June 18, 2013
Easyjet has entered a preliminary agreement with Airbus to acquire up to 200 A320NEOs and 35 A320s. The deal is still subject to shareholder approval and is likely to hit some very public opposition from founder Stelios Haji-Ioannou who has opposed further expansion of the airline. The agreement is a major blow for Bombardier, which had been pitching a 160-seat version of its CS 300 against Boeing and Airbus narrowbodies.
Once shareholders approve the agreement, Easyjet plans to place a firm order for 100 NEOs, plus 100 options. The 35 A320s are options that are converted from a previous deal. The current-generation aircraft are to be delivered between 2015 and 2017. The airline plans to take on the NEOs between 2017 and 2022. The airline has not yet made an engine selection.
Easyjet says it is planning for a fleet of 276 aircraft in 2022, but the availability of options and a flexible retirement schedule for the existing fleet opens up a range of fleet sizes from 165 to 298 aircraft. Currently, Easyjet plans to use 85 of the 135 proposed firm orders to replace ageing aircraft.
The airline says the A320NEOs offer an 11-12% cost-per-seat advantage over the existing A319s.
Easyjet Chief Executive Carolyn McCall says the discounts on the list price are greater for the NEOs than they were for the last major Airbus A320 orders. Because of its revenue growth, the airline also plans to spend a smaller part of revenues on fleet renewal. Easyjet’s fleet investment was equivalent to 18% of revenues in the 2005-2012 period, but that will go down to 10-12% in 2018-2022.
The Easyjet order follows similarly sized deals for Norwegian and Ryanair and is likely to be followed by an expected Ryanair agreement for Boeing 737 MAX aircraft later this year. The massive commitments to further growth raise the question of whether overcapacity is building up in the European direct services market, and will likely lead to more competition between low cost carriers. The deals will probably result in more LCC traffic on trunk routes that have so far been the domain of legacy airlines.
Easyjet had considered the A320NEO, the Boeing 737 MAX and the CS 300. Bombardier announced a 160-seat version of the CS 300 earlier this year, and has noted that it might a further stretch of the aircraft some time in the future. Bombardier did not immediately respond to requests for comment. Easyjet would have had to go for a split fleet if it had opted for the CS 300, because it would have also required a larger aircraft. The commitment to the A320NEO raises the seat count for what will be the airline’s baseline aircraft from 156 (A319) to 180 seats.