EasyJet abandons its cautious brand and fights its rivals

Even as aviation’s prospects darkened, Johan Lundgren decided it was time to be more ambitious. The easyJet boss is turning to a bolder strategy to take on liberal rivals like Ryanair and Wizz following his particularly cautious approach to the pandemic.

The British low-cost carrier is buying more seats at crowded airports, including London Gatwick, and predicts its ability to fly back to close to pre-pandemic levels by next summer in a crucial stretch.

Lundgren hopes the change will lift easyJet’s arbitrage share price and please some “underdog” investors, who are calling for a more aggressive strategy.

It shows the Swedish operator, who has insisted on being “reliable and trustworthy”, is hoping to step up its challenge with Ryanair and Wizz, two other major European low-cost carriers. .

“In times of uncertainty, there will always be a void for the big boys who fill the void with endless expectations of long-term growth. And that’s probably attractive for some people to listen to,” he told the Financial Times while flipping through Ryanair bosses Michael O’Leary and József Váradi of Wizz, both upbeat in bullish predictions. their chief.

Lundgren’s new approach, backed by easyJet’s larger-than-expected £1.2 billion fundraising in September, comes at a critical time for the airline as uncertainty sweeps across the industry following the emergence of coronavirus variant Omicron last week.

He was speaking before the UK government announced new travel restrictions on Saturday night, a blow to the aviation industry’s hopes of a recovery.

Line chart of share price change (%) showing Investor preference for easyJet's rivals since the crisis started

EasyJet’s share price has fallen below 50% of its pre-pandemic levels, in contrast to the recovery of Ryanair and Wizz, which have ordered hundreds of jets to take advantage of the retreat of weaker groups as they aim for rapid expansion.

O’Leary spoke of a once-in-a-lifetime opportunity to grab market share because of the pandemic, while Wizz made an opportunistic offer to easyJet, which was unanimously rejected by the British conglomerate’s board.

Some of Lundgren’s cautions remain, however. “The lack of clarity about our position, and the uncertainty, has been evident this week [with the emergence of the Omicron variant] as an example, which means you also have to be realistic and understand that this is not a short-term sprint.”

His approach builds on a difficult year for the airline, which has lost more than £2 billion during the pandemic as it slowly rebuilds its flight schedule and focuses on running routes that can. can fill the space to maximize profits.

But the falling share price and its capacity, which is expected to be 65% more than usual this quarter, compared with Ryanair and Wizz, both of which are back to near pre-pandemic schedules, have prompted some question whether Lundgren is charting in the right direction.

An industry executive with knowledge of easyJet’s negotiations with airports said he was influenced by the airline’s reticence in adding new routes and catching up on opportunities. after the pandemic.

One industry executive said he was impressed by easyJet’s reticence in jumping into post-pandemic opportunities © Jeremy Suyker/Bloomberg

Eddie Wilson, senior managing director of Ryanair, said easyJet “seems to be slowly pulling out”.

“They are getting smaller and smaller. . . we always take advantage of opportunities in times like these,” he said at an industry event.

Indeed, Lundgren acknowledged that shareholders felt that the goals set at the company’s annual results presentation in September were not bold enough.

“It’s no secret that there could be some people inundated with the targets,” he said of the goals that include a return to pre-pandemic capacity by 2023 and aim for a low-to-medium return on investment. years in the same time frame.

“There is still uncertainty about the speed of recovery. Therefore, you also want to make sure that you are coming up with a goal that you feel is achievable. And you know, of course, my ambition is to beat them. And that’s the whole point of everything that we’re doing,” he added.

However, there are reasons for his more cautious approach than his two main rivals. The airline has suffered from its exposure to the UK market, which has recovered more slowly than mainland Europe because of complex travel restrictions, including costly testing.

It also flies from more expensive airports like Ryanair and Wizz and costs more.

In addition, Lundgren has faced harsh criticism from the company’s largest shareholder and Stelios founder Haji-Ioannou, who wants the airline to cut its fleet, and last year launched an unsuccessful attempt to replace the chief executive officer and other board members.

Line chart of Number of Passengers as % in 2019 shows EasyJet growing slower than competitors

Although the influence of Haji-Ioannou’s shares was reduced significantly after his shares were diluted from 25% to 15% from 25% when the airline raised capital in September, pressure to shrink operations Business moves complicate the firm’s challenges.

“I just note that there has been some criticism of the company during the 14 months of the pandemic, claim. . . Why do we have all these planes on order? And now there are a lot of things like, well, do you have enough of them? ” he say.

He also faces the threat of a takeover from rivals, highlighted this fall when Wizz bid on the carrier.

“It is not unusual for these things to happen. Similarly, we will occasionally review other companies,” he said.

But he dismisses any significant consolidation as the industry emerges from the pandemic and hopes the airline will continue to recover. Summer bookings are now running ahead of pre-pandemic levels, while amassing airport seats means the airline is well positioned to grab market share.

He also has the early support of new seat Stephen Hester, a City veteran who assumed his position on Wednesday.

Hester said on his first day as he underlined the airline’s new determination to be a pandemic winner and ultimately reward its longtime shareholders.

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