Oct. 13 (Bloomberg) -- EasyJet Plc and Ryanair Holdings Plc, Europe's two biggest low-cost carriers, will benefit from the current economic storm, executives at the companies say.

As the credit crisis deepens, feeding concern about a global recession, the pair predict that travelers will favor discount airlines as they pare spending.

``We're clearly winning market share from our competitors,'' Andy Harrison, chief executive officer of Luton, England-based EasyJet, said in an interview Oct. 9. ``In a world where all you can see in the papers today is about the credit crunch and cutbacks, you can see that EasyJet is doing incredibly well.''

Ryanair Chief Financial Officer Howard Millar forecasts that in 10 years the Dublin-based company, Europe's largest no- frills carrier, and EasyJet, the No. 2, will be the only discount airlines left flying in the continent.

``There will be less players in this market and that's the reality of what's happening,'' Millar said at the World Low-Cost Airlines Congress in London last month. ``This industry is changing and there will be enormous opportunity for those left standing.''

As the economic outlook worsens, discount carriers are betting that passengers will be willing to do without assigned seating and complimentary drinks to save on fares.

``The tighter money is, the more people look for bargains, and we're the bargain,'' Herb Kelleher, co-founder of Southwest Airlines Co., the largest U.S. low-fare carrier, said at the conference on Sept. 23.

Bucking the Trend

Kelleher, 77, who stepped down as Southwest's chairman in May, said the carrier expanded ``enormously'' between 1990 and 1994 when the combined U.S. airline industry lost about $1 billion. The discount operators with enough cash to ride out the slump will likely emerge with greater market share.

Analysts at Royal Bank of Scotland Group Plc predict low- cost carriers will benefit more than their full-service competitors should oil prices continue to fall, as fuel comprises a greater proportion of their costs. Crude has dropped 44 percent since surging to a record $147.27 a barrel on July 11 and is down 16 percent for the year.

Discount airlines will also face less pressure from consumers to lower fees such as baggage charges, while full- service or network carriers may have to lower or drop fuel surcharges, the RBS analysts said.

``In a scenario of falling oil prices, we expect network airlines to come under strong pressure to lower these fuel surcharges,'' the analysts, including Andrew Lobbenberg, wrote in a note to clients.

Favored Stocks

RBS raised its ratings on Ryanair and EasyJet to ``buy'' from ``hold'' Sept. 22, while cutting Air France-KLM Group, the continent's biggest airline, from ``hold'' to ``sell.'' The bank downgraded London-based British Airways Plc, Europe's third-largest carrier, to ``sell'' in June.

Ryanair today rose 16 cents, or 8.1 percent, to 2.13 euros. That outstripped a 7.2 percent gain in the 52-member Irish General Index and pared the stock's drop this year to 54 percent, valuing the airline at 3.14 billion euros ($4.24 billion).

EasyJet advanced 17.5 pence, or 5.8 percent, to 320 pence, reducing the 2008 decline to 48 percent. British Airways added 9 percent in London. It remains the worst performer on the 11- member Bloomberg Europe Airlines Index, with a 61 percent slide this year. Air France has fallen 43 percent in Paris.

Price Gap

Peter Morris, chief economist at Ascend, a London-based aviation consulting company, had a choice between EasyJet and British Airways when flying roundtrip to Hamburg last month. BA was charging 720 pounds ($1,227), compared with 230 pounds for EasyJet, he said.

``When 700 pounds faces 230 pounds, I think I know who is going to win in the long run,'' Morris said.

British Airways fares are competitive with discounters on many routes, said London-based spokesman Richard Goodfellow. Also, its fares include checked baggage and other services.

EasyJet passengers pay 6 pounds for each checked bag and 33 pounds to stow golf clubs or skis. Instead of reserved seating, the discounter charges 7.5 pounds for expedited boarding.

``We would encourage people to look at what you are getting,'' Goodfellow said. ``If you are shopping around, plenty of times you will find us cheaper.''

Ryanair said Oct. 3 that passenger numbers rose 20 percent last month. British Airways said the same day that it carried 5.6 percent fewer travelers.

Crude Advantage

The Irish airline also stands to benefit earlier than others as oil prices decline, since it is ``resolutely unhedged'' for the fourth quarter, Chief Executive Officer Michael O'Leary said Oct. 6. Ryanair said Sept. 18 it would break even this year thanks to cheaper crude.

Most airlines hedge their fuel costs months in advance and will still be paying above-market prices next year, preventing them from benefiting immediately from the decline in the price of oil. Easyjet said Sept. 17 that it has hedged 48 percent of its fuel needs through next September at $1,225 a ton, more than 50 percent above the market price for jet fuel.

As many as 30 more airlines, including low-cost carriers, will go under before year end as they run out of cash amid waning passenger demand in the winter, British Airways CEO Willie Walsh, 46, said in a Sept. 24 Bloomberg Television interview.

Some executives expect passenger traffic overall to hold up as economic growth slows because people now regard air travel as a necessity.

``People are predicting a demise in demand but I really don't see it,'' said AirAsia Bhd Chief Executive Officer Tony Fernandes in an interview last month. ``Travel has become part of people's lifestyle, it's not an optional extra.''

To contact the reporters on this story: Steve Rothwell in London at srothwell@bloomberg.net;

Last Updated: October 13, 2008 12:35 EDT