Bumpy landing warning for easyGroup founder

By CLAYTON HIRST

Wanted: "Enthusiastic, customer-focused" bus drivers for young and funky company. On top of the £18,000 ($52,000) salary, perks include a free uniform.

If this doesn't appeal, then as long as you have a "can-do attitude", you could become a call centre operator for £10,000 a year.

Or, if you have a "strong conviction in the low-cost business model" and 15 years' management experience in cruise liners, then why not apply to be chief executive of a new cruise business?

EasyGroup, the private business empire of Greek tycoon Stelios Haji-Ioannou, is on a huge expansion drive. By the end of the year, Haji-Ioannou hopes to have doubled the number of companies he runs by diversifying into a bewildering array of businesses, including pizza delivery, bus services, cruises, hotels and mobiles.

He has much in common with the Virgin tycoon Richard Branson. Both are flamboyant, successful entrepreneurs whose new ideas have challenged the often fogyish business establishment. Yet their strategies are quite different. While Branson has taken Virgin into markets where customers are poorly served, the easyGroup empire is founded on the assumption that a product which does the job cheaper than its rivals will always sell - however crowded the market.

But as Haji-Ioannou presses the growth button, cracks are appearing in easyGroup's existing companies, which include the low-cost airline, internet cafes, car rentals and cheap cinema.

The biggest worry for Haji-Ioannou is easyJet, of which he and his family own 41 per cent. Although he no longer has an executive role at the airline, he has used it as a cash cow in recent months, selling small packets of shares to fund his new ventures.

Last week, easyJet stunned the City by issuing its second profits warning within a month on the back of an escalating fare war in the low-cost sector and rising fuel prices. This cemented a dismal run in its share price, which has almost halved since the beginning of May. Shareholders have criticised the company for not issuing the warnings sooner and there are now calls for executive heads to roll.

Haji-Ioannou refuses to say if he is putting pressure on the company to make management changes, but he concedes: "There is room for improvement in investor relations."

He also refuses to comment on reports that he may launch a bid to take easyJet private. One source close to Haji-Ioannou says that he hasn't ruled out the idea, but may wait a few months to see if trading improves.

Meanwhile, he plans to overhaul the business models of many of his easyGroup ventures. Haji-Ioannou wants to cash in on the "easy" brand by franchising it to other companies.

This, he hopes, will bring a rapid turnaround in the fortunes of his internet cafe and car rental operations. In the year to September 2002, the businesses made losses of £13 million and £12 million respectively. Both are understood to be still trading in the red.

Haji-Ioannou describes the early years of his easyInternetcafe venture, which today has 70 stores in nine countries, as one of his "biggest mistakes". Having lost about £100 million since the first cafe opened in 1999, it is easy to see why.

The last filed accounts, for the year to September 2002, reveal that the company ran up IT bills of £44 million during the year, working out at £6500 for every PC installed.

He says the company became technically insolvent in 2001 because it could not repay its debts - until Haji-Ioannou, and his millions from the easyGroup, came to the rescue. In September 2001 he settled its debts - he tellingly writes in the accounts - "in order to protect my reputation and that of the 'easy' brand".

Increasingly, Haji-Ioannou is looking to form joint ventures to cut overheads and keep operations slim, preventing a repeat of his costly mistakes with easyInternetcafe and easyCar.

The rental firm, launched in 2000 with a distinctive fleet of Mercedes A-Class vehicles, has been beset by problems, the biggest of which are costs.

Haji-Ioannou, who has so far invested £20 million in easyCar, has announced a deal with the US rental firm Alamo. EasyCar and its customers will use Alamo's network of vehicles in 760 locations across 26 countries.

That doesn't mean he has lost his bottle. Far from it. Last summer he launched possibly his most audacious venture, easyCinema. Unfortunately, the early signs do not look good. Like his other ventures, the strategy uses a pricing model based on supply and demand.

Customers who book a long time in advance for off-peak periods pay as little as 20p for a ticket. Haji-Ioannou's theory is that it is far better to pack out a cinema with cheap tickets than sell only a few expensive ones.

But the Hollywood film distributors have refused to play ball and supply easyCinema with new releases. This means the only easyCinema complex, in Milton Keynes, has been showing old releases.

Critics also point out that, unlike with flights, filmgoers do not tend to book weeks in advance.

Haji-Ioannou is not downcast: "We have placed a bet, but it is taking longer than many eternal optimists thought it would. There is a cartel operating in the film industry so we have had to build a business without the blockbusters."

He is now pinning hopes of a turnaround at easyCinema on an appeal to the competition authorities.

With plans for the rapid growth of easyCinema on hold, and costs cut in other businesses, expansion of the easyGroup empire rests with the "easy" name. By franchising operations, Haji-Ioannou is gambling that customers will trust, and buy into, the brand, much in the style of Virgin.

But is he staking too much on the name? John Williamson, a director of brand consultancy Wolff Olins, believes the value of the "easy" name has diminished.

In particular, he argues that the profits warnings at easyJet, over which Haji-Ioannou has no control, have damaged the "easy" brand.

Jez Frampton, the chief executive of Interbrand UK, warns that franchising new business ventures to third parties under the "easy" name could hit its value.

"A brand is a promise," he says. "If you do not keep your promises then the brand will suffer. It is important for easyGroup to maintain control over its franchises."

Part of the problem, says a business associate, is that Haji-Ioannou is in too much of a hurry. It took the Virgin group 20 years to build an empire; he wants to do it in five.

But Haji-Ioannou is not known for bowing to critics.

His stubborn streak is a big factor in his success, says the business associate. "He wants to prove people wrong. That's part of his motivation. It's not money that drives him; it's a question of having an idea and wanting to make it work. He is different to big businessmen in that sense."

Dr Palie Smart, a senior research fellow at Cranfield School of Management, picks up the theme: "Stelios has created new markets, usually at the lower end, which is often ignored. With easyJet, for example, he created a whole market of pensioners who in the past had never even been abroad because it was too expensive.

"I do not know if I would call it socialist, but there is something genuine about his business philosophy. You could say that easyGroup has a bigger motivation than making money."

Cynics might say that, on this basis, Haji-Ioannou is in a win-win situation. If he makes millions, he is one of the world's most successful and innovative entrepreneurs. Should he lose money, then he is a philanthropist in the Rockefeller mould.

As his new businesses take shape, we will soon find out.

- INDEPENDENT