Cheapskates everywhere: that Mediterranean cruise could be within reach at last. There'll be no free ride to the port, and no free food or entertainment on board. The cabin will measure 30 meters square and housekeeping will be extra. But the fiberglass suite is easy to clean, and costs as little as [Pound sterling]29 a night.
Earlier this year, serial entrepreneur Stelios Haji-Ioannou, the man who gave Europe its first budget airline, cashed in [Pound sterling]14 million of his easyJet shares to fund what he calls a "little shopping spree." Boldly expanding his no-frills model into new markets, Stelios (he insists on first-name informality) plans to open the first easyHotel in London this year with prices from [Pound sterling]5 a night, an easyBus fleet and easyCruise, slated to sail next summer. Also on the list: easyPizzas and easyTelecom, a mobile-phone service.
Can he make it work? The soaring success of easyJet and its rivals was Europe's great business story of the late 1990s, and yet more carriers are emerging to serve the 10 nations that joined the European Union last week. While copycatting the idea may look like a no-brainer, though, some experts doubt Stelios's expansion plans have much of a future. "The no-frills model is very fragile," says Chris Voss of London Business School. "Stelios is applying it rather indiscriminately."
The entrepreneur's record is mixed. He launched easyJet in 1995, when he was 28, and it now has 70 planes and revenues of [Pound sterling]932 million last year, up nearly 70 percent from 2002. But his first attempt to clone the no-frills model, a Europe-wide chain of Internet cafes launched at the height of the bubble, has since struggled to make money. His first easyCinema--tickets for just 50 pence--is suffering because big distributors, fearful of undercutting their other business, refuse to allow cheap screenings of new blockbusters.
The larger problem: slashing prices is not enough to make no-frills work. Stelios, for example, likes to sell direct to the customer, preferably online, and avoids corporate accounts on the theory that only individuals care enough about price to be loyal no-frills customers. He chooses only sectors in which the volume of business will clearly rise as prices fall. There's no point, say, in offering a cut-rate burial service. Says Stelios: "The demand for funerals isn't going to go up--regardless of the price."
He searches for businesses where he can practice "yield management." The consumer who books early--and preferably online--pays less and gets a further discount for buying when demand is low. Crucially, the customer must be ready to trade convenience for price. And it's not clear that Stelios's latest ventures fit that profile. Guests may not be ready for the austerity of an easyHotel room--no television or telephone--however low the price. "If I am flying to France for [Pound sterling]4.99, I don't mind if I can't recline my seat," says hotel consultant Nigel Massey. "It's quite different if I am staying a night in a hotel." Besides, while many travelers now reserve airline seats online, the same is not true for hotel rooms.
So far, imitators have emerged only in strictly limited areas. In March the British bus operator Stagecoach launched Megabus service between 20 British cities, using buses imported from Hong Kong. Book early online and the two-hour ride between London and Oxford can now cost as little as [Pound sterling]1, less than the price of a pint of beer. (Beware: there are no toilets on board.) "In transport, there will always be a market that's driven by price rather than luxury," says Megabus spokesman Steve Stewart. "We have built our model on that of the airlines. People know that it works."
New players like Britain's Virgin Mobile and Sweden's Tele2 are also moving into the discount mobile-service market. They are buying cheap call time from existing operators to establish their own low-cost virtual networks. Profits come easier with no license fees to pay and no databases or infrastructure to maintain. The easyJet rival Ryanair has leased its name to a cut-rate telecom. Stelios's own easyTelecom is, uncharacteristically, a latecomer to this no-frills market.
Stelios says his detractors lack the imagination to see a world of easyEverything. "People who are used to affluence have to start thinking like the common man," he says. "If you are going to maintain low cost you have to work in a low-cost office." Stelios works from an open-plan office in a former London piano factory. But as the son of a Greek-Cypriot shipping magnate, he concedes that risks come easy to him. "I have always been fortunate enough to be able to gamble sums of money that I can afford to lose," he says. No matter how many of his experiments crash, Stelios won't.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
