EasyJet CEO still has no details of the practical economics of a Heathrow or Gatwick runway
Date added: June 20, 2014
In an interview, by Buying Business Travel, with Caroline McCall, the CEO of EasyJet she said Heathrow is an expensive airport, which is why they do not fly from there. On Gatwick’s and Heathrow’s bids for runway expansion she says: “We’ve seen none of the economics behind either of those visions. Inevitably it will be the airlines and therefore the passengers, that will fund this. Therefore, it’s a very, very big decision for Easyjet – because any increase in passenger fares is something that affects our low-fare proposition”….”We make £7 profit per seat – that’s it. We’ve raised that from £4.50 over the last four years. I think Heathrow are talking around £15 billion, Gatwick are talking around £7-8 billion. If you think about the price per passenger for that, you can see we have to be really, really careful about any capacity going into either airport, and before we take a view on it, we have to understand the economics.” And they want to focus on more business travellers: “because we know we get higher yields.” . Tweet
The interview: Carolyn McCall, CEO, Easyjet
By Paul Revel (Buying Business Travel – BBT)
18 June 2014
Easyjet CEO Carolyn McCall spoke to BBT journalists when she addressed the business travel industry at the GTMC [Guild of Travel Management Companies ] conference in Marrakech, and at ACTE’s [Association of Corporate Travel Executives] travel buyer event at Gatwick airport.
Easyjet’s low-cost model underpins its successful growth, according to Easyjet boss Carolyn McCall.
“What does ‘low-cost model’ mean? It means we have new engines, high fuel efficiency. Our plane utilisation, turn-time and load factors are very high, we use our assets really well. We don’t have fancy offices, we have a hanger – open plan offices, and we share space with plane maintenance. It’s very important to us, we’ll never lose sight of it – without that low-cost model, we wouldn’t be able to do the low fares.
“There’s been quite a lot of rumours that Easyjet would never fly from Heathrow, which is baffling, because we have 10 aircraft at Charles de Gaulle, we fly out of lots of hubs already, we’re the number two airline at Schiphol,” she said. “It all depends on cost, and Heathrow is an expensive airport.”
In a similar vein, she doesn’t give a definitive view on Gatwick’s and Heathrow’s bids for runway expansion.
“We’ve seen none of the economics behind either of those visions. Inevitably it will be the airlines and therefore the passengers, that will fund this. Therefore, it’s a very, very big decision for Easyjet – because any increase in passenger fares is something that affects our low-fare proposition.
“We make £7 profit per seat – that’s it. We’ve raised that from £4.50 over the last four years. I think Heathrow are talking around £15 billion, Gatwick are talking around £7-8bn. If you think about the price per passenger for that, you can see we have to be really, really careful about any capacity going into either airport, and before we take a view on it, we have to understand the economics.”
This scrutiny of the bottom line is key to Easyjet’s relationship with business travel buyers, said McCall – and why she’s not looking at traditional volume-based corporate deals.
“For us, it’s all about the fact that we save corporates a minimum of 30% on their travel budget” – Easyjet says this claim is backed by independent TMC benchmarking for routes in 2013. “Legacies need the volume – we get a load of volume.
“The reason we want business travellers is because we know we get higher yields.”
Airlines also questioned whether expanded airports would mean lower fares. EasyJet, the major airline at Gatwick, said its calculations suggested that increased landing charges would exceed profit margins on existing fares. Carolyn McCall, easyJet’s chief executive, said that passengers should only pay for what they use and need, and not subsidise future infrastructure now. Instead of lower fares, she said, “we are nervous that the opposite could happen”.
In case anyone might still be tempted to think that these figures are an exaggeration, it is good to find that they are lower than the estimate made by easyJet, Gatwick’s largest airline. In October 2013 Carolyn McCall, Chief Executive of easyJet, said:
‘Our greatest concern is [that] the CAA has handed GAL a licence to print money and has significantly enhanced the value of the future sale of GAL by private infrastructure fund GIP. Using GAL’s own figures passengers could be paying £28 more per flight for years in advance of the opening of a new £9 billion runway without any real oversight by the CAA.’
£28 more, i.e. on top of the present charges of £8 per passenger. And what is giving Ms McCall the heebie-jeebies is not only the prospect of a four-fold increase in airport charges but also the thought that GAL is to be allowed to put up the price before they build the new runway.
No wonder easyJet has not been jumping up and down with enthusiasm.
A new runway at Heathrow or Gatwick would mean big increases in passenger fees – New report
10.3.2014 (Aviation Environment Federation)
The Aviation Environment Federation (AEF) has submitted a new report to the Airports Commission. It casts doubt on the feasibility of building a new runway at either Gatwick or Heathrow. So far there has been little realistic discussion about who will actually pay for the proposed runways. The new study, “Who Would Pay for a New Runway” by Brendon Sewill, shows that a new runway at Heathrow would be likely to mean an increase in landing fees and other airport charges from £19 per passenger now, up to £31. At Gatwick there would be a larger increase, up from £8 now to £33.60. The study points out that with all the London airports separately owned, unlike in the days of BAA, the cost will have to fall only on the passengers using that airport. If an expensive runway (and terminal) is built, the options are either that the passengers pay for it – or that it has to have public subsidy. A report for the Airports Commission, by KPMG, concluded that a new Heathrow runway would need a subsidy of around £11 billion, and a new Gatwick runway a subsidy of nearly £18 billion. However, the Government is reluctant to commit public funds, and new EU guidelines ruling out subsidies to major airports. That leaves landing charges – will passengers put up with that, or vote with their feet by using cheaper airports? .