From the FT today;







EasyJet caught in a City headwind
By Mark Odell
Published: June 8 2004 5:00 | Last Updated: June 8 2004 5:00

The share tumble that greeted EasyJet's results last month left Ray Webster, the airline's chief executive, shell-shocked. The furious reaction from investors and analysts following a second warning on profits yesterday may well leave him wondering how secure his job is.


The anger and dismay was palpable around the City yesterday after the airline disclosed it had misread the impact of the ongoing price war in the sector and the rising cost of fuel.

To make matters worse, investors and shareholders trying to get further clarification from the company about the trading update were told Mr Webster was in Singapore at an annual airline trade association event. Meanwhile, Chris Walton, the finance director, was in meetings.

The reaction was immediate, sending the shares down by about 20 per cent from 200¾p to 163½p, leaving long-term holders of EasyJet shares with a stake whose value has halved in a month.

This reaction represented more than just a correction as analysts slashed their profits forecasts for this year and next in half. It was also a signal to management that they may have pushed the patience of the City too far.

"This announcement will cause further significant damage to EasyJet's management credibility," said one large shareholder, who listed among the other concerns an overpayment for Go, the low-cost airline bought from British Airways, and mismanagement of capacity.

"I see no positive news on the horizon so it is likely that for the next nine to 12 months the shares will trade below their net asset value, which I estimate is 200p, reflecting the significant damage to their credibility," he added.

Another analyst, who has been highly supportive of EasyJet in the past, was equally angry as he had to face clients demanding to know why he had not seen it coming after the airline had warned of pressure on yields.

"Management actually laughed at us when we suggested second-half yields might be down by 5 per cent just four weeks ago. Now they are telling us it is 10 per cent and are not discounting a 15 per cent fall in the fourth quarter. I am very upset," he said.

He added Stelios Haji-Ioannou, the founder and single largest shareholder of EasyJet, should consider changes.

How the company steered analysts in the past few weeks - and questions over whether analysts should have reacted more robustly than downgrading their forecasts by just 15 per cent after the interims - is a valid concern among investors.

The belated reaction follows repeated warnings this year from Ryanair, the market leader in the low-cost sector with EasyJet.

Michael O'Leary, the Irish carrier's chief executive not known for mincing his words, repeated his warning at the time of its results last week.

He said the market should prepare for a bloodbath as the two dominant players take on the mounting competition from droves of upstarts across Europe.

"In contrast to the usual outspoken Mr O'Leary who has been warning us all for some time of the consequences of increased competition, all we got from EasyJet at the interims was of a modest decline in yield. Now all of a sudden it's much more than modest," the shareholder said.

In a sign of how far relations have deteriorated, one of the the most positive comments yesterday came from Chris Avery, airline analyst at JP Morgan.

In a research note, which saw him cut the forecast for this year from a pre-tax profit of £98.3m to £52.1m, he wrote: "The stock has fallen a long way [as have earnings estimates], but we believe that the company is building long-term shareholder value at the expense of shorter-term profitability.

"We see few fresh catalysts, hence it might be better this summer to benefit from EasyJet's business model as a passenger." Investors may want more than a cheap flight to address their concerns.



Time to call Barbara!

Touch and Go. I doubt that BA could buy Easyjet. They are only just breaking even at the moment, they have £4 billion of debt, their pension fund has a £1 billion deficit, and their credit rating is so low in the city that their bonds are 'junk' status. They are trying to survive - not expand.
Most of those who have been in aviation for more than 10 years have seen this before. Easyjet looks just like Air Europe to me. i.e. big ideas, lots of aircraft on order, a recession looming and no real idea of where the passengers will come from to pay all the bills that are mounting fast.

The City is clearly not best pleased with easyJet at present and may well demand a sacrifice. If so, the CEO is often the person pushed forward to make gory contact with the ceremonial sword.

In that event I wonder whether Barbara Cassani would be in the frame (if of course she was interested), and if so how the City, the airline and the aviation industry would view her appointment.

Anyone got any thoughts on any or all of these musings?

Unusual, fiftyfour: you're right on the mark in some respects and completely wrong in others!..

(a) I'd hardly call an operating profit of £405M for last year "only just breaking even"!..

(b) BA's rating WAS junk but it's now BB+ (S&P) or Ba1( Moody's) as a cursory google to http://quote.bloomberg.com/apps/news...d=avfWZeA9zsFA would have shown you.

(c) BA's not trying to survive. It will survive (cash reserves in excess of 1 billion will see to that).

But!.

(d) You're quite right: BA won't be buying EZY in five/ten years' time. It would be quite wrong as a strategy.

The story that was doing the rounds awhile back was that when the Easy Go merger happened Stelios wanted Babs in at No2 (COO or something) but she said "it's top dog or nothing call me when Ray retires/leaves" or words to that effect so read in to that what you like.

... nice story Ace Rimmer but sadly untrue. Cassani has "been there, done that" and has no desire to return to the airline industry.

Rocket Ron , in fact Babs told Stelios to get back to her when Ray retires.Not really we want more Go castoffs though , the aircraft are bad enough.

Rocket Ron you might think that. but airline execs have a habit of making more comebacks than Sinatra.

Off topic but take for example the case of Don Burr - remember him? He started People Express you'd think he'd have the sense to stay far away from avaition having had that experience and indeed he did even retired from business...until now that is. He's starting up an uber air taxi/airline hybrid operation and who's his partner in crime? Another retiree, one Bob Crandall. remember him? Used to run an airline out of Dallas.

See there is a Rimmerian theroy, "Aviation is rather like the Hotel California" In short don't rule it out, Babs could be back

Poor Guy
 

His Hampstead Townhouse is not even finished yet

OJS,

BA are doing well, better than I thought. My observation was wrong. They have come a long way. Mind you, £4 billion is an huge huge amount of money to owe.
Hope I'm wrong about Easyjet, but doubt it.

and all the other comments about Ms Cassani ...

I think that you will find that she is No2 in the bid for purposes of publicity only. They have put coe in as a British figurehead for a British bid, not to mention that he has a political title and may be expected to swing some deals with them. You can bet your sweet @$$ that Ms B. is in the driving seat. :)

--------------------
"I tell you, we are here on Earth to fart around, and don't let anybody tell you any different." Kurt Vonnegut, Jr.

Rocket Ron, how you doin'? about BC why not,? proven track record, the City love her, had 100% backing from ALL the staff, and she loves a challenge. It would be a turn up wouldn't it
Cheers PP

Hi pp, still hanging in there eh?

Much as I'd like to see Babs back in the driving seat, I just think it's wishful thinking - GO was her baby - running easyJet would be like bringing up somebody else's child.

The question is will Webster jump before he's pushed?

Rocket, will he jump or be pushed.....who cares?
Onwards and Upwards.
Cheers PP