EasyJet shares go into freefall

By MICHAEL HARRISON

EasyJet has issued its second profit warning within a month, sending shares in the low-cost airline tumbling and prompting speculation that its founder, Stelios Haji-Ioannou, could be lining up a bid to take the company private once more.

Contacted yesterday, Stelios said: "I would not like to comment at this stage."

EasyJet shares have more than halved since the start of the year and at last night's closing price of 200.25 pence, the airline is valued at £800 million ($2.3 billion). That means Stelios, who with his brother and sister still owns 41 per cent of the business, would need to find at least £500 million to fund a buyout.

Chris Avery, transport analyst at JP Morgan, referred to recent reports that Stelios had received offers for his original shipping business, Stelmar, adding: "If consummated, this might fund both start-ups and give Stelios the cash to take easyJet private again at [for him] a sensible price, perhaps returning to the stock market in a few years' time when the business model would be more mature."

New Zealander Ray Webster, easyJet's chief executive, said a buyout "is not on my radar screen", adding that Stelios was a supportive shareholder who took a close interest in the running of the business and had his own representative on the board, making him an insider.

Earlier yesterday, easyJet shares fell 18 per cent after the airline warned investors that fares were likely to fall 10 per cent this summer, leaving profits for the year only marginally above the £52 million achieved last year.

A month ago easyJet warned that "unprofitable and unrealistic" pricing across the airline industry would hit profits, but did not put a number on it, sending its shares down by 25 per cent. Yesterday, the airline repeated that warning but gave more detailed guidance to investors, saying the outlook for the year had since deteriorated further as a result of the "exceptionally competitive" market and rising fuel costs.

Based on current exchange rates, easyJet calculates that the increase in oil prices will knock £4 million off profits in the six months to the end of September.

The latest warning follows a prediction from Michael O'Leary, the chief executive of the rival no-frills carrier Ryanair, of a "bloodbath" among Europe's airlines this year as the fares war intensifies.

Webster admitted the airline had made a mistake last month in not being specific enough in its guidance, but denied it had been punished by the markets as a result.

"I wouldn't call it punishment; I would call it a correction," Webster said. He said that, in the aftermath of last month's profits warning, forecasts of how much the airline would make for the year to the end of September had varied wildly from less than £50 million to almost £100 million.

Webster also served notice that there would be some "bloody noses" among rival low-cost operators as the fares war intensified.

- INDEPENDENT