EasyJet: orange upstart that changed flying prepares to go private
European low-cost pioneer is set to be bought by private credit group Castlelake for £5.5bn three decades after its launch
Before dawn broke on a chilly morning last November, a selection of key figures from easyJet’s past and present gathered in hangar 89 at Luton airport to celebrate the airline’s 30th birthday.
Fred Rivett, who captained the orange-branded airline’s first ever flight from Luton to Glasgow in November 1995, and the airline’s founder, Sir Stelios Haji-Ioannou, were among those attending.
“The airline has stayed close to its original purpose: To democratise travel,” its current CEO Kenton Jarvis said, before festivities kicked off at the event.
Less than a year later, the carrier is in flux. The company, which came to the London market in 2000, is set to be taken private in a £5.5bn deal with US private credit group Castlelake. The US group has until August 3 to make a formal offer.
It marks a historic chapter for the airline that was one of the original European low-cost trailblazers.
EasyJet led this wave that transformed flying across Europe, giving families in the UK cheaper holidays abroad — a move that both opened up new continental destinations and accelerated the decline of once-thriving British seaside holiday spots.
When the airline started, its marketing campaign to “Fly to Scotland for the price of a pair of jeans” meant that “we had to tear up the rule book to make a real difference”, according to Jarvis.
It stuck its phone number on the side of the plane to cut out travel agents who ate into its margins and, it argued, kept fares high.
While British Airways was still serving hot meals on short-haul flights, easyJet began a pay-at-trolley service. This kept costs down as well as the mess for crew to clean between flights.
It also flew only Airbus aircraft, a feature not noticed by passengers, but one that meant every certified easyJet captain could pilot every plane.
The airline has proudly stuck to its jeans claim, a memorable-if-niche benchmark.
A chart distributed at its birthday celebration last year showed the price of Levi’s has risen from £32 in 1995 to £100, while the airline’s base ticket has slipped from £29 to £26 — a drop of 55 per cent in real terms factoring in inflation.
The jeans slogan was part of the airline’s “maverick, entrepreneurial start-up” appeal driven by Haji-Ioannou, said John Strickland, an aviation analyst.
“They completely changed the industry, and opened up markets that weren’t served at all,” said Richard Slater, who runs the independent travel agency Henbury Travel.
As well as beach holidays in Spain and Italy, easyJet’s rapidly expanding network put “intellectual” destinations such as former eastern bloc cities on the tourist map, he added.
EasyJet’s success also pushed upmarket rivals to copy its methods. British Airways and the other legacy carriers stripped out costs and cut back free food. The unintended impact of this has been to turn easyJet into a peer.
“Some passengers now would rather fly easyJet than BA [on short haul] for instance, because the seats, the service, everything is easier and better quality,” said Slater. “You get service with a smile.”
Its three-decade journey has not been without turbulence. In the 2000s, the airline was embroiled in a long-running lawsuit with its founder Haji-Ioannou over royalty rights. The airline has lagged Ryanair in profits, and shares have never recovered to the level seen before the Covid-19 pandemic grounded its entire fleet in 2020.
The comparison with Ryanair has been a constant niggle for the airline: Its threadbare Irish rival has turned cost optimisation into an art form.
The Irish carrier offers seats from as little as €16, and uses planes with retractable steps to speed up loading, forcing passengers to wait on the tarmac in all conditions to board.
EasyJet itself has already drifted quietly upmarket from its humble origins, moving into so-called primary airports such as Charles de Gaulle in Paris and Milan Linate — locations that bring it prime business travellers — said Strickland.
“They have diversified into a pan-European airline that is pretty rare in the industry,” he added.
Many believe the airline’s best hope lies in moving further upmarket, closing in on BA rather than getting into a cost-cutting arms race with its Irish rival.
A sale to a larger group, such as Lufthansa, Air France-KLM or BA’s owner IAG, would likely face an antitrust claim — but other options for improving the airline’s profitability include tying up with one or several long-haul carriers (Virgin Atlantic is a frequently touted name) to increase the impact of its network.
If the Castlelake deal goes through, the airline will vanish from the London Stock Exchange but will certainly not disappear from the skies.
The US private credit group is expected to continue to run the airline, taking delivery of new aircraft while accelerating its push towards generating £1bn of profit. Although Castlelake, which owns a third of Scandinavia’s SAS, has never operated an airline outright, it has a long history of managing aircraft financing.
Investors “do not expect a radical change in the business plan of easyJet,” said Andrew Lobbenberg, an analyst at Barclays.
He expects Castlelake to “continue to develop the holidays business and grow the airline modestly”. Without the quarterly glare of investor updates, it may “cull the weakest-performing routes or bases” and might launch new products, such as its long-awaited loyalty scheme, faster.
The private credit group’s preliminary offer price is more than double easyJet’s lowest share price during May, when fuel costs from the Iran war deflated its stock.
EasyJet’s shares have largely remained below the preliminary offer price since 2021, when the airline launched a rights issue — a factor which has forced the airline’s board to engage with Castlelake.
Not all shareholders are thrilled by the decision.
“We continue to be of the view that this is absolutely not an opportune time to consider selling shares in easyJet,” one top 20 shareholder told the FT. A deal “risks transferring the benefits of future recovery and growth to other market participants rather than the existing shareholder base,” they added.
“A long-term shareholder that looked at [the] long-term opportunity might still feel a bit short-changed here,” said another investor. “As is often the way . . . both sides probably feel a bit cheesed off when you get to the [agreed] price”.
They added that the “board probably feels they’ve done a lot to extract from this one bidder”.
An agreed deal is likely to close next year, but any potential distraction in the business such as a management overhaul, will benefit rival carriers such as Ryanair and Wizz, and holiday operators such as Tui and Jet2.
If rivals are jubilant, they are keeping it behind closed doors. “Competitors come and go, but at the end of the day competition is good,” said Jet2 boss Steve Heapy.
Slater at Henbury Travel is more open: Jet2 “will run rings around them,” he predicts.
“If [Castlelake] mess up the brand we’ll be left with a low-quality business, and people will switch to other airlines.”