LONDON -- Big news in the airline industry today, as easyJet Plc (LSE:EZJ) has confirmed it will buy 25 pairs of arrival and departure slots at Gatwick Airport from rival Flybe Group (LSE:FLYB) for a total consideration of £20 million.
The acquisition -- which is subject to approval of Flybe shareholders -- will see the slots transfer to easyJet in the summer of 2014, and should allow easyJet to provide more flights on popular existing routes from Gatwick to cities across Europe and the U.K.
This is another smart move for easyJet, which beat out other acquirers rumored to include British Airways and Norwegian Air Shuttle. Shares in easyJet are now trading at around 1,269 pence, up over 60% since the first of the year. Earlier this month the carrier announced solid first-half results, which confirmed trading in the second half of the year is expected to be in line with management's expectations, alongside higher revenue and lower losses.
Today's announcement of the sale to easyJet is all part of Flybe's desperate attempts to turn the business around. Since Flybe floated on the stock market at the end of 2010, it has since faced soaring fuel costs, dwindling passenger numbers and increasing airport duties. A year ago, Flybe ended its flights from Belfast City Airport to Bristol, citing unsustainable passenger levels as the main reason for the cut.
Earlier this month, on news of the planned sale of its Gatwick slots, Flybe shares advanced to 58.8 pence, the highest price in eight months and over a 10% jump in just one day. That extended Flybe's share price gain this year to 15%, valuing the airline at £44 million. Perhaps too little too late for shareholders, however, who've seen Flybe shares struggle over the past 12 months -- in a time when the general market has risen nearly 30%, Flybe shares have retracted nearly 14%.
No doubt, investors interested in Flybe today are betting on the airline's ability to steady the business and execute a turnaround.
The carrier said in April that it had £54.4 million in cash at the end of its financial year and that it would report an underlying pre-tax loss at the low end of its forecast, on sales similar to the previous year.
And today it issued an update on that turnaround, indicating that its aggressive cost-cutting is working. By reducing staff by nearly 22%, deferring delivery of and payment for new aircraft, and selling off its Gatwick slots, the carrier has saved some £30 million, about £5 million ahead of where it expected to be at this point.
Flybe -- and rival easyJet -- are still facing headwinds, as the costs of doing business in the airline industry are steep and chip away at shareholder returns.
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