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Will easyJet’s package holiday plans give it wings?

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

“The package holiday is dead. Long live the package holiday”, to misquote the declaration uttered at the coronation of Charles VII following the death of his father Charles VI in 1422. But that same sentiment of le mort saisit le vif seems entirely apt when easyJet seems so keen to rise from the ashes of the collapse of the world’s oldest package holiday company.

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Posting a 26% fall in pre-tax profits to £427 million for the year to 30 September, the budget airline, which you could argue helped bring about the demise of Thomas Cook with its low-cost DIY alternative to packaged breaks, is positioning itself as the next Thomas Cook. Presumably one with a better ending though.

Explaining the decision to launch a package holiday business, easyJet said: "The total European package holidays market is worth around £61 billion per year. The UK alone is a £13 billion market and has grown by 6% annually.

"The way that customers are taking holidays is changing and we know customers want holidays with various durations and not the traditional seven and 14 nights.

"EasyJet is excited about the opportunity to build a major player in the holidays market for a low up-front investment and with limited risk."

It’s hardly surprising that easyJet chief executive Johann Lundgren, a former employee of Tui, Thomas Cook's main rival, has spotted a potentially lucrative gap in the package holiday market. He has been quick to snap up other opportunities in the wake of competitors’ demise, such as Air Berlin's assets at Tegel Airport and Thomas Cook's runway slots at Gatwick and Bristol airports.

What is interesting is that less than two months after the collapse of Thomas Cook, with the suggestion that old-fashioned package holidays had gone out of fashion, the budget carrier has stepped in and decided there’s an opportunity to be had after all.

These are decidedly difficult times for consumer-focused businesses and none more so than discretionary travel-related ones that rely on us being prepared to fork out for foreign travel. And that is a task made all the more difficult by Brexit uncertainty still looming large. Low-cost options may still be tempting to many, even at a time of collective belt-tightening, but today’s figures from easyJet lay out the opportunities versus pitfalls all too clearly.

While passenger numbers of the year rose 8.6% to 96.1 million and annual revenues rose 8.3% to £6.4bn, as it increased capacity, total revenue per seat fell 1.8% to £60.81 due to "some weakness in consumer confidence".

If easyJet’s new package business can rake in some extra money by selling these holidaymakers accommodation and transfers too, then that would seem like an easy win. However long it lasts.

EasyJet is a maverick and hasn’t been scared of testing new ground. It’s also not afraid of blatantly rubbing its rivals noses in it when it’s managed to turn a disaster for them into success of its own. Such as when it talked of “operation resilience” as it picked up passengers when staffing problems at BA and Ryanair would have left customers stranded.

Analysts at Bernstein may have questioned how profitable easyJet would have been without the strikes that made life so difficult for BA and Ryanair and the problems at Thomas Cook.

“The most interesting question to us is how much of this is due to disruption at competitors”, they said. But good business is about seizing opportunity and that’s what easyJet is hoping to do yet again.

Its new package holiday business that is due to launch in the UK before Christmas, is expected to at least break even in its first year, with the airline group hoping to more or less double its package holiday sales. That will still make it a small player, compared to the likes of Tui, but bigger than British Airways' package business.

EasyJet has said the focus on package holidays came about after it spotted a gap in the market for “a modern, relevant and flexible business”. Adapt and thrive is the model easyJet - and its shareholders - will no doubt be hoping will give it wings.

More on easyJet

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