Easyjet shares drop by 12% over competition fears

SHARES in Easyjet dropped

Easyjet said average fares fell 6% in the four months to the end of January, which is broadly in line with the decreases at Ryanair.

The Irish airline this month reported its fares for the three months to the end of December fell 8% year-on-year, in part because of free tickets and discounts offered to promote new routes.

However, analysts are concerned that Easyjet does not have the low cost base to afford these cuts.

Its shares fell by nearly 29p to 208p.

They had lost 15% at one stage yesterday.

Ryanair shares also fell, down 3.3%, despite figures showing that it was the biggest carrier between London and Dublin.

Easyjet's statement was a reminder of the gloom facing the airline industry fears of war, higher oil prices, recent security scares at London airports and economic uncertainty.

"This is interpreted as having more to do with the market, and not so much the company," Tim Rees, a fund manager at Clerical Medical, said.

"A year or so ago, airlines had two to three months' visibility; now they have two to three weeks," he added. Analysts said the size of the fall was a surprise. "It's been in the market, but it's worse than expected," said one brokerage analyst, who asked that his name not be used.

"But it's understandable: the whole industry has been complaining of low yields," he added.

The company also said the costs of its recent acquisition of Go and the option to buy British Airways unit Deutsche BA would be about £18 million in the first half of the year. Easyjet said it was having to slash prices to fill seats, especially after its acquisition of Go.

"This is primarily due to year-on-year growth in aircraft seat capacity; the sale of additional seats at lower fares to lift the load factor of the Go Fly network closer to the Easyjet network level, and market and economic forces," the company said in a statement.