UPDATE 2-EasyJet's outlook rosy as it exploits retrenching rivals

Wed Jul 24, 2013 4:50am EDT

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By Rhys Jones

LONDON, July 24 (Reuters) - EasyJet's Plc's strategy of adding flights on routes where rivals have cut back paid off on Wednesday, as its forecast of earnings ahead of analyst expectations helped propel its shares to a record high.

Rival airlines have been struggling with high fuel costs and weak consumer confidence, sending some smaller carriers out of business while the likes of British Airways owner IAG and Air France-KLM have cut routes, leaving gaps that low-cost airlines have been quick to exploit.

Luton, southern England-based easyJet said it expects pretax profit of between 450 million pounds ($691.5 million) and 480 million in the year to Sept. 30, up from 317 million last year and topping an average estimate of 433 million.

EasyJet, whose planes decorated with the company's distinctive orange logo are a common sight at Luton and other British airports, said its upbeat forecast assumed a 6 percent rise in revenue per seat in the second half of the year.

Europe's second-largest low-cost carrier after Ryanair Holdings Plc also said revenue rose 10.5 percent to 1.14 billion pounds in the three months through June.

EasyJet, which increased capacity by 3.6 percent in the quarter, said it had particularly benefited from adding flights on routes to Italy and Switzerland. Earlier this month it won shareholder approval to buy 135 new Airbus planes despite opposition from its estranged founder Stelios Haji-Ioannou.

MORE FLIGHTS

"This stronger than expected performance was driven by allocating capacity to higher-returning routes, competitor retrenchment and allocated seating," said analyst Mark Irvine-Fortescue at brokerage Jefferies.

Since Carolyn McCall took over as CEO in 2010, the airline has introduced more flights between top business destinations, as well as flexible tickets allowing passengers to change their flight up to two hours before scheduled departure time, and allocated seating in an attempt to steal corporate customers.

The airline's annual dividend and profits have doubled since McCall took the helm.

"EasyJet is performing strongly, driven by a combination of management initiatives and a benign capacity environment," said McCall, adding 73 percent of seats had already been booked for the six months to October.

EasyJet, which makes its profit in a second half that includes the busy summer holidays, said revenue per seat rose 6.1 percent at constant currency rates in the quarter.

It also expects its fuel bill for the second half to be around 9 million pounds less than the same period a year ago due to hedging initiatives.

Shares in easyJet, which have risen more than 75 percent this year, hit an all-time high of 1,449 pence in early trade and were 6.4 percent up at 1,422 pence by 0750 GMT, valuing the company at around 5.6 billion pounds.

EasyJet's founder, usually known as Stelios, set up the airline in 1995 but quit the board in 2010 after a row over strategy and remains at odds with its management. He had argued that the money it plans to spend on new planes would have been better lavishing on improved dividends or share buybacks.

($1 = 0.6508 British pounds) (Editing by Neil Maidment and David Holmes)

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