EasyJet Says Fare Fall Won't Stem Growth as McCall Exit Looms

(Bloomberg) -- EasyJet Plc vowed to push ahead with an aggressive expansion strategy despite falling fares and the impact of the Brexit vote after Chief Executive Officer Carolyn McCall leaves later this year to take charge of broadcaster ITV Plc.

Europe’s second-biggest low-cost carrier plans to carry on adding capacity to squeeze rivals even as a market-wide oversupply of seats hurts prices, it said Thursday after McCall revealed that annual earnings will be higher than estimated by analysts following bumper figures in the early summer.

McCall said she expects that Ryanair Holdings Plc, Europe’s top discounter, and Wizz Air Holdings Plc, the No. 1 in Eastern Europe, will also continue to splurge on capacity. At the same time unprofitable Alitalia SpA and Air Berlin Plc are set to retreat further, she predicted, while U.K. rivals Flybe Group Plc and Monarch Airlines Ltd. are curbing growth and Norwegian Air Shuttle ASA is focusing on long-haul flights.

Chairman John Barton has already begun the search for a new CEO, according to McCall, who won’t start at ITV until January. No deadline has been set for finding the next chief, and Luton, England-based EasyJet plans to undertake a “rigorous” evaluation of internal and external candidates, she said.

Shares of EasyJet traded 4.7 percent lower at 1,351 pence as of 9:19 a.m. in London after McCall warned that the capacity battle will continue to weigh on fares for the foreseeable future. The stock has gained 35 percent this year, valuing the company at 5.37 billion pounds.

‘Good Health’

The decision to go to ITV was “difficult,” but EasyJet “is in really good health” with a strong management team following a tough 18 months that included last year’s U.K. vote to leave the European Union, McCall said. She added that until she leaves at the end of 2017 it will be “business as usual.”

The priority for the remainder of McCall’s time at EasyJet will be to support the successor search and ensure stability from board level down, while continuing to lobby the U.K. government and EU to maintain maximum market access, she said. Royal Mail Plc CEO Moya Greene joined the board on Wednesday, six weeks earlier than planned, to aid with the CEO search, the airline said.

Pretax profit for the fiscal year ending Sept. 30 is forecast to be within a range of 380 million pounds to 420 million pounds ($495 million to $547 million), EasyJet said, higher than the 375 million-pound average estimate of 20 analysts surveyed by Bloomberg. The forecast still points to a decline from last year’s figure of 495 million pounds.

While sales rose 16 percent to 1.39 billion pounds and fares rallied in the third quarter through June, aided by a late Easter, revenue per seat is set to fall 2 percent over the second half, with “continued pressure” on yields anticipated into next year.

EasyJet has now received approval for an air operating certificate from authorities in Austria after revealing last week that it planned to register more than 100 jets there, with the first transferring today. Establishing an airline in Vienna will allow the company to carry on flying between European Union countries once Britain leaves the bloc.

Other airline stocks also fell, with Deutsche Lufthansa AG dropping as much as 6.8 percent, Air France-KLM Group 5.5 percent, Ryanair 3.4 percent and British Airways owner IAG SA 3 percent. Liberum Capital analyst Gerald Khoo said investors are concerned that the pricing environment means carrier’s won’t be able to deliver on the earnings beats priced into some stocks, and that gains are increasingly dependent on fuel prices staying low.

To contact the reporters on this story: Benjamin Katz in London at bkatz38@bloomberg.net, Thomas Seal in London at tseal@bloomberg.net.

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Christopher Jasper