Low-cost price war as easyJet fights back
By James Daley
Published:08 June 2007 Independent
http://news.independent.co.uk/business/news/article2631607.ece
EasyJet signalled the start of a full-scale price war in the low-cost flight market yesterday, indicating it would stand up to a series of aggressive price cuts planned by its rival Ryanair this summer, to ensure its fares remained competitive and its planes full.
Unveiling an 11 per cent year-on-year rise in its passenger numbers, the airline echoed concerns voiced by Ryanair's chief executive Michael O'Leary, on Tuesday, that market conditions would be tough over the second half of the year. The company said it was anticipating revenue per seat to decline by between 5 and 10 per cent compared to the latter half of last year. However, the budget airline insisted it would "continue to offer low fares throughout the summer to ensure great deals for our customers and high load factors".
EasyJet's load factor - which shows how full its planes were - fell 0.2 percentage points in May from 84.2 to 84 per cent. Earlier this week, its main rival Ryanair revealed an even sharper fall - from 82 to 80 per cent - as it warned that softening market conditions could push it towards a loss during the winter. British Airways also recently reported a significant fall in its load factor.
However, Ryanair followed its profits warning by announcing that it intended aggressively to cut fares this summer, to steal share from its competitors. Speaking on Tuesday, Mr O'Leary said: "Ryanair will lead and win every fare war in Europe. It's never going to be cheaper to fly across Europe than this summer and winter."
Ryanair blamed the recent poor fortunes on a number of factors, including "swingeing" increases in charges for using Stansted Airport, a doubling of airport taxes and the recent rise in UK interest rates. Mr O'Leary also hit out at the recent calls to tax budget airlines even more heavily, claiming hysteria about the environment was being whipped up by "the guilt-ridden middle classes who drive the SUVs to Sainsbury and buy kiwi fruit from New Zealand and kumquats from Latin America".
However, EasyJet was slightly more upbeat about prospects for the year ahead yesterday, pointing out the company should benefit from a reduction in costs. "In the second half, we will see increased momentum in cost reductions with unit costs, excluding fuel, down in excess of 5 per cent year on year," the group said in a statement.
"This anticipated decrease in unit costs reflects continued improvements in the cost of aircraft ownership, careful management of airport-related costs and a reduction in overheads. For the year to September 2007, our guidance remains unchanged, and we expect to increase pre-tax profits by 40 to 50 per cent compared with the previous year."
Both airlines continue rapidly to expand their networks across Europe. Last month, EasyJet launched eight new routes, including new daily services between Paris and Athens and Edinburgh and Milan.
In spite of a slightly more upbeat statement - which prompted analysts at Goldman Sachs to raise its recommendation on the stock from sell to neutral - EasyJet's shares finished the day down more than 2 per cent at 511p, giving the group a market value of £2.14bn.
The stock has fallen more than 30 per cent in just over two months. The firm warned about weakness in the market at the start of May, three weeks after hitting all-time highs of 732p a share.
Shares in Ryanair also fell after its own warning this week. Although the group is trying to expand more rapidly through acquisition, Mr O'Leary said on Tuesday he expected the European Commission to block its bid to buy the Irish carrier Aer Lingus. He plans to take the Commission to court if it rules against his airline.