EasyJet profits warning as fuel prices bite
Airline EasyJet showed the strain of rising costs after warning that annual profits could be as much as 42% lower than last year.
Luton-based EasyJet also said it would cut capacity by 12% at Stansted this winter and vowed to be "relentless" in addressing costs and efficiency.
It is faced with an increase of £185 million in its annual fuel bill, although it hopes to offset more than 50% through revenues growth and cost savings.
That will leave the airline with pre-tax profits in the region of £110 million and £120 million for the year to the end of September, down on the £191 million of last year and 15% lower than some City forecasts. Shares fell 5% today. Capacity growth for the winter has been reduced and is now expected to be in the region of 4% to 6%, including the 12% reduction at Stansted.
The move is the latest blow for the Essex-based airport after Ryanair said last week it planned a 14% winter cut in the number of weekly flights there. It blamed rising fuel costs and the cost of using the BAA-owned airport.
EasyJet, which operates 356 routes from 20 bases, will look to utilise "better value opportunities" such as Gatwick, where it is benefiting from the recent acquisition of GB Airways from British Airways. It will also focus on France and Italy and in particular the expansion of its network at Milan Malpensa and Paris Charles de Gaulle.
The strong growth at Gatwick and mainland Europe meant passenger numbers improved 16% in the quarter to 11.5 million. The impact of a £5 charge for checked-in bags contributed to a 12% rise in revenues per seat to £46.36.
The company added: "Overall, the UK regional bases are delivering good results particularly at Newcastle and in our Scottish bases."
It described the performance at its Madrid and Belfast bases as challenging, with the latter impacted by increased capacity in the market.
EasyJet said it had the flexibility to scale back its operations further if conditions deteriorated. It added: "In the current environment flexibility is vital and EasyJet continues to review its schedule and may make further adjustments both to eliminate unprofitable flying and to seize any opportunities that may arise as capacity exits the market."
The company predicted the coming winter will be challenging for the whole airline sector due to higher fuel costs. It currently has 28% of its 2009 fuel requirement hedged at an average price of 1,265 US dollars a metric tonne.
Collin Stewart analyst Andrew Fitchie said: "Management is doing very well to grow revenues and control costs in a challenging environment. However, the deteriorating economic environment leads to low confidence in the sustainability of revenue trends."