January 24, 2017 / 7:19 AM / 9 months ago

EasyJet hit by weaker pound as low-fare battle rages

LONDON (Reuters) - British low-cost airline easyJet (EZJ.L) said the weaker pound would hit profit more than expected this year, sending its shares lower on Tuesday as it battles to cope with the price war raging in Europe’s short-haul travel market.

FILE PHOTO - An EasyJet passenger aircraft prepares for take off from Gatwick Airport in southern England, Britain, October 9, 2016. REUTERS/Toby Melville/File Photo

EasyJet, Europe’s No.2 no-frills carrier behind Ryanair (RYA.I), and rival airlines, have driven down fares by adding more seats to try to grow market share during what has been a period of low oil prices.

The company said ticket prices were 8.2 percent lower in the three months ended Dec. 31.

At the same time, easyJet has faced a steep decline in the pound since Britain voted to leave the European Union in June.

That weakening, plus rising fuel costs, prompted the airline on Tuesday to say pretax profit for the year to Sept. 30, 2017, would take a 105 million pound ($131 million) hit, up from the 90 million pound blow flagged in November.

At 1040 GMT, easyJet shares were down 7.6 percent at 994.8 pence, erasing gains made over the last month.

“The (first-quarter) results were in line with expectations other than the guidance on currency and fuel which will probably drive about a ten percent downgrade to consensus (profit forecasts),” Numis analyst Wynn Ellis said.

Before Tuesday’s announcement, analysts had been forecasting pretax profit would fall by 16 percent to 414 million pounds for the 12 months to Sept. 30.

STERLING EXPOSURE

While other carriers have also been affected by sterling weakness - Ryanair cut its profit forecast in October - easyJet is more exposed to the pound than others.

“It’s worth bearing in mind that no other major airline reports in sterling or earns a similar proportion of its revenue in sterling,” easyJet CEO Carolyn McCall told reporters.

The pound has fallen 17 percent against the U.S. dollar since the Brexit vote, a headwind for easyJet as it buys fuel in dollars but earns about half its revenues from UK-based sales.

Fuel prices have also started to rise - they are up to about $53 a barrel from around $30 this time last year, impacting the minority part of easyJet’s fuel bill which is not hedged.

A weaker pound also makes travel to Europe more expensive for those departing from Britain, but easyJet said demand from UK leisure passengers was strong, with Britons factoring in the new exchange rate into their holidays.

“There’s no evidence at the moment that Britons are staying at home and having holidays only at home,” McCall said.

EasyJet is trying to counter declining ticket prices by cutting costs, but competition is such that it expects ticket prices to decline by a high single-digit percentage in the first half of the year, at the top end of guidance given in November.

($1 = 0.8013 pounds)

Reporting by Sarah Young; Editing by Costas Pitas and Mark Potter

Our Standards:The Thomson Reuters Trust Principles.
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