Newspaper article The Evening Standard (London, England)

A Rough Ride for Customers If easyJet Swallows Go

Newspaper article The Evening Standard (London, England)

A Rough Ride for Customers If easyJet Swallows Go

Article excerpt

Byline: ANTHONY HILTON

THERE is something about the easyJet bid for rival low-cost airline Go that does not add up. Not much more than 12 months ago, British Airways sold Go for ?100 million.

It did not want to deal with easy-Jet then but would have owed it to its shareholders to have entertained a serious offer from the orange-coloured airline. But easy-Jet founder and major shareholder Stelios Haji-Ioannou was reluctant to pay up then, so why is he so keen to do so now? And where on earth does the ?400 million come from? It seems ridiculously high.

Bids for airlines do not work unless the combined carriers can cut costs, gain access to cheap financing or obtain scarce landing slots. None of these are valid reasons for a deal right now. The slump in air travel means new planes can be bought for a knockdown price. The cutbacks by established airlines means slots are available everywhere but Heathrow. Neither airline has a heavy overhead or infrastructure that could be rationalised. So why should this airline now be worth ?400 million to Stelios when the two have different business models, hubs and computer systems?

The deal appeals to Stelios of course because it sets the seal on his success and allows him to take out a further ?100 million of his investment in cash. No one seems to mind, though if he had tried that without the cover of a deal the shares would have crashed.

Bidding this much helps underpin the ?1.4 billion valuation the stock market put on his own company, a rating that is currently hard to justify. But that is not sufficient reason either.

What one is left with is the suggestion that easyJet has become unnerved by the progress Go has made in the months since it won its independence and wants to take the competitor out now, while it can still afford to do so.

The bulking-up that would follow a combination of both carriers would make it much harder for any new low-cost carrier to enter the British market, giving easyJet a de facto monopoly. …

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