EasyJet suffered a sharp fall in annual profits – its first decline in six years – and expects a further drop this year after the budget airline was hit by the weak pound and was forced to cut prices.
Currency movements cost the company £88m as the pound’s fall against the dollar increased fuel costs. The company said unexpected events such as increased competition, terrorist attacks, airport strikes and higher holiday expenses for British customers cost it £150m.
Pre-tax profit for the year to the end of September dropped 27.9% to £495m, at the top of the company’s guidance, on flat revenue of £4.7bn. The company cut its dividend by 2.5% to 53.8p.
City analysts expect profit to fall again this year to £405-410m and the company said it had no reason to encourage them to lift forecasts. Carolyn McCall, easyJet’s chief executive, said the company’s performance was “resilient” in a difficult market for all airlines.
McCall said: “I think we are still very successful and that is what is important to convey. Half a billion of profit in a time of external challenges and upheaval is an extraordinary performance for an airline. We are a very successful airline and strong airlines get stronger at times like this.”
EasyJet shares, which have fallen 40% this year, rose 3% to £10.62 in late morning trading.
McCall, who has run easyJet since mid-2010, said the pound’s decline had affected easyJet more than its rivals because the company reports in sterling. EasyJet said the weak pound would affect next year’s results, reducing annual profit by about £90m.
Like Michael O’Leary, the boss of low-cost rival Ryanair, McCall said fares would continue to fall for a fourth straight year amid economic and political concerns. But she said easyJet’s long-term prospects were good because people are flying more and inefficient established airlines cannot match budget carriers’ prices.
“The fundamentals of European short-haul aviation haven’t changed. Low-fare, low-cost models are the winners. Ryanair and easyJet – both of them will win. We are competing with the legacy carriers.”
McCall said airlines such as Air France-KLM had gained some breathing space from ultra-low oil prices, which encouraged them to fly more planes, putting pressure on air fares, but that as oil rises those carriers will find trading tough.
She said at least seven terrorist incidents during the year, including attacks on Belgium and France, had made people wary of flying, prompting fare cuts.
“The demand environment is there but it has needed a lot of stimulation, particularly in France, as you would expect … From the consumer’s perspective it’s an absolutely brilliant time to be booking leisure or business.”
McCall said she was not worried by persistently low fares because easyJet was designed for low prices and was selling more add-ons such as rental cars, hotels and in-flight extras.
EasyJet increased seat capacity by 6.5% last year and flew 73.1 million passengers, up from 68.6 million the year before. Profit per seat fell to £6.19 from £9.15. It will increase capacity by 9% this year, including in the UK, where it is the biggest airline, and in France.
McCall said she did not expect Britain’s departure from the EU to disrupt easyJet’s operations. It will apply for an air operator certificate in another EU country where some planes will be registered but the company is keeping its head office at Luton airport, where it has been based since it was founded 20 years ago.
“Our headquarters would remain in Luton and the jobs we have in Luton would remain in Luton.”
