Buoyant easyJet lands a blow on Stelios
Unexpectedly good trading forecast from budget carrier delivers riposte to the founder’s criticism that it is growing too fast
Stelios Haji-Ioannou, founder of (and still a large shareholder in) easyJet, has repeatedly attacked the plans of its current management. EasyJet delivered a riposte to Sir Stelios Haji-Ioannou’s relentless criticism of its financial performance recently by predicting it would generate higher-than-expected profits this year.
Shares in the budget carrier jumped by 17% to the top of the FTSE 250, up 54p to 367p, as it beat analysts’ expectations, thanks to rising demand from business passengers and an rise in add-on fees.
Good news has been a rare commodity at easyJet in recent years following the eruption of hostilities over the carrier’s expansion plans between the airline’s board and Haji-Ioannou, its largest investor, whose family has 38% of the shares.
EasyJet said third-quarter revenues rose by nearly a quarter to £935m in the three months to 30 June, with revenues from extras such as bag check-in fees rising by 17% to £11.65 per seat and the amount of business passengers growing by 20%. Overall passenger numbers grew by 17% to 14.4m, although the comparison with last year’s total was flattered by the effect of the Icelandic volcano in April 2010, which grounded more than 100,000 European flights. Analysts at Investec raised their full-year pre-tax profit forecasts from a consensus of £174m to between £200m-£230m.
EasyJet said passengers appeared to have accepted new baggage charges that set luggage check-in tariffs according to distance travelled, running from £9 per bag for domestic flights to £14 for long-haul destinations such as Amman in Jordan. “We have seen no impact [on demand],” it said.
Rising business bookings, which account for around two out of 10 easyJet travellers, were credited to a rise in daily services between key commercial destinations. “Business passengers want to fly between the primary airports and they want to fly multiple times per day. Much of the capacity we added last winter was building up key city pairs like London to Amsterdam and Paris to Milan,” easyJet said.
Andrew Lobbenberg, analyst at Royal Bank of Scotland, said the figures were the best possible response to Haji-Ioannou. He said: “At the heart of the debate with Stelios is the issue of to what extent the company should grow by investing in aircraft and to what extent it should return cash to shareholders.
“Stelios is arguing that the company’s historic return on capital has been below target. Showing that the company is climbing to its profitability targets is probably the best possible riposte to the argument that the company should not grow.”
EasyJet is targeting a return on capital employed of 12%, the equivalent of 12p for every £1 invested in aircraft, an asset that easyJet is accruing at speed. EasyJet has 203 Airbus jets, set to rise to 220 by 2013.