lives and the way we do business.

“Travel is a service so it is ideally suited to sell online.” He later said that the media coverage surrounding no-frills carriers had aided their growth. “The airline business is a very sexy business. May be it has something to do with defying gravity.

“The press and consumers like the fare battles between airlines and the PR stunts. EasyJet even has its own docu-soap, which must have helped direct sales.”

He added: “The £25 million spent on advertising every year will also have helped.”

When asked whether it was sustainable for airlines to continue to compete on price alone over customer service, Stelios said: “There are 54 new airlines since 9/11 and it is unlikely that they will all succeed. It is a case of survival of the fittest. People will pay less because there is more transparency on price – those who survive will work on cost offering a quality product that is not better than it needs to be.”

He said he thought full-service schedule airlines, which he dubbed “high fare airlines”, would not be priced out of the market because their hub and spoke model requires them to continue to transport passengers between hubs for longhaul travel. On shorthaul point-to-point routes, he said easyJet and Ryanair were already matching BA on passenger numbers.

However, he emphasised that much of easyJet’s success was down to controlling the size of its network. “EasyJet may have 150 routes, but flies to 40 airports, some of which service the same city.”

Commenting on whether consumers would become sceptical of no-frills airlines following the recent collapse of Duo, Stelios said it was up to the CAA to monitor airlines more closely. “Airlines are supposed to be regulated by the CAA, to look at their financial state and make sure they have enough cash in reserve for three months at a time. Why can’t the CAA intervene earlier to say that cash reserves are depleting and the airline should start winding down or the license will be removed.

“Why should the strong companies fund the weak ones?”

Stelios later discussed his more recent ventures, for low cost pizzas, buses, cinemas and hotels. The first 34-room easyHotel has now opened in London just off the Cromwell Road in London with rooms from £5 a night.

He said that he was happy with the success of the car rental business easyCar, but said there would be problems taking it abroad. Consequently he is considering franchising and eventually brokerage to expand the business internationally.