EasyJet's profit leap underlines advantage over Ryanair

By Rhys Jones

LONDON, Nov 19 (Reuters) - British budget airline easyJet reported a sharp rise in annual profit and said it would pay a 175 million pound ($282 million) special dividend to shareholders, underlining its advantage over larger Irish rival Ryanair.

EasyJet (Other OTC: EJTTF - news) 's pretax profit rose 51 percent in the financial year ended September, helped by the introduction of allocated seating across its routes and strong revenues in many of its European markets.

Chief Executive Carolyn McCall said on Tuesday that the airline, which carried 61 million passengers, offered "friendly service so that we can continue to win in a more competitive market."

EasyJet's upbeat assessment was in contrast to that given by Ryanair, Europe's biggest budget airline by passengers, which earlier this month cut its annual profit target for the second time in two months and admitted it needed to improve customer service.

Europe's airlines are grappling with high fuel costs and weak consumer confidence, which have sent some smaller carriers including Spanair and Hungary's Malev out of business in the last two years leaving gaps for low-cost airlines to exploit.

Older traditional airlines such as IAG, Air France-KLM and Lufthansa, are cutting jobs, renegotiating staff contracts and dropping uncompetitive routes to get costs down to similar levels as budget carriers.

Shares in easyJet, which have doubled over the last year, were 7 percent higher at 1150 GMT on Tuesday, valuing the airline at more than 5 billion pounds. Ryanair was up 1.6 percent.

TOUGHER OUTLOOK

Over the last three years Luton, southern England-based easyJet has added flights on routes where rivals have cut back, and introduced more flights between top business destinations.

It has also added flexible ticketing to allow passengers to change their flight up to two hours before scheduled departure time and allocated seating in an attempt to steal corporate customers.

Typically budget airlines have not given customers a numbered seat, resulting in a rush to board planes.

EasyJet, which recently took over Flybe's slots at London's Gatwick airport, said it carried 11 million business passengers during the 2012/13 financial year, 1 million more than the previous year.

"We are flattered by what our customers say about us and the results show the hard yards we have put in are paying off," CEO McCall said.

However, she warned that easyJet faces a challenge this winter as rivals add capacity. She expects European capacity to rise 2 percent in the first half, compared with a 4 percent fall last year.

"EasyJet is setting expectation for a tougher 2014," said Jefferies analyst Mark Irvine-Fortescue, citing increased competition from new low-cost carriers looking to expand, such as Norwegian Air Shuttle and Vueling.

"There will continue to be retrenchment by less efficient airlines," he said.

EasyJet proposed a full-year dividend of 33.5 pence a share, 56 percent up on last year, and a special dividend of 44.1 pence per share, or 175 million pounds, taking its total payout to investors to 308 million pounds.

It made an annual pretax profit of 478 million pounds ($770 million), while sales rose 10.5 percent to 4.26 billion pounds.