EasyJet slashes expansion plans

EasyJet confirmed that the brakes have been applied to the low-budget airline industry today by slashing a planned capacity increase due to high fuel costs and weakening demand.

Europe's second largest no-frills carrier halved its growth plans and will cut 12% of its capacity at its third largest UK base, Stansted airport. EasyJet will fly fewer seats over the winter by cutting unprofitable flights on some routes, rather than grounding planes altogether.

Like close rival Ryanair, easyJet has been a voracious acquirer of aircraft in recent years and today's statement underlined the strategic challenges facing the low-budget model of filling a rapidly expanding fleet via bargain fares, analysts said.

EasyJet shares fell 10% to 333p by 4pm as the capacity change was accompanied by a warning that full-year profits will fall by around 40% as the high oil price erodes earnings.

"Low fares and high growth are giving way to higher fares and lower growth," said Douglas McNeill, analyst at Blue Oar Securities. "That is a sensible way to respond to the oil shock – but it sits uneasily with the low-cost airline model's traditional emphasis on stimulating demand through low prices."

The carrier did not rule out a capacity freeze next summer - when it receives a further 18 Airbus A319 jets. The change in growth plans comes during another year of fleet growth at easyJet, when the number of aircraft operating easyJet services expanded from 137 to 165.

As well as flying planes less often this winter, the airline said it had the extra option of culling a mixture of 45 leased and older aircraft, rather than cancelling or pushing back its stream of more than 100 Airbus jet orders.

"We have 45 aircraft that we can exit from the fleet, while bringing in much cheaper A319s," said an easyJet spokesman. EasyJet said today that plans to grow capacity by 12% over the winter have been reduced to between 4% and 6%.

EasyJet added that it had the flexibility to "scale back further" if the outlook worsens, including the further elimination of unprofitable services that sink into the red due to a combination of high fuel costs, increased landing fees at Gatwick and Stansted airports and soft winter demand.

EasyJet confirmed strong summer sales in third-quarter results today, with passenger numbers in the three months to June 30 growing 16% to 11.5 million, boosted by fleet expansion through aircraft orders and the recent acquisition of GB Airways.