easyJet PLC (LON:EZJ) narrowed its profit guidance range for the year after delivering a robust fourth quarter despite disruptions caused by the industry-wide industrial action and air traffic restrictions across Europe.
However, shares dropped 2.6% to 1,290p in afternoon trading as the airline warned costs are rising more than expected.
The budget airline said it predicts headline pre-tax profit for the 2018 financial year of £570mln and £580mln, compared to its previous estimate of £550mln to £590mln.
Ryanair strikes boost results
“This has been achieved despite higher costs caused by disruption due to third party industrial action and severe weather,” said chief executive Johan Lundgren.
“However, we have benefited from a number of one-off events in 2018, including the bankruptcies of Monarch and Air Berlin, as well as Ryanair cancellations.”
Ryanair has been forced to cancel multiple flights due to long-running strikes by cabin crew and pilots in a dispute over working conditions.
easyJet also cancelled more flights in the fourth quarter than it did in the third quarter, mainly due to third party industrial action, air traffic control restrictions or bad weather across Europe.
Passenger numbers for the year, excluding operations at Berlin's Tegel Airport that easyJet bought from collapsed Air Berlin last December, are still expected to rise by 5.4% to 84.6mln.
The increase in passengers was driven by a 4.2% increase in capacity to 90.3mln seats, although this was lower than expected due to disruptions.
READ: easyJet shares lift off as it raises profit guidance despite impact of air traffic control strikes
Total revenue per seat for the year, excluding Tegel, is forecast to rise by 6.5% on a reported basis or 5.0% at constant currency, the high end of its previous guidance.
Total reported revenue, including Tegel, is estimated to be £5.89bn, compared to £5.05bn a year ago.
Costs rise more than expected
Headline cost per seat, excluding fuel and Tegel operations, is expected to be rise more than previously forecast by 3.8% at constant currency due to the higher level of disruptions. The total headline cost, excluding fuel and including Tegel, is projected to hit £4.14bn.
Total fuel cost, including Tegel, for 2018 is expected to be £1.19bn, including an additional £15mln charge related to the impact of US dollar foreign exchange and carbon emissions trading system costs.
The results also include a £65mln charge related to its decision to ditch its plan to replace its IT platform and instead work on improvements to its existing systems.
George Salmon, equity analyst at Hargreaves Lansdown, said external factors like rising fuel costs, bad weather and strikes are hard to manage but one area easyJet has more control over is its cost base.
"Unfortunately non-fuel costs are heading up again, and while easyJet has blamed exceptional circumstances like adverse weather and industrial action, we can’t help but notice they aren’t expected to fall back next year," he said.
He added that underlying cost control and continued improvements at the Tegel operations must be the priorities for the new CEO.
Tegel integration on track
The carrier said the integration of Tegel was progressing well with headlines losses expected to improve to £115mln for the year. easyJet expects to have flown around 4.9 million seats and the load factor to be 85% for the fourth quarter.
easyJet is aiming to reach break-even in Berlin in the 2019 financial year.
For total operations in 2019, easyJet expects capacity to rise 10% to 105 seats, flat headline cost per seat and foreign exchange rates to have a £10mln negative impact of pre-tax profit. The total reported fuel bill is expected to be £1.48bn.