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easyJet expands fleet with 15 A320s; Sir Stelios warns of need for profitable growth

7-Jan-2011
EasyJet CEO, Carolyn McCall
EasyJet CEO, Carolyn McCall

easyJet has exercised options to place firm orders for 15 A320 aircraft from Airbus to be delivered between 2012 and 2014. The carrier has also upgraded contracted deliveries for 20 A319 aircraft to the larger A320 and secured new options for a further 33 A320s up to Mar-2013.

The order, confirmed on 04-Jan-2011, comes amid a solid recovery for Europe’s second largest LCC following the financial crisis. The LCC unveiled soaring annual profits in the 12 months ended 30-Sep-2010 with a 70% increase in net profit to GBP121 million, and also announced plans for its first ever dividend. easyJet's founder and largest shareholder, Sir Stelios Haji-Ioannou, while commenting that the aircraft purchase was “good news at least in the short term”, due to the aircraft’s revenue generating potential, warned that the added capacity needs to deliver profits.

Sir Stelios warns of need for profitable expansion

Reacting to the announcement, Sir Stelios said: "As the licensor of the easyJet brand, any move that increases easyJet's turnover should lead to higher royalties, so today's announcement sounds like good news at least in the short term from this perspective."

“As the largest single shareholder in the company, I am not focused on seat capacity numbers but on earnings per share. We shall see if these 15 incremental aircraft will find deployment on profitable new routes and earn the appropriate return on capital employed. I am still hoping to get greater transparency on which routes these and any other new aircraft are to be deployed.”

He added that the carrier’s strategy should be about delivery improved profitability, stating: “The new management team should deliver on the analysts’ forecasts of increasing EPS from 28p last year to more than 60p by 2013, or profit after tax of more than GBP250 million in 2013."

Sir Stelios in Nov-2010 warned the carrier must rein-in expansion and accept that growth in the European LCC sector has now peaked.  He commented at the time that the “industry has matured” adding: “Too many aircraft are employed on routes that only have passengers for six months of the year. Do I believe there’s scope to find destinations for 50% more planes? Probably not. It’s no longer that same break-neck growth. We’re talking about realistic growth rates of GDP-plus-something.”

Sir Stelios has publicly battled with easyJet management over the past two years about the carrier’s growth trajectory. He has suggested that the carrier should only acquire more than 200 aircraft, rather than the previously planned 315 aircraft. This 200 aircraft mark will be exceeded this year. Comparatively, Ryanair’s fleet is expected to growth to 272 aircraft by FY2011 to increase to 299 aircraft by 2013.

Ryanair and easyJet fleet plans: FY2010 to FY2013


easyJet focusing on 'carefully targetted growth'

The easyJet-Airbus agreement is part of an order book which now totals 242 Airbus A320 family aircraft, making easyJet one of the world’s largest customers for this aircraft type. The carrier, which operates a fleet of 182 A320 family aircraft at present, took delivery of its first A320 family aircraft an A319 in Sep-2003 and of its 100th aircraft just three and a half years later in Apr-2007. easyJet, which switched allegiance from Boeing to Airbus in 2002, stated it continues to maintain a productive dialogue with the US manufacturer on its current and future programmes.

The additional aircraft will ensure that easyJet is able to continue to execute its strategy of “carefully targeted growth” and take advantage of opportunities for “profitable market share gain”. The LCC added that it benefits from flexibility in its fleet planning arrangements and through a combination of the new aircraft order, deferrals and lease extensions means that its growth rate in terms of seats flown can be “flexible and dependant on the opportunities available and economic conditions”.

Announcing the fleet plans, CEO Carolyn McCall commented: "We are pleased to announce this agreement with Airbus. It will help deliver easyJet's strategy of continued profitable growth towards our target of 12% ROCE through the cycle, whilst providing even more flight capacity for our passengers.  A central feature of the agreement is the flexibility it gives easyJet to vary the growth rate in its capacity to reflect economic conditions and market opportunities."

The new aircraft will be financed through a combination of cash, operating leases and debt. easyJet stated the 15 new A320s have a list price of around USD1.1 billion although it received “substantial confidential price concessions”.

The move to the larger A320 aircraft, which have around 27 more seats than the A319s (183 vs 156 seats), fits in with the carrier’s strategy of increasing appeal to higher yielding business passengers. Ms McCall, the carrier’s CEO since Jul-2010, last year stated the carrier would commence offering flexible tickets to improve appeal to corporate flyers. The higher capacity aircraft will enable the carrier to better maximize capacity at busier airports. 

easyJet fleet plan development

 

Previous  (Mar-2009)

Previous (Jun-2009)

Previous (Sep-2009)

Previous (Dec-2009)

Previous (Jun-2010)

Current (Dec-2010)

30-Sep-08

165

165

165

165

165

 

30-Sep-09

172

181

181

181

181

 

30-Sep-10

187

187

192

192

192

196

30-Sep-11

194

196

196

196

200

204

30-Sep-12

-

207

207

207

208

213

30-Sep-13

-

-

-

-

-

220

easyJet fleet plan: 31-Dec-2010

 

Owned

Operating leases

Finance leases

Total

Future committed deliveries^

Unexercised purchase options and rights~

easyJet A320 family

111

63

8

182

60

73

B737-700

-

8

-

8

-

-

GB Airways A320 family

-

3

-

3

2

-

Total

111

74

8

193

62

73

             
             

 easyJet fleet plan development: Sep-2010 to Sep-2013

 

easyJet A319

easyJet A320

B737-700

GB Airways A320 family

Total

30-Sep-10

159

23

8

6

196

30-Sep-11

167

34

2

-

204

30-Sep-12

168

45

-

-

213

30-Sep-13

163

55

-

2

220


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