Easyjet's sweet schadenfreude as Ryanair stumbles, others collapse

Easyjet reported 14.4% higher sales and 1.6% lower costs for the first quarter of its financial year as it benefited from the bankruptcies of Monarch, Air Berlin and Alitalia and from Ryanair's flight cancellations.

The £1.14bn of sales in the quarter ended 31 December came from an 8% increase in passengers to 18.8m as capacity grew 5.5% to 20.4m seats and load factor by 2.1 percentage points to 92.1%.

New chief executive Johan Lundgren, who took the controls in December, said the quarter had seen strong growth in inflight and ancillary sales as easyJet increased the products on offer more and upped the quality of options available to passengers, plus pricing initiatives introduced by his predecessor for bags and allocated seating. Ancillary revenue rose 20% to £226.3m.

"We continue to focus on cost, generating approximately £28m in lean savings in the quarter, and we completed our acquisition of part of Air Berlin's operations at Berlin Tegel."

The acquisition of assets from the collapsed German carrier completed on 15 December, with first flights on 5 January on a reduced winter schedule with a fleet of mainly 'wet lease' aircraft. The summer 2018 schedule is due to be released shortly, with more frequencies and destinations offered, leading to a headline loss from the full year of around £60 million, in line with previous guidance.

"My aim is to help easyJet to go from strength to strength," said Lundgren. "Our customer proposition will continue to drive both passenger growth and loyalty. We have great revenue growth, strong cost control, a robust operation and a strong balance sheet."

Headline cost per seat at constant currency excluding fuel increased by 1% in the first quarter, in line with expectations. The company expects revenue per seat at constant currency in the first half of the year to rise by the mid to high single digits, better than previous guidance of a low to mid-single digits increase.

Forward bookings were, with roughly 60% of second-quarter expected bookings secured, slightly ahead of last year. On a full year basis, the fuel bill is expected to decrease by around £80-100m, less than previously guided reflecting the recent rise in the price of oil.

Peering forward, Lundgren pointed to a series of milestones that should be surpassed in 2018, including flying 90m passengers, the expansion of the 'Worldwide by easyJet' longhaul-connection programme to around half of easyJet's network, plus the swelling of the fleet to over 300 aircraft by the spring, inlcuding a delivery of a first Airbus A321neo.

Easyjet shares rose 5% in early trading on Tuesday to just over 1,640p, helped as RBC Capital Markets upgraded its rating to 'outperform' as analysts felt the market had not priced in the potential for improved returns.

RBC, which hiked its target prices to 1,700p from 1,450p, forecast profits are set to benefit from high market fuel-cost-led fare pricing and a shift in London airport's share of passengers.

"2018-2019 sees a growing chance major London rail infrastructure changes (Crossrail/Thameslink) will come to fruition (that we find investors have not yet considered). The now increasingly probable delivery on new Crossrail and Thameslink service expansion looks set to open up new catchment markets to easyJet at Gatwick and Luton – to the likely detriment of Heathrow’s legacy operators."

Broker Hargreaves Lansdown said the combination of stable prices and lower costs should bode well for easyJet's profits.

"Conditions finally look to be easing in the short haul market. Demand remains high, but with capacity growth slowing, and in some cases reversing following bankruptcies and Ryanair’s cancellations, pricing isn’t under the pressure it once was. Meanwhile non-fuel operating costs are falling, in part because easyJet is keeping empty seats to a minimum."

The cloud on the horizon is the effect of rising oil prices on fuel costs, HL said, though that will be an industry-wide headwind, while Ryanair is going to bounce back from its autumnal turbulence.

"With low fuel prices keeping many smaller players in the game longer than expected, an upturn could drive capacity out of the industry while larger players, such as easyJet, benefit from the advantages of scale."