Bloomberg News

EasyJet to Test Reserved Seats on Some Flights in April

March 30, 2012

An EasyJet-branded bag. Photographer: Simon Dawson/Bloomberg

An EasyJet-branded bag. Photographer: Simon Dawson/Bloomberg

EasyJet Plc (EZJ) Chief Executive Officer Carolyn McCall says the U.K. airline is ready to win sales from global clients as pre-booked seats, higher frequencies and deals with corporate bookers consign its no-frills focus to history.

Europe’s second-biggest discount carrier is targeting larger companies such as Unilever (UNA), the No. 2 consumer-products maker, that are looking to cut travel expenses while retaining flexibility, McCall said in an interview in Barcelona.

“We’ve always had entrepreneurs and small- and medium-sized businesses flying with us,” she said. “They cottoned on a long time ago. What we’re doing is building that into something sustainable. Unilever is a great example of a cost-conscious multinational. They’d absolutely consider using EasyJet.”

Under McCall, EasyJet has dropped the no-frills approach in favor of a model where passengers can opt to pay for everything from food and checked bags to lounge access and flexible tickets in addition to their flight. Since seat-occupancy levels are already high, she’s also seeking to lure late bookers who pay higher fares rather than simply boosting raw passenger numbers.

EasyJet rose as much as 2.2 percent and was trading 1.6 percent higher at 485.8 pence as of 8:23 a.m. in London, valuing the Luton-based company at 1.92 billion pounds ($3.1 billion).

Blue-Chip Targets

The stock has risen 23 percent this year (BEUAIRL:US), matching Turkish Airlines and International Consolidated Airlines Group SA, parent of British Airways, as the biggest gainers in the seven- member Bloomberg EMEA Airlines Index. Ryanair Holdings Plc (RYA), Europe’s biggest discount airline, had advanced 21 percent.

EasyJet, founded by Stelios Haji-Ioannou in 1995 with discount flights to Scotland advertised as “as cheap as a pair of jeans,” is targeting a range of FTSE-100 companies and has “had some success,” spokesman Paul Moore said by telephone.

Unilever, the maker of Dove soap, Knorr soup and Magnum ice cream with headquarters in both London and Rotterdam, allows employees to use EasyJet and other discount carriers as part of an “ongoing focus on reducing its total travel and expense costs,” spokeswoman Lucila Zambrano said in an e-mail.

Low-cost operators must offer a “significant additional saving” compared with the best fare available from Unilever’s “preferred” companies, she said. Non-flight travel expenses can be higher for carriers using terminals further from city centers to tap cheaper landing fees, though EasyJet serves more major airports than Ryanair. (RYA)

Frequency Focus

EasyJet’s plan aims to build on its penetration of smaller companies such as Allectra GmbH, a German supplier of parts for particle accelerators, where U.K. sales executive Mario Peli is a regular customer, largely because of the proximity of London Gatwick airport, the carrier’s main base, to his Brighton home.

“I’m not particularly loyal, it’s just convenient,” said Peli, who twice a month visits Rome, Berlin and Milan, cities he reckons are well-served by EasyJet. The carrier’s business- appeal has been enhanced by the deployment of 75 percent of new capacity on “thickening” existing routes with additional flights rather than developing new destinations, according to McCall.

Still, it will take time for EasyJet to raise frequencies across the board to the levels offered by competitors such as British Airways (IAG), Deutsche Lufthansa AG (LHA) and Air France-KLM Group (AF), said Gert Zonneveld, an analyst at Panmure Gordon in London.

“They’re pursuing the right strategy and their share of business travel will go up, but it can’t go up that quickly,” said Zonneveld, who has a “buy” rating on EasyJet. “You need to bring daily frequencies up to at least four a day, maybe more.”

‘No Strategy’

McCall said EasyJet has little overlap with Dublin-based Ryanair, and that the pair rarely compete head-to-head. Ryanair CEO Michael O’Leary reckons the U.K. company is paying lip service to targeting the business market and is actually late to the game in offering perks attractive to corporate travelers.

“EasyJet have no strategy other than to follow Ryanair and then bleat on about business travel,” O’Leary said yesterday in an interview in Brussels. “When Ryanair first started charging for checked-in baggage, EasyJet said they’d never do it; 12 months later they’re doing it. Ryanair led with charging for allocated seating. Guess what EasyJet are trialing now.”

The biggest challenge according to McCall is in building relationships with travel management firms and global distribution system operators such as Amadeus IT Holding SA (AMS) and Sabre Holdings Corp. (TSG:US), so that EasyJet’s flights are available alongside those of carriers including BA and Air France-KLM.

“The GDS companies are used to working in a completely different way with the legacy carriers to the way we would want,” the CEO said. “They want volume. What we want is yield.”

Fudge to Fail

EasyJet’s load factor or average occupancy level was 87.5 percent last year, compared with 79.1 percent at IAG, parent of British Airways and Spain’s Iberia.

The full-service heritage of carriers like Air France and IAG means efforts to replicate the discount model for their short-haul fleets will most likely fail, McCall said.

Air France has established a lower-cost unit for flights from French regional cities with the aim of stemming the loss of market share to rivals such as EasyJet, with a hub added in Marseille in October and bases due to open in Nice and Toulouse in April, all operated by local crews working longer hours.

The French company is also looking at creating a discount carrier to operate alongside its main brand in Paris, a person familiar with the situation said March 26. IAG’s Iberia Express began flying March 25, aiming to stem losses on Spanish routes.

“Either you have a low-cost operating model or you don’t,” McCall, 50, said in the interview on March 26. “You have to do it all the time. It’s not a choice.”

McCall says EasyJet has no plans to follow Air Berlin Plc (AB1), Europe’s third-largest discount operator, in collaborating with other carriers after the German company joined the BA-led Oneworld alliance and said March 16 it was considering code- sharing with Air France.

“It would have to be really worth our while to consider it,” the executive said. “Our whole mantra is ‘keep it simple.’ We don’t want to over-complicate what we do.”

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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Companies Mentioned

  • BEUAIRL
    (Bloomberg EMEA Airlines Index)
    • $102.71 USD
    • 2.44
    • 2.38%
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