Shares in Easyjet were the worst performers in the FTSE 100 after the airline confirmed that profits will fall again this year as competition keeps the lid on fare increases.
Reporting on trading for the three months to the end of the June Dame Carolyn McCall, the outgoing chief executive who is moving to ITV, warned: “We expect capacity to continue to put pressure on yields.”
Translated from aviation jargon, that means Easyjet and its competitors are having to reduce their fares because there are so many aircraft flying around Europe. This is expected to keep profits in the financial year to the end of September at between £380 million and £420 million.
That would be a fall of nearly 25 per cent from 2015-16, which itself had been a 28 per cent crash from the previous year when Easyjet profits were coming in at £686 million.
The predicted fall masks an otherwise decent summer performance from Easyjet after its worst winter on record.
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For the October to March first half it reported losses of £236 million as a result of international terrorism and the Brexit-related devaluation of the pound hitting the consumer confidence of Europe-bound Britons, who make up nearly half the short-haul airline’s clientele.
Dame Carolyn said that this summer, British sunseekers had regained their poise and grown used to the weaker pound one year on from the referendum to leave the European Union.
Speaking from Vienna, where Easyjet has just opened its European headquarters to get around possible constraints on a British airline after the UK’s departure from the single market, Dame Carolyn said: “The timing of the referendum could not have been worse last year. Just as we were going into Q4 [Easyjet’s July-September busiest months] suddenly everything was 20 per cent more expensive. This year? It is not an issue.”
However, what is an issue is the aviation industry’s withdrawal over the past 12 months from the eastern Mediterranean because of terrorism and the refugee crises.
Airlines redeployed many of their aircraft to Spain and Portugal and the Iberian peninsula is now going through a big aviation price war.
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This was not good news for IAG, the British Airways group that owns Iberian Airways, Vueling and the recently launched Spanish carrier Level. IAG shares closed down 24p at 595p. Easyjet shares closed down nearly 6 per cent, off 84p at £13.34. While dramatic, in reality the sell-off took the shares back to where they were last week before the airline reported on Monday that third-quarter trading was strong and improving.
Damian Brewer, an analyst at RBC Capital Markets and not always a fan of Easyjet or its financial performance, raised his target price for the stock from £13.25 to £14.50, citing an improving European mainland economy.
Passenger numbers in the April to June quarter grew by 10 per cent to 22.3 million. With the airline flying 24 million seats during the quarter, that equates to a load factor — how full its aircraft are flying — of 93 per cent.
