easyJet May Challenge Swissair`s Monopoly

easyJet Holdings Ltd, the parent company of easyJet airline co ltd, UK`s leading low cost carrier, has acquired a 40% equity stake in TEA Switzerland, a Swiss registered charter airline based in Basle. easyJet has the option to acquire up to 90% of TEA as soon as that is permitted by Swiss law.

The combined entity will operate 21 Boeing 737-300 and 2 Boeing 737-700 by the end of 1999, and holds options for another 12 Boeing 737-700, probably making it the most modern fleet in the world. That establishes easyJet as the leader in Europe amongst low cost airlines `leap-froging` ahead of Ryanair in terms of total number of available seats and average fleet age.

Stelios Haji-Ioannou, chairman of easyJet said: `This strategic investment is part of our pan-European expansion plans, and it came at a price that could be more attractive than organic growth. Of course a lot of work has to be done to turn the company into a low cost scheduled carrier. We will be conducting important negotiations with key suppliers, such as aircraft lessors and airports in order to reduce TEA`S existing cost structure. Assuming we can achieve the cost reductions we need, we will be re-launching TEA as easyJet Switzerland in the scheduled, point to point, no frills, low fare sector. I was attracted by the brand new fleet (3 x 737-300 and 2 x 737-700 being one year old on average) and the superb reputation of the company as a reliable operator. By adding the easyJet marketing flare, I think we will be unbeatable.`

Markus Seiler, managing director of TEA said : ` We are delighted with our new strategic investor and we will work with them to change the company. I have always believed that the future is in the low cost scheduled services but unfortunately the Swissair state monopoly has prevented us from achieving our objectives any earlier`.

Switzerland, not being a member of the European Union, does not permit non-Swiss citizens to own more than 40% of a Swiss registered airline. Moreover it still operates an anachronistic regime of retaining exclusivity of scheduled services for the `flag carrier` Swissair. Stelios commenting on the business of `flag carrying` said : `The funniest thing is that the famous Swissair tail is not their trademark but the national symbol which can be carried as of right by any Swiss registered airline. TEA has the same treasured symbol on its tail fins which I am sure will upset Swissair management. It`s a nice little coup.`


However the timing of the investment could be impeccable because a new Swiss law abolishes the Swissair monopoly with effect from the 1st of October 1998. Also there are strong rumours that Switzerland may join the Open Skies regime of the European Union thus enabling easyJet to increase it`s stake to 90%.

Assuming we can achieve the cost reductions by October 98, the company will launch scheduled services from Zurich and Geneva to London Luton and other points on the existing easyJet network (Nice, Barcelona, Amsterdam, Glasgow etc.). Finally the golden Swissair monopoly between Zurich and Geneva, with one of the highest yields (fares per mile) in the world, will be challenged with fares as low as CHF 49 each way (approx. £19).

The co-operation between the two airlines will start immediately with one of TEA aircraft flying for easyJet starting on the 1st of May 98 on the Geneva - London Luton route which is already served by easyJet.

This investment follows a failed attempt by easyJet to acquire Air Holland due to the minority shareholders exercising their right of first refusal at the same price offered by easyJet. Another strategic objectives achieved by easyJet with this move, is to reduce dependence on Luton airport which the company fears may become too expensive for a secondary airport following a recent privatisation.