Tighter Competition for Low-Cost Carriers Weighs on EasyJet
LONDON — EasyJet, a British budget airline, warned on Tuesday that stiffer fare competition with its European rivals could crimp its revenue as it heads into the peak summer travel season, despite a continued benefit from lower fuel prices. The slightly weaker outlook startled some investors, raising concerns that it could weigh on the company’s full-year earnings. EasyJet’s shares slid nearly 10 percent in afternoon trading in London. The news came as easyJet, Europe’s second-largest low-fare carrier after Ryanair, said it had swung of 5 million pounds, or about $7.74 million, in the six months to March 31, from a loss of £41 million in the period a year earlier. Revenue rose nearly 4 percent, to £1.8 billion. EasyJet reported net profit of £450 million last year, up 13 percent from a year earlier, on revenue of £4.5 billion. “Forward bookings are in line with last year and, as we predicted, passengers are benefiting as fares fall to reflect a more competitive operating environment and lower fuel costs,” Carolyn McCall, the easyJet chief executive, said in a statement. Winter is frequently an unprofitable season for European airlines, as cooler weather curbs demand for leisure travel. But easyJet, which is based in Luton, England, said it had received an unexpected jolt from increased traffic to popular European skiing destinations like France and Switzerland — where the carrier has a strong presence — as well as from a more favorable currency environment. The airline said it expected revenue per seat in the second half of its financial year, which ends Sept. 30, to slip “by low single-digit percentage points” in the face of more intense competition, a weaker euro against the pound and the adverse impact of a strike in April by French air traffic controllers that forced the airline to cancel more than 600 flights. Lower oil prices, however, are expected to reduce the airline’s fuel bill this year by as much as £120 million. In an effort to squeeze further revenue from each flight, easyJet announced plans to add six additional seats to each of its A320 single-aisle jets, beginning in 2016, taking advantage of a higher-density cabin configuration offered by Airbus. The airline said the move should reduce its operating costs per seat by about 2 percent, which it hopes will offset expected rises in other costs, including airport usage and air navigation fees in countries like Germany and Italy. Despite the slightly weaker outlook for summer leisure travel, easyJet said demand from business travelers, which now make up close to 20 percent of its passenger base, continued to be strong. The airline said demand for its business products, which include flexible tickets, allocated seating and priority boarding, had more than doubled in the first half compared with the period a year earlier. Over the last year, easyJet has increased its presence at several airports popular with business travelers, particularly at Gatwick Airport near London, where a quarter of its fleet of 230 single-aisle Airbus planes is based. This year, it added a new base at Schiphol Airport near Amsterdam, and it now has 13 daily flights to the Dutch hub from Gatwick, making it the airline’s highest-frequency business route.
Source: New York Times
The Dinner Proposal That Led United Into Corruption Probe
United Airlines Inc. was seeking hundreds of millions of dollars in public investment for the airport in Newark when its chief executive dined with New Jersey Governor Chris Christie’s top Port Authority official in September 2011. Jeffery Smisek, United's chief executive officer, wanted funding for several projects, including an estimated $600 million extension of the PATH train from downtown Newark to the airport, as the airline worked through its merger with Continental Airlines.
