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By Rhys Jones
LONDON, Nov 19 (Reuters) - British budget airline easyJet reported a sharp rise in annual profit and said it wouldpay a 175 million pound ($282 million) special dividend toshareholders, underlining its advantage over larger Irish rivalRyanair.
EasyJet's pretax profit rose 51 percent in the financialyear ended September, helped by the introduction of allocatedseating across its routes and strong revenues in many of itsEuropean markets.
Chief Executive Carolyn McCall said on Tuesday that theairline, which carried 61 million passengers, offered "friendlyservice so that we can continue to win in a more competitivemarket."
EasyJet's upbeat assessment was in contrast to that given byRyanair, Europe's biggest budget airline by passengers, whichearlier this month cut its annual profit target for the secondtime in two months and admitted it needed to improve customerservice.
Europe's airlines are grappling with high fuel costs andweak consumer confidence, which have sent some smaller carriersincluding Spanair and Hungary's Malev out of business in thelast two years leaving gaps for low-cost airlines to exploit.
Older traditional airlines such as IAG, AirFrance-KLM and Lufthansa, are cutting jobs,renegotiating staff contracts and dropping uncompetitive routesto get costs down to similar levels as budget carriers.
Shares in easyJet, which have doubled over the last year,were 7 percent higher at 1150 GMT on Tuesday, valuing theairline at more than 5 billion pounds. Ryanair was up 1.6percent.
TOUGHER OUTLOOK
Over the last three years Luton, southern England-based easyJet has added flights on routes where rivals have cut back,and introduced more flights between top business destinations.
It has also added flexible ticketing to allow passengers tochange their flight up to two hours before scheduled departuretime and allocated seating in an attempt to steal corporatecustomers.
Typically budget airlines have not given customers anumbered seat, resulting in a rush to board planes.
EasyJet, which recently took over Flybe's slots atLondon's Gatwick airport, said it carried 11 million businesspassengers during the 2012/13 financial year, 1 million morethan the previous year.
"We are flattered by what our customers say about us and theresults show the hard yards we have put in are paying off," CEOMcCall said.
However, she warned that easyJet faces a challenge thiswinter as rivals add capacity. She expects European capacity torise 2 percent in the first half, compared with a 4 percent falllast year.
"EasyJet is setting expectation for a tougher 2014," saidJefferies analyst Mark Irvine-Fortescue, citing increasedcompetition from new low-cost carriers looking to expand, suchas Norwegian Air Shuttle and Vueling.
"There will continue to be retrenchment by less efficientairlines," he said.
EasyJet proposed a full-year dividend of 33.5 pence ashare, 56 percent up on last year, and a special dividend of44.1 pence per share, or 175 million pounds, taking its totalpayout to investors to 308 million pounds.
It made an annual pretax profit of 478 million pounds ($770million), while sales rose 10.5 percent to 4.26 billion pounds.
