Brexit effect to cost easyJet an extra £35m this year

Low-cost carrier easyJet posted a trading update for the three months to 30 September on Thursday, with passenger numbers reaching a record 22.0 million with a strong load factor of 93.9% - though the effect of Brexit on sterling is expected to cost it an added £35m for the year.

The FTSE 100 firm said passengers benefitted from low fares during the period, with revenue per seat at constant currency decreasing by 8.7% year-on-year.

“easyJet has performed strongly in a difficult operating environment for all European airlines and in the three month period has been affected by major disruption, exchange rate fluctuations impacting holiday travel costs, the impact on demand from terrorist events and the low cost of fuel continuing to drive increased market capacity,” the airline’s board said in a statement.

The company said it has grown capacity by 6.1% in the quarter compared to prior year, through delivering its strategy of “enhanced long-term competitive advantage” through building leading positions at key airports in its core summer beach routes and its European city network.

Cost per seat excluding fuel at constant currency is expected to decrease by 1.1% for the full year, the board explained, slightly better than previous guidance.

Cost per seat at constant currency including fuel is expected to decrease by 4.6%, with easyJet remaining “very focused” on cost through continuing structural improvements, such as in maintenance and overhead costs.

Significant exchange rate movements since the EU referendum result have had a net adverse impact on the company, however.

Foreign exchange rate movements are now expected to have around a £90m adverse impact compared to the financial year to 30 September 2015, an increase of £35m since 23 June.

EasyJet's unit fuel bill for the second half of the financial year is expected to decrease by between £75m and £80m compared to the six months to 30 September 2015, however.

Looking ahead, easyJet's full year profit before tax is expected to be the range of £490m to £495m for the year to 30 September.

The effective tax rate for financial year 2016 will be low double digits, the board claimed, primarily due to the non-cash benefit arising from the recognition of deferred tax liabilities at the recently enacted 17% tax rate, which will have a beneficial impact on earnings per share.

“easyJet remains committed to declaring a full year dividend based on a payout ratio of 50% of post-tax income,” it added.

As previously guided, capacity is expected to grow by around 8% for the financial year ending 30 September 2017, with around 45% of seats now sold for the first quarter, in line with last year.

Revenue per seat in the first quarter continued to be down year on year and is currently expected to be broadly in line with the reduction seen in the fourth quarter of 2016.

Cost per seat excluding fuel and at constant currency is expected to increase by around 1% for the year to 30 September 2017, reflecting increased investment in operational resilience as well as the timing of longer term cost savings, the board said.

That excludes the impact of a number of aircraft sale and leaseback transactions, plus the one-off costs associated with the setup of a European AOC and changes to the organisational structure, as well as the outcome of ongoing union negotiations.

“easyJet remains committed to its target of flat unit cost per seat in Financial Year 2019 against Financial Year 2015, excluding fuel and at constant currency with normal levels of disruption.

“The foreign exchange headwind will continue into 2017 mainly driven by weaker sterling against the US dollar affecting the cost of fuel.”

The total expected foreign exchange impact for the year to 30 September 2017 is around £90m, the board claimed.

Carolyn McCall, easyJet Chief Executive, said: "easyJet continues to attract record numbers of passengers due to its wide range of destinations, convenient flight times and value for money fares. We have been disproportionately affected by extraordinary events this year but our excellent network, cost control and revenue initiatives and our strong balance sheet underpin our confidence in the business.

“The current environment is tough for all airlines, but history shows that at times like this the strongest airlines become stronger.

“That is why we will continue to invest for the long term success of the business, establishing even stronger market positions, delivering excellent customer service and establishing new revenue opportunities for the future.”