logo-loader

easyJet posts record first-half loss but bets big on turnaround in fortunes

Last updated: 11:36 16 May 2017 BST, First published: 08:22 16 May 2017 BST

easyjet plane
easyJet took a £127mln hit from the late timing of Easter and the weaker pound

After posting a record first-half loss, most companies would batten down the hatches, but not easyJet PLC (LON:EZJ) or its boss, Carolyn McCall.

A combination of currency pressures from the weaker pound and the later timing of Easter hit profitability in the six months to 31 March, with the headline loss before tax rising sharply to £212mln (H1 2016: £21mln loss).

Revenue per seat also slumped by 10% on a constant currency basis to £46.32, which City broker Liberum said was “at the worst end of guidance”.

That came despite easyJet posting a 3% rise in revenues to £1.83bn, as passenger number rose to an all-time high of 33.8mln – a 9% climb, while load factor – which measures how full its planes are – rose to 90.2%.

“The first half loss is in line with market expectations and reflects the movement of Easter into the second half as well as currency effects which together had an estimated impact of circa £127m on the bottom line,” said CEO McCall.

easyJet places US$4bn bet on improved fortunes

It’s not been an easy ride for airlines in Europe over the past year or so, with strikes, price wars, terrorism and bad weather all blamed.

It’s been tougher still for the UK-based groups – such as easyJet – which derive earnings in sterling but have a lot of costs in dollars.

Given the weaker-than-expected performance and difficult trading conditions, many companies would be rushing to slash costs but easyJet has taken a very different approach.

It has decided to splash out on 30 new Airbus A321 NEO planes; effectively a US$3.8bn bet that its fortunes are going to improve.

 easyJet had originally agreed to buy 30 A320s, a cheaper and, at 186 seats, smaller model but it has now upgraded this order to the 235-seat A321 NEOs. The first of these planes are due to start arriving at its Luton Airport base next year.

There are a couple of reasons why bigger means better for easyJet.

The company reckons it can secure substantial unit cost savings by adding the A321s to its fleet, while more seats on the same amount of planes means it can maximise growth at slot-constrained airports such as Gatwick.

Outlook a little more positive for easyJet

On top of the operational benefits, easyJet is strengthening its position now in order to take advantage of what it hopes will be the start of a recovery in the industry.

The carrier is optimistic that the second half performance will be much improved, especially considering that two if its most lucrative periods – Easter and summer – fall into the same period this year.

Bookings are ahead of this time last year, which may not be a massive surprise given the Brexit-shaped cloud which hung above the summer of 2016.

McCall added that the increased bookings this year reflected “growing evidence that consumers are prioritising expenditure on flights and holidays above other non-essential items”.

Importantly, the longer-term outlook is also promising.

“Looking ahead, we are seeing an improving revenue per seat trend as well as the continued reduction of competitor capacity growth,” the boss said this morning.

Air Operator Certificate on track for summer

Elsewhere, easyJet isn’t taking any chances with regards to Brexit. It said today it is on track to secure an Air Operator Certificate (AOC) with another EU member this summer.

An AOC will allow the carrier to continue flying passengers on its non-UK routes once the UK has formally left the European Union.

It won’t be cheap though. easyJet reckons it will have to fork out around £10mln over the next three years, mainly as a result of aircraft registration costs.

Around £1mln of that has already been incurred in the first half, with another £2mln in related costs expected to be realised over the rest of this year.

It’ll be worth it though, given that around 30% of easyJet’s network is within EU states.

easyJet shares were down more than 5% to £12.41 shortly before midday on Tuesday.

FTSE rises ahead of Easter weekend, JD Sport gains on upbeat outlook -...

The FTSE 100 gained on the final morning of this shortened Easter trading week. Festive cheer was limited though, as Thames Water confirmed shareholders would not provide it with a £500 million rescue package, prompting speculation over the London supplier’s future. On a more positive...

1 hour, 7 minutes ago