easyJet profits set to soar

[updated:LAST EDITED ON 25-11-02 AT 01:32 AM (GMT)]LONDON (Reuters) – Low-cost airline easyJet is expected to report a jump in annual profit this week, but investors want reassurance they are not in for a bumpy ride as chairman and founder Stelios Haji-Ioannou officially steps down.

Run out of a bright orange corrugated iron shed near Luton Airport, easyJet is the very acme of the booming budget airline sector, which has stripped business from conventional carriers by focusing on Internet booking and scrapping free in-flight meals.

The colourful, go-getting Stelios, a 35-year-old who built easyJet from a two-aircraft outfit in 1995 to become Europe’s biggest “no-frills” airline, is the epitome of his company.

But after winning widespread acclaim as the firm weathered the storm that hit bigger rivals after the September 2001 attacks on the United States, easyJet has had a more turbulent time since Stelios announced his departure in April.

A rash of cancelled flights over the summer in particular raised fears that the firm was struggling to integrate Go-Fly, the fellow “no frills” operator bought for 374 million pounds from British Airways in May. So while easyJet shares have outperformed those of flag carrier British Airways by 14 percent since the start of the year, they have lagged closest budget rival Ryanair by 24 percent.

QUESTION MARKS

EasyJet, whose 64 aircraft carried over 1.6 million passengers to 88 destinations in October, reassured investors last month by saying annual profit should meet market expectations and the integration of Go-Fly was on track.

Analysts expect profit before tax, goodwill and exceptional items to come in between 57 million and 66 million pounds in the year to September 30, up from 40.1 million a year earlier when results are released on tuesday.

But there are big differences among analysts over the outlook for budget airlines. While some say the sector is set to capture a quarter of the air traffic market by 2010, up from about five percent currently, others think it will be held back by conventional airlines’ stranglehold on the best airport slots.

There are also question marks over some of easyJet’s recent strategic decisions. In particular, some analysts were surprised when the firm ordered up to 240 new planes from European planemaker Airbus, rather than previous supplier Boeing. This was a departure from the typical low-cost model of using one aircraft type to help lower maintenance and pilot-training costs.

EasyJet now has to decide between rival engines for the planes made by International Aero Engines, a venture including Britain’s Rolls Royce and U.S. firm Pratt & Whitney, and CFM International, a joint venture between General Electric and France’s Snecma.

EasyJet, which has been run by Chief Executive Ray Webster for the past two years, said in April that Stelios was stepping down as chairman to overcome investor concerns about his plans to cash in some of his 59-percent shareholding.

As chairman, Stelios’s share dealings would come under scrutiny because of his intimate knowledge of the company.

The multi-millionaire entrepreneur has said he will remain a significant shareholder, but wants to sell some shares to raise money for his other budget ventures, which include easyCar, easyInternetCafe and easyCinema.

Deputy Chairman Colin Chandler is succeeding Stelios, who plans to step down on Tuesday.