Privately owned easyJet has finally turned a profit, but the publication of its first set of results has provoked scepticism and speculation that it may soon be up for sale.
The carrier's 1998 pre-tax profit of £2.3 million ($3.8 million) on a turnover of £77 million, appears to belie critics assertions that with intensified low cost competition out of London, easyJet's days were numbered.
Last year the London Luton-based carrier boosted passenger numbers by 65% to 1.7 million and averaged a 70% load factor, which is 15 points above breakeven.
While under pressure from the likes of BA's Go - which forced easyJet's yields down by 10% on London-Edinburgh - experience is allowing easyJet to "extract a better price from the market" than in the past, says financial director Nick Manoudakis, who nevertheless underlines a low-price strategy.
He says the profits vindicate easyJet's no-frills strategy, adding that rapid growth has allowed it to spread out the company's heavy advertising spend - now at 5-6% of revenues. However, the company still faces a major challenge in exporting direct sales to mainland Europe, where the resistance to credit card use has kept non-UK receipts at just 25%of the total.
Analysts in London received the news of easyJet's profits with scepticism, one suggesting that part-owner and chief executive Stelios Haji Iounou may be bankrolling the airline from his Greek shipping empire. However, Manoudakis says that the company "has been standing on its own two feet from some time".
There are also doubts about the company's ambitious fleet expansion programme - eight Boeing 737-300s are to be delivered this year, 15 737-700s on order - in light of the aggressive expansion of Goand Ryanair in Europe and weakening economic conditions in the region, particularly the UK. The company aims to boost frequencies on existing routes with the new aircraft, although new destinations in southern Spain are possible.
With easyJet publicly seen as profitable, analysts suggest Stelios & Co may be gearing up for a disposal. "We really don't have any plan to sell," says Manoudakis, while refusing to rule out a flotation.
The company may follow up the purchase of a minority stake in TEA Basel last year with another acquisition, says easyJet managing director Ray Webster. He is keeping a wary eye on Go's summer schedule - a court hearing on easyJet's claim of uncompetitive behaviour is set for May - but is "pretty gung-ho" about easyJet's fortunes, confident that it can gain from a downgrading of business classtraffic.
Source: Airline Business
