Easyjet hails 'robust' performance despite external challenges

Airline Easyjet reported a half-yearly loss of £24m, compared with profits of £7m for the same time last year.

Sales edged up by 0.3% to £1.77bn and passenger numbers grew from 28.9 million to 31 million.

Attacks in Egypt, Paris and Brussels affected bookings but profits were more strongly affected by a fall in the value of the pound.

The company said it was "confident" that passenger numbers, sales and profits will grow this year.

'Soften'

Chief executive Carolyn McCall told the BBC that Easyjet had had a very strong first half of the year despite "very challenging events".

She said the reason for the loss was because the pound had lost value against the euro since last year: "Technically the reason for the loss is foreign exchange - the softening of the pound against the euro," she added.

The company said the change in values meant Easyjet lost around £30m compared with a year ago.

Ms McCall said: "So if you actually take it at constant currency [assuming the euro and the pound stayed at the same value as they were the year before] we will have made a profit of £5m which is nearly the same as last year."

Cost control

Winter is often a slow period for airlines and many make a loss for the period.

However, events in Sharm el-Sheikh, Paris and Brussels did have an effect on demand, said Ms McCall, adding: "There's no question that you have to stimulate demand at the right time to get passengers back in flying and that does happen.

"It does take weeks but actually after a few weeks people want to get back to normality and they start flying again."

Now, she said, "the volumes have come back but it's the pricing that remains under pressure."

"So actually for consumers this is a fantastic time to fly, because everybody's pricing has come down because we're stimulating demand as a result of people perhaps actually just taking longer to book and thinking do I need to do that, particularly city to city." 

Revenue per seat fell by 4.2% year-on-year on a constant currency basis in the first half of the year.

Lower fuel costs

On Monday shares in Easyjet rose by 3.8% after broker RBC raised its outlook to "outperform" from "underperform", saying that the business was tackling its cost inflation problems.

"What we have surprised the City about is our cost controls," said Ms McCall.

"We have very actively managed our cost base as you would expect in light of a much more unpredictable revenue environment because of external events and actually I think that has gone very well, so far because our cost per seat is down year on year and we've said it will be flat and down for the year."

A key reason for lower costs is the fall in fuel prices. The cost per seat excluding fuel actually rose by 0.5% but decreased by 4.3% including fuel, on a constant currency basis.

Confidence

"Easyjet has a clear strategy of building out its cost-advantaged network across Europe," said Steve Clayton, head of equity research at the investment management firm Hargreaves Lansdown.

"Rivals will struggle to match it, because it has built scale and now enjoys the virtuous circle of strong returns on capital, fuelling the ability to grow, building further scale, and enhancing returns.

"However the industry is increasing capacity and this is squeezing revenues per seat, especially as falling fuel prices are beginning to be passed through. 

"So far, Easyjet is coping fine, with rising passenger numbers offsetting lower unit revenues. Hopefully, there will be no further disruptions to traffic in the remainder of the year, though this is an ongoing risk."

Easyjet also announced it will boost shareholder dividends from 40% of annual earnings to 50% from this financial year. Hargreaves Lansdown said that was because Easyjet was "holding over a billion pounds of cash on its balance sheet and confident of future success".

Shares in Easyjet have risen by 2.65% since the results were published.