Price war will hurt no-frills airlines

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Price war will hurt no-frills airlines

With fares set to fall 20% there's a bleak winter ahead, says Ryanair

Terry Macalister
Tuesday September 14, 2004
The Guardian

Low-cost airlines warned yesterday that the industry is heading for an "awful" winter and new year - which will, however, delight consumers.
Ryanair says fares have dropped by some 5% during the first half of the year but could fall nearly 20% by the end of 2004.

EasyJet says it is steeled for "difficult times" ahead, which could last between six and 18 months.

"It's going to be awful out there. There are going to be continuing fare wars in 2005," said Ryanair founder and chief executive Michael O'Leary.

Speaking at a UBS transport conference in London, Mr O'Leary said average fares would fall to the further end of its 10%-20% forecast range in the second half of this year.

"Yield [average fare] declines in H1 [the first half] now look like they are at the lower end of our 5% to 10% range," he said.

Despite the gloom, Ryanair's boss said his company would still meet its targets of full year after-tax profits up 20%.

EasyJet warned it would pull out of more airports if landing charges and other rates were not kept at sensible levels.

The airline founded by Greek shipping tycoon, Stelios Haji-Ioannou, recently announced plans to quit Zurich. "If you have airports which are charging stupid prices, you will see us withdraw," said easyJet financial director Chris Walton.

The results of a review of the company's growth rate, deployment of aircraft and route network, would be announced within weeks, he added.

But a downgrading of expansion plans is now expected. "It will be a very hard winter, and that will last for some time," said Mr Walton.

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"Whether it is six or 18 months, we are looking at a very difficult time," he added.

Despite this, easyJet is still watching for opportunities arising out of the financial troubles at Alitalia, which could lead to Italian routes becoming available.

The gloomy forecasts come as Europe sees a continuing expansion of capacity with new airlines starting up.

EU Jet - formed by a property developer and an ex-Ryanair executive - is the latest to start services from Manston in Kent. Wizz Air of Poland, Sky Europe in Hungary and Air Berlin in Germany are among the new generation of firms.

Chris Avery, an airline analyst at JP Morgan, believes Mr O'Leary's bleak forecasts are primarily aimed at scaring off market entrants.

"My view is that Ryanair's bottom end [minus 20%] yield forecasts are for competitor consumption rather than for analyst modelling.

"I would be surprised if it turns out that bad...but then I have been surprised before," said Mr Avery.

The other problem facing airlines has been rising fuel costs. Most of them have hedges in place to avoid the worst impact of $50 per barrel oil prices but Mr O'Leary said he was confident the global price would decline to $30 by next summer.

Its not just the low-cost players that are being brought down. British Airways has been hit hard by rising compe tition and last week announced plans to reduce its £5.6bn debt mountain with the sale of its stake in Qantas of Australia.

Other traditional European carriers are looking for ways to compete. Air France and KLM of the Netherlands recently merged to reduce costs and improve profitability.

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DA "THE GUARDIAN"

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[asfme]

EasyJet sees tough times ahead
Mon 13 September, 2004 12:02



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LONDON (Reuters) - EasyJet expects a tough six to 18 months and has confirmed it will announce the outcome of a strategic review in several weeks.

"It will be a very hard winter and that will last for some time. Whether it is six to 12 to 18 months, we are looking at a very difficult time," Finance Director Chris Walton told Reuters on the sidelines of a UBS transport conference in London on Monday.

Analysts expect easyJet to reduce its growth capacity target from an existing 20 percent as it battles tough competition and high fuel prices.

Walton said the review of the airline's growth rate, deployment and route network would be announced in "several weeks".

The firm recently announced it would withdraw services from Zurich airport because airport charges were too expensive and warned more withdrawals could follow.

"If you have airports which are charging stupid prices, you will see us withdraw," Walton said.

He said 50 percent of the airline's fuel costs were hedged until June 2005, when the figure would fall to 10 percent.

Hedging at current prices was extremely unattractive, Walton said, but he declined to reveal the price at which the airline would be willing to resume hedging.

Walton said easyJet EZJ.L was closely following the fortunes of troubled Italian carrier Alitalia and would look at any opportunities for new routes that might arise.

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Da Reuters UK

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Credo sia degna di nota la precisazione di U2 riguardo a nuove rotte legate alla crisi di Az... visto che si è parlato a lungo di base a TRN.

ciao