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EasyJet tumbles on fare cuts

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LONDON, England (Reuters) -- EasyJet Plc revealed deeper-than-expected fare cuts on Tuesday as competition for budget passengers heated up, sending shares in Europe's biggest no-frills airline sharply lower.

EasyJet said fares fell six percent in the four months to end-January. Its shares sagged 14 percent to 208 pence.

Budget airlines like easyJet, in a pitched battle with full-service carriers to lure cost-conscious travellers, have been winning the war for seats against competitors in recent years.

EasyJet's statement was a reminder of the gloom facing the airline industry -- fears of war, higher oil prices, recent security scares at London airports and economic uncertainty.

"This is interpreted as having more to do with the market, and not so much the company,'' Tim Rees, a fund manager at Clerical Medical, said.

"A year or so ago airlines had two to three months visibility, now they have two to three weeks,'' he added.

EasyJet said the decline in fares in the six months to end-March would be broadly in line with rivals like Irish-based Ryanair Holdings Plc.

Ryanair this month reported its fares for the three months to end-December fell eight percent year-on-year, in part because of free tickets and discounts offered to promote new routes.

British Airways Plc, Europe's biggest carrier, is also putting pressure on ticket prices after responding to the budget carriers' threat with promotions.

Ryanair shares fell six percent to 6.1 euros in morning trade, while British Airways shares were off more than five percent at 104-1/2p.

EasyJet said it had previously warned of softer yields.

"The market would have been expecting this,'' Toby Nicol, corporate communications manager for the carrier, told Reuters, although he acknowledged it was the first time the carrier had quantified the slump.

Analysts said the size of the fall was a surprise.

"It's been in the market, but it's worse than expected,'' said one brokerage analyst who asked that his name not be used. ``But it's understandable: the whole industry has been complaining of low yields,'' he added.

The company also said the costs of its recent acquisition of Go and the option to buy British Airways unit Deutsche BA would be about 18 million pounds ($28.5 million) in the first half of the year.

EasyJet said it was having to slash prices to fill seats, especially after its acquisition of Go.

"This is primarily due to year-on-year growth in aircraft seat capacity, the sale of additional seats at lower fares to lift the load factor of the Go Fly network closer to the easyJet network level and market and economic forces,'' the company said in a statement.

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