The founder of easyJet blasts the airline for becoming a 'gravy train' for directors.
Yesterday brought good news for Sir Stelios Haji-Ioannou, entrepreneur and founder of budget airline easyJet (LSE: EZJ).
Shares take off
On Thursday, easyJet shares soared by more 10% to 445.5p after it released a solid set of figures for the final quarter of 2011. As I write on Friday morning, its share price has crept up another 2% to 454p.
In the last three months of last year, easyJet's revenue leapt by a sixth (16.7%) to £763 million. This was largely due to a rise of more than 9% in per-seat revenue to nearly £52, plus a near-7% improvement in seats flown to 14.7 million.
Overall, easyJet's passenger numbers climbed by more than 8% to 12.9 million. Nevertheless, the budget airline still expects to lose £140 million to £160 million in the first half of this year, against a loss of £153 million in the first six months of 2011.
From airline to gravy train
Despite these operational improvements, Sir Stelios launched a scathing attack on Carolyn McCall, easyJet's chief executive, chairman Sir Michael Rake and their boardroom colleagues. According to the Guardian, easyJet's biggest shareholder (with a stake approaching 38%) claims that what was once his baby has become a 'gravy train' for executives to line their own pockets.
In a three-page litany of criticisms, Sir Stelios accuses the company of using 'phoney calculations' to produce a 12% return on capital employed (ROCE). Using his own calculation for ROCE, Sir Stelios gets a figure of 4%, just one third of that delivered using the board's method.
As a result, shares issued this month to 10 executives under a new long-term incentive plan will pay out as much as £8 million, which is far more than Sir Stelios believes is due.
Sir Stelios speaks
In a searing criticism of institutional investors, the entrepreneur remarked: "I am aware that many of the other EZJ shareholders are listed companies themselves, so they have a conflict of interest, as they want to carry on with the same fat-cat City bonus culture! Turkeys will never vote for Christmas."
Sir Stelios also gave his personal thumbs-up to Vince Cable's plans to require a binding vote by at least three-quarters (75%) of shareholders to approve director remuneration.
A battle for the skies
Of course, this isn't the first time that Sir Stelios has directed his anger at easyJet's executives. In fact, this ongoing feud has been raging since 2008. Indeed, last September, the entrepreneur threatened to start a rival budget airline to compete with easyJet, called Fastjet.
On one hand, onlookers can sympathise with Sir Stelios, as he watches the company he founded in November 1995 heading off in a new direction. Then again, the counter-argument is that if the entrepreneur didn't want to relinquish control of the carrier, then he should not have listed it in London in 2000, nor left its board in 2010.
Finally, this is my fourth story this week on 'responsible capitalism' and the linking of directors' rewards to shareholders' interests.
First came Vince Cable's plan to curb corporate excess, followed by the withdrawal of a £2.5 million bonus for the chairman of Cairn Energy (LSE: CNE). Then came the news that Royal Bank of Scotland (LSE: RBS) had trimmed the bonus of chief executive Stephen Hester to below £1 million.
If this keeps up, then bulging bonuses and corporate fat-cattery are set to be the most talked-about business topic for 2012!
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