easyjet
LONDON- 6 October 2017: British budget airline easyJet (EZJ.L) said annual profit would come in towards the upper end of expectations, benefiting from the struggles of rivals, but it underlined the pressure on prices that the industry faces.
It has been a tough few months for airlines, with rival Ryanair (RYA.I) coming under fire after rostering mess-up led to the cancellation of over 700,000 flights, and Britain’s Monarch collapsing this week, leaving thousands stranded.
EasyJet said on Friday it achieved record sales in the fourth quarter to the end of September, but added that pressure on fares would continue.
However, the insolvencies of Air Berlin (AB1.DE) and Alitalia have also led to a scramble for assets and raised the prospect of a reduction in capacity in European airlines that should help to ease that pressure.
“With Monarch’s failure, Air Berlin’s break up, Alitalia’s administration and Ryanair capacity cuts, we expect this confluence of positives must help easyJet pricing,” analysts at Credit Suisse said in a note.
EasyJet forecast headline profit before tax of 405 million to 410 million pounds ($530-536 million) for the year ended Sept. 30. It gave a range of 380-420 million pounds in July.
“The current turmoil in the sector provides easyJet with opportunities to capitalise on its strong customer proposition and grow and strengthen our positions in Europe’s leading airports still further,” said Carolyn McCall, easyJet’s outgoing chief executive.
PILOT LETTER
The update from easyJet came after Ryanair took new steps to appease crews by offering its pilots significant improvements in pay and conditions, according to a letter seen by Reuters.
Ryanair has grown to become Europe’s largest airline by passenger numbers thanks to a ruthless focus on costs that allows it to keep ticket prices low and fill its planes.
It expects to fly 129 million passengers this year, versus 80 million for easyJet’s last financial year.
However, the recent fiasco over the rostering of pilots has raised concerns that Ryanair’s costs may start to rise and its shares dipped 2 percent on Friday.
Chief Executive Michael O‘Leary sent a three-page letter to its pilots promising “significant improvements to your rosters, your pay, your basing, your contracts and your career progression over the next 12 months.”
Analysts say Ryanair’s pay is competitive at most of its bases, but pilots unions say conditions and job security have lagged rivals.
Ryanair last month said captains earned up to 180,000 euros ($210,000), while first officers earned up to 120,000 euros.
By comparison, easyJet first officers earn up to 58,000 pounds ($76,000) and captains up to 146,000 pounds.
PRICING PRESSURES
Despite the shake-up in Europe, easyJet highlighted continued pressure on fares and concerns over pricing its cashflow sent shares 3.5 percent lower to 1,238 pence after a strong rally last month.
Data from travel company Skyscanner showed that traffic and prices had both spiked since Ryanair and Monarch’s recent struggles, as customers seek to rebook trips at short notice.
EasyJet said though there would be “continued pressure on yields reflecting ongoing market capacity growth”, currently forecast at around 5 percent in the first quarter.
Credit Suisse cut its target price on the stock to 1,527p from 1583p, saying the new profit guidance was below their estimates even though it was above consensus.
Some analysts remained concerned by easyJet’s financial position, as well as uncertainty over the aviation market.
“We remain cautious on the trading environment, despite recent airline failures being likely to remove some capacity from the market,” analysts at Liberum said.
“easyJet’s negative free-cash flow and rising leverage are not adequately reflected in the current valuation.”
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