UK low-cost carrier easyJet kicked off the new year by exercising options on a further 15 Airbus A320s as the new management team continues to steadily put its mark on the airline.
EasyJet's growth plans have been under focus after a highly public rift between the airline's founder and largest shareholder Stelios Haji-Ioannou and easyJet's former management over the rate at which the carrier was expanding its fleet. The dispute led to his resignation from the board as he sought to block the growth plans.
But with new chief executive Carolyn McCall taking the helm last year, steps underway to tackle its operational issues over the summer and a revised long-term brand licence agreement with Haji-Ioannou struck in October easing tensions, easyJet is hoping for calmer waters ahead.
RBS analyst Andrew Lobbenberg says the order fits with easyJet's growth strategy as it is necessary to fulfil its fleet plans. Releasing its full-year results in November, easyJet said it planned to increase its fleet by 24 aircraft to reach 220 by September 2013, representing average annual growth of 7% in seats flown. "Looking at the order, the most telling thing is they are adding A320s," says Lobbenberg. EasyJet also switched 20 planned A319
deliveries to the larger A320s, which enable it to lift capacity at slot constrained airports, and took its options on the type to 42.
"It will help deliver easyJet's strategy of continued profitable growth towards our target of 12% return on capital employed through the cycle, whilst providing even more flight capacity for our passengers," says McCall. Haji-Ioannou is reserving judgement. He says the decision to acquire new aircraft "sounds like good news at least in the short term", noting any decision which increases the airline's turnover will lead to higher royalties. But he adds: "We shall see if these 15 incremental aircraft will find deployment on profitable new routes and earn the appropriate return on capital employed."
Haji-Ioannou says he is "not focused on seat capacity numbers but on earnings per share", adding that the new management team "should deliver" on analysts' forecasts of reaching post-tax profits of over £250 million ($387 million) in 2013.
EasyJet, which trebled pre-tax profits to £154 million in 2010, continues efforts to woo business travellers - most recently launching a flexible fare specifically aimed at business travellers. The new fare allows for unlimited changes to ticket details within a four-week window.
"We are in a most unpredictable environment," notes RBS analyst Lobbenberg, pointing to the continued uncertainty in the European economies. "The low-cost carriers had a good recession and have taken a lot of market share from the network carriers. But what we are seeing is the network carriers are putting a bit more capacity in. So potentially it's slightly more competitive. Instinctively if you have a tight economy, the low-cost carriers do better. But it remains to be seen how benign a revenue environment we will see."