Johan Lundgren is keen to correct a misconception about what made EasyJet appoint him as its new chief executive towards the end of the last year.
When the former deputy chief executive of TUI was named as Carolyn McCall's replacement, many industry commentators believed it reflected a desire for the pan-European budget carrier to shift its focus towards selling package holidays. But Lundgren suggests otherwise.
"It's interesting, because when I was in the process for the job and the interview that I did with the board and my chairman, [package holidays were] not part of any pitch that I did," he tells FlightGlobal at EasyJet's headquarters next to London Luton airport. "My pitch was actually to say: 'Look, this is about using the strengths this company has [to] evolve from the position we [are in].'"
Tom Campbell
While the selling of holidays naturally forms part of the carrier's strategy, "this is not about turning EasyJet into a tour operator", says Lundgren. "The core of what we are doing is to be an airline, and that is what we are going to continue to do."
And running an airline is hardly new territory for the ebullient Swede, who describes himself as a "textbook extrovert" who "gets energy from people".
During his time as deputy chief executive of TUI, Lundgren was in charge of the group's six airlines. He suggests the role had "more complexity" in terms of the business's structure: he oversaw everything from the airlines through to retail elements, tour and cruise operators, and hoteliers.
But "that doesn't mean there aren’t a lot of challenges in here as well", he stresses.
IMPROVED OUTLOOK
Several months into the role, and it has been a case of "so far so good" for Lundgren. Since he spoke to FlightGlobal, he has outlined a strong third quarter for EasyJet, which has boosted its full-year outlook.
Lundgren says he has been able to hit the ground running at the carrier because "it's a very easy company to read".
He elaborates: "What I thought about the company from the outside, that is very much being confirmed from the inside – fast moving, lots of energy; really, really customer focused... It still has a kind of entrepreneurial feel and spirit about it."
When Lundgren was poised to become EasyJet chief in December, the airline was in a relatively strong position financially. It was, however, facing questions around its cost base and its ability to maintain growth momentum.
There was also a prevailing sense that while EasyJet was undeniably successful, it had perhaps grown a little too comfortable in its own skin.
But before Lundgren could begin work on those issues, he experienced a eureka moment; he saw in cold, hard numbers just how significant disruption was to the airline's bottom line.
"Before I took up the job, when I did my own due diligence, I was looking through some of the analyst notes and I was looking through our annual reports, and I didn't understand actually why the cost per unit didn't go down, because the company was growing," he recalls.
Lundgren then remembers his "disbelief" at the cost of disruption – referring to the impact of issues outside the airline's control, such as "congestion, ATC strikes, weather". Mindful of the compensation rights given to passengers by the EU261 directive, he quickly realised where he should place his initial emphasis.
COLD FACTS
To illustrate the significance of disruption, Lundgren highlights discussions around a significant internal reorganisation that was going to save EasyJet £12 million ($15.8 million). While such a saving is undeniably significant, he puts it in the context of the "Beast from the East" – a period of extremely cold weather that hit Europe in February of this year – which cost EasyJet £8 million across four days alone.
Tom Campbell
Fast-forward a few months and Lundgren has introduced a "recovery and resilience programme", which has become his "biggest focus", he says.
"A lot of things we can't control," he acknowledges. "But what we can do is mitigate the consequences of things we can control. That's where data is going to be absolutely the key thing."
Today, EasyJet's response to disruption is "a very manual process that takes up a lot of time", he says. "Those are the types of things that you should be able to do in an automated way."
In recognition of that, Lundgren has signed off on a tripling of EasyJet's data-scientist headcount. "I just think data is absolutely the key lever – I think it will take industry to the next step," he says.
The power of "big data" does not end with responding to disruption. Lundgren explains that it touches "everything from aircraft to our maintenance division, everything relating to the customer proposition, competitor issues – we know their schedules, we know their pricing".
For the personalisation of the passenger experience, for example, data is "an absolute game-changer, within the laws and frameworks of the privacy agreements that exist", argues Lundgren.
But beyond data, his initial efforts at EasyJet also encompass some more traditional areas of focus for an airline chief.
He explains that during discussions with the EasyJet executive board in January, "we started saying: 'How can we look at this strategic framework that we have, build upon that, and then see where we have additional opportunities?'"
It was from those discussions – Lundgren calls his relationship with EasyJet founder and current shareholder Stelios Haji-Ioannou "constructive" – that three areas of priority emerged: attracting and keeping more business travellers, introducing some form of loyalty programme, and generating more revenue from holiday packages.
