EasyJet outlook still dicey

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.