Brexit currency woes set to deepen easyJet losses
Budget airline easyJet looks set to deepen half-year losses next week, as it grapples with currency headwinds from the Brexit-hit pound and costs linked to launching a new European base.
Analysts expect losses at the low-cost carrier to expand to around £210m, in contrast to a £24m loss over the period last year – with the lion’s share of the blow coming from sterling’s weakness.
The half-year results are also expected to include a £10m hit for an air operation certificate. The group is in the midst of setting up a new operating company in mainland Europe and applying for a new licence to secure flying rights for 30% of its routes after Brexit.
While Tuesday’s results could reveal a tough period for the firm, the airline will look to bounce back over the summer by capitalising on the trading woes of rival carriers, such as Alitalia and Air Berlin.
However, Damian Brewer, analyst at RBC Capital Markets, said the widening losses for the first half of the year will make it harder for the firm to hit full-year targets. He said:
We see first half profit-before tax deteriorating to a £210m loss, potentially.
However, the concern to us is that to make the company outlook implied £360-£370m full year profit before tax, a significant profit recovery will be required in the second half.
EasyJet said in January that the weak pound was expected to cost it around £105m over its 2016/17 financial year, up from the £90m estimated in November, with fuel expenses also falling by less than expected.
It added on top of the extra £35m fuel and pound bill in the first quarter, it also saw a financial impact in the “low millions” from the deadly truck attack in Berlin on December 19, as bookings to the city dropped in the immediate aftermath.
Travel companies have seen demand to key tourist locations and capital cities wane following a number of terror incidents across the globe, including an attack in London which killed five people and left dozens of others injured on March 22.
Robin Byde, transport analyst at Cantor Fitzgerald, added:
EasyJet offered a cautious outlook for the year in its …. first quarter statement.
We now think that the risks to earnings from capacity growth by rival carriers and weak sterling are fully priced-in.
Demand for leisure travel is holding up well and disruption to operations from air traffic control strikes is muted.
EasyJet revealed its first fall in annual profits for six years in November after being buffeted by the plunging pound, terrorism fears and air strikes. The group posted a 27.9% tumble in pre-tax profits to £495m for the year to September 30, after the sharply weaker pound cost it £88 million and it suffered a blow of around £150 million from “unprecedented” events.
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