On the latter, Lundgren cites a simple proposition: "When we were looking at our top 20 destinations, we saw that about 20 million of the customers that fly with us don't book their accommodation with us." The pitch, then, "is really just to increase the conversion", he says.
"I can certainly do better than half a million... and also be a good proposition for hoteliers to give them exposure on their website that they can't get today."
EASIER OPTION
Business travel likewise represents an area of untapped potential.
"We have today 13 million customers who travel with us on business travel, but... we could see we hadn't done any investments in order to make it easier for companies and people to travel with us," says Lundgren.
EasyJet is developing a portal for small and medium-sized enterprises to address that issue. With a stated aim to capture "the revenue opportunity that sits there", Lundgren is also looking at "what a more tailored business product would be". He insists this is not about creating a business-class product "in the traditional sense", but rather about investigating offerings such as fast-track security and extra hand luggage.
On loyalty, meanwhile, Lundgren again stresses that EasyJet does not want to create a "traditional" product, while also acknowledging that "we are one of the few companies who hasn't done a lot of investment into loyalty programmes".
A key consideration is the avoidance of adding complexity to EasyJet's business model. "Loyalty for me is how you reward and recognise your most faithful customers," says Lundgren, but he adds: "It's [not about creating] an old legacy loyalty programme that actually becomes a liability and burden to us."
Beyond the priorities agreed with the board, Lundgren sees significant network growth opportunities, mainly in EasyJet's existing core countries such as the UK, France, Germany, Italy and the Netherlands, but "we are not ruling out other markets".
Tom Campbell
That potential is cited multiple times by Lundgren as a reason the carrier is not entertaining an entry into the low-cost long-haul market any time soon.
"We're one of the biggest in Europe as it is today, but I still only have 10% market share," he says. "So when I get the question from people saying 'Will you go into long-haul?' I say: 'Come back to me when we’ve got 30% market share, then we can start having that discussion.'"
CONNECTION PLATFORM
Lundgren also argues that EasyJet has a de facto long-haul product with its expanding Worldwide Connect product, through which its customers can undertake single-transaction journeys with partners such as Norwegian, Corsair and La Compagnie.
He says the initiative – which covers airports such as London Gatwick, Milan Malpensa, Venice Marco Polo and Berlin Tegel – has created "digital hubs where you can connect with partnering airlines... based on one transaction", and adds: "I think that's a way where once again the company has been a disruptor."
Elsewhere, he acknowledges the attraction of adding capacity to destinations such as eastern Europe and Turkey, but notes that "we also have a good pipeline of new bases to come in, where I also think we can grow".
Most prominent among them is Tegel, where EasyJet last year acquired a number of ex-Air Berlin assets, including aircraft and slots. It began flying from the German airport in January, supplementing existing operations at Berlin Schonefeld.
While integration costs have been higher than expected, Lundgren says "we always knew that the first few months was going to be difficult commercially, because we were basically inheriting a flawed schedule". As an example, he cites the "seven or eight" dailies EasyJet is currently flying between Berlin and Frankfurt. "But we need to fly them to get the slots," he points out.
The aim for EasyJet is to become "the Berliners' airline", he says.
"The model remains the same, the product and the service remain the same, so we get the scale and benefits of what we do, but absolutely we want to be seen as the local airline in the countries where we operate."
At Tegel, EasyJet's pan-European credentials are manifesting themselves in "good sales coming not only out from Berlin but also [inbound], which Air Berlin didn't have".
Lundgren also cites France as an example of EasyJet's local-airline credentials. There, the carrier is viewed as anything but a UK-based interloper, he contends.
"[EasyJet is] considered a French airline. And that's what we want to do. We have a French spokesperson. We've got a country director for France. There is a French organisation."
With that confidence in EasyJet's brand appeal across key markets, "I don't have a fear that we will run out of growth opportunities", Lundgren says. "The company has grown between 4% and 9% historically per year, and I have seen no reason to revise those numbers."
PRIMARY AIRPORTS
He is also comfortable with EasyJet's position versus key rivals. Ryanair may have moved towards serving primary airports – EasyJet territory – but Lundgren says: "I go to bed thinking about EasyJet and I wake up thinking about EasyJet."
And, amid Ryanair's problems with industrial action, he asserts that EasyJet's recognition of unions "from day one" puts it in a stronger position where employee relations are concerned.
