London - EasyJet’s annual profit fell for the first time since 2009 as a spate of terror attacks clipped demand and the decline of the pound following Britain’s vote to quit the European Union inflated foreign-currency costs.
Pretax profit for the 12 months ended September 30 is expected to have been in the range of 490 million pounds to 495 million pounds ($623 million-$630 million), Luton, England-based EasyJet said in a trading update on Thursday. That’s below the 516 million-pound figure based on analyst estimates compiled by Bloomberg. It’s also about 28 percent lower than 2015’s earnings. The stock tumbled to its lowest level in more than three years.
EasyJet ceased providing full-year guidance after the June 23 Brexit decision, after initially saying earnings would match a consensus analyst estimate of 738 million pounds. While the impact of the vote on demand remains tough to gauge, sterling’s slide has bloated the fuel bill, paid in dollars, as well as EasyJet’s euro-denominated costs. The stock has lost 35 percent since the referendum.
“We have been disproportionately affected by extraordinary events this year but our excellent network, cost control and revenue initiatives and our strong balance sheet underpin our confidence in the business,” Chief Executive Officer Carolyn McCall said in the release.
EasyJet shares dropped to as low as 913.5 pence, the lowest level since January 2013, and were down 6.2 percent at 941 pence at 8.12am in London, dropping the company’s value to 3.75 billion pounds.
Currency hit
Exchange-rate movements cost the airline about 90 million pounds in the year, an increase of 35 million pounds since the Brexit poll. Leisure sales have been hurt by terrorist violence spanning Nice to Turkey, with EasyJet ending flights to Sharm el-Sheikh, Egypt, entirely last November after a Russian jet was brought down by a suspected bomb.
Summer timetables were also disrupted by air traffic control strikes in France, where EasyJet is the second-largest carrier, and a glut of seats throughout European markets weighed on yields, a measure of average fares. Revenue per seat at constant currencies fell 8.7 percent in the period versus a year earlier.
Still, the lower ticket prices helped boost the carrier’s passenger tally for the final quarter to a record 22 million, with its planes flying 94 percent full, and the annual profit was its third-highest ever.
McCall still intends to press on with an 8 percent capacity increase this fiscal year as the same pricing pressures hit other operators harder, among them Air Berlin, cutting 1 200 jobs, Monarch Airlines, which is seeking a bailout, and TUI AG, currently exploring merger plans for its German airline arm.
“The current environment is tough for all airlines, but history shows that at times like this the strongest airlines become stronger,” she said.
The likely impact of sterling’s decline is likely to be around 90 million for the new fiscal year, EasyJet said, without making a prediction for earnings.
EasyJet is exploring options for obtaining an air operators certificate outside Britain that would allow it to carry on flying between EU nations should the Brexit settlement fail to preserve flying rights as they stand now. The carrier says it will retain its UK AOC and keep its headquarters in the country.
Europe’s second-biggest discount airline is slated to report detailed earnings figures on November 15.
BLOOMBERG