EasyJet nosedives as fares war takes toll on profits

The budget airline easyJet lost a quarter of its value yesterday after it warned that the savage price war being fought out by European carriers would hit profits this year.

The warning was coupled with the disclosure that easyJet had suffered a miserable April with far fewer passengers flying on its routes than forecast as the expected boost from the Easter holiday failed to materialise.

Load factors ­ the proportion of seats filled on each flight ­ went down by 3 per cent on the same month last year, the biggest fall since easyJet began operations in 1995.

Shares in the company fell 73.25p to 219p yesterday, knocking £289m from its market value as analysts cut their profit forecasts for the year.

This is the latest in a series of blows for the no-frills airline sector. In January the Dublin-based carrier Ryanair delivered its first profit warning, saying it expected earnings for the year to April to be down by about 10 per cent. Michael O'Leary, Ryanair's chief executive, also forecast that fares this year would fall by a further 5 per cent to 20 per cent, and predicted an awful winter for the industry. Last week the Birmingham-based budget airline Duo collapsed into receivership, with 260 job losses.

Ray Webster, easyJet's chief executive, stressed yesterday that he still expected the airline to increase profits in its current financial year to the end of September. In the year to last September the airline made a pre-tax profit of £51.5m. But he warned there would be a shake-out elsewhere in the no-frills sector and said he doubted whether bmibaby, the low-cost airline launched by British Midland, could survive in its current form.

"I think it is going to be a horrible period for many carriers,'' Mr Webster said. "I am convinced we are going to see a lot of failures over the next few years.'' Mr Webster blamed the current turmoil in the aviation industry on "unprofitable and unrealistic pricing by airlines across all sectors of the European industry''. Mr Webster added: "At the time of our AGM in February we were cautiously optimistic about the full-year result. However, given the increasingly competitive market place it is appropriate now to be cautious about the performance for the full financial year.''

He was speaking as easyJet reported a decline of 43 per cent in pre-tax losses to £27m for the half year to 31 March, which is traditionally its unprofitable period. EasyJet also announced small improvements in both average fares and load factors for the six-month period. On average its aircraft flew 82 per cent full.

The airline added that it was on target to grow at 20 per cent this year, with 115 routes already in operation and a further 38 due to enter service in the second half of the year.

Mr Webster said that the introduction of its new Airbus aircraft ­ seen initially as a risk because it leaves easyJet with a mixed fleet of jets ­ had been "the smoothest and most trouble-free'' in his 40 years in the business. EasyJet has placed firm orders for a total of 120 A319 and A320 jets and expects to have 27 of them in service by the end of the year.

Although Ryanair has publicly forecast a further sharp fall in fares this year, Mr Webster would not be drawn on what he expects to happen at easyJet. However, he did say: "Philosophically we are working on the basis that yields will only go one way and that is down, but we are very happy with our business model which we think is very robust.''