Merging with one of its main rivals, and integrating a German medium-cost carrier promises to be no easy challenge for EasyJet
At first glance, EasyJet's swoop for Go, one of its two rivals in the burgeoning UK low-cost sector, and its offer for British Airways' struggling German domestic subsidiary, Deutsche BA (DBA), is an audacious if not entirely out-of-the-blue bid by charismatic founder and chairman Stelios Haji-Ioannou to become the sector's dominant player, and attack what he sees as the weak underbelly of Europe's airline market.
The Go merger - expected as early as this week, as Flight International went to press - means EasyJet will overtake Ryanair as the biggest low-cost carrier in Europe (although the latter's aggressive aircraft acquisition plans mean Michael O'Leary's outfit is unlikely to be content with second place). There will be problems merging the two operations - but not many. Both have similar low-cost models and use entirely Boeing 737 fleets (although they are both talking to Airbus about future aircraft orders). Corporate cultures are virtually identical and both companies' marketing has been increasingly targeting budget-conscious business travellers rather than leisure trippers - the preserve of Ryanair's services to tourist destinations and secondary big city airports.
Go has built a strong following during its four years (the first three as part of BA), but its later arrival means its brand is weaker than EasyJet's and will disappear in the merger. This, together with the fact that she has been largely sidelined in the deal, has led Go chief executive Barbara Cassani to mutter about management opposition to the take-over among her colleagues - although it is unlikely to lead to huge job losses. Only a few of the carriers' services overlap - primarily those to Scotland. The move will also give EasyJet, already the biggest user at London Luton and the second largest at Gatwick in terms of scheduled services, access to Stansted.
So far so good. Some sort of consolidation in the low-cost sector had been widely predicted - and EasyJet and Go make fine bedfellows. Where EasyJet has been more bold is in its attempt to gain access to the German home market by buying DBA. Few expected this, and it has led some to predict that Haji-Ioannou and his chief executive Ray Webster may be biting off more than they can chew.
Because BA was desperate to off-load its loss-making subsidiary, the price - around £25 million ($37million) - is loose change for EasyJet. It has cash reserves of £382 million, and could end up forking out 16 times that amount for Go. Ryanair has already identified Lufthansa as vulnerable in its domestic market, and its aircraft flying to Frankfurt Hahn have "Auf Wiedersehen, Lufthansa" emblazoned on their fuselage. But DBA gives EasyJet an instant German network, something Ryanair has few prospects of acquiring. Setting up a start-up operation would have been near-impossible for EasyJet. The carrier is banking on the sluggish economy and lack of competition on internal routes creating a pool of business travellers delighted to pay a fraction of a Lufthansa fare from Frankfurt to Berlin or Hamburg.
But transforming DBA from a medium- to low-cost carrier will take more than chopping fares, putting out aggressive advertising and swapping smart cabin crew uniforms for lurid orange sweatshirts. EasyJet will inherit an airline with all a flag carrier's overheads and resistance to change.
Experience shows that becoming a true low-cost operator is difficult. Belgian airline Virgin Express is currently going through a painful transition. Ryanair managed tore-invent itself after almost going out of business. EasyJet will need concerted management effort to force through the necessary axing of DBA's cost structure. This at a time when EasyJet's modest head-office team at Luton will have its hands full bringing Go into the fold.
But if anyone can do it, it is EasyJet. The carrier has matured into one of the most sophisticated operators in the market from its early days as a maverick, with a marketing message which screamed: "Every expense spared". Today, it is led by one of the best management teams in the business. Its expansion may just have come at the right time, with the recovering European economy increasing the numbers of executive travellers, but the brush with recession leaving financial directors wary about again paying for business fares. One of EasyJet's strengths has been its branding. If it can get its head around the German market, and convince travellers there is an alternative to full-service airlines, other than the train, it stands every chance of success.
Source: Flight International
