Would an Easyjet takeover lead to a hike in the cost of flights? What you need to know
When Easyjet launched in November 1995 with a flight from London to Glasgow, it operated just two routes. Since then, it has grown into the UK’s largest airline, offering more than 927 routes across more than 34 countries.
Founded by Sir Stelios Haji-Ioannou in a bid to democratise travel, the budget airline has become synonymous with cheap holidays for millions of travellers across Europe, as well as being a symbol of British entrepreneurship.
But now US private equity investors are circling the airline, with two rival bids tabled this week meaning Easyjet could soon fall into foreign hands.
The London-listed airline confirmed on Sunday it had agreed a £5billion deal in principle with US consortium Castlelake, before Apollo swooped in with a superior bid. This morning, Easyjet said it was minded to agree to the £5.7billion offer.
If either offer is accepted, it would spell the end of the budget airline’s 26-year history on the London stock market but, most importantly, could bring about significant changes for customers.
Sir Stelios Haji-Ioannou founded Easyjet in 1995, offering customers cheaper air travel
What will Easyjet takeover mean for fares?
The words ‘private equity’ might spark fear among Easyjet customers who have seen other well-loved British brands being taken over and stripped of their assets by corporate raiders.
Private equity ownership will certainly usher in a new era for Easyjet and, while potential suitors might talk about investing in the business, they are likely to focus on cutting costs, too.
This means customers are unlikely to see the price of their tickets fall.
Easyjet has already signalled it will need to raise fares to offset the impact of the Middle East conflict, which sent the price of jet fuel soaring. At the same time, it flagged in May that summer bookings were ‘behind where they were at this point last year’.
Any new owner will have to balance boosting their returns and keeping customers on side, however.
Susannah Streeter, chief investment strategist at Wealth Club said: ‘Private equity owners are typically focused on improving efficiency alongside growth, although Apollo has also signalled confidence in management’s current strategy rather than proposing a radical change of direction.’
Apollo pledged to support Easyjet’s ‘existing strategy of evolving and strengthening the low-cost carrier model,’ which will sweeten the deal for passengers.
Easyjet’s expansion across Europe means it has started to challenge incumbents like British Airways owner IAG, but it will also not want to lose any market share to budget airlines like Ryanair and Wizz Air.
Dan Coatsworth, head of markets at AJ Bell, said: ‘Companies often experience change when they’re taken over. It’s natural for the new owner to look for cost savings and to find new ways to make money. For EasyJet, that implies the potential for job cuts and higher ticket prices.
‘However, EasyJet’s success has come from running a lean operation and being able to keep prices affordable. Apollo wouldn’t want to risk making EasyJet much more expensive than its nearest rivals, and it might find it hard to make cutbacks without damaging service quality.’
Flight ‘extras’ could get more expensive
Easyjet could look at scrapping costs elsewhere, though.
Rhys Jones, travel expert at Go Compare, said: ‘For customers, new ownership at Easyjet is unlikely to mean anything changes overnight, especially for those who already have flights booked.
‘Takeovers take time to complete, so it is unlikely to impact the price of this summer’s holidays.
‘Looking further ahead, less profitable routes, smaller airport bases or flight frequencies could be reviewed.
Easyjet’s share price has struggled to recover from the pandemic and lagged behind rivals
Extras such as luggage, seat selection and priority boarding are also worth watching, as these are a major part of budget airline pricing and could be one area where a new owner looks to improve margins.’
Will Easyjet cut jobs?
While any takeover will have limited impact on passengers for now, Easyjet’s 19,000 employees will wonder whether job cuts could follow.
Susannah Streeter of Wealth Club said: ‘For passengers, it’s very much business as usual for now, with flights, bookings and loyalty schemes unaffected while any deal works its way through the regulatory process. For staff, however, the picture is less clear over the longer term.’
Apollo has said it ‘places a high value on people and believes that identifying and retaining key staff within the Easyjet Group will be of paramount importance.’
Staff are more likely to be retained than if Easyjet had been approached to merge with another airline, but Apollo’s commitment raises further questions than it answers.
Should there be sweeping job cuts across departments, that could see a knock-on effect on customer service levels.
When will a takeover be agreed?
For now, nothing is certain. While Easyjet has said it has reached an agreement ‘in principle’ with Apollo, it has not yet been confirmed. Castlelake could come back with an improved offer, or another suitor could step in.
Apollo must announce a firm offer for Easyjet by 7 August or walk away. Castlelake has until 3 August. Even after that, it will take some time for the deal to be accepted by regulators.
Crucially, any bid for Easyjet is likely to require the backing of Sir Stelios and his family, who still own a 15.3 per cent stake in the company.
Although the family has not commented publicly, sources last month told the Mail he was likely to accept an ‘eye-watering’ bid.
‘It would need to be an eye-watering large price to persuade him and the family to sell,’ the source told the Mail.
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