Bloomberg News

EasyJet’s Allocated Seats, Agent Links Dilute Discount Model

November 15, 2011

(Updates with comment from founder from 14th paragraph.)

Nov. 15 (Bloomberg) -- EasyJet Plc will introduce allocated seating and sell more tickets via corporate bookers as Europe’s second-biggest low-cost airline scraps elements of its discount model to lure higher-paying flyers and lift profit.

Passengers will be assigned seats on some flights this spring, with front-row berths and others with extra leg-room costing more, Chief Executive Office Carolyn McCall said today. Business bookings should be enhanced through a deal with Amadeus IT Holding SA that extends access to corporate agents, she said.

EasyJet is looking for new ways to boost revenue after expansion beyond the U.K. and charges for food and checked bags helped swell full-year earnings 61 percent. McCall is building on flexible ticketing added a year ago in a move that distanced the company from discount rival Ryanair Holdings Plc while shifting it toward network carrier and IAG unit British Airways.

“EasyJet needs a clear, long-term strategy, and that should be to improve service quality and frequencies rather than buy more aircraft and add routes,” said Diogenis Papiomytis, a consultant at Frost & Sullivan in London. “They’re not Ryanair and they could never compete with Ryanair in terms of low-cost, and they’re not IAG. They need to find the middle ground.”

Shares Slide

Shares of Luton, England-based EasyJet fell 2.6 percent to 356.4 pence in London, taking the decline this year to 19 percent and valuing the company at 1.53 billion pounds.

EasyJet remains the second-best performer on the six-member Bloomberg EMEA Airlines Index, behind Dublin-based Ryanair, Europe’s biggest low-cost airline, which is 2.7 percent lower.

IAG, as International Consolidated Airlines Group SA is known, has fallen 48 percent since its formation on Jan. 24 from a merger of British Airways and Spain’s Iberia.

EasyJet’s focus on flexible fares and key routes is already luring business travelers who book later and pay more. While full-year passenger numbers rose 12 percent to 54.5 million, corporate volumes gained almost 20 percent to 9.5 million, helping to spur total revenue 16 percent to 3.45 billion pounds.

McCall said the experiment with allocated seating is currently just a trial, and declined to say how making plum seats available to earlier bookers would square with the demands of late-booking business travelers. EasyJet’s existing Speedy Boarding system allows those who pay for it to enter the plane first and choose their seats, whether they buy late not.

‘Positive Response’

“This is about being able to book a preferred seat --extra leg-room, the front row, an aisle seat, or whatever,” she said. “It has to work for us operationally and it has to be simple and efficient. It’s got to drive revenues and that will only be because of our customers giving us a positive response.”

The Amadeus deal will boost bookings from corporate travel buyers, according to EasyJet, the first discount carrier to make its inventory available to agents in 2007. Most low-cost airlines still rely on their own websites for custom. The accord also features improved functionality, EasyJet said today.

Pretax profit for the 12 months ended Sept. 30 rose to 248 million pounds from 154 million pounds a year earlier, EasyJet said in a statement. Analysts had predicted earnings of 241 million pounds, based on 23 estimates.

Failed Strategies

EasyJet said it has frozen winter capacity to cope with slowing GDP growth and will increase seating 4 percent in the full year, adding that the economic situation is “challenging,” with weak consumer confidence compromising the ability of airlines to pass higher fuel prices and taxation to passengers.

Stelios Haji Ioannou, the company’s founder and largest shareholder, said today that McCall’s “new ideas” -- including flexible fares and allocated seating -- copy failed strategies used by network carriers over past decades.

“They all have destroyed shareholder value,” Stelios, who goes by his first name, said in an e-mailed statement. The entrepreneur called on EasyJet to halt new aircraft purchases and focus on investor returns, adding that he won’t support the re-election of directors who have supported expansion plans.

McCall, who agreed to pay EasyJet’s first-ever dividend last year following previous pressure from Stelios, said in an interview with Bloomberg Television that she’s willing to discuss future dividend policy and fleet growth.

--With assistance from Maryam Nemazee, Francine Lacqua and Nejra Cehic in London. Editors: Chris Jasper, Tom Lavell.

To contact the reporter on this story: Steve Rothwell in London at srothwell@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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