January 20, 2011 / 7:28 AM / 9 years ago

EasyJet sees first-half losses doubling as fuel costs bite

LONDON (Reuters) - Low-cost airline easyJet said first-half losses might double due to higher fuel prices and tough economic conditions, after it took a 31 million pound hit from the big freeze and strikes late last year.

A bus carrying passengers passes an Easyjet aircraft at Cointrin airport in Geneva April 20, 2010. REUTERS/Denis Balibouse

“The economic outlook in Europe remains uncertain and the higher market price of fuel will inevitably put pressure on margins in the short-term,” Chief Executive Carolyn McCall said on Thursday.

The budget carrier said the rising cost of jet fuel could increase first-half pretax losses to around 160 million pounds, almost double the 78.7 million pound loss it posted in the same period last year.

Shares in easyJet were 12.6 percent down at a four-month low of 397.8 pence by 10:25 a.m., valuing the business at around 1.7 billion pounds.

“Guidance for the second quarter of 2011 is somewhat cautious, indicating total revenue per seat down a couple of percentage points,” said RBS analyst Andrew Lobbenberg.

“The significant recent run-up in fuel prices means that the company now anticipates fuel costs being 1.17 pounds a seat higher in the first-half of 2011 than in the first half of 2010.”

The airline, based in Luton, southern England, which is hedged on 78 percent of its fuel needs for the first-half, said the current market price of jet fuel — $897 a metric tonne — was around a third more than at this time last year.

“As with all airlines, the higher market price of fuel will put pressure on margins in the short term,” said Davy Stockbrokers analyst Joshua Goldman.

The low-cost carrier, which earlier this month confirmed an order for 15 Airbus A320 aircraft, said second-half sales looked “robust” and that its full-year forecasts were “broadly unchanged,” assuming no more disruption and excluding the additional fuel costs.

EasyJet said revenue in its first quarter — the final three months of 2010 — rose 7.5 percent to 654 million pounds as passenger numbers rose 8.8 percent to 11.9 million on the first-quarter last year.

But ancillary revenues — such as the cost of checking in bags — fell 2.7 percent year-on-year and the company flagged Continental European revenue performance being softer than in Britain.

BIG FREEZE HIT

EasyJet, which was affected by air traffic controllers (ATC) strikes in France during the quarter, was also hit as runways around Europe closed for several days in the run up to Christmas when northern Europe’s big freeze hit the travel plans of thousands.

“In the quarter, disruption from ATC strike action and severe weather cost 6 million pounds and 18 million pounds respectively and in addition led to lost contribution of 7 million pounds,” said McCall.

EasyJet took a smaller hit from the weather than rival carriers because it is based mainly at London’s Gatwick and Luton airports which were less seriously affected than Heathrow, where one of its two runways closed for several days.

British Airways has said it would take a 50 million pound hit from the disruption.

The airline had 98 million pounds of costs in 2010 related to various disruptions, including the volcanic ash cloud which swept across Europe.

Editing by Matt Scuffham and Jane Merriman

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