EasyJet British airline expects bigger earnings hit from weak pound

EasyJet's share price slumped in reaction to Tuesday's update, sliding 8.36 percent to £9.86 on London's FTSE.

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British low-cost carrier EasyJet books solid first quarter but says earnings will be hit by Brexit play

British low-cost carrier EasyJet books solid first quarter but says earnings will be hit by Brexit

(AFP)
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EasyJet expects full-year profits to suffer a bigger-than-expected hit with the pound down sharply since the Britain voted to exit the European Union, the no-frills airline said Tuesday.

"The weakness of sterling is expected to impact EasyJet's year-on-year profit before tax for financial year 2017 by around £105 million ($131 million, 122 million euros)," the company said in a statement, up from an estimate of about £90 million in November.

Since Britain voted in June for Brexit, the pound's value has slumped by around 18 percent against the dollar and some 14 percent versus the euro.

EasyJet's share price slumped in reaction to Tuesday's update, sliding 8.36 percent to £9.86 on London's FTSE. The benchmark index was flat overall.

"After a bruising 2016, EasyJet investors have understandably latched on to the continuing drag on profitability from Brexit-hit sterling," said City Index market analyst Ken Odeluga.

"The impact is forecast to amount to £75 million in the first half and £105 million for the whole financial year. These hits are higher than the approximately £70 million and £90 million figures the airline foresaw when reporting full-year results in November."

EasyJet chief executive Carolyn McCall added that a hit from the current fuel price environment would also be larger than expected on group earnings for the year to September 30.

Fiercer competition

Although lower oil prices reduce airlines' jet fuel costs, it leads also to increased competition among airlines as the savings trigger cheaper ticket fares.

"The dogfight in European shorthaul continues, and sheer weight of numbers is taking its toll on EasyJet," said Nicholas Hyett, equity analyst at Hargreaves Lansdown stockbrokers.

"Prices per seat are falling as competitors add capacity, made possible by lower fuel prices. EasyJet is keeping pace and that is helping topline revenue move upwards, with capacity and passenger numbers continuing to surge," he added.

Tuesday's update came in a first-quarter trading statement in which EasyJet announced rises to revenue thanks to higher passenger numbers.

"EasyJet has delivered a solid first quarter with revenue, cost and passenger numbers in line with expectations," said McCall.

EasyJet earlier this month said it had transported a record 74.5 million passengers last year thanks to low oil prices and full planes, but nevertheless found itself slipping further behind no-frills leader Ryanair.

And EasyJet's heavy exposure to the uncertain British economy and weak pound have seen investors shun for a while the airline's shares, which slumped 42 percent last year, a drop much worse than its rivals.

EasyJet has been hit also by industrial action and unrest in key markets Egypt and Turkey.

Meanwhile following Britain's vote to quit the EU, EasyJet is looking into obtaining EU operating certification to ensure a smooth transition once the country does leave the bloc.

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