Sat. May 28th, 2022

Even as the prospects for the airline industry darken, Johan Lundgren has decided it’s time to be more ambitious. The easyJet boss is switching to a brave strategy to challenge free-range rivals Ryanair and Wizz after his particularly cautious approach to the pandemic.

The British low-cost service is buying slots at busy airports, including London Gatwick, and predicts a return to close to pre-pandemic levels of flying by next summer in a significant upheaval.

Lundgren hopes the change will boost easyJet’s battered share price and satisfy some “underprivileged” investors, who have called for a more aggressive strategy.

It shows that the Swedish executive, who has emphasized being “credible and reliable”, hopes to step up his challenge to Ryanair and Wizz, Europe’s two other major low-cost service providers.

“In times of uncertainty, there will always be room for bigmouths who fill the vacuum with endless expectations of long-term growth. And it may be appealing to some people to listen, ”he told the Financial Times, turning to Ryanair boss Michael O’Leary and Wizz’s József Váradi, who were both positive about their growth forecasts.

Lundgren’s new approach, bolstered by easyJet’s larger-than-expected £ 1.2bn capital increase in September, comes at an important moment for the airline as uncertainty sweeps through the industry following the rise of the Omicron coronavirus variant last week.

He was speaking before the British government announced new travel restrictions on Saturday night, in a blow to the aviation industry’s hopes for recovery.

Line chart of change in share price (%) showing Investors have preferred easyJet's competitors since the crisis began

EasyJet’s share price is shrinking 50 percent below pre-pandemic levels, in contrast to the recovery of those of Ryanair and Wizz, which have ordered hundreds of jets to take advantage of the withdrawal of weaker groups as they aim for rapid expansion.

O’Leary spoke of a one-off chance of seizing market share due to the pandemic, while Wizz launched an opportunistic bid for easyJet, which was unanimously rejected by the British group’s board.

However, some of Lundgren’s caution remains. “The lack of clarity of where we are, and the uncertainty, which was proven this week [with the emergence of the Omicron variant] as an example, means that you also have to be realistic and understand that it is not a short-term sprint. ”

His approach is based on a difficult past year for the airline, which lost more than £ 2 billion during the pandemic as it slowly rebuilt its flight schedules and focused on running routes where it could fill seats to maximize returns.

But its depressed share price and capacity, which is expected to be 65 percent normal this quarter, compared to Ryanair and Wizz, which are both back to near-pre-pandemic schedules, has left some questioning whether Lundgren has hit the right course.

One operations manager with knowledge of easyJet’s negotiations with airports said he was struck by the airline’s caution in adding new routes and jumping on post-pandemic occasions.

One operations manager said he was struck by easyJet’s caution in jumping on post-pandemic occasions © Jeremy Suyker / Bloomberg

Eddie Wilson, Ryanair’s senior executive, said easyJet appeared to be “gradually withdrawing”.

“They are getting smaller. . . we always seize opportunities in times like these, ”he said at a business event.

Lundgren has indeed acknowledged that shareholders feel that the targets set at the company’s annual results presentation in September were not brave enough.

“There is no secret that there may be some people who are overwhelmed by the targets,” he said of goals that included returning to pre-pandemic capacity by 2023 and aiming for low- to mid-teens. return of capital over the same time frame.

“There is still uncertainty about the pace of recovery. Therefore, you also want to make sure that you come up with a target that you feel you can hit. And you know, my ambition, of course, is to beat them. And that is the whole purpose of everything we do, ”he added.

However, there are reasons for his cautious approach compared to his two main opponents. The carrier suffered due to its exposure to the UK market, which recovered more slowly than mainland Europe due to more onerous travel restrictions, including expensive tests.

It also flies from more expensive airports than Ryanair and Wizz and has higher costs.

Lundgren has also received waning criticism from the company’s biggest shareholder and founder Stelios Haji-Ioannou, who wants the airline to reduce its fleet, and launched an unsuccessful bid last year to replace the chief executive and other board members.

Line chart of passenger numbers as a% of 2019 showing that EasyJet was slower to rise than opponents

Although the influence of Haji-Ioannou’s stake has been drastically reduced after its shares were diluted to 15 per cent from 25 per cent when the airline raised capital in September, the pressure to shrink the business has hampered the airline’s challenges.

“I just note that there has been some criticism of the company for 14 months of the pandemic, and I ask… Why do we have all these planes on order? And now there are more like, well, you have enough of they?” he said.

He also faced the threat of takeover by opponents, which was highlighted this fall when Wizz made his bid for the carrier.

“It is not uncommon for these things to happen. In the same way, we would look at other companies from time to time, ”he said.

But it rejects significant consolidation as the industry emerges from the pandemic and expects the airline to continue its recovery. Bookings for the summer are now running out ahead of pre-pandemic levels, while the congestion of airport slots means the carrier is well placed to grab market share.

He also has the early support of new chairman Stephen Hester, a City veteran who took office Wednesday.

The airline “will make every effort to create real shareholder recovery in the years to come,” Hester said on his first day, emphasizing the airline’s renewed determination to emerge as a pandemic winner and eventually its long-suffering shareholders. reward.

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