EasyJet interim losses surge as currency, Easter, Brexit costs weigh

The budget airline reported a headline loss before tax of £212m for the six months to 31 March, worse than the consensus estimate of £176m and much higher than the £21m last year after missing out on around £45m from Easter not falling in the first half and a negative net currency impact of £82m. The headline loss per share was 43.8p.

With passenger numbers up 9% to 33.8m total revenue increased by 3.2% to £1.8bn, ahead of the consensus, though revenue per seat fell 4.9% to £48.8 due to an 8.4% increase in capacity, plus increased disruption with 3,302 flights either cancelled, delayed over three hours or diverted.

This was offset by non-seat revenue increasing 18% as inflight food and drink ranges were expanded, the overall airline markets improved and its load factor increase 0.5 percentage points to 90.2%.

However, cost per seat increased by 4.9% to £54.45 driven by a gross foreign exchange impact of £175m, partially offset by a lower effective fuel price. Ignoring currencies, the headline cost per seat would have fallen 4.1%.

For full year fuel bill, if currencies and fuel prices remain within their current range, is likely to shrink by £225-235m year on year,

Offsetting this, for the full year exchange rate movements are likely to have around a £100m adverse impact on headline PBT.

Securing its post-Brexit future, EasyJet expects to get its Air Operator Certificate (AOC) in another EU member state later this summer, which will secure the flying rights of the 30% of the network that remains wholly within and between EU states, excluding the UK.

This one-off cost, comprised mainly of aircraft registration costs, is expected to total up to £10m over three years with up to £3m incurred in the 2017 financial year. The cost in the first half of 2017 has been £1m.

Chief executive Carolyn McCall said it was a "resilient performance during the winter months", highlighting strong cost control, improving operational performance and forward bookings ahead of last year at 77% for the third quarter and 55% for the half year, "showing that demand to fly remains strong and reflects growing evidence that consumers are prioritising expenditure on flights and holidays above other non-essential items".

Looking ahead, she pointed to an improving revenue per seat trend as well as the continued reduction of competitor capacity growth.

"EasyJet is delivering on its strategy of purposeful investment in securing and building strong positions at Europe's leading airports which is driving competitive advantage with sustainable returns. As a result our expectations for the full year are in line with current consensus market expectations."

Shares in EasyJet fell 5% in early trading.

The increase in competition that easyJet has experienced on its network in recent years is, according to analysts at Canaccord, "likely to continue, and the resulting yield pressure is likely to hold back earnings".

Noting the AOC plans, analyst Laith Khalaf at Hargreaves Lansdown noted that the vote to leave the EU and the associated fall in sterling have not been good for the airline’s share price, which is currently languishing some 20% below where its stood before the referendum.

"EasyJet clearly thinks bigger is more beautiful, as it seeks to further increase capacity in an already crowded marketplace. The strategy is to bolster its position on key routes, allowing it to drive better deals with airports and suppliers. Indeed the airline has upgraded an order with Airbus to provide even bigger planes, which will allow EasyJet to fly more people into airports with limited landing slots.

"EasyJet is doing what it can to strengthen its position in tough times, in the hope than when the clouds part, it will be flying higher than its rivals."