Stiff competition prevails among budget carriers | Business| Economy and finance news from a German perspective | DW | 12.05.2015
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Stiff competition prevails among budget carriers

Europe's main budget airlines, Ryanair, Air Berlin and easyJet continue to be locked into cut-throat competition. They have reported mixed results for the first quarter, but low fuel costs gave a boost across the board.

For the six months ended March 31, easyJet on Tuesday reported a pretax profit of 7 million pounds (9.7 million euros, $10.9 million), which came as a surprise because airlines usually make a loss during the winter season as fewer passengers fly.

However, the good news was eclipsed by the British airline's announcement it was facing "tougher business conditions" in its third fiscal quarter, ending June, due to strike-related disruptions that would likely result in a dip in underlying revenue.

The airline's shares dipped more than 8 percent at one point on Tuesday.

EasyJet said its third quarter profit would take a hit from air traffic control strikes in France in April, which led to the cancellation of over 600 flights. As a result, revenue per seat in the three-month period would be down by 4 percent.

Industry analysts now expect easyJet's annual profit to be 25 million pounds ($39 million) lower. Numis analyst Wyn Ellis, for example, told the news agency Reuters that he was cutting his forecast for easyJet's full-year pretax profit to 660 million pounds ($1.03 billion) from 691 million pounds.

Nevertheless, easyJet continued to forecast growth in revenue and profit for the full year, as forward bookings were in line with last year and as the cost of its fuel bill is likely o shrink by up to 120 million pounds due to lower oil prices.

"As expected the lower oil price has been beneficial for customers, and easyJet will be able to offer its customers even better value fares this summer whilst continuing to grow revenue and profit," the airline said in an earnings statement.

The company said it was confident its fares would be competitive against rival operators, as it had reduced them to reflect the lower oil price.

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Air Berlin struggling amid high costs

Air Berlin still in the red

Europe's number three budget airline, Germany's Air Berlin, is also planning to reduce fares but is still struggling to rein in costs.

A major restructuring program, launched by the airline's new chief executive Stefan Pichler aims to turn a profit for Air Berlin for the first time in more than a decade.

Air Berlin, which was already forced to sell a 29-percent stake to Abu Dhabi's Etihad Airways, has been cutting routes and has changed its revenue management systems, including a new fare structure.

"Because of increased market pressures and special expenditures, current foreseeable business development in the second quarter has so far not fulfilled expectations," the airline said when it reported first-quarter results on Monday.

The airline's loss before interest and tax (EBIT) narrowed to 159.9 million euros ($178.6 million) in the quarter through March from a loss of 182.8 million a year earlier. But higher interest costs and changes in the market value of hedging instruments actually caused its net loss to widen slightly to 210 million euros from 209.8 million.

"We understand that we need to continue the systematic re-engineering of our company in order to achieve the goals we have set and generate the necessary market momentum," Pichler said in a statement.

The CEO sees Air Berlin just "at the beginning of a long road to recovery."

Ryanair hikes profit forecast

Meanwhile, Dublin-based airline, Ryanair, still dominates the European low-budget flights market.

The budget airline pioneer is set to unveil full-year results on May 26, but it has already lifted its forecast several times on the back of a rise in passenger numbers and lower fuel prices.

In January, Ryanair said that it was raising its 2014/2015 profit guidance to a range of 840 million euros to 850 million euros from a previous estimate of a maximum of 830 million euros.

In March, the airline even reported a 28-percent rise in the number of passengers for the month compared with March 2014.

However, Ryanair tempered enthusiasm by warning that profit growth next year would be "modest" because it was tied into expensive oil hedges for next year at $92 a barrel which would limit its gains from the actual lower prices.

uhe/ng (Reuters, AFP, dpa)

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