Low-cost carrier easyJet appeared to defy gravity yesterday as its shares pushed higher despite a 70% plunge in third quarter profits.
Investors seemed encouraged by the airline's ability to handle market turbulence from the conflict in Iran, with fuel prices surging and consumer demand hesitant. The package holiday division also put in a solid performance.
Pre-tax profits for the three months to the end of June came in at £85 million, down sharply from £286m a year earlier.
Fuel alone added £105m to costs in the quarter, with prices peaking at around $1,800 per metric tonne in April. While easyJet has hedged a significant proportion of its exposure, the unhedged portion left earnings vulnerable.
Read more:
Passenger numbers were broadly flat at 25.8 million, while load factor slipped by one percentage point to 88.9%. Revenue per seat also declined by 3%, reflecting weaker pricing earlier in the booking cycle.
However, the airline pointed to improving trends as the quarter progressed, with strong late bookings helping to narrow the gap. Chief executive Kenton Jarvis said pricing had been “attractive”, encouraging customers to book closer to departure as confidence stabilised.
“As consumer confidence increases, we are seeing the load factor gap close for peak summer and an extension of the booking curve as customers continue to prioritise travel and take advantage of our great fares," he added.
“As we move into the busy summer period, we are looking forward to welcoming our customers onboard and I would also like to thank our fantastic colleagues for working hard to give our customers the best possible travel experience.”
Read more:
There were also signs of operational resilience. On-time performance improved to 78% year-to-date, while customer satisfaction scores rose across both the airline and holidays divisions.
The latter delivered £84m in profits, only marginally down on last year. Excluding currency movements, package holiday profits were up 7%, with customer numbers rising 8% as the business continued to take market share.
The group, which has major bases at Glasgow and Edinburgh airports, said its “capital-light” holidays model remained a key driver of returns, with further expansion planned through new partnerships and distribution channels.
Susannah Streeter, chief investment strategist at Wealth Club, said the holiday division is proving to be "much more than a useful sidekick" to the airline.
Read more:
"As more travellers opt for package holidays, easyJet is earning a bigger slice of customers' travel budgets, helping smooth some of the bumps that have traditionally made airline earnings so unpredictable," she said. "And the company has big ambitions for this part of the business, targeting £590m in pre-tax profit by 2030."
Looking ahead, easyJet said fourth-quarter bookings are 68% sold, with yields broadly flat and load factors still slightly behind last year, although improving. The airline continues to rely on late demand, a trend that has become more pronounced since the onset of geopolitical tensions.
Despite near-term uncertainty, the company is maintaining its medium-term ambition of generating more than £1 billion in annual profits, supported by cost efficiencies, digital investment and the continued growth of its holidays arm.
However, overhanging it all is the on-going battle between US private equity groups Castlelake and Apollo Global Management for control of the business.
Read more:
The airline’s board had accepted the fifth bid from Castlelake, worth £5.5bn, but then recommended a higher bid from Apollo Global Management, worth £5.7bn, or more than £7 a share. However, a potential EU review of airline ownership has cast a question mark over the deal.
An unnamed EU official told Reuters on Wednesday that a review of airline ownership would “protect strategic autonomy” and ensure control of regional airlines remained within Europe. EU rules require 51% local ownership, and while Castlelake had named EU citizens as co-investors, Apollo has not explained how it plans to meet the requirements.
Although he refused to comment on the takeover, Mr Jarvis dismissed the relevance of the EU review because its timeline will "far exceed" the bid process. However, some analysts such as Garry White of Raymond James have warned that the takeover battle "risks becoming a distraction".
“The very existence of a bidding war highlights what easyJet’s board has long argued: that the market has been undervaluing the business and its growth prospects for quite some time," Mr White added.
Share