A fight breaks out at the low-cost airline

1 ____ There is never a good time to have a full-blown

boardroom brawl in public. But for Sir Stelios Haji-Ioannou,

a flamboyant serial entrepreneur, to have chosen this moment

4 to go to war with his fellow directors at easyJet, a budget

airline, is as puzzling as it is potentially destructive.

The airline industry is reeling from the twin effects

7 of seesawing fuel prices and tumbling demand. Thirty

airlines have already succumbed this year and as many again

are forecast to disappear in 2009. As Europe’s fourth-biggest

10 airline, easyJet, founded by Sir Stelios 13 years ago, will not

be one of them. Its strong balance-sheet, modern fleet and

low-cost operating model mean it is much better placed than

13 most of its competitors to ride out the storm. But it is still

feeling the strain. Sir Stelios, who controls 38% of easyJet,

began his attack on November 13th, arguing that the airline’s

16 plans to expand its fleet during the recession should be

abandoned. He added that easyJet should consider paying a

dividend from 2011, reversing its policy of investing

19 available funds to support the airline’s growth. To this end,

he invoked rights that were established when the company

was floated, by proposing to put two representatives of his

22 holding company, easyGroup, on the board. Sir Stelios hinted

that if the chairman, Sir Colin Chandler, refused to

acquiesce, he would reassume the chairmanship himself, as

25 he is entitled to do. Sir Stelios says he is only calling for a

more cautious approach. Some observers think that his

knowledge of the shipping industry, which is undergoing

28 even greater pain than the airline business, has persuaded him

that this is a time to batten down hatches. Others have

suggested that he needs the promise of a dividend flow to

31 fund his other interests. There has even been some

far-fetched speculation that he may be trying to drive down

easyJet’s share price in order to retake control of it.

34 ___ Whatever his reasons, they spell trouble for easyJet.

The airline’s expansion plans for the coming year are

modest: capacity is planned to grow by 5% compared with

37 the 15% that is easyJet’s norm. Given the desperate state of

Alitalia and the difficulties of Iberia, easyJet, which has hubs

at Milan Malpensa and Madrid Barajas, is in a strong

40 position to benefit. Mr van Klaveren fears that the

ultra-cautious approach Sir Stelios is advocating, combined

with talk of dividends, could result in the stock going

43 “ex-growth” and losing the premium it shares with its rival,

Ryanair. It is hard to see how that is in anyone’s interests.

Internet: <www.economist.com> (adapted).

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