EasyJet Outlook Clouded as Terror, Brexit Depress Faresby
Brexit vote, attempted Turkish coup reduce demand, CEO says
Weather, runway closures also hurt traffic, airline says
EasyJet Plc warned that depressed ticket prices are continuing through the key summer vacation season as the British budget airline faces the fallout from terrorist attacks, an attempted coup in Turkey and the U.K.’s decision to exit the European Union.
Rather than a hoped-for revival, revenue per seat is down about 7.5 percent so far in the three months through September, with about 35 percent of bookings still to come, the Luton, England-based company said Thursday in a statement. That follows an 8.3 percent slide in yields, a measure of fares, in the fiscal third quarter. EasyJet shares fell as much as 7.6 percent.
Uncertain demand and soft fares prompted EasyJet to back away from providing a full-year earnings forecast after saying in May that pretax profit would be in line with a company-compiled analyst consensus of 721 million pounds ($952 million). The airline then warned in the days following the Brexit vote that profit would be worse than expected for the rest of its fiscal year. Chief Executive Officer Carolyn McCall declined to provide a fresh earnings projection on Thursday amid unprecedented volatility.
“We’ve never, ever, in a summer had to promote seats in June and July and we have done so this year,” McCall said on a call with reporters. “From a customer point of view, that’s fantastic; from a business point of view, your pricing being as low as that in your peak summer trading period is not such a good thing.”
EasyJet has faced the full brunt of events affecting the airline industry. Its reliance on mainly short-haul leisure travel makes it more vulnerable than peers to demand shocks. Passengers are avoiding city trips while tour companies TUI AG and Thomas Cook Group Plc divert travelers away from North Africa and the Middle East to destinations such as Spain and Portugal, triggering a 14 percent increase in competition on EasyJet’s beach routes, the company said.
Shares of EasyJet slumped to as low as 1,041 pence and were down 6.7 percent at 1,052 pence at 11:50 a.m. in London. The stock has tumbled 40 percent this year, valuing the company 4.18 billion pounds.
EasyJet is also contending with a plunge in the pound resulting from Britain’s referendum last month on exiting the EU that’s weighing on U.K. travel demand and raising costs. Brexit also threatens EasyJet’s rights to fly freely to and from mainland Europe. In response, the carrier has set up a team to lobby U.K. and EU authorities. It’s also in talks about securing EU operating rights that will allow it to retain access to the bloc should negotiations over maintaining the open-skies arrangement fail.
Disruptions, including attacks in Brussels and Paris and the crash of an EgyptAir flight that deterred travel, air-traffic halts due to strikes and poor weather, have contributed to a 125 million-pound hit to pretax profit in the year to date, McCall said on a call. The pound’s drop will contribute another 80 million-pound burden to earnings in the full year, EasyJet said.
EasyJet is also looking to take advantage of the disruptions caused by Brexit by looking to boost capacity to take advantage of shifts away from Britain by the likes of Ryanair Holdings Plc and Wizz Air Holdings Plc. Both EasyJet rivals have said they will scale back planned growth in the U.K.