Halfway through dinner at Novita, an Italian restaurant in Manhattan, Port Authority Chairman David Samson surprised the group with a request of his own. He complained that he and his wife had grown weary of the trip to their weekend home in Aiken, South Carolina, because the best flight out of Newark was to Charlotte, North Carolina, 150 miles away. Until 2009, Continental had run direct service from Newark to Columbia, South Carolina, 100 miles closer. In a tone described by one observer as “playful, but not joking,” Samson asked: Could United revive that route? An awkward silence fell over the table. Though the United CEO didn’t agree to the request at the dinner, according to the accounts of some who attended, the airline ultimately added the money-losing route that became known as “the chairman’s flight.” Now federal prosecutors are looking into whether its genesis crossed the line from legitimate bargaining into illegal activity. The U.S. Attorney’s Office in New Jersey is investigating whether United employees made improper attempts to influence Samson at the Port Authority of New York & New Jersey, according to people familiar with the investigation. The authority oversees Newark Liberty International Airport. Favored Projects Previously undisclosed details -- gleaned from Port Authority records, people involved in talks between United and the authority and others close to the investigation -- indicate that United agreed to add the Newark-to-Columbia flight after Samson twice threatened to block Port Authority consideration of one or more of the airline’s favored projects. The new details about the origins of the flight shed light on the expansion of a federal investigation into Port Authority actions. The probe initially focused on the intentional lane-closing that clogged traffic near the George Washington Bridge in 2013. Investigators are looking into whether Samson, 75, a longtime Christie ally who’s retiring from the New Jersey law firm that bears his name, abused his public position for private gain. According to people close to the case, prosecutors want to know if Samson gave United preferential treatment on Port Authority business in return for the flight. ‘Inaccurate Reports’ Criminal charges against some people involved in the bridge lane closings could come as early as this week, according to a person familiar with the inquiry. The case is being closely watched because of its potential to tarnish the Christie administration as he contemplates a presidential run. The back-room talks between United and authority officials who had vowed to improve economic development and regional transportation could be embarrassing and distracting for United, which has regained the confidence of investors after completing the $3.2 billion Continental merger in 2010. United officials have said they’re conducting an internal investigation into the Columbia flight but have declined to discuss it publicly. A Port Authority spokeswoman, Erica Dumas, declined to comment. Michael Chertoff, a lawyer with Covington and Burling LLP who represents Samson, said in an e-mailed statement that “for more than a year, the media has been filled with inaccurate reports that are both unfair and harmful to our client. Sadly, this account is yet one more,” adding that it “badly” mischaracterizes the dinner and subsequent meetings. Specific Intent Although many details of the discussions between United and the authority remain unknown, documents reviewed by Bloomberg News indicate there may have been a direct link between the request for the Columbia flight and the Port Authority’s process of approving projects involving the airport. They raise the possibility of bribery or extortion, according to legal experts who reviewed the information in the documents. In considering whether laws were broken, the intentions of Samson and United will be important, according to former prosecutors and others, none of them involved in the case. For bribery-related
violations, prosecutors must show a quid pro quo -- or specific intent to give or receive something of value in exchange for an official act. If prosecutors believe a crime was committed, they must then determine whether to treat the Newark-Columbia route as a shakedown or a bribe, said Daniel Richman, a Columbia University law school professor and a former federal prosecutor. Commercial Flight “Prosecutors like to have a narrative that points in one direction or another,” Richman said. “To the extent that it points to a shakedown involving a state official with enormous power over a company, it becomes less of a black eye for the company. Being shaken down by a public official is often more a cause for sympathy than condemnation.” Michael Koenig, a former federal prosecutor at Hinckley, Allen & Snyder LLP, said criminal charges could be fraud or bribery in connection with a state agency that receives federal funds. “The allegation could be that Samson was doing something for United in return for the airline running a route to South Carolina,” said Ronald Chen, acting dean of Rutgers School of Law-Newark. “Prosecutors would have to show he got something that was not appropriate for him to receive.” Chen added that Samson could argue that there was no improper benefit because the flight was commercial and he paid the same fare as any other traveler. Agenda Changes About a month after the dinner, United rejected the flight request as an unprofitable route. But Samson pressed on, according to people familiar with the situation. At the time, United was negotiating an extension of its Newark lease with the Port Authority and needed approval, and funding, to build a wide-body maintenance hangar for its new generation of jets. After making requests for the flight, Samson ratcheted up the pressure, according to the documents, working through a United lobbyist to communicate in early November that he’d removed one of the airline’s requests from the agenda of that month’s Port