COLIN BAKER LONDON
The future shape of the UK low-fare sector was given some clarity last month with the flotation of easyJet and British Airway's decision to sell Go.
easyJet was priced in the mid range of expectations at 310p. With 25.1%of the carrier on offer, easyJet raised £195 ($279) million from the sale, valuing the company at £778 million. This was roughly at a 40%discount to Ryanair, based on operating profit before depreciation (EBITDAR) according to bankers involved in the offer.
The sale was oversubscribed by around 10 times, despite a climate of market volatility and negative sentiment towards airlines in general.
Opinion in the financial community is mixed. Chris Tarry at Commerzbank sees a lack of capacity at London Luton as a problem given the carrier's aggressive growth strategy. Restrictive noise quotas at easyJet's new Amsterdam base could also be a problem, he warns. "The company is still young. It has yet to prove it can live through a recession."
A more upbeat assessment came from Chris Avery at JPMorgan, who points out that US low-fare carrier Southwest, a model which European equivalents aspire to, has managed above average growth for the past 29 years. He also feels too much has been made of the differences between Ryanair, Go and easyJet, and that all have sustainable business models.
With the flotation, there has been speculation that easyJet might be in the running to buy Go. BA has appointed Goldman Sachs to advise it on the sale, with a flotation, trade sale or financial sale all under consideration.
However, Avery says, "I would be surprised if it is a trade sale." Those close to easyJet point out that purchasing Go would be equivalent to around two years growth at the Luton-based carrier. "Essentially all you are buying is some leased aircraft and slots at Stansted," says one insider. Avery agrees: "I suspect it would make more sense to grow organically rather than compete with financial purchasers for a unique asset."
Meanwhile, Belgium's Virgin Express is in turmoil following the departure of chief executive John Osborne, who is said to be joining Ryanair, and the cancellation of an order for 11 Boeing 737-700s from leasing companies General Electric Capital Aviation Services (GECAS) and International Lease Finance (ILFC).
Source: Airline Business