October 3, 2014 / 6:54 AM / 5 years ago

EasyJet spurs hopes for special dividend after lifting profit forecast

LONDON (Reuters) - British airline easyJet Plc (EZJ.L) has spurred hopes of a lucrative reward to shareholders, giving an increased forecast for upcoming full-year earnings in the latest indication of the success of its low-cost model.

An easyJet aircraft takes-off past Air France plane tails at the Charles-de-Gaulle airport, near Paris, September 16, 2014. REUTERS/Christian Hartmann

EasyJet’s cheap fares have helped it and rival Ryanair (RYA.I) weather an increasingly competitive European short-haul market, while traditional airlines have struggled to compete.

The trend has been highlighted by a recent two-week strike by pilots at Air France, part of Air France-KLM (AIRF.PA), over issues relating to a new discount airline, which helped propel some customers to rivals such as easyJet.

The company, whose shares rose 7 percent to 1,468 pence by 0856 GMT (9.56 a.m. BST), said it expected to report a pretax profit in the range of 575 million pounds to 580 million, as much as 6 percent more than guidance given in July.

The raised forecast put easyJet, Europe’s second-largest low-cost carrier behind Ryanair, on track to make its largest-ever ordinary dividend payout, after it said in September it planned to reward shareholders with 40 percent of pretax profit, above the previous one-third distribution.

“We think that easyJet will continue to take market share from the flag carriers in key markets such as Germany, France and Italy as these companies attempt to restructure their own short-haul operations,” said analyst Robin Byde at brokerage Cantor Fitzgerald, who has a “buy” rating on the stock.

Byde added he believed there was a significant chance of easyJet announcing a special dividend at the time of its full-year results on Nov. 18.

Analysts at Jefferies said a special payout could also be on the cards: “A 100 million pound special dividend is possible in November, but more likely in full-year 2015.”

Last year the company announced a 175 million pound special dividend at the time of its full-year results, having previously said annual profit would be at the top end of guidance. That was in addition to its regular full-year dividend of 33-1/2 pence per share, up 56 percent, for a total payout of 308 million pounds.

REVENUE BOOST

The higher than expected results for the 12 months through September were helped by a 5 million pound boost to revenue from the Air France strike as customers switched to easyJet’s planes.

Earnings were also helped by strong demand for short-haul European travel at the end of the summer, meaning revenue per seat on a constant-currency basis would be 1.5 percent higher than last year in its fiscal fourth quarter.

In recent years easyJet, whose orange logo is a common sight at its Luton, southern England, base, has added flights on routes where rivals have cut back and introduced more flights between top business destinations.

It said profit would also be lifted by lower than expected unit fuel costs and favourable exchange rate movements in the six months to the end of September. Unit fuel costs would be 2 million pounds lower than was expected in July, when up to a 5 million pound adverse impact was expected.

At current rates, easyJet said it expected the fuel bill for its next financial year to be about 50 million pounds lower than this year, though adverse currency moves over the same period could have a 20 million pound adverse impact.

EasyJet’s previous guidance for pretax profit was in a range of 545 million to 570 million, announced at the time of its third-quarter results in July.

Shares in the airline have backtracked from a record 1,853 pence set in April but remain well above levels just above 500p seen as recently as two years ago. Before Friday’s statement the stock was trading on 11.3 times forecast earnings, a 16 percent discount to the 13.5 times multiple of its peer group, according to Reuters data.

Editing by James Davey and David Holmes

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