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Source: Scotsman

MARTIN FLANAGAN
CITY EDITOR

THOSE two bare-knuckle sky-scrappers, easyJet and Ryanair, were both
under stock market pressure yesterday.

That was despite one of them disclosing its profits performance this
year is better than many in the City expected, and the other
introducing ground-breaking in-flight entertainment into the budget
airline sector.

That’s the way it is with the market regarding the celestial
no-frills brigade these days. Every silver lining is scrutinised for
the cloud.

EasyJet was the biggest casualty, its shares plunging nearly 8 per
cent to a record low of 128p, while Ryanair also lost nearly 2 per
cent.

Superficially, one might have expected their shares to ascend.
EasyJet had announced that trading had improved during its final
quarter.

As a result, easyJet said it now expected revenues and profits at
the company to rise by at least 16 per cent during fiscal 2004 -
meaning a pre-tax profit of more than £60 million.

After a profits warning earlier in the year, when things looked
bloodier in a bloated budget airline sector, the company had only
said that profits would "at least" exceed last year’s £52m.

So far, so good. Meanwhile, in an unrelated announcement at
Ryanair’s AGM in Ireland, Michael O’Leary unveiled his company’s new
high-tech in-flight entertainment systems.

The never-knowingly-understated O’Leary said it made Ryanair the
first low-fares airline in the world to introduce in-flight films,
cartoons and music videos for all customers. Another positive,
surely, as a business proposition to boost revenues. Apparently not.

The reason for the share price falls was that the market preferred,
as always, to focus on the future rather than the past, or even now.

Crucially, easyJet had said in its trading update that fuel prices
remained volatile and that yields - average fares - were expected to
remain under pressure in 2005. There was the rub as far as the
market was concerned.

In other words, it has been a difficult year for the main players in
the no-frills sector, and it is not about to get better in any sort
of short-term.

Meanwhile, easyJet’s launch of its first three routes into the
Republic of Ireland - Ryanair’s heartland - was seen as potentially
damaging to both players.

Another reason for easyJet’s share price fall, and with what the
group had to say on fuel prices and yields, another reason for
Ryanair’s shares to come under pressure.

You can see the City’s reasoning here. It must be enjoyable for Ray
Webster at easyJet to tweak Ryanair’s tail on its home turf.

And it is probably not entirely coincidental that the announcement
of the incursion to Cork, Shannon and Knock comes just two days
after the Irish airline vowed to take on easyJet in the lucrative
Spanish market.

Scrappers in the sky, indeed. However, the market probably cannot
see much mileage for either company in a minor sharpening of the
price-cutting war between the two, and so it is just one more little
pressure on both companies.

The wider picture for the no-frills sector continues to look bleak.
There are too many players, many under-capitalised, leading to
cannibalisation that is hurting all the players.

Pressure on prices and revenues, relentless cost-cutting, selective
route closures means, without a doubt, some of the smaller players
going to the wall is the likely ongoing scenario.

There is little doubt that Ryanair and easyJet, two of the
best-capitalised players in the sector, will survive. But, for a
good while the pickings will be thinner.

The turbulence that remains ahead is clear to the stock market and
that is why it will continue to look for the negatives rather than
positives in company statements.

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