Authority board meeting. The lobbyist, Jamie Fox, is now New Jersey’s transportation commissioner. On Dec. 7, 2011, the day before the next board meeting, Samson inquired about the flight once more and said he’d pulled a United item from the agenda again, the documents show. It’s unclear whether Samson was bluffing or actually followed through with the agenda changes. Probe Confirmed At the board meeting on Dec. 8, the Port Authority approved United’s new hangar and pledged $10 million toward the $35 million facility. Within weeks, United had moved ahead with plans to resume the Columbia flight. Managers from Columbia Metropolitan Airport traveled to United headquarters in Chicago for a routine meeting in January 2012. The airline’s representatives surprised them by saying United was interested in flying again between Columbia and Newark, said Dan Mann, executive director of the South Carolina airport. The twice-weekly flight began on Sept. 6, 2012. Two weeks later, the Port Authority approved a study to extend the PATH rail to the Newark airport. (The proposal, whose estimated cost has ballooned to $1.5 billion, is now in jeopardy.) United and the Port Authority have confirmed the investigation. The probe was first reported in The Record newspaper in New Jersey. Grand-Jury Subpoenas The airline said in a February regulatory filing that the company and “certain of its executive officers and employees have received federal grand jury subpoenas requesting records and testimony related to certain individuals formerly associated with the Port Authority” and related company operations. The Port Authority said this month that investigators are seeking documents about a wide range of issues being negotiated with United. In a bond offering statement, the authority acknowledged theagency had been subpoenaed for communications between authority officials and United executives and lobbyists, and for records about the Newark-Columbia flight. The U.S. Attorney for New Jersey, Paul Fishman, instructed the Port Authority to preserve all records related to the PATH train extension, United’s lease at Newark and proposals to renovate terminals at the airport, according to the bond offering statement. Prosecutors also asked the authority to save records about United’s decision to begin flying to Atlantic City International Airport, which was taken over by the Port Authority in July 2013. The airline agreed to begin two Atlantic City routes, from Chicago and Houston, after an August 2013 meeting between Samson, Smisek, the United CEO and Christie. The governor’s spokesman, Kevin Roberts, declined to comment. Dominant Airline For years, United was a relatively minor player at Newark. With the Continental merger, however, the airline became the dominant carrier at Newark, operating more than 135,000 flights a year and accounting for 70 percent of the airport’s traffic. The marriage wasn’t going smoothly: Smisek had to contend with a legacy of labor strife at United as well as the countless complications of integrating two complex companies in a highly regulated industry. United had promised to generate $1.2 billion in savings by merging and was seeking public funding to help improve facilities and expand operations at it its major hub airports, including Newark. Samson, who was Christie’s choice to head the Port Authority in 2010 after overseeing the governor’s transition team, vowed to be an activist chairman and to aggressively use the Port Authority as an engine for economic development and jobs in New Jersey. Hands-On Approach His hands-on approach meant a change in tone and protocol. Companies like United had for years done much of their business by negotiating with career professionals in the authority’s real estate, aviation and legal departments. Under Samson, those negotiations were often conducted with the authority’s political appointees and, at times, the chairman himself. At the Novita dinner described by people involved in the investigation, Samson was joined by Bill Baroni, the Port Authority deputy director. Smisek was accompanied by Nene Foxhall, United’s executive vice president of communications and government affairs, and Mark Anderson, the airline’s senior vice president of corporate and government affairs. Smisek also brought along a key ally: Fox, a former Port Authority executive who was then working as a paid lobbyist for United. He was also a close friend of Samson’s. Fox had been an aide and confidante to New Jersey Democrats over the years, and was head of the Democratic Senatorial Campaign Committee in 2002. In 2008, he advised the Obama-Biden campaign in Florida. Fox declined to comment. ‘One-Seat Ride’ After small talk about wine, Smisek pushed the Port Authority to re-orient its spending in ways that would benefit United. He urged Samson to scuttle plans to take over the money-losing Atlantic City airport and asked that the authority focus on upgrading United’s exclusive terminal at Newark, rather than the terminal it shared with competitors. And he asked the authority to revive the long-dormant initiative to extend the PATH line, which would make United’s Newark terminals a convenient “one-seat ride” for travelers from Wall Street and others in downtown Manhattan. When Samson made his request for the Columbia flight, Smisek said only that he would consider it, the people said. After the Newark-Columbia route opened in 2012, Fox asked Samson whether he was happy with the twice-weekly flights, conveniently scheduled for a traveler who spent weekends in South Carolina: There was one to Columbia on Thursday afternoons and one back to Newark on Monday mornings. Samson said he was satisfied, the documents show.
Samson stepped down from the Port Authority in March 2014, two days after a law firm chosen by Christie exonerated the governor of wrongdoing in the George Washington Bridge scandal. Four days after Samson’s resignation, United ended the chairman’s flight.
Source: Bloomberg Business Week