EasyJet shares slump as it feels Brexit effect

Sterling slump a factor in airline's first annual profit fall since 2009

6th October, 2016
Terror attacks have affected demand for flights. Pic: Rex

EasyJet shares have tumbled in London this morning after it said that its pre-tax profit for the year to the end of September is expected to have fallen for the first time since 2009 as sterling's fall increased its costs and terror attacks hit demand.

In a trading update, the airline said pre-tax profit for the year is expected to have been between £490m and £495m, about 28 per cent lower than in the previous year. The shares fell to 913.5p, their lowest level in more than three years, before rallying slightly to stand down more than 6 per cent at 939.5p by 9.30am.

EasyJet stopped providing full-year guidance after the June 23 Brexit vote in Britain, after initially saying earnings would match a consensus analyst estimate of £738m. 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 shares have lost 35 per cent 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 Carolyn McCall said in the release.

Exchange rate movements cost the airline about £90m in the year, an increase of £35m 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.

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 per cent full, and the annual profit was its third-highest ever.

McCall still intends to press on with an 8 per cent capacity increase this fiscal year as the same pricing pressures hit other operators harder, among them Air Berlin and Monarch Airlines, which is seeking a bail-out. Ryanair chief Michael O'Leary has also been cautious in his outlook for the sector despite its resilient performance.

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 British certificate and keep its headquarters in the country.

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