EasyJet’s Annual Profit Surges as Network Carriers Retreat

EasyJet Plc, Europe’s second-biggest discount airline, boosted full-year earnings 51 percent while cautioning that it faces a tougher operating environment this winter as rivals pile on capacity.

Pretax profit for the 12 months to Sept. 30 rose to 478 million pounds ($770 million) from 317 million pounds a year earlier as the Luton, England-based carrier added corporate and leisure customers on routes where network carriers are exiting.

EasyJet is intensifying efforts to win business passengers as well as older, more affluent customers with allocated seats, flexible tickets, fast-tracking and higher frequencies to key destinations. While this helped lure 11 million corporate travelers in fiscal year 2013, up from 10 million last year, the company predicts fiercer competition in coming months as discount rivals including Ryanair Holdings Plc, Norwegian Air Shuttle AS and Vueling of Spain chase market share.

“We’ve had a very successful year because we’ve done all the right things for our customers,” Chief Executive Officer Carolyn McCall told Bloomberg Television. “That momentum we’ve got behind us is going to be incredibly important this fiscal year because we’re in a tougher capacity environment.”

EasyJet shares rose as much as 6.9 percent and were trading

6.3 percent higher at at 1,335 pence as of 10:19 a.m. in London. The stock has risen 74 percent this year after gaining 79 percent in 2012, valuing the company at 5.3 billion pounds.

Full-year earnings were slightly ahead of the 476 million-pound average estimate of analysts polled by Bloomberg.

Ryanair Pressure

The carrier said it would pay a special dividend of 44.1 pence a share in addition to an ordinary dividend of 33.5 pence, for a total payout of 308 million pounds.

While EasyJet said bookings for the current six months are in line with a year earlier, the first quarter will be hurt by tougher comparisons with a period of strong demand after the 2012 London Olympics, plus travel restrictions to Egypt. First-half revenue per seat will be “slightly up” on the prior year.

“We see this statement as confirming EasyJet has seen a tougher yield environment this winter, although not to the same extent as Ryanair has reported,” Barclays Plc analyst Oliver Sleath said in a note to investors today.

Ryanair, Europe’s No. 1 low-cost carrier, said Nov. 4 that after-tax profit for the 12 months to March 31 will likely drop for the first time in five years to between 500 million euros and 520 million euros ($676 million-$703 million). Citing price competition and capacity hikes, it pledged further fare cuts.

Gatwick Routes

Under McCall, EasyJet has added routes including London-Moscow and Milan Linate to Rome Fiumicino. The carrier will add flights from the U.K. capital to Brussels and Strasbourg starting in March using slots recently acquired from Flybe Group Plc, it said today.

A potential 86 million short-haul passengers flying from Europe’s top 20 airports each year could be surrendered to the discount sector by network carriers, EasyJet reckons. The company is gaining increased traction with passengers, with 55 percent of customers making repeat bookings, McCall said, up from 50 percent when she took the top job in 2010. Some 85 percent of reservations are made through EasyJet.com.

The carrier boosted capacity 3.3 percent in the 12 months, growing per-seat revenue 7 percent as expenses excluding fuel gained 3.9 percent, and said it aims to add 5 percent more seating in fiscal 2014, when it predicts costs will increase by a further 2 percent, driven by airport charges and fleet maintenance costs before a new Airbus SAS planes arrive.

Winter Challenge

Short-haul capacity across Europe is expected to grow about 2 percent in the first half versus the year ago period, when there was a 4 percent drop, McCall said, citing flight schedule data provider OAG. While there will be a 1 percent year-on-year decline on EasyJet routes, that lags the 3 percent reduction that helped buoy load factors in winter 2012-2013.

“It was far more benign for us last year than it is this year, partly because the overall capacity environment is tougher,” the executive said. “It’s all of the low fares players that are putting in capacity.”

While full-service carriers like Air France-KLM Group and Alitalia SpA are still restructuring, British Airways parent IAG SA lifted its 2015 earnings target by 12.5 percent last week as discount arm Vueling boosted its Spanish business.

Vueling delivered a 25 percent operating margin in the third quarter, almost double the figure at BA.

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