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Comment: Volatility still reigns at EasyJet

George Kerevan. Picture: TSPL

George Kerevan. Picture: TSPL

  • by GEORGE KEREVAN
 

TWO months ago, Sir Stelios Haji-Ioannou, the disgruntled founder of EasyJet, voted against giving the budget airline’s chief executive, Carolyn McCall, a big pay rise.

Stelios, who left the board in 2010 after a row over strategy, was defeated.

Yesterday shares in EasyJet soared after the company reported a 4.8 per cent rise in passenger numbers in March. Not only has McCall proved Stelios wrong, Easyjet has outperformed Ryanair, which saw a sharp fall in passengers last month.

Easyjet only joined the FTSE 100 last year but is now the market’s darling, despite posting a pre-tax loss for the six months ended 31 March – winter trade is always bad for budget airlines.

Since she took over four years ago, McCall has focused on cost-cutting (naturally) but also enticed customers to pay extra to choose their seats, which has proved very popular.

McCall has had an eclectic career, having been chief executive of the Guardian newspaper group and sat on the boards of Lloyds and Tesco.

I suspect Stelios may have seen this as poor preparation for running an airline but McCall seems to thrive on challenges. Also, she might just have a better appreciation of what mothers want when clambering on to a holiday flight: knowing you can all get a seat together.

The test for Easyjet is whether it can sustain the growth McCall is aiming for. She wants to increase passenger numbers, pushing Ryanair into second place.

To do that, she plans to boost staff at the airline’s Luton base by 2,500 and has just bought 135 new aircraft from Airbus, increasing seat capacity enormously.

Don’t expect Ryanair’s boisterous Michael O’Leary to give in without a fight. He has just halved Ryanair’s excess baggage fees and launched a charm offensive to win back customers. Ryanair is also hiring 500 new pilots, engineers and cabin crew to improve service.

My hunch is that – even with growing air traffic – there aren’t the passenger numbers for both airlines to expand successfully on this scale.

The resulting competition will be good for the public, of course. But as for shareholders, remember that the flight business is one of the most volatile there is.

News from across the pond is just the job

GOOD economic news from America, where non-farm payrolls increased by 192,000 last month, sending the unemployment rate to a near five-year low. Better still, Americans are flocking back into the labour market looking for jobs, suggesting a marked improvement in US domestic economic confidence.

Data revisions also showed that hirings in the first two months of 2014 were much higher than previously estimated.

At the time I doubted things looked so gloomy in the jobs market, given the rest of the US economy was firing away (which is a warning never to put too much faith in the monthly employment figures, on either side of the Atlantic.)

Add this new US data to the strong words on Thursday from Mario Draghi, the head of the European Central Bank, that he is willing to turn on the monetary taps to fight deflation in the eurozone, and we should see stocks on Wall Street and in London continue to broach record levels. If Draghi really does go for a European version of quantitative easing over the summer, the equity party could last a while yet.

 

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