A Low Low Price for a Not So Low Airline!

The low-cost airline, Easyjet, has announced it is buying its rival Go for £374m.
The chairman of Easyjet, Stelios Haji-Ioannou, said: “This is one of the most exciting developments in Easyjet’s history”.

The airline will pay for the takeover by raising £276.7m through a new rights issue, where it will offer new shares to existing shareholders at 265 pence a share.

The airline announced earlier this month that it was in talks with its rival about a possible takeover.

The chief executive of Go, Barbara Cassani, had made it clear she was not happy with the proposed deal.

No go

She will not be joining the new group in any capacity and she will leave her job at Go when the takeover is completed.

The current chief executive of Easyjet, Ray Webster, will head the new, combined company.

The Go logo and livery will disappear to be replaced by the Easyjet brand.

Go, which operates mainly out of Stansted, was sold by British Airways last year for just £110m.

The main shareholder was the venture capital company 3i with 43% of the company.

Fares

Managers, including Barbara Cassani, held 22.5% and the remaining shares belonged to big city investors.

The new combined airline will become the largest low cost airline in Europe, flying more planes and serving more routes than the current number one, Ryanair.

It will have bases at Gatwick, Luton, Stansted, East Midlands and Bristol.

Easyjet’s chief executive Ray Webster told the BBC that the combination with Go would not mean an increase in fares.

Ballsy move

“This is an opportunity to keep prices low,” he said.
Easyjet is expecting tough competition

“That is the beauty of our model. We need low fares to stimulate the market that we are developing.

Ryanair issued a statement saying it welcomed the deal with Go and Easyjet’s planned acquisition of Deutsche BA which was announced earlier this month.

Ryanair’s chief executive, Michael O’Leary said: “Embarking on an acquisition of two other higher fare airlines at this time is certainly a ballsy move”.

He said it would clearly establish two big strong low fare carriers providing real competition and real choice with the high fare airlines all over Europe.

Competition

Mr O’Leary added: “I will be taking lessons in humility now that we are – for the time being – Europe’s second largest low fares airline”.

But in characteristic style he predicted that Ryanair would still become Europe’s largest scheduled airline.

In a statement, Easyjet’s directors said that in order for the new group to be successful, it would have to compete not only with low-cost carriers but also with national flag carriers such as British Airways, Air France and KLM.

And the directors said they expected competition between the traditional airlines and the low-cost carriers to intensify.

Go has concentrated very much on business travellers and Easyjet says that more than 50% of its passengers are business travellers too.

Easyjet also says the companies’ business models are exactly the same.

But there is little overlap on the two airlines’ routes.