As for the proliferation of "low-cost" offshoots from Europe's big legacy airlines – such as Lufthansa's Eurowings and IAG's Level – Lundgren believes EasyJet has a natural advantage as a budget operation from birth.
"What goes on within those [legacy] entities and groups is pretty much a shifting of costs that allows you to do different pricing... so I think others will struggle to get to the efficiencies we have by doing what we're doing."
He is also relatively relaxed on the impact of Brexit on EasyJet's operations.
Operating under UK, Swiss and Austrian AOCs is "a responsible thing to do – to set yourself up in a way that you can also mitigate and deal with whatever consequences there might be of something", he says in reference to EasyJet's planning for the UK's potential departure from the European Union. He insists that the new structure does not complicate the running of the business.
Beyond its network plans, EasyJet's growth will also be driven by fleet upgauging. The gradual replacement of Airbus A319s with A320neo jets continues. EasyJet also received its first A321neo in July, and has firm orders in place for 29 more. Compared with the A320s, seating is boosted from either 180 or 189 to 235, notes Lundgren.
"We also have the flexibility in the current fleet plan and arrangement we have with Airbus that we can convert more [outstanding orders to the A321neo] if we want to do that."
For now, the airline's incoming A321neos will be deployed on busy routes from Gatwick to popular holiday destinations such as Palma de Mallorca and Malaga.
Mention of Europe's tourism hotspots inevitably brings the conversation around to a perceived capacity crunch and how the picture has changed since Air Berlin and Monarch Airlines dropped out of the market – and whether more consolidation is to come.
Lundgren says capacity has "perhaps come back a little less for this summer than we expected", boosting EasyJet's fortunes. But he acknowledges that situation is unlikely to continue: "You've always got to assume that the competitive landscape is going to harden up after capacity has come out."
He is also cautious about forcing a change in the yield environment. "With the difficulties with Monarch and Air Berlin... we never took the decision to radically increase prices here, because you [might only] get a short-term benefit."
MARKET DISCIPLINE
For Lundgren, consolidation is an unstoppable force. He recalls that 2017 – when Air Berlin and Monarch disappeared – was "from a demand point of view, quite a good year, and sounds a warning: "If that happens in a relatively good year, it's easy to imagine what's going to happen if now oil prices continue to shoot up."
Still, he suggests that "a higher fuel price is not necessarily a bad thing for us" as it "brings discipline into the market in terms of capacity". That, he continues, "benefits the players who are strong as it is".
Again, however, higher oil prices do not necessarily mean that EasyJet will take the chance to increase ticket prices. "I always was of the view that if you get higher direct costs that hit you like fuel and currency, your first instinct and your target should be to eliminate it, not assume that the customer is going to pay for it," he says.
As to whether EasyJet will take part in proactive consolidation within the region, Lundgren says the airline is still very much interested in Alitalia's short-haul operations.
"It remains to be seen what happens with that," he notes.
He insists, however, that if EasyJet does not take part in the sale of Alitalia, "it will be because we have chosen not to", and that Italy will remain a key market for EasyJet under both scenarios.
To the question of whether EasyJet has any interest in acquiring Norwegian, the answer is much more straightforward: "No."
Lundgren is meanwhile unequivocal about EasyJet's desire to fly from London Heathrow further down the line, should the third runway be built. He notes that the carrier's potential presence there would be "additional capacity", given the hub's current lack of UK domestic and European connections.
"We are flying from 49 of Europe's 50 primary airports," he says. "So why should we not fly from Heathrow?... There's nobody [there] with our business model."
Whatever happens with Heathrow, it is clear that Lundgren has a lot of opportunities to shape EasyJet over his tenure. As he sees it, the challenge is working out which ones to prioritise.
"The biggest challenge I have, actually, is to make sure that we are putting the focus on… the right opportunities that give us the best results."
Get those decisions right, and Lundgren has high expectations regarding EasyJet's future.
"In five years' time we're going to be Europe's most loved short-haul airline," he says in outlining his ambitions beyond the short term. "We're going to be the national preference for people. We would have grown; we would have been delivering the returns; we would have been the most popular company within this industry to work for; and we would have expanded on the initiatives we have talked about with holidays, business and loyalty.
"We would have been leading the game-changing when it comes to the use of data to really offer a personalised approach on what we've been doing; and we would have cracked down on disruption, to make sure that costs go down and to make sure that we are delivering an even better experience to the customer."
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Source: Cirium Dashboard
