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Stelios to launch rival airline as relations with easyJet nosedive

The low-cost airline’s founder accuses his old company of smear tactics against him and violating agreements

The long-running feud between Sir Stelios Haji-Ioannou and easyJet has reached new heights of bitterness with the entrepreneur threatening to launch a rival airline and accusing the management of the company he founded of orchestrating a smear campaign against him.

Haji-Ioannou, who gave up day-to-day control of the company more than 10 years ago, has repeatedly clashed with easyJet’s board in recent years over the way it was being run.

But in what appeared to be a pre-emptive strike against the new venture, easyJet said on Monday that Haji-Ioannou “intends to set up an airline branded Fastjet”. The tycoon has already set up a website, The new website says only: “ by Stelios. Coming soon!” against a vivid red background.

Haji-Ioannou declined to give more details of the launch on Monday, saying only that he will not now abide by the terms of an agreement last October not to launch a rival, instead accusing easyJet of breaching its provisions by smearing him in off-the-record briefings to journalists.

Set up by Haji-Ioannou in 1995 with a £5m loan from his shipping tycoon father, easyJet helped to pioneer low-cost air travel in Britain and challenge the stranglehold of national carriers such as British Airways. After the business floated in 2000, netting him a £280m fortune, he took his ideas into a host of other consumer ventures, launching, among other things, internet cafes, pizzas and hire cars all branded “easy”.

Under the terms of its flotation in 2000, easyJet licensed the brand from Haji-Ioannou’s company easyGroup. The terms of the transaction meant easyJet could only use the brand for its core activity – running an airline – and limited any revenues it made from other activities to no more than a quarter of total sales.

But following a boom in budget travel and new revenue lines such as baggage check-in fees, Haji-Ioannou went to court to argue that the agreement had been breached.

The row was resolved in October of last year, with easyJet increasing the annual royalty it paid to easyGroup. Instead of getting nominal £1 a year easyGroup now receives a percentage of easyJet’s revenues, amounting to almost £9m for the first two years alone, and a possible £65m over 10 years.

Under the terms of that agreement Haji-Ioannou, who remained on the board until last year, separately agreed “not to use his own name or a derivation of it to brand any other airline which flies to or from any country in Europe for a period of five years”.

Nor is he allowed to hold a stake larger than 10% in another European airline. EasyJet agreed to pay him £300,000 a year in return for those commitments.

Haji-Ioannou said that the non-compete agreement had been invalidated because a clause committing both parties to enhance the reputation of the easyJet brand as well as his personal reputation had been breached.

A statement on his behalf said: “Sir Stelios strongly believes that the directors of easyJet, via a smear campaign conducted by off-the-record briefings to journalists, have repeatedly breached the clause, so he has terminated the effect of the letter for repudiatory breach and has rejected all payments offered under this letter since May 2011.”

Easyjet, whose chief executive is former Guardian Media Group boss Carolyn McCall, said it would do whatever it could to protect itself and its shareholders, though it is unclear what they can do to prevent Haji-Ioannou’s plan.

Since the signing of October’s agreement there have been signs that all was not well between Haji-Ioannou and the airline.

He had been campaigning for the airline to make dividend payouts to shareholders, a wish that was granted by the company’s management last week.

He has also disagreed with the company over the size of its aircraft fleet, believing it should not be expanded further without evidence that the new planes will make good profits.

One immediate difficulty Haji-Ioannou faces in launching a rival is that he continues to own 26% stake in easyJet, while family members have an 11% stake through a company called Polys Holdings.

The Haji-Ioannou family’s combined holding was worth around £550m at Monday’sclosing share price. There were reports that other shareholders were calling for him to sell immediately.

It may not be easy, either, for Haji-Ioannou to achieve the success he had with easyJet when setting up a new airline.

“When easyJet and Ryanair were established the market was very different. Ticket sales went through travel agents, the whole concept was quite new. They developed new routes and created new demand. Any newcomer is going to struggle. The low-hanging fruit is gone,” said Gert Zonneveld, an airlines analyst at City broker Panmure Gordon.

Easyjet shares closed on Monday up 1p at 353p. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds