easyJet PLC (LON:EZJ) posted a 41.1% jump in full-year profits as Ryanair cancellations and the collapse of Monarch and Air Berlin led to a record number of passenger numbers.
But shares fell 3.8% to 1,129p in late morning trading on investor worries about higher costs.
The budget airline said its results for the year to September 30 were supported by one-off events including Ryanair being forced to cancel flights due to strikes over working conditions as well as the bankruptcies of Monarch and Air Berlin.
The company, which took control of Air Berlin's operations at the capital's Tegel Airport last December, reported headline profit before tax of £578mln for the year, up from £408mln in 2017, driven by robust revenues. Total headline profit before tax per seat gained 28.7% to £6.07.
Robust revenues offset higher costs
Total revenue increased 16.8% to £5.9bn with revenue per seat up 6.4% to £61.94 as passenger numbers gained 10.2% to 88.5 million.
Revenue growth offset a 5.3% increase in headline cost per seat, excluding fuel, to £43.43. This was due to expansion costs at Tegel and air traffic control industrial action in France, which resulted in cancellations rising to 6,814 from 2,502 last year.
“While disruption continues to be a major challenge for the industry, we are investing in resilience to help to mitigate the impact on our customers,” said chief executive Johan Lundgren.
READ: EasyJet shares descend as it warns on rising costs and narrows profit guidance
Costs were also led higher by a rise in inflation, staff costs and lower-than-planned standby aircraft and wet-leased aircraft due to Airbus delivery delays.
Total fuel costs grew by 11.5% to £1.2bn as a result of capacity growth, higher emissions trading systems costs and adverse foreign exchange movements. However, fuel cost per seat at constant currency decreased by 4.3% to £11.72.
easyJet has been working to bring down costs and delivered £107mln in savings in 2018, reflecting tighter control in airport costs and lower navigation rates.
Dividend raised, forward bookings 'solid'
The carrier hiked its dividend by 43% to 58.6p as it ended the period with net cash of £396mln, up from £357mln last year.
“We are confident in our positioning for the future and are focused on driving future returns, positive free cash flow over the longer term and maximising our headline profit per seat as we continue to deliver value for our customers and shareholders,” said Lundgren.
He said forward bookings are “solid” with 50% of seats sold in the first half of the new financial year, in line with the previous year.
However, revenue per seat in the first half is expected to be down by "mid-single digits" using IFRS 15 accounting measures, which changes the way booking fee revenue is recognised and offsets some disruption costs against revenue.
On a like-for-like accounting basis, revenue per seat for the period is forecast to drop by "low to mid-single digits", reflecting a later Easter, the annualisation of one-off revenue benefits from 2018 and dilution from Tegel.
For the 2019 year, like-for-like total headline cost per seat, excluding fuel, at constant currency is expected to be flat but will improve on an IFRS basis as some disruption costs are offset against revenue.
Fuel costs for the year are forecast to have a negative impact of £50mln to £100mln. The company also expects a £10mln foreign exchange headwind.
The group maintained its 2019 capital expenditure forecast at £1bn.
New Airbus deal provides additional flexibility, says easyJet
easyJet also announced that it had reached a new fleet agreement with Airbus for 17 firm orders, 18 deferrals and 25 purchase options over the next five years.
The group said the deal provides additional flexibility to its existing plans. By 2022, it could increase its fleet size to 385 or reduce it to 316 using existing Airbus delivery arrangements and operating lease optionality.
Brexit uncertainty and costs pressures
Liberum maintained a 'hold' rating on the stock with a target price of 1,250p, saying that results were as expected.
"However, the uncertainty faced by easyJet in the short term remains substantial, with the outcome and implications of Brexit no clearer than two years ago, cost pressure from sterling weakness and the risk that fuel prices could reverse their recent declines and resume an upward path," it said.
easyJet said it was confident flying rights will be maintained after Brexit but is well placed with a no-deal scenario, with the airlines based in Austria, Switzerland and the UK.
Ian Forrest, investment research analyst at The Share Centre, said while profits were in line with expectations and forward bookings were at a promising level, shares fell in a weak market background.
"Fuel costs are expected to rise although the recent fall in the oil price should improve sentiment if it is sustained," he said.
"Brexit remains another factor looming over the sector but EasyJet said it has almost reached the ownership threshold required to continue flying in the EU.
“We recommend the shares as a buy for medium risk investors seeking a balanced portfolio as the company has good momentum with its trading, a relatively strong balance sheet and there are a number of opportunities for further growth.”