EasyJet outlook still dicey

No let-up in pressure on prices, profits and revenues

Topping out

EasyJet’s curtain raiser for results due in November shows no let-up in pressures that have crushed profits and capped revenues. Reminders of these tipped shares of Europe’s second-largest carrier lower on Friday, taking the shine off a rise of well over 10% since early September. The stock has recently swung higher as the field reportedly narrows in bidding for assets of insolvent Berlin, with a further updraft this week from the collapse of Britain’s fifth largest carrier, Monarch. Whilst the news drove home the reality of how damaging Europe’s airline price war can be, shares in the bigger Luton-based airline rose on implied capacity reduction.  Predictably though, easyJet saw another hike in its own capacity in the final quarter, up 8%, contributing to a continuing fall in revenue per seat at constant currencies. In fact, revenue accelerated lower into easyJet’s year end with 3.7% erosion, compared to 1.4% in H2.

Long haul

To be sure, easyJet can to point to further progress in smoothing down disadvantageous parts of its cost structure by means of larger and more efficient aircraft. Headline cost per seat at flat FX rates is forecast to fall 4.4% for the year. But easyJet’s overall currency impact is now expected to be negative by £100m (up from the £82m hit estimated in May) even as its fuel bill is forecast to fall by £230m-£235m. Under these circumstances, news that the group is continuing to pull out of a dive into negative cash flow has won little shareholder applaud. As easyJet rounds off a second year of falling profits, investors wonder whether the next one will see it land on a sustainable floor for revenues. So far, even with a further forecast uplift from fuel costs and as currency effects are expected to turn positive, the outlook is still dicey.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.