Photographer: Chris Ratcliffe/Bloomberg

EasyJet Drops as Weak Pound, Fuel Costs to Weigh on Earnings

  • U.K discount-flights specialist forecasts 35 million-pound hit
  • McCall says negatives not priced in; Stelios queries expansion

EasyJet Plc shares fell the most in close to seven months after the U.K. airline said higher fuel costs and the pound’s weakness following the June 23 Brexit vote will have a bigger impact than expected.

Shares of Europe’s second-biggest low-cost carrier declined as much as 10 percent and were priced 8.7 percent lower at 982 pence as of 1:17 p.m. in London, making the Luton, England based company the second-worst performer on the benchmark FTSE 100 Index.

A higher fuel bill and the pound’s slide, which inflates EasyJet’s expenses in mainland Europe, will reduce earnings by 35 million pounds ($44 million) more than anticipated, the company said Tuesday after reporting that revenue per seat, a measure of fares, fell 8.2 percent in the three months through Dec. 31. The carrier’s founder and No. 1 shareholder Stelios Haji-Ioannou said he’ll protest against expansion plans at its annual general meeting on Feb. 9.

EasyJet has been hurt by subdued travel demand following a string of terrorist attacks across Europe, just as low oil prices spur encourage rival operators to add capacity. The airline is particularly exposed to sterling’s weakness because it has an extensive European network but reports in the U.K. currency.

Chief Executive Officer Carolyn McCall previously forecast that foreign-exchange fluctuations would cost 90 million pounds in the fiscal year through September 2017, a figure the airline now puts at 105 million pounds. A further 20 million-pound hit will come from rising kerosene costs. Excluding the fuel bill, costs per seat will rise by about 1 percent.

Capacity Growth

“The analysts have not reflected the further weakness of the pound and they haven’t reflected the new fuel numbers,” McCall said on a conference call.

While EasyJet is planning to cut costs and streamline operations, the carrier will continue to add new aircraft and switch to bigger ones, with capacity set to jump as much as 9 percent this year. No Airbus Group SE A320 orders have yet been deferred, McCall said, though the carrier has negotiated a shorter notice period and could also scale back seating to bolster prices on some routes.

Still, EasyJet founder Stelios, who goes by his first name, said he’ll vote 15 million shares against the re-election of Chairman John Barton next month, though that amounts to only 3 percent of the carrier’s stock and is meant to be a protest against the fleet plan, according to the entrepreneur, who has a 33 percent holding.

“The best way to increase the earnings per share and send the share price up again is to reduce the incremental aircraft in the fleet from 2018 onwards,” Stelios said. The current deployment plan envisages an increase to 301 planes from 279 by that date, and to 359 planes by 2021.

EU Rights

EasyJet will decide in the next few weeks where to apply for EU air-operating rights in order to carry on flying intra-continental routes once Britain quits the trade bloc. The move will cost 10 million pounds over two years, mainly to re-register aircraft, including 400,000 pounds incurred in the fiscal first quarter ended Dec. 31.

Sales rose 7.2 percent to 997 million pounds in the three months, higher than the 982 million pounds predicted by analysts, with the passenger count up 8.2 percent to 17.4 million. EasyJet shaved 14 million pounds from costs in the quarter through cheaper maintenance programs and higher volume purchasing.

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