May 17, 2019 / 6:25 AM / 5 months ago

Britain's easyJet reassures despite tough environment

LONDON (Reuters) - British budget airline easyJet said it would meet expectations in 2019 despite a worse trading environment than last year as worries over Brexit and economic weakness in Europe hurt consumer demand.

FILE PHOTO: The easyJet Airbus A320-251N takes off from Nice international airport for its inaugural flight between Nice and Tenerife, in Nice, France, September 19, 2018. REUTERS/Eric Gaillard

EasyJet had already said last month that its outlook for the second half of the year was more cautious because European travellers were holding off booking their summer holidays for fear of how the Brexit process will pan out.

EasyJet shares, which had fallen 13% since the April trading update to their lowest in over two years, were up 3.2% by 0844 GMT.

Moving into the summer, easyJet said that forward bookings for the third quarter were 3 percentage points behind last year at 72%.

“It’s not so much that there isn’t any demand out there, but it’s definitely a tougher trading environment, which has an effect on the pricing,” Chief Executive Johan Lundgren told BBC radio.

The update from easyJet followed commentary from Thomas Cook, which issued another profit warning on Thursday due to heavy discounting in the face of weak consumer sentiment, impacted in part by Brexit.

Lundgren echoed the Thomas Cook chief executive by noting that even a delay in Brexit from March 29 until October 31 had not provided enough certainty to boost bookings.

“There wasn’t a big surge or a massive uptick in bookings when the Brexit date was extended,” Lundgren told reporters. “On top of that, you then have uncertainties around macroeconomic factors across the market.”

The diminished consumer appetite means that revenue per seat is expected to be down in the second half, easyJet said, though it also expected costs per seat to fall too, helped by prior investment to mitigate the impact of flight disruption.

EasyJet said its performance in the six months to March 31 was in line with expectations, with a 13.3% increase in passenger numbers.

Its headline loss before tax was 275 million pounds in what was easyJet’s off-peak season, also impacted by the late timing of Easter.

The airline said its profit expectations for 2019 were unchanged but its capacity growth in 2020 would be at the lower end of its historic growth rates.

“(The) guidance provides relief... (and) we think capacity growth moderation should be taken well, reducing FY20 risk,” analysts at Credit Suisse said in a note, reiterating an “outperform” rating on the stock but cutting its target price from 1,241p to 1,206p.

“However, we do not expect much FCF (free cash flow) generation in FY19E or FY20E without an uplift in demand.”

Reporting by Alistair Smout; Editing by James Davey, Keith Weir and Jan Harvey

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