Easyjet flying high

British budget airline easyJet beat forecasts with a 9 percent rise in annual profits on Tuesday as new routes, rising fares and cost cuts eased the pain of soaring fuel prices.

Shares in easyJet, Europe's second-largest low-cost carrier, hit a 20-month high after it forecast a similar earnings increase this year by cutting costs further and earning more from non-ticket products.

"The better performance in the second half trend in both revenues and costs is a good start to the current financial year so we are quite happy with the guidance and still remain positive," BNP Paribas analyst Nick van den Brul said.

EasyJet, known for its bright orange planes and cheap tickets to short-haul European destinations, said pretax profit for the year to the end of September 2005 was 68 million pounds ($117 million), up from 62 million pounds a year earlier.

The result was higher than a consensus forecast of 63 million pounds from analysts polled by the company and it beat EasyJet's own earlier forecast for the result to broadly match the previous year's figure.

EasyJet shares, which have been buoyed in recent months by takeover speculation, jumped 7.1 percent to 328-1/4 pence at 1000 GMT. The stock is trading at its healthiest levels since losing a quarter of its market value following a profit warning in May last year.

COSTS TIGHT

Chief Executive Ray Webster, who retires next month, said costs per seat were expected to fall by 3 to 5 percent before fuel this year, while ancillary revenues would rise by a double-digit percentage.

"Overall, we therefore expect to achieve mid-to-high single-digit percentage profit growth," Webster told reporters on a conference call.

However, he warned that the trading environment remained tough, particularly in its home UK market, and yields -- or average fares -- would fall slightly this year.

Fuel remains the airline's biggest challenge. Its fuel costs per seat jumped 47 percent in the year and its hedging cover falls from 50 percent currently to 25 percent in the second half.

EasyJet has 50 percent of its fuel hedged at $590 to $660 per tonne in the first half of the current year.

Like rival airlines, growing passenger numbers, reduced fuel costs, higher airfares and extra money from non-ticket sources of income such as in-flight food and hotels and car hire helped easyJet beat expectations.

SLOWING GROWTH

EasyJet's rapid recent expansion would also slow, with the airline expecting an increase in capacity of 15 percent this year, with growth focused on continental Europe.

New planes, a fresh maintenance contract and more favourable contracts with airports would contribute to lowering costs, Webster said.

"It appears the momentum is being driven both by market conditions and self-help initiatives. Bears may have feared only the former could have been expected so far," Merrill Lynch told clients in a note, describing the results as "good".

EasyJet has expanded rapidly since it was founded by entrepreneur Stelios Haji-Iaonnou 10 years ago.

Larger rival Ryanair has also staved off record fuel bills with cost cuts, more passengers and higher ticket prices but also warned earlier this month it expected yields -- or average fares -- to fall in the winter.

FL Group, the owner of airline Icelandair, increased its stake in easyJet last month to 16.2 percent, raising speculation it may be planning a takeover.

Webster, who will be replaced by Andrew Harrison next month, said he was not aware of any approaches by FL Group for board seats on easyJet.