easyJet PLC (LON:EZY) expects first-half results to meet estimates but is more cautious about the outlook for the rest of the year as Brexit uncertainty hits customer demand.
The airline has forecast a headline loss before tax of £275mln for the first half to March 31 on an 18.8% increase in total costs, largely due to higher fuel prices and foreign exchange headwinds.
The unit fuel bill is estimated to reach £37mln while unfavourable exchange rates are expected to have an £8mln adverse impact.
READ: easyJet says it “stands ready” to suspend non-EU shareholders amid ‘no deal’ Brexit jitters
Total revenue is likely to rise 7.3% to £2.34bn, supported by a 14.5% increase in seat capacity to 46.2mln/
easyJet said it continues to strengthen its position in key markets and has completed the annualisation of its flying at Berlin Tegel Airport after buying landing slots from insolvent German airline Air Berlin in late 2017.
However, revenue per seat at constant currency is expected to drop 7.4%, in line with previous guidance.
The carrier anticipates “positive” underlying revenue, offset by the impact of the adoption of IFRS 15 accounting measures, a later Easter this year and the “dilutive” effect of flying at Berlin Tegel Airport.
easyJet also pointed out that last year’s revenues were boosted by the collapse of Monarch airline and Ryanair flight cancellations – benefits that were not repeated this year.
Cautious second half
Looking to the second half, the company said macroeconomic uncertainty and “many unanswered questions” surrounding Brexit are driving weaker demand in the early part of summer, leading to an “increasing softness” in ticket fares in the UK and across Europe.
Given the uncertainty, easyJet said it is “more cautious” about the outlook for the second half.
It expects revenue per seat at constant currency to be "slightly up" with weaker demand in the third quarter followed by a pick up in the fourth quarter.
“EasyJet’s warning about softer ticket prices has sent shockwaves across the airline industry, adding to problems already voiced by tour operators and suggesting that 2019 could be a washout for the travel sector," said AJ Bell investment director Russ Mould.
“People have been worried about the impact of Brexit on the aviation sector and there is lots of chatter that individuals are holding off from booking flights and holidays.
“If you’re going to hand over a large sum of money for a trip abroad, you want to be reassured that the flight will actually happen and will take off as scheduled. At the moment travellers don’t seem to have that reassurance."
easyJet prepared for Brexit
Operationally, easyJet believes it is well prepared for the UK’s departure from the European Union.
“Now that the EU Parliament has passed its air connectivity legislation and together with the UK’s confirmation that it will reciprocate, means that whatever happens, we’ll be flying as usual,” said chief executive Johan Lundgren.
The group has also upped its EU ownership to 49.92%, just shy of the 50% threshold that it would need to keep operating inside the block after Brexit.
For the year, easyjet continues to expect flat headline cost per seat, excluding fuel at constant currency. The fuel and Foreign exchange guidance will be updated at the first-half results announcement on May 17.
Shares fell 7.7% to 1,030p in morning trading.
easyJet requires some blue sky thinking, says analyst
George Salmon, equity analyst at Hargreaves Lansdown, said Brexit uncertainty means easyJet requires some "blue sky thinking".
"Higher fuel costs are hitting profits and with Brexit potentially impacting travel regulations and currency markets, customers are understandably waiting for more certainty before booking trips away," he said.
"The group reckons demand will pick up later in the year, but a more pragmatic observer would say it’s difficult to put a timeframe on when Westminster and the EU 27 will solve the Brexit puzzle."