Easy Goes It

As far as most British travelers are concerned, low-fare airlines are interchangeable. EasyJet, Ryanair, Go, Buzz ... they all can get you to Europe's beaches or ski slopes for about the price of a train ticket to Skegness. And they all make air travel as glamorous as a ride on a Routemaster bus. Brand loyalty is unheard of. So what to make of the revelation last week that Stelios Haji-Ioannou's easyJet is in talks to buy Go and maybe British Airway's loss-making German subsidiary to boot? In a stroke, easyJet is poised to pull ahead of Ryanair to become Europe's largest no-frills carrier. But it's not a sure bet that bigger will be better. Size means complexity, and one of the reasons easyJet has been such a success — last week it also announced its first-ever profit for the slow winter season, fueled by 36% growth in both sales and passenger numbers — is that it has kept operations simple and cheap. Mergers are rarely easy; Go CEO Barbara Cassani, who wanted to take the company public later this year, is no fan of the deal and won't stay on if it happens. There's also the cost. Analysts expect easyJet will have to pay Go's owner, venture capital firm 3i, about £400 million, almost four times what British Airways got for unloading Go last year. "At one price, it makes a lot of sense, and at another it makes no sense at all," easyJet's founder, whom everybody calls just Stelios, told TIME as talks continued. "The line between them is very fine."

EasyJet could come up with the cash by asking shareholders to buy new stock — but Stelios, who will step down next year as easyJet's chairman, admits he's unlikely to shell out himself. ("My back pocket is there to fund new ventures," he says.) What can Stelios' fellow shareholders expect from this investment? Low-fare flyers don't care much about who has the biggest network, and the merger is unlikely to let easyJet raise prices. Even though it and Go both fly to places like Nice and Malaga, their respective "London" bases at Luton and Stansted are distant enough from each other to justify keeping both sets of routes running. "It's about creating more demand," says Stelios, "not about jacking up fares." EasyJet figures that Go, which sold 74% of its seats in April, can do even better under the easyJet banner — and, crucially, on the easyJet website, with its rather obvious easyjet.com address. Go uses the harder-to-guess gofly.com (go.com belongs to an Internet portal). "The Internet address can make the difference between a 65% load factor, where you lose your shirt, and 85%, where you make a fortune," says Stelios. (EasyJet sells 84% of its seats.) And easyJet/Go could also be in a stronger bargaining position with airport authorities and with suppliers like Boeing and Airbus.

But the real point of easyJet's dealmaking is to outfox the competition. Increasingly, that doesn't mean Ryanair, which is growing by offering super-cheap fares to ever more out-of-the-way destinations. easyJet, by contrast, takes the more expensive option of flying to major airports in places (like Paris) to which people already want to go. That means fighting with other discounters and major airlines for landing slots. Taking out one of the discount players, says J.P. Morgan analyst Chris Avery, "slows down the pace of the land grab." Stelios himself concedes he is worried about what might happen if Go actually did get to a stock-market float, perhaps for considerably more than £400 million. "Suddenly, you'd have a well-funded third player which could throw its weight around and be unpredictable," says Stelios.

And then there's Germany. Just days after the Go talks went public, easyJet announced it was buying an option to acquire Deutsche BA, a struggling full-fare competitor for Lufthansa's domestic business. EasyJet is pitching in ?5 million up front, another ?600,00 a month, and three managers to teach DBA the low-cost game. In return, it gets the right to buy the 16-plane line by 2003, making fare wars in Germany almost inevitable. EasyJet's expansion plans are risky, it's true — but it's Lufthansa that ought to be most worried.