EasyJet PLC (LON:EZJ) lowered its final dividend as the budget airline reported a decline in profits on the back of a foreign exchange hit.
But shares gained 4.77% to 1,339p in morning trading as it said revenue trends in the first quarter of the new financial year were "encouraging".
READ: EasyJet shares take off as it agrees to buy assets from insolvent Air Berlin
Headline profit before tax fell to £408mln in the year to 30 September 2017, meeting internal expectations of reaching the upper end of guidance of between £405mln-410mln. Unfavourable foreign exchange rates resulted in an adverse currency impact of £101mln.
EasyJet cut its proposed ordinary dividend per share by 12.9% to 40.9p, in line with its policy of a pay-out ratio of 50% of headline profit after tax, which came in at £325mln.
Headline cost per seat, excluding fuel, increased 7.7% to £41.27 at the reported level, reflecting inflationary pressures and higher disruption costs, including compensation for delayed flights.
Fuel costs, however, fell from £13.95 to £12.25 per seat even as market prices rose. EasyJet’s hedging policy resulted in a reduction in the effective fuel price.
The company grew capacity by 8.5% to more than 86.7mln seats and plans to increase it by around 6% for the 2018 financial year.
Revenue and passenger number grow
Revenue edged up 8.1% to £5.05bn but revenue per seat was broadly flat at the reported level and down 4.5% at constant currency as the company cut fares amid fierce competition between budget airlines. The average ticket price was around 8% lower than last year.
The airline flew a record number of passengers at 80.2mln, up 9.7% compared to the previous year, and the load factor increased to a record 92.6% from 91.6%.
“EasyJet can boast record passengers, record loads and record capacity. But lower fares, currency headwinds and higher costs mean profits are down again," said Neil Wilson, senior market analyst at ETX Capital.
The company said forward bookings are ahead of last year at 88% for the first quarter of the new financial year and 26% for the second quarter.
Revenue trends in the first quarter of 2018 have been “encouraging”, thanks to some capacity leaving the market, the group said.
Revenue per seat at constant currency is now expected to be “positive by low to mid-single digits” in the first half, reflecting the earlier timing of Easter next year.
This excludes the impact of its agreement to buy part of collapsed Air Berlin’s operations at Berlin Tegel airport for a purchase consideration of €40mln.
"What’s really giving the shares lift is signs of a break in the clouds ahead," said George Salmon, equity analyst at Hargreaves Lansdown.
"Forward reservations are up on last year, and the trend for rising costs and lower prices is set to reverse in the coming months."
EasyJet expects one-off costs in Air Berlin deal
EasyJet expects to incur headline losses of around £60mln on its activities at Berlin Tegel airport in the 2018 financial year as it begins operations in January using wet least aircraft "with initially lower loads and yields".
It expects £100mln in one-off non-headline costs associated with the deal, due to the "parallel ramp up of a dry lease operation, including fleet conversion and staff recruitment and training costs, as well as transaction costs".
Excluding Air Berlin, headline cost per seat is expected to decrease by around 2% in 2018. Without fuel costs and at constant currency rates, the headline cost per seat is set to rise 1% due to increases in wages of crew and ground handling staff.
"The cost outlook is disappointing, with non-fuel cost per seat seen +1% constant currency in 2018E, leaving more work to be done to the 2019E target of in line with 2015.," analysts at Liberum said as it reiterated a 'sell' rating target price of 1,100p.
Investing in growth
EasyJet said it will continue its strategy of investment to “drive profitable growth” by securing leading positions at primary airports, increasing returns over the long-term.
“Our planned approach of achieving number one or two positions at Europe's leading airports, friendly and efficient customer service and a continuous focus on sustainable cost control has put easyJet at a strategic advantage during a period when there have been bankruptcies and some airlines have struggled operationally,” said outgoing chief executive Carolyn McCall.
“easyJet's model is resilient and sustainable and we now have a huge amount of positive momentum which will enable the airline to continue to grow profitably.”
McCall is leaving to join ITV as its boss and will be placed by Johan Lundgren, who begins on December 1.