EasyJet chief issues fresh warning as low-cost rival crashes

Budget airline's profits rise 21% but yields fall; Italians urged not to rescue Volare; More failures predicted

Easyjet, Europe's second-biggest budget airline, issued a renewed warning yesterday of turmoil across the industry this winter as a rival low-cost Italian airline went bust.

Easyjet, Europe's second-biggest budget airline, issued a renewed warning yesterday of turmoil across the industry this winter as a rival low-cost Italian airline went bust.

Volare, a Milan-based no-frills airline launched less than two years ago, declared itself insolvent with debts of up to €300m (£210m). It is being investigated by Italy's financial police.

Ryanair will today take advantage of the Italian carrier's collapse by announcing an expansion of services from Italy.

Ray Webster, easyJet's chief executive, said: "We expect the remaining months of winter to be challenging and that competition will be intense."

EasyJet also called on the Italian government not to bail out Volare using a special "exceptional bankruptcy" law introduced a year ago after the collapse of the food giant Parmalat. Toby Nichol, easyJet's spokesman, said: "This is an airline with 21 aircraft and no proper business plan. It should be allowed to go to the wall because there is excess capacity in the market and it has to be taken out. Let's have some red-blooded capitalism."

Mr Webster said he expected load factors and revenues per passenger for the current quarter to remain broadly the same as last year. However, he cautioned that easyJet had "limited visibility" about future fares.

He was speaking as the airline beat analysts' forecasts with a 21 per cent rise in pre-tax profits to £62.2m for the year to the end of September. Easyjet shares ended the day 2.25p higher at 185.5p. Ignoring one-off charges which easyJet incurred the previous year, underlying operating profits were down by 11 per cent. This reflected a 2 per cent decline in yields, with the average fare down by £1 to £42.28.

Mr Webster forecast more failures in the coming months among its smaller rivals but he said easyJet did not intend to compete head-on with Ryanair. "We are clearly not interested in scrapping with Ryanair. Our joint interest is in dealing with the charter operators who have lots of capacity, deep pockets and no view of the future, and, of course, the new entrants in the low-cost sector who have no idea of what they are doing."

He said easyJet was embarking on a renewed drive to raise margins. This will involve accelerating the replacement of older Boeing 737-300 jets with new Airbus A319s and increasing the productivity of flight crew. The airline also plans to outsource its IT and use its scale to negotiate better deals with airports.

The collapse of Volare follows the demise of the German budget airline V-Bird last month. The Italian carrier suspended all flights last week, leaving its 1,800 staff in limbo, and then declared itself insolvent overnight on Monday as police raided its offices and seized documents. Over the weekend, Italy's Labour Minister, Roberto Maroni, said the government would take "all necessary measures", adding that its priorities were "saving jobs, saving the company".

Volare reinvented itself as a budget operator in February last year, promoting its "Italianness" under the slogan "low cost made in Italy". Its website boasted: "You are probably wondering how a traditional, solid and reliable airline with a long history behind it can start selling flight tickets at such a low price? It's just another way of thinking and organising our job with special attention to cost management and efficiency."

However, its former managing director, who quit in October after running Volare for just three months, has launched a bitter attack on the airline. Andrea Molinari told an Italian newspaper: "A few days after I began, I noticed there was no system of management controls. There were conflicts of interest you wouldn't believe and irregularities galore."