EasyJet Doubles Dividend as Business Travel Boosts Profit
EasyJet Plc (EZJ) doubled its dividend after boosting full-year profit 28 percent through a move into corporate travel that will see the U.K. discount carrier fly to Moscow from Manchester in northern England next spring.
EasyJet closed at its highest price in five years after posting a 317 million-pound ($504 million) pretax profit for the 12 months to Sept. 30, versus 248 million pounds the previous year. The carrier will lift its annual dividend to 21.5 pence a share from 10.5 pence, returning 85 million pounds to investors.
“You’re getting cost-conscious companies for the first time ever trying a value airline,” Chief Executive Officer Carolyn McCall said in a Bloomberg Television interview. “That’s where we’re benefitting. EasyJet is a structural winner in European short-haul against both legacy and low-cost competition.”
McCall has boosted frequencies on key routes while using allocated seating, flexible tickets and corporate agents to grab a bigger slice of the business market. Luton, England-based EasyJet was handed Russia flights by U.K. officials last month, edging out Virgin Atlantic Airways Ltd., and will serve Moscow twice daily from London and four times a week from Manchester.
About one-fifth of passengers are now traveling for work-related reasons, McCall said, with new clients including the U.K. House of Commons travel office and the Ministry of Defence, plus “two or three” high street banks and insurance companies.
The stock has advanced 75 percent this year, valuing the company at 2.74 billion pounds. That’s $1.73 billion more than Air France-KLM Group (AF), Europe’s biggest airline by traffic.
Annual pretax profit has more than doubled from 154 million pounds since McCall took over July 2010. Fiscal-year sales rose almost 12 percent to 3.85 billion pounds, with the carrier lifting capacity to 65.9 million seats and carrying 58.4 million people for an 88.7 percent load factor, it said today. Analysts had expected a pretax profit of 314 million pounds.
EasyJet’s dividend policy will now be to pay out one-third of profit after tax each year, up from the one-fifth payment introduced last year, McCall said today. Stelios Haji-Ioannou, the carrier’s founder and biggest shareholder, has previously been critical of the level of investor returns.
EasyJet is evaluating the upgraded Airbus SAS A320neo and Boeing Co. (BA) 737 Max single-aisle aircraft, together with Bombardier Inc. (BBD/B)’s all-new CSeries model, with a view to placing an order for delivery after 2017, it said today. The company may also have a requirement for a “bridging period” from 2014.
Stelios, who goes by his first name, has also said fleet expansion has been too rapid, given the economic slump. EasyJet currently operates 214 Airbus A319 and A320 aircraft.
An order is likely to go before the board next year, Chief Financial Officer Chris Kennedy said on a conference call, and EasyJet may opt to renew its entire fleet over a period of 10 years. The carrier still has options for 42 more of the current A320 series, plus additional purchase rights, and has sufficient clout to guarantee availability of new-generation jets, he said.
While saying that acquisitions are low on EasyJet’s agenda, McCall declined to specify whether the company will look at Air France-KLM’s CityJet arm, which is studying options for a new investor, including the possibility of a trade buyer, according to comments last week from the unit’s CEO Christine Ourmieres.
CityJet is the biggest operator at London City airport, a terminal favored by short-haul business travelers to and from the U.K. capital’s financial center. Operations are limited by a runway that couldn’t handle EasyJet’s A319 and A320 aircraft.
“I have no idea whether we would or wouldn’t until we know exactly what they’re doing and what the price is,” McCall said. “M&A is not on top of our list. City hasn’t formed part of our planning because it has too-short a runway for our planes.”
The company’s strategy of seeking to attract more business travelers was instrumental in EasyJet’s victory in the Moscow application and also aided its selection by Italian authorities to end Alitalia SpA’s monopoly on services from Milan Linate to Rome Fiumicino a day later, McCall has said.
Fourth-quarter demand was boosted by a surge in flights from the U.K. to beach holiday destinations such as Malaga in Spain and Faro, Portugal, following the 2012 Olympic Games in London, which caused Britons to defer their travel plans.
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