EasyJet passenger numbers rise but they're paying less

The FTSE 100 company lifted passenger numbers 10.8% to 22.3m in the quarter thanks to a 9.5% increase in capacity to 24m seats during the period, with load factor also up by 1.1 percentage points to 93.1%.

“EasyJet has delivered a strong performance in the quarter right across the business,” said chief executive Carolyn McCall.

“Our purposeful and disciplined growth continues to strengthen our market positions and we are seeing an underlying improving revenue trend.”

At the same time, the airline confirmed the award of its European Air Operator Certificate in Austria, which it had applied for in a bid to secure its right to fly to and across the EU post-Brexit.

"Our European AOC has now been awarded and the first flight by an easyJet Europe aircraft takes place today,” McCall said. “That means our flying rights in Europe will be secure after the UK leaves the EU.”

Total revenue per seat increased by 2.2% at constant currency, which was ahead of guidance, while it increased by 5.9% on a reported basis to £57.78 per seat.

But in its outlook, the carrier said with roughly 67% of expected bookings for the fourth quarter secured it expected revenue per seat for the second half to decline by around 2% at constant currency rates, which "reflects in particular continuing high market growth, including by easyJet, in key summer holiday markets such as Spain and Portugal".

EasyJet said total revenue in the quarter increased 16.0% to £1.39bn, with the board reporting a “significant benefit” from the move of Easter to April, higher load factors, as well as an improving underlying trend in the trading environment.

Ongoing enhancements to the airline’s customer proposition and other revenue initiatives reportedly helped to stimulate bookings and build revenue momentum throughout the period.

EasyJet said it delivered strong cost control as headline cost per seat including fuel improved by 5.5% at constant currency, due to low fuel prices and what the board called a “strong” underlying cost focus.

As anticipated, easyJet's headline cost per seat excluding fuel at constant currency was up 1.6% in the quarter, which reflected planned investment in the resilience of the operation and the additional load.

Operational performance for the quarter improved as the airline said its “investment in resilience” delivered improved on-time performance figures across the network.

“Our continuing product and digital innovation is generating revenue growth,” McCall added.

“Our underlying cost control is strong, while our investment in resilience is delivering results in our operational performance.”

The company also pointed out its continued strong balance sheet, with net cash of £426m as at 30 June and a reaffirmed ‘BBB+’ investment grade rating by Standard & Poor's.

Headline profit before tax guidance for the 2017 full year was expected to fall in the range of £380m to £420m, the board confirmed, which was up from previous guidance of around £370m but compares with a PBT of £495m in 2015/16.

“Although we expect capacity to continue to put pressure on yields, our progress this year has enabled us to upgrade this year's profit before tax forecast and demonstrates that after a difficult 18 months of external challenges easyJet once again has positive momentum,” said McCall.

The shares fell 5% to 1,342p by midday on Thursday.

Analyst Nicholas Hyett at Hargreaves Lansdown said while an ever larger number of passengers are flying easyJet, "the problem is that easyJet is struggling to get its new passengers to pay the same as the old ones did".

"Despite an improvement in Q3, the group still expects revenue per seat to decline by 2% across the second half as a whole and that suggests that the key summer period has been seeing some significant discounting.

"The group has blamed the lower prices on increased competition in key summer holiday markets, such as Spain and Portugal, and unfortunately that’s a trend that looks set to continue."

Hyett said profitability was being supported by the steady slide in fuel prices but there was no guarantee fuel will stay cheap and the group was "struggling to land more sustainable cost savings elsewhere".

Broker Canaccord said there were some signs that industry capacity growth may be decelerating, "which should reduce the pressure on passenger yields. Nevertheless, we believe that the increased levels of competition across easyJet’s network in recent years will continue to weigh on easyJet’s revenues per passenger and dampen any recovery."