Uneasy times at easyJet

easyJet's latest setback is no secret. Various national newspapers last month picked up on its poor punctuality record at Gatwick, colouring the story with unflattering comparisons to Air Zimbabwe. If that wasn't enough, the airline's founder and largest shareholder Sir Stelios Haji-Ioannou sent an open letter to easyJet's board – from which he resigned in May – threatening legal action if standards were not improved by 26 October.

The scrap between Sir Stelios and the airline is unlikely to harm the company for the simple reason that it is not in the owner's interests. But any deterioration in punctuality - which new chief executive Carolyn McCall acknowledges is her most immediate concern - should worry shareholders. It weakens easyJet's reputation - the ostensible issue for Sir Stelios, who owns the 'easy' brand - and may add to costs.

That's because the company may have to re-hire staff it laid off only last winter. Ms McCall blamed the recent disruption on "crewing issues in some part of our network" as well as air traffic control strikes in Europe. easyJet introduced a new rostering system this year as part of a £190m cost-cutting drive and this may not be delivering the expected efficiencies. Crew rostering is notoriously complex, with European working regulations and a dense tangle of flight paths to manage.

Ms McCall will deliver a verdict on staffing issues when easyJet publishes its full-year results in November. Meanwhile, the market has several months to worry. Douglas McNeill at broker Charles Stanley points out the perturbing precedent set in 2006, when the airline also suffered from crew shortages. In the six months that followed, it hired 900 new cabin crew and 400 pilots – the only time in the past half-decade that headcount has grown faster than seats flown. Any repeat, even on a smaller scale, would cast serious doubt over the much-trumpeted cost-reduction programme.

Staffing isn't the only cost that could rise. easyJet is often compared with Ryanair, but in reality it's a different animal somewhere between a no-frills tourist carrier and a business-oriented flag-carrier. While its Irish rival flies to little-known airports, easyJet competes head on with the flag carriers for expensive landing slots at major hubs such as London Gatwick, Paris-Charles de Gaulle and Milan Linate. That helped it gain lucrative market share among business flyers during the recession. But its flexibility is now limited. If a key airport raises its prices further, easyJet has little choice but to take the hit.

Flying to congested city airports is also a recipe for delays. "Getting planes in and out of airports quickly is key to running a low-cost carrier," says one analyst. "Operationally, easyJet is a difficult business to run. It's not surprising it has run into problems."

In addition, all airlines face steep challenges relating to their environmental impact. The new government's rejection of a third runway at Heathrow and the Oxford English Dictionary's adoption of the neologism 'staycation' are both evidence of a growing trend that views flying as an undesirable activity that should be regulated and taxed into submission. Airlines have been a growth industry in Europe over the past decade, but extrapolating that trend to the next 10 years looks tough.

This is a tricky period for easyJet because it is committed to aggressive expansion targets. Sir Stelios has long been a trenchant critic of this aim and blames the previous chief executive, Andy Harrison, for ordering lots of new planes from Airbus (57 deliveries are due over the next three years). Charles Stanley's Mr McNeill calculates that for easyJet to break even on this massive capital outlay, profit per seat will have to jump by two-thirds from its long-term average of £3 per flight. Ms McCall may announce a change of course in November. But there is no way of getting out of the plane orders, suggesting easyJet's target of 15 per cent return on capital – which it has yet to hit – will prove ever more elusive.