Brexit vote is not sole cause of easyJet's woes
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Version 0 of 1. Running an airline has always been a volatile game. Fixed overheads are heavy and profit margins can be clobbered by events and sudden dips in demand. It has always been so. If easyJet’s shareholders, after a wonderful run over the past half-decade, thought the old rules had been suspended, they have had to think again. The company, in common with most of its direct rivals, has lost a third of its stock market value since the EU referendum. The vote for Brexit is not the sole cause, of course. The airline’s chief executive, Carolyn McCall, started her review of the past quarter with a statement of the obvious. “The economic and operating environment has been difficult …” You bet. Two-thirds of easyJet’s flights pass through France and the air traffic controllers there have been striking with extra enthusiasm this summer. Meanwhile, the Brussels terror attack and the Egyptair tragedy has been followed by the horror in Nice and the attempted coup in Turkey. All sap consumer confidence, at least for a while. EasyJet’s revenue per seat was down 8.3% in the third quarter and is unlikely to improve meaningfully in the short term. But is the UK’s vote for Brexit really as significant as the share price suggests? UK consumers will have to adapt to a weaker pound, it’s true. Some will be more inclined to take a holiday at home. And the exchange rate movement makes fuel, which is denominated in dollars and is the airline’s biggest cost, more expensive. But investors’ prime Brexit-related worry has been more basic: regulation. EasyJet, like Ryanair, is a child of the European common aviation area, which allows airlines to operate from any EU airport. If automatic flying rights are threatened, or become harder to secure, does the business model need a complete overhaul? It’s an uncertainty – but the threat is probably overstated. First, the most likely outcome of the UK’s negotiation with the rest of the EU is that flying rights will continue as before. Continental airlines and airports are not lobbying for easyJet to be excluded. It is in neither side’s interest to rip up a system that has produced clear benefits for consumers. Second, easyJet has a plan B, which is to obtain an airline operator certificate in an EU country. That, in theory, ought to be a relatively painless process since easyJet has a large operation within the non-UK EU. It flies Spaniards to Germany, for example, and operates internal flights within France. In practice, life could turn out to be complicated once the politicians sit at the bargaining table. But, as matters stand, the regulatory risks from Brexit should be slight. The current “difficult” operating climate, on the other hand, looks very real. William Hill chief pays penalty for bookmaker’s troubles Gareth Davis is a no-nonsense chairman of the old school, which is one reason why nobody in the City is remotely bothered about him heading three companies simultaneously – bookmaker William Hill; FTSE 100 builders merchant Wolseley; and DS Smith, Europe’s leading packaging company. James Henderson, chief executive of William Hill until Wednesday night, can now testify to what no-nonsense means. After only two years in the post, Henderson is out of his job. He is paying the penalty for William Hill’s struggles with an upgrade of its online and mobile technology. Is that harsh on a man with 31 years of service on the clock? Not really. There was no fresh profits warning on Thursday, to follow March’s thumper, but a board is obliged to take a longer view. William Hill had grown used to comfortable market leadership in the UK, but now sees its rivals combining dangerously. PaddyPower and Betfair have merged and Ladbrokes and Gala Coral are doing the same. If William Hill’s online growth has stalled, its board can’t afford to be sentimental. Sports Direct’s problems are extreme but not unique Mike Ashley cannot grumble with the damning verdict of the business, innovation and skills select committee: he is accountable for the “appalling” working practices at Sports Direct. On his own admission, he is responsible for what goes on at a company he founded and still controls: either he should have known, or else he turned a blind eye. But committee chair Iain Wright, in his article for this paper, is right to say the problems at Sports Direct may be an extreme example but are probably not unique. The so-called “gig” economy is stretching the link between employer and employee to breaking point. The growth in self-employed, temporary and zero-hours jobs has created the conditions for abuse of workers. If the trend conditions, Wright argues, the government will look again at the employment laws. Bring it on. |