EasyJet Expands in Europe as Network Rivals Build Footprint

EasyJet Plc, Europe’s No. 2 discount airline, is consolidating its position in France and Germany even as full-service rivals Air France-KLM Group and Deutsche Lufthansa AG rush to establish their own low-cost footprint.

EasyJet aims to expand its market share in France by one percentage point each year from 14 percent today. A new base in Hamburg will boost the number of aircraft flying out of Germany, Europe’s biggest economy, to 12 by 2014, by which time the U.K. carrier will run 243 routes to and from the two countries.

“We are shaking the tree,” French regional director Francoise Bacchetta said in an interview at EasyJet’s Luton base near London. Airports and passengers are proving receptive despite “long-term habits” of dealing with the same operator.

Mounting losses have forced network airlines to slash jobs and shift short-haul operations to stand-alone units including Transavia, Hop! and Germanwings. EasyJet Chief Executive Officer Carolyn McCall has intensified efforts to siphon off business passengers by offering allocated seats, flexible tickets, fast-tracking and higher frequencies on key routes.

Her strategy has been rewarded with an 83 percent stock gain this year, the second-best annual return since the company first sold shares to the public more than a decade ago, spurring its market value to 5.57 billion pounds ($9 billion).

Target Market

Some 11 million of EasyJet’s 58 million customers in fiscal 2013 booked business-class seats. McCall estimates about 86 million short-haul passengers flying from Europe’s top 20 airports each year could migrate to discount from network carriers. EasyJet flew 4.3 million people in November, up from

4.1 million a year earlier, with a seat occupancy of 89 percent.

EasyJet today has 960 employees and 25 aircraft based in France, up from five jets in 2002. The carrier became the largest operator this year at Nice on the French Riviera. The airline is among the top two operators at eight out of ten of France’s biggest airports, Bacchetta said, adding that Air France still controls 40 percent of the market.

“The thing is in France, there is no French low-cost airline, so we try to be the French low-cost airline.” he said. “We saw the opportunity in the regions especially.”

Air France-KLM is considering reducing frequencies, shutting routes and adjusting prices for flights from provincial bases in southern France created just a year ago.

Discount Laggard

“Given the amount of disruption and seemingly interminable adjustments to the short-haul strategies of both Air France-KLM and Lufthansa, EasyJet should be able to continue to build out its fleet and route growth in France and Germany,” Investec James Hollins said by e-mail.

France lags behind the rest of Europe, with the low-cost carriers accounting for 26 percent of capacity versus an average of 42 percent across the continent, Bacchetta said. EasyJet operates 27 domestic routes there today, competing with Air France’s regional unit Hop!, which was created last year from three disparate airlines and offers point-to-point services with a fleet of 98 regional planes.

Air France is also switching services to the Transavia low-cost subsidiary created by KLM, which provides non-hub flights using Boeing Co. 737s to transport mainly leisure passengers.

Bargain Hunters

In Germany, where Lufthansa is ceding short-haul flights outside the Frankfurt and Munich hubs to its Germanwings unit, EasyJet is the fifth-largest carrier, with a 3.5 percent market share. By the end of 2014 the airline will employ close to 500 people in Germany, regional director Thomas Haagensen said.

“Our customers are used to comparing prices, are used to the low-cost concept, so it’s almost easier to grow from that basis,” Haagensen said.

Germanwings has responded to the low-cost challenge, saying last month that it will add six destinations from Hamburg from the middle of next year, including Rome and Toulouse. EasyJet in turn is targeting corporate passengers with refined schedules and new routes linking Hamburg to financial centers including Milan and Copenhagen, the executive said.

“There is great potential to stimulate the demand and increase the traffic,” Haagensen said. “Our objective is not to steal market share from anyone.”

Before it's here, it's on the Bloomberg Terminal.