EasyJet's New CEO Signals Punctuality Concern; Shares Tumble

Carolyn McCall, EasyJet Plc’s new chief executive officer, said flight delays at London’s Gatwick airport are her most immediate concern after joining Europe’s second-biggest discount airline four weeks ago.

EasyJet fell 7.1 percent in London trading, the biggest drop in 18 months, after McCall said in her first comments as CEO that she’s “looking at all assumptions” concerning crew levels and rostering as staff shortages at bases including Gatwick prompt a decline in service punctuality.

McCall, 48, who joined from Guardian Media Group Plc on July 1, also said she has opened communications with EasyJet founder Stelios Haji-Ioannou, who opposes the carrier’s growth plans, is locked in a legal tussle over its use of the “Easy” name and has warned he could terminate a license to the brand if the on-time performance issues aren’t resolved within 90 days.

“They can’t afford to be running bad punctuality figures,” said Gert Zonneveld, an analyst at Panmure Gordon in London. “If you fly to busy, primary airports there is a question as to how that will develop. They have a pretty intensive schedule and there isn’t much flexibility, so if they suffer disruption it’s tough to make up for it, and that results in less efficiency.”

Zonneveld said McCall also didn’t address strategic questions and concerns regarding Luton, England-based EasyJet’s schism with Stelios, who prefers to be known by his first name and is the airline’s top investor with a 38 percent stake.

Cost Cuts, Growth

“The company was unwilling to detail progress on some of the issues with Stelios, the cost-reduction program and the long-term growth objectives,” said the analyst, who is retaining his “buy” recommendation on the stock.

EasyJet fell 30.9 pence to 403.6 pence in London, the steepest decline since Jan. 29, 2009. The stock has advanced 14 percent this year, boosting the company’s market value to 1.73 billion pounds ($2.7 billion).

McCall said lines of communication “are open” with Stelios as the entrepreneur’s EasyGroup awaits a court ruling over its questioning of the airline’s right to use the “Easy” name for revenue-generating activities not directly related to flights.

EasyGroup said separately today that complaints received regarding EasyJet’s punctuality have “increased significantly” in the past few weeks and that the airline is “performing worse than Air Zimbabwe,” breaching a brand-license agreement.

“They have to fix this, for the sake of the customers and the shareholders,” Stelios said in a e-mail. EasyGroup added in a statement that EasyJet must address the delays by Oct. 26 or risk termination of the license.

McCall said the airline has been advised that punctuality isn’t relevant to the agreement and that it can’t be scrapped.

‘Fresh Eyes’

“Our task now is to deliver a period of stability while we look over the business with fresh eyes,” McCall said on the call. “The first impression is that the network is strong.”

EasyJet’s fleet-expansion strategy, which is also opposed by Stelios, will be reviewed on an annual basis, she said.

McCall said she’s seeking a fix for the delays by November and will meanwhile focus on early-wave flights, or the first departures of the day typically used by business travelers, seek solutions from the owners of Gatwick, where EasyJet is the No. 1 airline, and reschedule services to give a buffer between trips.

Sales Gain

EasyJet’s sales rose 5.3 percent to 759.2 million pounds in the third quarter ended June 30 as the carrier targeted markets outside the U.K. and passenger defections from British Airways Plc during a cabin-crew strike resulted in a 7 million-pound gain, it said in a statement today.

The results were “robust,” given the disruption from a volcanic eruption in Iceland, which led EasyJet to cancel more than 7,000 flights and cost 65 million pounds in lost revenue and refunds, McCall said. With less restrictive flight bans the cost would have been only 20 million pounds, she said.

EasyJet will “explore all options” to recoup losses from the eruption after the U.K. government said it wouldn’t be providing compensation, McCall said. Those options include participating in a class action lawsuit, the CEO said.

The airline, which ranks second to Ryanair Holdings Plc among Europe’s discount airlines, remains on course to report a full-year pretax profit of 100 million pounds to 150 million pounds, the CEO said. About 64 percent of seats are already sold for the fourth quarter and per-seat revenue may rise by a faster-than-expected 2.5 percent for the full year.

Air France Boost

Air France-KLM Group, Europe’s biggest airline, rose as much as 4.8 percent in Paris today after saying last night that resurgent business travel and freight traffic helped it return to operating profit in the fiscal first quarter, excluding the effects of the volcanic eruption.

Operating profit in the three months ended June 30 was 26 million euros ($34 million) before the 158 million-euro cost of the ash cloud, versus a 496 million-euro year earlier loss, the company said. Sales rose 11 percent to 5.72 billion euros and net income of 736 million euros was positive for the first time in almost two years after a 1.03 billion-euro gain from the company’s stake in the Amadeus IT Holding SA booking system.

The Paris-based carrier cited its fuel bill and concern over the economy for setting a “prudent” full-year goal of breaking even at operating level, excluding the ash costs.

Global Traffic

International passenger traffic rose almost 12 percent in June compared with a year earlier, with freight demand surging 27 percent, the International Air Transport Association said today. Growth in Europe was more sluggish than elsewhere, with passenger travel advancing 7.8 percent, IATA said.

Still, passenger trends at London Heathrow Airport, Europe’s busiest, are “somewhat encouraging,” Colin Matthews, CEO of owner BAA Ltd., said today on a conference call. The proportion of travelers starting or finishing their journey in the U.K. capital increased to 65 percent from 62 percent in the first half and traffic rose 2.3 percent, adjusted for the impact of the ash disruption and the strikes at British Airways.

At EasyJet, there are no plans to follow yesterday’s announcement at Germany’s Air Berlin Plc and join a global alliance, Finance Director Chris Kennedy said on the conference call. The U.K. airline doesn’t consider itself a “hybrid” between discount and full-service carriers, said the executive, who also joined July 1, from EMI Music.

McCall said EasyJet had previously received approaches to join an alliance.

EasyJet has arranged to sell four remaining Airbus SAS A321 aircraft inherited with the purchase of GB Airways in 2008 back to the manufacturer or a subsidiary, it said today. The cash amount will be about equal to the jets’ book value.

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

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