Ready Freddie

No Frills: the truth behind the low-cost revolution in the skies

Simon Calder <em>Virgin Books, 27

The day that Simon Calder launched No Frills was the day easyJet announced that it was buying its rival airline Go. As the low-cost airline industry moves into a new, more mature phase, it is timely that a historical account of how we arrived at this stage should have been written, and that the players, some of whom are already no longer with us, should have their efforts documented.

Change is a vital part of a healthy industry, but in the past seven years alone, the European aviation industry has gone through staggering changes. Simon Calder's book puts these in perspective, and starts by telling us how Vladimir Raitz introduced the concept of the low-cost flight to air passengers with his early postwar charter flights. Sir Freddie Laker extended the idea to scheduled flights and started offering the first cheap flights across the Atlantic. "Are you ready for Freddie?" he asked in his own TV ads. Unfortunately for him, and the consumer, his competitors were ready and waiting. By the end of the 1970s, the US aviation market had deregulated, but in Europe, the flag-carrying airlines were still national symbols of virility, and European carriers would not tolerate competition in the form of Laker's Skytrains. At least Sir Freddie was able to inspire Sir Richard Branson to launch the next transatlantic challenge to the established airlines. Virgin Atlantic is still flying today, and remains my airline of choice when I am flying long-haul.

Deregulation of the aviation industry in the US happened 25 years before deregulation began in Europe, and the result is that the godfather and inspiration of all the low-cost, short-haul airlines is to be found in the United States, in the form of Southwest Airlines. Relatively unknown outside of the US, Southwest operates hundreds of Boeing 737s, flying short-haul domestic routes, and is the world's largest airline by market capitalisation. In addition, it reports year-on-year profitability and is statistically the world's safest airline, with no fatalities in the millions of flights that it has operated.

This sets the scene for an account of Europe's low-cost, short-haul airline industry, which, following deregulation and with some experience under its belt, is now flourishing. Ryanair originally operated flights between Ireland and the UK, and still flies a large proportion of its passengers on these routes. It has now expanded on to the Continent and believes that people will fly to places they have not even heard of, if the price is right.

EasyJet operates high-frequency flights between Continental airports that are close to city centres and, with careful yield management, it attracts both business and leisure travellers. British Airways entered the low-cost sector with the launch of Go, and in so doing, endorsed the no-frills industry. Suddenly, the upper middle-class and business travellers started paying attention to the low-cost airlines, whereas previously we had been dismissed as fit only for backpackers and budget travellers. KLM has attempted to enter the low-cost sector with Buzz, but is using a relatively inefficient and expensive aircraft, the same type as operated by Debonair, which went bust in 1999. So popular is the low-cost sector now, that even the mid-market carriers are joining in.

The business plans of traditional airlines are designed around those who do not pay out of their own pocket; when easyJet launched in 1995, the industry was still chasing air-miles junkies with code sharing, consolidation and an ever-increasing number of frills in order to sustain cost structures that kept air fares high. EasyJet took the opposite and independent approach. Two expressions sum up this approach to the short-haul airline industry. The first is "there's no such thing as a free lunch": so easyJet eliminated the frills of flying, such as tickets, travel agents, "free" meals, limousines, executive lounges - anything that detracted from offering the consumer a reliable seat at a good price. True, most people are happy to accept a glass of champagne, but not if it costs hundreds of pounds. Nobody offers you champagne on the bus, so why should they on a short-haul flight?

"Money is a universal language" is the second expression. EasyJet set out to change consumer behaviour using price as the incentive. When we started the airline, my critics warned that Europe was not ready for a direct-sell airline, that I would have to rely on travel agents. But the only way we could offer cheap flights was by persuading consumers to call us direct and buy a seat; and in order to get such cheap flights, the consumer was prepared to play by our rules. Having got all those people to call us on the phone, we then used the same incentive to sell seats on our website. It costs easyJet less to sell tickets through its website, so it is able to offer its best prices online. Today, easyJet sells more than 90 per cent of its seats to its 8.4 million passengers annually through the easyJet website. It remains the only airline in the world that has never paid a penny to a travel agent.

Flying short-haul in Europe with a low-cost, no-frills airline has now become the accepted way to travel rather than the exception. EasyJet is now one of the biggest 250 companies in the UK by market capitalisation, it is profitable, and it has a well-established business plan so that in future it will do more of the same. While opening up its new bases and some new routes, it will continue to operate high-frequency, reliable flights at low prices, joining up the dots of its existing destinations to benefit from the economies of scale that it has already established in those destinations. With the European population double that of the United States, there is no reason why the low-cost airlines in Europe cannot become more than twice the size of Southwest Airlines.

In addition, since the tragic events of 11 September, many passengers have cascaded down from the former national carriers to the low-cost sector, giving easyJet an unprecedented opportunity to expand. This is why the airline is buying Go, as well as pursuing negotiations with manufacturers for an order of more aircraft. Only three years ago, I was genuinely frightened that British Airways was pulling a dirty trick and was going to use its financial muscle to put me out of business. Now, easyJet is buying the airline that BA found it couldn't actually manage.

For my part, I have announced my intention to step down as chair of easyJet plc, which is nowadays run by its highly capable board and management team. Such skills as I possess are more entrepreneurial, rather than those needed by the chairman of a FTSE 250 company. But at easyJet, we have established strong brand values that I am now applying to my private companies under the easyGroup umbrella.

The subheading to Simon Calder's book is "the truth behind the low-cost revolution in the skies". Perhaps his next book will not limit itself to the skies.